1 Economics 331b Spring 2009 Economics of Climate Change: Impacts

2 Fossil fuel use generates CO2 emissions Carbon cycle: redistributes around atmosphere, oceans, etc. Climate system: change in radiation warming, precip, ocean currents, etc.. Impacts on ecosystems, agriculture, diseases, skiing, golfing, … Measures to control emissions (limits, taxes, subsidies, …) The emissions -climate- impacts- policy nexus

Global Warming and Sea Level Rise (SLR) Major variations in geological history (-150 to +40 meters) Sources in future: - Thermal expansion (up to 2 meters) - Small glaciers (0.5 meters) - Greenland (up to 6 meters) - Antarctic (56 meters), but major unstable is West Antarctic Ice Sheet (7 meters) - Arctic Sheet (very likely to disappear, 0 meters) Major issues are stability and irreversibility 3

4 18 cm rise since 1900 Current rate: 3.3 cm per decade IPCC Satellite Altimeter Tide Gauges Observed Sea Level Rise Rahmstorf, Cazenave, Church, Hansen, Keeling, Parker and Somerville (Science 2007)

5 Recent Global Sea Level Rise Estimates Delta Comm. WBGU Data Data: Church and White (2006) Scenarios 2100: 50 – 140 cm (Rahmstorf 2007) 55 – 110 cm (“high end”, Delta Committee 2008) Scenarios 2200: 150 – 350 cm (“high end”, Delta Committee 2008) Scenarios 2300: 250 – 510 cm (German Advisory Council on Global Change, WBGU, 2006) Rahmstorf at

6 Gecon.yale.edu Estimate of distribution of output and population by elevation

Impact of Sea-Level Rise On Value of Real Estate in Cape Cod 7 Caroleen Verly, “Sea-Level Rise on Cape Cod: Predicting the Cost of Land and Structure Losses”, Yale University, 2008

Land value and altitude 8 Caroleen Verly, “Sea-Level Rise on Cape Cod: Predicting the Cost of Land and Structure Losses”, Yale University, 2008

Impact of SLR on Land and Structures 9 Caroleen Verly, “Sea-Level Rise on Cape Cod: Predicting the Cost of Land and Structure Losses”, Yale University, 2008

Non-linearities in the climate system Most of the impacts literature examines gradual climate change, with roughly linear systems and impacts. Scientists have been particularly concerned about discontinuities, abrupt climate change, tipping points, catastrophic impacts. Lenton et al. survey the terrain and find the following relevant and important tipping elements. We will discuss the dynamics of the Greenland Ice Sheet (GIS) as perhaps the most important and potentially costly. From economic/decision point of view, thresholds simplify decisions as to the optimal policy.

11 Marginal Abatement Cost Temperature Marginal Damage 0 Temperature* Optimum Without Thresholds

12 Marginal Abatement Cost Temperature Marginal Damage 0 Temperature* Optimum With Thresholds

“Tipping elements in the Earth’s climate system, “ T. M. Lenton, et al., PNAS, Feb Tipping Elements in the Climate System

Simulation of Melting 14 IPCC, Science, AR4, p. 830 from Ridley. This is roughly for a 6 °C warming. Note that some climatologists think that this underestimates the rate of melting.

Mathematics of GIS dynamics

dE/dt E 0 E* Have initial stable equilibrium at E*.

dE/dt E 0 E* E** Global warming raises sea- level temperature and lowers the equilibrium height and therefore volume from E* to E**.

dE/dt E 0 E* E**

dE/dt E 0 E* E** … then when the system passes the tipping point, the melting effect overwhelms the precipitation effect, and the equilibrium moves to E***. E***

dE/dt E 0 Reglaciation requires considerable cooling to get dE/dt positive again. This is the “hysteresis loop.” E***

21 Hysteresis loops and Tipping Points for Ice Sheets Frank Pattyn, “GRANTISM: Model of Greenland and Antrarctica,” Computers & Geosciences, April 2006, Pages

First Generation Estimates of Aggregate Monetized Damages of CO2 Doubling, U.S., for present economy Source: IPCC, Second Assessment Report 22

23 Economic Impacts of Gradual Climate Change on the U.S. Joel B. Smith, A Synthesis of Potential Climate Change Impacts on the U.S., Prepared for the Pew Center on Global Climate Change, April 2004

24 IPCC Collation of Global Damages, AR Three

25 Estimated Damages from Yale Models and IPCC Estimate

26 Early studies contained a major surprise: Modest impacts for gradual climate change, market impacts, high- income economies, next years: - Impact about 0 (+ 2) percent of output. - Further studies confirmed this general result. BUT, outside of this narrow finding, potential for big problems: -many subtle thresholds and tipping elements -abrupt climate change (“inevitable surprises”) -many ecological disruptions (ocean carbonization, species loss, forest wildfires, loss of terrestrial glaciers, snow packs, …) -stress to small, topical, developing countries -gradual coastal inundation of 1 – 10 meters over 1-5 centuries OVERALL: “…global mean losses could be 1-5% Gross Domestic Product (GDP) for 4 ºC of warming.” (IPCC, FAR, April 2007, but no solid data underlying this) Summary of Impacts Estimates

27 Why Impact Analysis is So Difficult 1. Most impacts analyses impose climate changes on current social- economic-political structures. - Example: impact of temp/precip/CO2 on structure of Indian economy in However, need to consider what society will look like when climate change occurs. 3. Example of difficulties of looking backward: –2 ˚C increase in 6-7 decades – that was Nazism, period of Great Depression, Gold Standard, pre-Keynesian macro –4 ˚C increase in 15 decades –Ming Dynasty, lighting with whale oil, invention of telegraph, stagecoach, …. 4. In the end, it appears that major impacts are NON-MARKET, VERY DIFFICULT TO VALUE, and VERY CONTENTIOUS.