Transcript Climate Change Economics and Policy: Rigor to Mortis

Climate Change
Science, Economics, and Policy
Climate Economics
I.
II.
III.
IV.
V.
Climate Change Research
Climate Change Economics
Expert Opinion
Climate Surprises & Adaptation
The IPCC and Policy Evolution
I. Climate Change Research

Good science in economic models
“From Ecology to Economics: The Case Against
CO2 Fertilization,” Ecological Economics, 1993.
“Carbon Dioxide Effects on Plants: Uncertainties
and Implications for Modeling Crop Response
to Climate Change,” Agricultural Dimensions of
Global Climate Change, St. Lucie Press, 1993.
(w/ D. Wolfe)
I. Climate Change Research

Climate change policy and
international realism
“The Inefficiency and Unfairness of Tradable CO2
Permits,” World Resource Review, 1993.

The role of energy technology
“Photovoltaic Technology: Markets, Economics,
and Development,” World Development, 1995.
(w/ D. Chapman)
I. Climate Change Research

Technology evolution: R&D vs.
Export markets
“Residential Rural Solar Electricity in Developing
Countries,” Contemporary Economic Policy,
1995. (w/ D. Chapman)
“Solar Power and Climate Change Policy in
Developing Countries,” Energy Policy, 1996.
(w/ T. Drennen, D. Chapman)
“Technological Learning and Renewable Energy
Costs: Implications for U.S. Energy Policy,”
Energy Policy, 2006. (w/ P. Kobos, T. Drennen)
I. Climate Change Research

The China factor
“Who Will Fuel China?,” Science, 1998. (w/ T.
Drennen)
“Scenario Analysis of Chinese Passenger Vehicle
Growth,” Contemporary Economic Policy, 2003.
(w/ P. Kobos & T. Drennen)
I. Climate Change Research

The Kyoto protocol and productionbased standards
“International Trade and Carbon Embodiment:
Loophole in the Kyoto Protocol,” 19th Annual
North American Conference of the International
Association for Energy Economics, Albuquerque,
NM, Oct. 18-21, 1998 (w/ M. Zhang, T. Drennen)
I. Climate Change Research

Abatement vs. adaptation in a
stochastic world
“The Future of Economics in the Century of the
Environment,” Indian Journal of Applied
Economics, 2002.
“Incorporating Catastrophes into Integrated
Assessment: Science, Impacts, and Adaptation,”
Climatic Change, 2003 (w/ E. Wright)
“Climate Variability, Economic Adaptation, and
Investment Timing,” International J. of Global Env.
Issues, 2003 (w/ E. Wright)
II. Climate Change Economics
~ Nordhaus DICE Model ~
A. Development
1983: National Academy of Science “CO2
“Considering
the relativelyCommittee”
short history of integrated assessment of
Assessment
climate, a1991:
surprising
amount
of knowledge
Probably
“Sketch
of the
Economicshas
of emerged.
the Greenhouse
the most striking
result
is that
ouror
current
of the
Effect”
& “To
Slow
Not tounderstanding
Slow”
damage of
climate
does
not justifyPath
morefor
than
modest
1992:
“Anchange
Optimal
Transition
Controlling
Greenhouse Gases”
emissions control.”
- Kolstad, 1998
1994: Managing the Global Commons: the
Economics of Climate Change (MIT Press)
1995 – present: Regional version of DICE; countless
spin-offs to the Nordhaus framework.
II. Climate Change Economics
B. Basic Structure (DICE)
1. Global macroeconomy represented by
aggregate gross world output
2. Climate change impacts gross output
production
3. Objective is to maximize the discounted value
of world utility
T
Max U
N t * [ln c(t)]

t
{I t , CR t } t 1 (1  r )
II. Climate Change Economics
B. Basic Structure
Production
 Emissions
 GHG Concentration
 Global average
temperature change
 Damage to gross output
from both control
expenditures and
climate change costs
II. Climate Change Economics
C. Technological Advance
1. General technological progress
i. Estimates 1.3% per year 1960 - 1989
2. Declining carbon intensity
ii. In future, gradually declines to 1%
i. In
Declines
at 1.25%
iii.
100
K and
L could/ year
3. Interaction
of years,
(1)independently
andtoday’s
(2)
product
227%
more
100
years,
dollar
ofoutput
grossofworld
product
i.ii. InIn100
years,
aagiven
amount
capital
and
will emit
today’s
CO2 with
labor
will only
have28%
35%ofless
emissions
2.27 times more output.
II. Climate Change Economics
D. Policy Experiments
No Controls Policy
Optimal Policy
Stabilize Emissions
Stabilize Climate
Geoengineering
Impact of Program
(percent difference)
0.000
0.027
-0.706
-4.091
0.559
II. Climate Change Economics
E. Conclusions from the Economics of Climate
Change
“ . . . a massive effort to slow climate change today
would be premature given current understanding of
the damages imposed by greenhouse warming.”
- Nordhaus (1994, p.6)
1. Optimal control is relatively small
2. More aggressive control policies have negative
net benefits
3. IPCC and science community is not behaving
rationally.
Are Scientists and PolicyMakers Behaving Irrationally?
• Over 1500 scientists, including 104 out
of 178 living nobel laureates, signed the
World Call for Action initiated by the
Union of Concerned Scientists at Kyoto,
Japan in the Fall of 1997.
• Over 160 countries negotiated the Kyoto
Protocol, committing 35 countries to
reduce GHG emissions to 5.2% below
1990 levels by 2008-2012
III. Expert Opinion
• Mainstream economist v.
environmental economists
• Damage functions by discipline
• Probability distribution of expert
opinion
Monte Carlo Simulation v. DICE Model
(Roughgarden and Schneider)
Data
Source
DICE*
Total Discounted
Optimal Carbon Tax
Consumption
(1990 US $ per ton)
(trillions of 1990 US $) 1995
2055
2105
730.92
5.24
15.04
21.73
Median
699.99
21.91
46.91
61.28
Mean
680.99
41.89
86.58
111.04
Tail
(95th)
508.97
179.39 348.37 465.44
. . . the significant chance of a
“surprise” causes a relatively high
level of optimal abatement.
- Roughgarden & Schneider
Climate Surprises & Adaptation
•
•
•
•
•
Ocean currents
Ice caps and freshwater inputs
Storm frequency and severity
Natural positive feedback loops
Economic positive feedback loops
IPCC and Policy Evolution
• IPCC established by WMO and UNEP, 1988

Three working groups (science, adaptation, mitigation)
• First Assessment of the IPCC, 1990

UN Framework Convention on Climate Change, 1992
• Second Assessment of the IPCC, 1995
“. . . balance of evidence suggests . . .”
 Kyoto Protocol to the UNFCC, 1997

• Special Report: The Regional Impacts of Climate
Change - An Assessment of Vulnerability, 1997
• Third Assessment of the IPCC, 2001

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