Climate Change Science Economics and Policy Climate Economics

Climate Change Science, Economics, and Policy

Climate Economics I. III. IV. V. Climate Change Research Climate Change Economics Expert Opinion Climate Surprises & Adaptation The IPCC and Policy Evolution

I. Climate Change Research n Good science in economic models “From Ecology to Economics: The Case Against CO 2 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 n Climate change policy and international realism “The Inefficiency and Unfairness of Tradable CO 2 Permits, ” World Resource Review, 1993. n The role of energy technology “Photovoltaic Technology: Markets, Economics, and Development, ” World Development, 1995. (w/ D. Chapman)

I. Climate Change Research n 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 n 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 n The Kyoto protocol and productionbased standards “International Trade and Carbon Embodiment: Loophole in the Kyoto Protocol, ” 19 th 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 n 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 “CO 2 “Considering the relatively short history of integrated assessment of Assessment Committee” climate, a 1991: “Sketch of the Economics of the Greenhouse surprising amount of knowledge has emerged. Probably the most striking result is that our current understanding of the Effect” & “To Slow or Not to Slow” damage of climate change does not justify more than modest 1992: “An Optimal Transition Path for 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

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. Declines independently at 1. 25% / year iii. In 100 years, today’s K and L could 3. Interaction of (1) and (2) product 227% more output In 100 years, a dollar of gross world product i. ii. In 100 years, a given amount of capital and will emit only 28% of today’s CO 2 labor will have 35% less emissions with 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 Policy. Makers 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 Total Discounted Optimal Carbon Tax Consumption (1990 US $ per ton) (trillions of 1990 US $) 1995 2055 2105 DICE* 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 (95 th) 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 Ø Three working groups (science, adaptation, mitigation) • First Assessment of the IPCC, 1990 Ø UN Framework Convention on Climate Change, 1992 • Second Assessment of the IPCC, 1995 “. . . balance of evidence suggests. . . ” Ø Kyoto Protocol to the UNFCC, 1997 Ø • Special Report: The Regional Impacts of Climate Change - An Assessment of Vulnerability, 1997 • Third Assessment of the IPCC, 2001 Ø ? ?