Specifications of Social Welfare in Economic Studies of Climate Policy: Overview of Criteria and Related Policy Insights

An important assumption in economic studies of climate policy is the social welfare function. This paper shows that applying distinct decision or social welfare criteria can result in different optimal policies of climate control, notably if climate change impacts are uncertain. First, decision criteria in current climate-economic studies are reviewed. Next, the most important alternatives are discussed, including their (mathematical) formalization and incorporation in economy-climate models. Most of these alternative criteria suggest more stringent climate policies to be optimal than the standard discounted utilitarianism approach. However, several important welfare criteria have not or hardly seen any application in the economic analysis of climate policy. We conclude that there is clear need for systematic research on this theme, for which the current review provides a solid basis.     

Geographically explicit global modeling of land-use change, carbon sequestration, and biomass supply

This study aims to determine whether carbon sequestration policies could present a significant contribution to the global portfolio of climate change mitigation options. The objective is to model the effects of policies designed to induce landowners to change land use and management patterns with a view to sequester carbon or to reduce deforestation. The approach uses the spatially explicit Dynamic Integrated Model of Forestry and Alternative Land Use (DIMA) to quantify the economic potential of global forests. The model chooses which of the land-use processes (afforestation, reforestation, deforestation, or conservation and management options) would be applied in a specific location, based on land prices, cost of forest production and harvesting, site productivity, population density, and estimates of economic growth. The approach is relevant in that it (1) couples a revised and updated version of the Special Report on Emissions Scenarios with the dynamic development of climate policy implications through integration with the Model for Energy Supply Strategy Alternatives and their General Environmental Impact (MESSAGE); (2) is spatially explicit on a 0.5° grid; and (3) is constrained by guaranteeing food security and land for urban development. As outputs, DIMA produces 100-year forecasts of land-use change, carbon sequestration, impacts of carbon incentives (e.g., avoided deforestation), biomass for bioenergy, and climate policy impacts. The modeling results indicate that carbon sequestration policies could contribute to a significant part of the global portfolio of efficient climate mitigation policies, dependent upon carbon prices.     

Adaptation and Mitigation in Long-term Climate Policy

The paper analytically explores the optimal allocation of investments into mitigation and environmental adaptation against climate change damages at a macroeconomic level. The economic-environmental model is formulated as a social planner problem where adaptation and abatement investments are separate decision variables. The existence of a unique steady state is proven. A comparative static analysis of optimal investments leads to essential implications for associated long-term environmental policies. It is shown that the optimal policy mix between adaptation and mitigation is lower for countries with higher economic efficiency for all applicable parameter ranges. Data calibration and numerical simulations are provided to estimate practical validity of theoretical outcomes.     

Taxation of multiple greenhouse gases and the effects on income distribution: A case study of the Netherlands

Current economic instruments aimed at climate change mitigation focus on CO₂ emissions only, but the Kyoto Protocol refers to other greenhouse gases (GHG) as well as CO₂. These are CH₄, N₂O, HFCs, PFCs and SF₆. Taxation of multiple greenhouse gases improves the cost-effectiveness of climate change mitigation. It is not yet clear, however, what the effect is of multigas taxation on the distribution of the tax burden across income groups. This paper examines and compares distributional effects of a CO₂ tax and a comprehensive tax that covers all six GHG of the Kyoto Protocol. The study concentrates on the Netherlands in the year 2000. We established tax rates on the basis of marginal abatement cost curves and the Dutch policy target. The distributional effects have been determined by means of environmentally extended input−output analysis and data on consumer expenditures. Our results show that taxation of multiple GHG improves not only the cost-effectiveness of climate change mitigation, but also distributes the tax burden more equally across income groups as compared to a CO₂ tax. These findings are relevant for the debate on the role of non-CO₂ GHG in climate change mitigation.     

Taxation of multiple greenhouse gases and the effects on income distribution: A case study of the Netherlands

Current economic instruments aimed at climate change mitigation focus on CO₂ emissions only, but the Kyoto Protocol refers to other greenhouse gases (GHG) as well as CO₂. These are CH₄, N₂O, HFCs, PFCs and SF₆. Taxation of multiple greenhouse gases improves the cost-effectiveness of climate change mitigation. It is not yet clear, however, what the effect is of multigas taxation on the distribution of the tax burden across income groups. This paper examines and compares distributional effects of a CO₂ tax and a comprehensive tax that covers all six GHG of the Kyoto Protocol. The study concentrates on the Netherlands in the year 2000. We established tax rates on the basis of marginal abatement cost curves and the Dutch policy target. The distributional effects have been determined by means of environmentally extended input−output analysis and data on consumer expenditures. Our results show that taxation of multiple GHG improves not only the cost-effectiveness of climate change mitigation, but also distributes the tax burden more equally across income groups as compared to a CO₂ tax. These findings are relevant for the debate on the role of non-CO₂ GHG in climate change mitigation.     

The Ancillary Benefits from Climate Policy in the United States

This study investigates the benefits to human health that would occur in the United States (US) due to reductions in local air pollutant emissions stemming from a federal policy to reduce greenhouse gas emissions. In order to measure the impacts of reduced emissions of local pollutants, this study considers the Warner-Lieberman bill (S.2191) of 2007 and the paper considers the impacts of reduced emissions in the transport and electric power sectors. This analysis provides strong evidence that climate change policy in the US will generate significant returns to society in excess of the benefits due to climate stabilization. The total health-related co-benefits associated with a representative climate policy over the years 2010–2030 range between 103 billion and103 billion and 1.2 trillion in present value terms. Much of the co-benefit stems from between 32,000 and 189,000 avoided premature mortalities associated with exposure to PM_2.5 and O₃. Most of the co-benefits are due to reduced emissions of SO₂ from coal-fired power plants since these are an important contribution to ambient concentrations of PM_2.5. Among the most important determinants of co-benefits is the relationship between climate policy and existing policies governing SO₂ discharges from coal-fired power generation capacity. If SO₂ emissions are permitted to remain at current levels, total co-benefits are cut by 65%. We find that the co-benefit per ton of CO₂ emissions ranges between 1 and1 and 77 depending on modeling assumptions and year.     

The Challenges of Climate Policy

Climate policy planners and the public should be aware of both economic challenges and arguments that may influence the intensity of the climate policies with which they have to cope. This article examines six economic challenges: cap‐and‐trade versus taxes, non‐price regulations, energy efficiency policies, mitigation versus adaptation, trade effects, and transmission planning. Three additional challenges affect the end itself: ‘fat tails’, discount rates, and whether environmental protection should be evaluated by willingness to pay. If future generations cannot compensate the present for climate policy costs, climate policy is inherently redistributive and cannot be evaluated through cost–benefit analysis alone.     

Reducing climate change impacts on agriculture: Global and regional effects of mitigation, 2000–2080

What are the implications for agriculture of mitigating greenhouse gas emissions? By when and by how much are impacts reduced? Where does it matter most? We investigated these questions within the new A2 emission scenario, recently developed at the International Institute of Applied Systems Analysis with revised population and gross domestic product projections. Coupling an agro-ecological model to a global food trade model, two distinct sets of climate simulations were analyzed: 1) A non-mitigated scenario, with atmospheric CO₂ concentrations over 800 ppm by 2100; and 2) A mitigation scenario, with CO₂ concentrations stabilized at 550 ppm by 2100. Impacts of climate change on crop yield were evaluated for the period 1990–2080, then used as input for economic analyses. Key trends were computed over the 21st century for food demand, production and trade, focusing on potential monetary (aggregate value added) and human (risk of hunger) impacts. The results from this study suggested that mitigation could positively impact agriculture. With mitigation, global costs of climate change, though relatively small in absolute amounts, were reduced by 75–100%; and the number of additional people at risk of malnutrition was reduced by 80–95%. Significant geographic and temporal differences were found. Regional effects often diverged from global net results, with some regions worse off under mitigation compared to the unmitigated case.     

Sustainable Development and a Dwindling Carbon Space

Curbing global warming by setting long term maxima for temperature rise or concentrations of greenhouse gases defines spaces within which further emissions of these gases are to remain (referred to here as ‘carbon spaces’). This paper addresses questions related to how to share between countries the carbon space and/or efforts to stay within it, in the perspective of sustainable development; different allocation mechanisms are reviewed, responding to criteria such as ‘responsibility’ for climate change, ‘capability’ to engage in abating it, and ‘potential’ or future contribution. The carbon space remaining at any time will depend on effective mitigation up till that time, and will condense if more stringent maxima are to be set; per capita this space becomes smaller with rising population. Sharing the carbon space in a fair way requires “convergence” of currently widely unequal per capita emissions. If the world is to stay within the carbon space consistent with <2° warming, then developed economies—the wealthiest sources of greenhouse gases should quickly and deeply engage in mitigation. Also, substantial mitigation is to take place in developing countries and that this will require substantial support to developing countries (financially, technologically). Changing development paths can make a major contribution to climate change mitigation; this requires changes in investment, production and consumption patterns. Green New Deals as proposed in the context of a widened response to the current economic crisis could become a first phase of a fundamental transition towards a decarbonised global economy worldwide. Concerns to do with equity as well as sustainability must be incorporated and integrated into coherent transitory strategies.     

Scenarios of long-term socio-economic and environmental development under climate stabilization

This paper presents an overview of the greenhouse gas (GHG) emissions scenarios that form the analytical backbone for other contributions to this Special Issue. We first describe the motivation behind this scenario exercise and introduce the main scenario features and characteristics, in both qualitative and quantitative terms. Altogether, we analyze three ‘baseline’ scenarios of different socio-economic and technological developments that are assumed not to include any explicit climate policies. We then impose a range of climate stabilization targets on these baseline scenarios and analyze in detail the feasibility, costs and uncertainties of meeting a range of different climate stabilization targets in accordance with Article 2 of the United Nations Framework Convention on Climate Change. The scenarios were developed by the IIASA Integrated Assessment Modeling Framework that encompasses detailed representations of the principal GHG-emitting sectors—energy, industry, agriculture, and forestry. The main analytical findings from our analysis focus on the implications of salient uncertainties (associated with scenario baselines and stabilization targets), on feasibility and costs of climate stabilization efforts, and on the choice of appropriate portfolios of emissions abatement measures. We further analyze individual technological options with regards to their aggregated cumulative contribution toward emissions mitigation during the 21st century as well as their deployment over time. Our results illustrate that the energy sector will remain by far the largest source of GHG emissions and hence remain the prime target of emissions reduction. Ultimately, this may lead to a complete restructuring of the global energy system. Climate mitigation could also significantly change the relative economics of traditional versus new, more climate friendly products and services. This is especially the case within the energy system, which accounts for the largest share of emissions reductions, but it is also the case in the agriculture and forestry sectors, where emissions reduction and sink enhancement measures are relatively more modest.     

Willingness to Pay for Ancillary Benefits of Climate Change Mitigation

Assessing the Willingness to Pay (WTP) of the general public for climate change mitigation programmes enables governments to understand how much taxpayers are willing to support the implementation of such programs. This paper contributes to the literature on the WTP for climate change mitigation programmes by investigating, in addition to global benefits, the ancillary benefits of climate change mitigation. It does so by considering local and personal benefits arising from climate change policies. The Contingent Valuation Method is used to elicit the WTP for ancillary and global benefits of climate mitigation policies in the Basque Country, Spain. Results show that WTP estimates are 53–73% higher when ancillary benefits are considered.     

Adaptation,mitigation and risk-taking in climate policy

The future consequences of climate change are highly uncertain and estimates of economic damages differ widely. Governments try to cope with these risks by investing in mitigation and adaptation measures. In contrast to most of the existing literature, we explicitly model the decision of risk averse governments on mitigation and adaptation policies. We also consider the interaction of the two strategies in presence of uncertainty. Mitigation efforts of a single country trigger crowding out as other countries will reduce their mitigation efforts. This may even lead to lower mitigation on the global scale. In contrast, a unilateral commitment to large adaptation efforts benefits the single country and can reduce the global risk from climate change at the expense of other countries.     

Local air pollution and global climate change: A combined cost-benefit analysis

This article presents the findings of a combined cost-benefit analysis of local air pollution and global climate change, two subjects that are usually studied separately. Yet these distinct environmental problems are closely related, since they are both driven by the nature of present energy production and consumption patterns. Our study demonstrates the mutual relevance of, and interaction between, policies designed to address these two environmental challenges individually. Given the many dimensions air pollution control and climate change management have in common, it is surprising that they have only little been analyzed in combination so far. We attempt to cover at least part of the existing gap in the literature by assessing how costs and benefits of technologies and strategies that jointly tackle these two environmental problems can best be balanced. By using specific technological options that cut down local air pollution, e.g. related to particulate emissions, one may concurrently reduce CO₂ emissions and thus contribute to diminishing global climate change. Inversely, some of the long-term climate change strategies simultaneously improve the quality of air in the short run. We have extended the well-established MERGE model by including emissions of particulate matter, and show that integrated environmental policies generate net global welfare benefits. We also demonstrate that the discounted benefits of local air pollution reduction significantly outweigh those of global climate change mitigation, at least by a factor of 2, but in most cases of our sensitivity analysis much more. Still, we do not argue to only restrict energy policy today to what should be our first priority, local air pollution control, and wait with the reduction of greenhouse gas emissions. Instead, we propose to design policies that simultaneously address these issues, as their combination creates an additional climate change bonus. As such, climate change mitigation proves an ancillary benefit of air pollution reduction, rather than the other way around.     

Data Envelopment Analysis of different climate policy scenarios

Recent developments in the political, scientific and economic debate on climate change suggest that it is of critical importance to develop new approaches able to compare policy scenarios for their environmental effectiveness, their distributive effects, their enforceability, their costs and many other dimensions. This paper discusses a quantitative methodology to assess the relative performance of different climate policy scenarios when accounting for their long-term economic, social and environmental impacts. The proposed procedure is based on Data Envelopment Analysis, here employed in evaluating the relative efficiency of eleven global climate policy scenarios. The methodology provides a promising comparison framework; it can be seen as a way of setting some basic guidelines to frame further debates and negotiations and can be flexibly adopted and modified by decision makers to obtain relevant information for policy design. Three major findings emerge from this analysis: (i) stringent climate policies can outperform less ambitious proposals if all sustainability dimensions are taken into account; (ii) a carefully chosen burden-sharing rule is able to bring together climate stabilisation and equity considerations; and (iii) the most inefficient strategy results from the failure to negotiate a post-2012 global climate agreement.     

Adoption of climate change mitigation practices by risk-averse farmers in the Ashanti Region,Ghana

Uncertainty and risk-aversion are notably absent in the modeling of farmers' adoption of climate change mitigation practices in developing countries even though most of the agricultural mitigation practices also have effects on yield variability. The objective of this paper is to explore the implications for climate change mitigation projects of modeling farmers as risk neutral while in actuality they behave as risk-averse agents. Results indicate that when risk averse farmers are modeled as risk-neutral agents, the size of the incentives needed to induce participation to a carbon sequestration program is miscalculated with serious implications either for the success for projects that aim at compensating for climate change mitigation services or for the economic efficiency of such projects.     

基于国际经验的中国国家公园气候 变化应对路径

国家公园等自然保护地既是气候变化影响的敏感 区,也是减缓气候变化的重要载体。纵观世界上多个国家气候 变化应对历程发现,国家公园等自然保护地是应对气候变化的 先行者与探索者。而面对气候变化的重要议题,中国国家公园 尚处于初步研究阶段,缺乏系统的应对战略。选取国家公园 气候变化应对开展较早、体系完善及具有特色的6个国家和地 区,梳理其战略、政策与实践经验,从科研、减缓、适应和 教育4个方面总结其应对途径,并提出中国国家公园气候变化 应对的4条路径：充分凝结共识,鼓励多方参与;夯实科研基 础,形成前沿基地;战略规划指导,分级分区落实;适应减缓 并重,提升气候能力。     

Bio-economic modeling of water quality improvements using a dynamic applied general equilibrium approach

An integrated bio-economic model is developed to assess the impacts of pollution reduction policies on water quality and the economy. Emission levels of economic activities to water are determined based on existing environmental accounts. These emission levels are built into a dynamic economic model for the Dutch economy and subsequently coupled to a national water quality model. The modular approach has the advantage that the impacts on the economy and water quality are evaluated simultaneously, but each within their own domain based on the appropriate scale and level of detail. The dynamic nature of the economic model allows us to also evaluate a derogated water policy as foreseen in the European Water Framework Directive. The indirect costs of different water quality improvement policy scenarios are at least as high as the direct costs related to investments in pollution abatement technology. The stricter the policy scenario, the more important the role of economic adjustment and restructuring mechanisms at the macro-economic level. Significant water quality improvements can be achieved through stringent domestic emission reductions. However, reaching water quality standards is highly dependent on water quality improvement policy in surrounding river basin countries and climate change.     

Spatial organization, transport, and climate change: Comparing instruments of spatial planning and policy

Approaching the analysis of climate policies from a spatial organization perspective is necessary for realizing both efficient and effective mitigation of greenhouse gas (GHG) emissions. In particular, it allows assessing the potential contribution of specific mechanisms of spatial organization and related spatial planning and policy to climate policy goals. So far, this spatial organization angle of climate policy has hardly received attention in the literature. The main sector significantly contributing to GHG emissions and sensitive to spatial organization and planning is urban transport. A qualitative evaluation of the available spatial organization policy options is provided, on the basis of four standard ‘E criteria’ and a decomposition of CO₂ emissions.     

Policy instruments for evolution of bounded rationality: Application to climate-energy problems

We demonstrate how an evolutionary agent-based model can be used to evaluate climate policies that take the heterogeneity of strategies of individual agents into account. An essential feature of the model is that the fitness of an economic strategy is determined by the relative welfare of the associated agent as compared to its immediate neighbors in a social network. This enables the study of policies that affect relative positions of individuals. We formulate two innovative climate policies, namely a prize, altering directly relative welfare, and advertisement, which influences the social network of interactions. The policies are illustrated using a simple model of global warming where a resource with a negative environmental impact—fossil energy—can be replaced by an environmentally neutral yet less cost-effective alternative, namely renewable energy. It is shown that the general approach enlarges the scope of economic policy analysis.     

Individual option prices for climate change mitigation

Willingness-to-pay for climate change mitigation depends on people's perceptions about just how bad things will get if nothing is done. Individual subjective distributions for future climate conditions are combined with stated choices over alternative climate policies to estimate individual option prices (the appropriate ex ante welfare measure in the face of uncertainty) for climate change mitigation. We find statistically significant sensitivity of estimated option prices to both expected future conditions and uncertainty about future conditions.