Fondazione Eni Enrico Mattei Modelling the Economic Impact of Climate Change: Early Results, Methodological Challenges Roberto Roson Università CaFoscari, ICTP and FEEM EEE Seminar, Trieste, December 16th, 2003

Fondazione Eni Enrico Mattei To provide a basic overview of the methodology To illustrate and comment some early simulation results Motivation

Fondazione Eni Enrico Mattei Integrated Assessment Models Myth and Reality

Fondazione Eni Enrico Mattei An Ideal IAM Climate System(s) Socio-Economic System(s) Physical Effects Emissions

Fondazione Eni Enrico Mattei Actual Approach #1: IPCC A series of socio-economic scenarios (A1, A2, B1, B2) Forecasts of future climate consistent with given benchmarks No feedback on the economy

Fondazione Eni Enrico Mattei Actual Approach #2: RICE A series of parallel regional growth model linked by the climate externality Emissions proportional to GDP Climate module translates emissions into temperature changes Temperature affects productivity (potential GDP)

Fondazione Eni Enrico Mattei the description of the world economic structure is often too simplistic: limited number of industries (sometimes only one good, available for both consumption and investment), poor or absent description of international trade and capital flows. the multi-dimensional nature of the impact of the climate change on the economic systems is disregarded. This is usually accommodated by specific ad-hoc relationships, making a certain fraction of potential income melting away as temperature increases Inadequacy of Current IAM Models

Fondazione Eni Enrico Mattei The General Equilibrium Concept p q S(p,…) D(p,…)

Fondazione Eni Enrico Mattei Are GE effects relevant in this context?

Fondazione Eni Enrico Mattei How the model works

Fondazione Eni Enrico Mattei Simulation #1: Sea Level Rise Two scenarios: no protection/ full protection NP: reduction in the land stock FP: additional protective investment expenditure

Fondazione Eni Enrico Mattei Early Results: Sea Level Rise

Fondazione Eni Enrico Mattei Simulation #2: Health Two simultaneous effects Variations in labour stock/productivity Exogenous change in health services expenditure (by the public sector)

Fondazione Eni Enrico Mattei Early Results: Health 2050 Change in Labour Productivity ( % change) Change in Health Expenditure ( % change) Change in value of GDP ( % change) CO2 Emissions ( % change) USA EU EEFSU JPN RoA EEx CHIND RoW

Fondazione Eni Enrico Mattei Simulation #3: Tourism Estimation of O/D matrices of tourists with and without climate change Hypothesis: % change in the number of tourists in a region = % change of tourism expenditure Apply exogenous variations in the consumption demand of (1) recreational services and (2) hotels and restaurants within the broader sector Trade