Transcript Slide 1

Economic Perspectives on Climate Change
William D. Nordhaus
Yale University
Public Lecture
Becker-Friedman Institute
April 2014
1
The challenge of climate change
• A new and controversial area: global, costly, large
impacts
• Affects virtually every area of society and the economy
• I will emphasize an economic innovation: using the
market mechanism to achieve environmental goals and
particularly the role of carbon prices.
2
Emissions and climate science
3
Global CO2 emissions since 1900
4
Trend in CO2 emissions relative to GDP for US
5
CO2 Concentrations (ppm)
420
400
CO2: South Pole
CO2: Hawaii
380
360
340
320
300
1960
1970
1980
1990
2000
2010
6
CO2 concentrations for last 800,000 years
TODAY
7
Temperature record (°C), 200 - 1980
Long-term temperature records
.6
Mann's proxy (based on tree rings, bore holes, etc.)
.4
.2
.0
-.2
-.4
-.6
0700
Sources: [25]
0900
1100
1300
1500
1700
1900
2100
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Merged temperature record (°C), 200 - 2012
Long-term temperature records
.6
Mann's proxy (based on tree rings, bore holes, etc.)
Instrumental record (average of 3)
.4
.2
.0
-.2
-.4
-.6
0700
0900
1100
1300
1500
1700
1900
2100
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The recent temperature record and modeling
Actual and model prediction
[degrees C from period average]
1.0
0.8
0.6
GISS record
Hadley record
NCDC record
Model prediction
0.4
0.2
0.0
-0.2
-0.4
-0.6
1900
1925
1950
1975
2000
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The Impacts of Climate Change
The Copenhagen Accord 2009 recognized “the scientific
view that the increase in global temperature should be
below 2 degrees Celsius.”
This is the most difficult area of climate science. Examples:
–
Agriculture
–
Potential species extinctions
–
“Tipping points” and abrupt climate change
11
Studies of impact of climate change:
The example of low-latitude rice
With
adaptation
Without
adaptation
12
12
The example of temperate-zone wheat
With
adaptation
Without
adaptation
13
13
Major impacts: non market (here extinction rates)
60
Historical extinction rate (%/century)
Extinction (% per period)
50
Projected extinction rate (%/century +)
40
30
20
10
0
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Issues of Tipping Points and Catastrophic Risks
• Major areas of concern:
– Reversal of North Atlantic deepwater circulation
– Impact of melting of Arctic summer icecap
– Melting of Greenland and West Antarctic ice sheets
– Abrupt climate change
– Ocean carbonization
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Example of Greenland Ice Sheet at 6 °C warming
IPCC, Science, AR4, p. 830.
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Aggregate damage estimates
from different studies
17
Damages as pe
of outp
as percent
Damages
of output
as percent
Damages
DICE model
1 34damage estimates from different studies
Aggregate
IPCC estimate
6
Damages as percent of output
5
4
0 23
-1 12
Tol survey
-2 01
DICE model
2
-3 -10
0.0
-1
-2
1
-2
-3
3
IPCC estimate
Global mean temperature increase (°C)
0.0
0.5
1.0
4.0
4.5
5.0
0.5
IPCC 2014
increase (°C)
Global mean temperature
3.0
2.5
2.0
1.5
1.0
Estimate 3.5 4.0
4.5
5.0
-3
0
IPCC
5.0
4.5
4.0 estimate
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-1
1.5
2.0
2.5
3.5
3.0
Global mean temperature increase (°C)
-2
-3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Global mean temperature increase (°C)
Source: Nordhaus, IPCC Impacts 2014, Tol 2011.
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The Contribution of Economics:
Integrated Assessment Models (IAMs)
What are IA models?
These are models that include the full range of cause
and effect in climate change (“end to end” modeling).
Major goals of IA models:
Project trends in consistent manner
Assess costs and benefits of climate policies
Estimate the carbon price and efficient emissions reductions
for different goals
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Typical
integrated
assessment
models
CO2
emissions
Carbon cycle and climate
Policies
(limits, taxes,
subsidies, …)
Impacts on humans
and natural systems
20
An example: the Yale DICE model
We can use the models to examine the effects of different
policies:
1. No policies
2. “Optimal” policies
3. Limit temperatures to 2 degrees C
21
Emissions under policy and no policy
CO2 emission (GtCO2)
120
Industrial CO2 Emissions
100
No controls
Optimal
80
T < 2 degC
60
40
20
0
2010
2020
2030
2040
2050
2060
2070
2080
2090
22
Climate change under different scenarios
Global temperature (degc, 1900 = 0)
7
Temperature
Base
6
Optimal
5
Lim2t
4
3
2
1
0
2010
2035
2060
2085
2110
2135
2160
2185
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Carbon prices under policy and no policy
CO2 price (2005 $ per ton CO2)
140
Carbon Price
120
100
80
60
No controls
40
Optimal
20
Limit < 2 degC
Today
0
2010
2020
2030
2040
2050
2060
2070
2080
2090
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Policies to date
Began with Framework Convention on Climate Change
(1992), a voluntary agreement to “prevent dangerous”
climate change.
Kyoto Protocol (1997 - 2012) was conceptually a “cap and
trade” approach
After expiration of Kyoto Protocol in 2012, no binding
international regime in place.
25
Kyoto Protocol suffered from extreme attrition …
70
Covered emissions as % of world
Kyoto participants
60
European Union
50
40
30
20
10
0
1990
1995
2000
2005
2010
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Economist’s Preferred Approach:
Carbon tax
• Tax goods proportional to their CO2 content.
• Tax should be harmonized across all industries and
countries.
• Can reduce other taxes or use revenues for public goods
CO2 price (2005 $ per ton CO2)
140
Carbon Price
120
100
80
60
No controls
40
Optimal
20
Limit < 2 degC
0
2010
2020
2030
2040
2050
2060
2070
2080
2090
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Three inconvenient truths
1. An inconvenient scientific truth: Global warming is not a
hoax. It will (almost surely) become an increasingly
important and obvious feature of earth systems.
2. An inconvenient economic truth: To be efficient, firms and
consumers must face a market price of carbon emissions
that reflects the social costs.
3. An inconvenient political truth: To be effective, the price
must be universal and harmonized in virtually every
sector and country.
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