Equity weighting and the marginal damage costs of climate change

Climate change will give rise to different impacts in different countries, and different countries have different levels of development. Equity-weighted estimates of the (marginal) impact of greenhouse gas emissions reflect these differences. This paper analyses the impact of equity weighting on the marginal damage cost of carbon dioxide emissions, and reaches four main conclusions. First, equity-weighted estimates are substantially higher than estimates without equity-weights; equity-weights may even change the sign of the social cost estimates. Second, estimates differ by two orders of magnitude depending on the region to which the equity weights are normalised. Third, equity-weighted estimates are sensitive to the resolution of the impact estimates. Depending on the assumed intra-regional income distribution, estimates may be more than twice as high if national rather than regional impacts are aggregated. Fourth, variations in the assumed inequality aversion have different impacts in different scenarios, not only because different scenarios have different emissions and hence warming, but also because different scenarios have different income differences, different growth rates, and different vulnerabilities.     

Optimal Timing of Climate Change Policy: Interaction Between Carbon Taxes and Innovation Externalities

This paper addresses the impact of endogenous technology through research and development (R&D) on the timing of climate change policy. We develop a model with a stock pollutant (carbon dioxide) and abatement technological change through R&D, and we use the model to study the interaction between carbon taxes and innovation externalities. Our analysis shows that the timing of optimal emission reduction policy strongly depends on the set of policy instruments available. When climate-specific R&D targeting instruments are available, policy has to use these to step up early innovation. When these instruments are not available, policy has to steer innovation through creating demand for emission saving technologies. That is, carbon taxes should be high compared to the Pigouvian levels when the abatement industry is developing. Finally, we calibrate the model in order to explore the magnitude of the theoretical findings within the context of climate change policy.      

Probabilistic temperature change projections and energy system implications of greenhouse gas emission scenarios

This paper explores the implications for global average temperature change of a set of reference and mitigation scenarios in a probabilistic framework. First, we use published probability density functions for climate sensitivity to investigate the likelihood of achieving targets expressed as levels or rates of global average temperature change. We find, for example, that limiting warming to 3 C above pre-industrial levels with at least a medium likelihood requires cumulative emissions reductions on the order of 30-60% below one unmitigated reference scenario by 2100, while a more favorable baseline scenario requires no reductions at all to achieve this outcome with the same likelihood. We further conclude that the rate of temperature change may prove to be more difficult to control, especially if most of the mitigation effort is postponed until later in the century. Rate of change targets of 0.1–0.2 °C/decade are unlikely to be achieved by a target for the long-term level of climate change alone. Second, we quantify relationships between mitigation costs and the likelihood of achieving various targets and show how this depends strongly on the reference scenario. Third, we explore relationships between medium-term achievements and long-term climate change outcomes. Our results suggest that atmospheric concentrations and the share of zero-carbon energy in the middle of the 21st century are key indicators of the likelihood of meeting long-term climate change goals cost-effectively. They also suggest that interim targets could be an effective means of keeping long-term target options open. Our analysis shows that least-cost mitigation strategies for reaching low climate change targets include a wide portfolio of reduction measures. In particular, fundamental long-term structural changes in the energy system in these scenarios are a necessary but not sufficient condition to achieve high likelihoods for low temperature targets. The cost-effective portfolio of emissions reductions must also address demand-side measures and include mitigation options in the industry, agriculture, and the forest sector.     

Peak globalization: Climate change, oil depletion and global trade

The global trade in goods depends upon reliable, inexpensive transportation of freight along complex and long-distance supply chains. Global warming and peak oil undermine globalization by their effects on both transportation costs and the reliable movement of freight. Countering the current geographic pattern of comparative advantage with higher transportation costs, climate change and peak oil will thus result in peak globalization, after which the volume of exports will decline as measured by ton-miles of freight. Policies designed to mitigate climate change and peak oil are very unlikely to change this result due to their late implementation, contradictory effects and insufficient magnitude. The implication is that supply chains will become shorter for most products and that production of goods will be located closer to where they are consumed.     

Climate change as a threat to biodiversity: An application of the DPSIR approach

Climate change and its consequences present one of the most important threats to biodiversity and the functions of ecosystems. The stress on biodiversity is far beyond the levels imposed by the natural global climatic changes occurring in the recent evolutionary past. It includes temperature increases, shifts of climate zones, melting of snow and ice, sea level rise, droughts, floods, and other extreme weather events. Natural systems are vulnerable to such changes due to their limited adaptive capacity. Based on an analysis using the DPSIR framework, this paper discusses some of the important socio-economic driving forces of climate change, with a focus on energy use and transportation. The paper also analyses observed and potential changes of climate and the pressures they exert on biodiversity, the changes in biodiversity, the resulting impacts on ecosystem functions, and possible policy responses. The latter can be divided into mitigation and adaptation measures. Both strategies are needed, mitigation in order to stabilise the greenhouse gas concentrations in the atmosphere, and adaptation in order to adjust to changes that have already occurred or cannot be avoided. One mitigation option, increased biofuel production, which is also a response to oil depletion, would change land use patterns and increase human appropriation of net primary production of biomass, thereby threatening biodiversity. By considering the first order and second order impacts of climate change on biodiversity when developing policy measures, it will be possible to integrate ecosystem and biodiversity protection into decision-making processes.     

Climate policy in Western Europe and avoided costs of air pollution control

Abatement of CO₂ emissions will be accompanied by reduced air pollutant emissions such as particulate matter (PM), SO₂, and NO_x. This, in turn, will reduce the need for end of pipe (EOP) pollution control technologies to meet future air quality targets. This dynamic could put more stringent air quality goals within reach, and increase the political feasibility of climate policy. This paper presents a CGE model that has been modified to include the emissions and EOP abatement of PM, SO₂, and NO_x from stationary sources in the EU-17. Emissions of pollutants are modeled as fixed-factor complementary inputs to their associated source. Abatement in each sector is modeled as a substitution between the pollutants and discrete abatement technologies, each of which is sector-specific and characterized by a marginal abatement cost and technical capacity constraint. Scenarios are run to 2020, to assess the costs and co-benefits of simultaneous air quality and climate policies. We find that under the Kyoto Protocol in 2010, the welfare cost of pollution control is reduced by 16% compared to the baseline, effectively offsetting the cost of CO₂ abatement by 15%. The co-benefit results depend heavily on policy choices, and their magnitude relative to total costs is likely to decline as greenhouse targets become more ambitious. In our scenarios, pollution control cost savings range from 1.3 to 20% in 2020, yielding a climate cost offset range of 0.2 to 3.9%. The CO₂ credit imports allowed by the EU via the Clean Development Mechanism (CDM) offer a total savings of $9.7bn in 2020, but only need to be compensated by an additional $0.3–0.4bn in domestic pollution control from stationary sources.     

Climate Change and the Stability of Water Allocation Agreements

We analyse agreements on river water allocation between riparian countries. Besides being efficient, water allocation agreements need to be stable in order to be effective in increasing the efficiency of water use. In this paper we assess the stability of water allocation agreements using a game theoretic model. We consider the effects of climate change and the choice of a sharing rule on stability. Our results show that a decrease in mean river flow decreases the stability of an agreement, while an increased variance can have a positive or a negative effect on stability. An agreement where the downstream country is allocated a fixed amount of water has the lowest stability compared to other sharing rules. These results hold for both constant and flexible non-water transfers.     

International support of climate change policies in developing countries: Strategic, moral and fairness aspects

International transfers in climate policy channeled from the industrialized to the developing world either support the mitigation of climate change or the adaptation to global warming. From a purely allocative point of view, transfers supporting mitigation tend to be Pareto-improving whereas this is not very likely in the case of adaptation support. We illustrate this by regarding transfer schemes currently applied under the UN Framework Convention on Climate Change (UNFCCC) and the Kyoto framework.However, if we enrich the analysis by integrating distributional aspects, we find that international adaptation funding may help both the developing and developed world. Interestingly this is not due to altruistic incentives, but due to follow-up effects on international negotiations on climate change mitigation. We argue that the lack of fairness perceived by developing countries in the international climate policy arena can be reduced by the support of adaptation in these countries. As we show - taking into account different fairness concepts - this might raise the prospects of success in international negotiations on climate change. Yet, we find that the influence of transfers may induce different fairness effects on climate change mitigation negotiations to run counter.We discuss whether current transfer schemes under the UNFCCC and the Kyoto framework adequately serve the distributive and allocative objectives pursued in international climate policy.     

Optimal compliance with emission constraints: dynamic characteristics and the choice of technique

The paper analyzes how to comply with an emission constraint, which restricts the use of an established energy technique, given the two options to save energy and to invest in two alternative energy techniques. These techniques differ in their deterioration rates and the investment lags of the corresponding capital stocks. Thus, the paper takes a medium-term perspective on climate change mitigation, where the time horizon is too short for technological change to occur, but long enough for capital stocks to accumulate and deteriorate. It is shown that, in general, only one of the two alternative techniques prevails in the stationary state, although, both techniques might be utilized during the transition phase. Hence, while in a static economy only one technique is efficient, this is not necessarily true in a dynamic economy.      

Climate reversals and the transition to agriculture

The transition to agriculture is generally acknowledged to be the economic foundation for population growth over the last 10,000 years and for modern civilization itself. Dates for pristine transitions to agriculture have become a key input into empirical work on economic growth over the very long run. We propose a model of the transition in which population and technology respond endogenously to climate. The available data on the southwest Asian case, other cases of pristine transition, and cases of non-transition are consistent with our model, but often inconsistent with rival explanations. In addition, our theory of the origins of agriculture has implications for instrumental variable strategies that can be used in empirical research on long run economic growth and development.      

气候政策的经济环境效应及其缓解措施的研究综述——兼谈对我国的启示

气候政策对一国经济和环境产生一定的效应,开放经济条件下还将对一国产业的国际竞争力产生影响。碳泄漏等问题使得气候政策的实际减排效果受到了质疑。气候政策实施过程中产生的这些问题都将严重影响气候政策的有效性。为使气候政策的有效性达到最优,很多学者研究了缓解气候政策负面效应的措施。本文对一些重要的气候政策的经济环境效应进行了理论总结,从竞争力效应、经济效应、环境效应和研究方法这四个方面综述了相关实证研究成果,分析了气候政策负面效应的缓解措施,以期为制定适合我国的气候政策提供借鉴。     

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.     

Identifying and evaluating robust adaptive policy responses to climate change for water management agencies in the American west

Climate change presents a significant planning challenge for water management agencies in the western United States. Changing precipitation and temperature patterns will disrupt their supply and extensive distribution systems over the coming decades, but the precise timing and extent of these impacts remain deeply uncertain, complicating decisions on needed investments in infrastructure and other system improvements. Adaptive strategies represent an obvious solution in principle, but are often difficult to develop and implement in practice. This paper describes work helping the Inland Empire Utilities Agency (IEUA) explicitly develop adaptive policies to respond to climate change and integrating these policies into the organizations' long-range planning processes. The analysis employs Robust Decision Making (RDM), a quantitative decision- analytic approach for supporting decisions under conditions of deep uncertainty. RDM studies use simulation models to assess the performance of agency plans over thousands of plausible futures, use statistical “scenario discovery” algorithms to concisely summarize those futures where the plans fail to perform adequately, and use these resulting scenarios to help decisionmakers understand the vulnerabilities of their plans and assess the options for ameliorating these vulnerabilities. This paper demonstrates the particular value of RDM in helping decisionmakers to design and evaluate adaptive strategies. For IEUA, the RDM analysis suggests the agency's current plan could perform poorly and lead to high shortage and water provisioning costs under conditions of: (1) large declines in precipitation, (2) larger-than-expected impacts of climate change on the availability of imported supplies, and (3) reductions in percolation of precipitation into the region's groundwater basin. Including adaptivity in the current plan eliminates 72% of the high-cost outcomes. Accelerating efforts in expanding the size of one of the agency's groundwater banking programs and implementing its recycling program, while monitoring the region's supply and demand balance and making additional investments in efficiency and storm-water capture if shortages are projected provides one promising robust adaptive strategy — it eliminates more than 80% of the initially-identified high-cost outcomes.     

The opportunity cost of land use and the global potential for greenhouse gas mitigation in agriculture and forestry

This paper analyses the role of global land management alternatives in determining potential greenhouse gas mitigation by land-based activities in agriculture and forestry. Land-based activities are responsible for over a third of global greenhouse gas emissions, yet the economics of land-use decisions have not been explicitly modeled in global mitigation studies. In this paper, we develop a new, general equilibrium framework which effectively captures the opportunity costs of land-use decisions in agriculture and forestry, thereby allowing us to analyse competition for heterogeneous land types across and within sectors, as well as input substitution between land and other factors of production. When land-using sectors are confronted with a tax on greenhouse gas emissions, we find significant changes in the global pattern of comparative advantage across sectors, regions, and land types. Globally, we find that forest carbon sequestration is the dominant strategy for GHG emissions mitigation, while agricultural-related mitigation comes predominantly from reduced methane emissions in the ruminant livestock sector, followed by fertilizer and methane emissions from paddy rice. Regionally, agricultural mitigation is a larger share of total land-use emissions abatement in the USA and China, compared to the rest of the world, and, within agriculture, disproportionately from reductions in fertilizer-related emissions. The results also show how analyses that only consider regional mitigation, may bias mitigation potential by ignoring global market interactions. For example, USA-specific analyses likely over-estimate the potential for abatement in agriculture. Finally, we note that this general equilibrium framework provides the research community with a practical methodology for explicit modeling of global land competition and land-based mitigation in comprehensive assessments of greenhouse gas mitigation options.     

Responding to climate and other change processes in complex contexts:: Challenges facing development of adaptive policy frameworks in the Ganga Basin

The Ganga Basin, one of the world's most densely populated and vulnerable regions, is also among the world's most dynamic hydrological systems. Rivers exiting the Himalaya deposit massive amounts of sediment in the plains and shift their courses regularly. The natural dynamics of this system have a direct impact on populations. On August 18th, 2008, for example, embankments on the Kosi River (a tributary to the Ganges), failed and the channel shifted by as much as 120 km (Sinha, 2008 [1]) displacing over sixty thousand people in Nepal and three and a half million in India. Transport and power systems disrupted across large areas. The embankment failure was not caused by an extreme event. Instead the breach represented a failure of interlinked physical and institutional infrastructure systems in an area characterized by complex social, political, and environmental relationships.Projected climate changes in the Ganga Basin are likely to greatly exacerbate vulnerability (Adaptation Study Team, 2008 [2]). While the Kosi breach had nothing to do with climate change, such events will increase if climatic variability, sediment transport, and extreme events increase. Understanding how populations can respond to the dynamic nature of rivers such as the Kosi is, as a result, essential to develop strategies for adapting to climatic change. Understanding is also essential at the policy level for building adaptive capacity. The challenge is to identify policy frameworks and their relationship to interlinked physical and institutional infrastructure combinations that create environments enabling adaptation within households, communities, and regions.This paper explores the challenges and opportunities facing the development of adaptive policy frameworks in the Ganga Basin. The characteristics of frameworks that are adaptive in themselves and enable adaptation along with their relationship to different types of interlinked institutional and infrastructure systems are explored first. Following this, the case of the Kosi embankment along with the projected impacts of climate change across the Ganga Basin is used to identify the key challenges and opportunities that are common in many regions. The paper concludes with specific observations on the development of adaptive policy frameworks for responding to climate change in complex developing country contexts.