Using InVEST to Calibrate Economic Models of Climate Change Justin Andrew Johnson JustinAndrewJohnson.com April 23, 2012

Research Question “How will climate change impact economic growth through changes in ecosystem services?” Three basic tasks ▫Create a dynamic calculable general equilibrium (DCGE) model that impresses economists ▫Identify accurate climate change damage functions with respect to ecosystem services ▫Calibrate the model to specific geographic locations and ecosystem services 2

What is a normal DCGE? A model of economic growth that accounts for: ▫Utility maximizing individuals ▫Profit maximizing firms ▫Changing prices ▫Capital accumulation ▫Market responses Lets us predict economic growth while accounting for dynamic, changing relationships Economists like them ▫Lots of functions and proofs! 3

What is a DCGE? 4 Global GDP Years past 2012

DCGEs in Existing Climate Models DICE/RICE Models from Nordhaus PAGE Model from Stern Many others (CRED, World Bank, ADB) Where my model is different: ▫Include more detail in the economy (8 sectors) ▫Account for impacts on ecosystem services ▫Use more accurate damage function(s) 5

Existing Damage Functions are Very Simplified A damage function is a relationship between Temperature Increase and Economic Damage 6

My Approach to Damage Functions Include multiple functions that describe specific impacts on specific sectors, such as: ▫Agriculture damage from increasing precipitation volatility ▫Capital loss from sea-level rise ▫Crucially, ecosystem service value lost from changing climate 7

Comparison of Damage Functions 8 Climate Scenario Temperature Increase Single Damage Function Reduction in Growth Traditional Model

Process for identifying climate impact on ES: Step 1: ▫Run InVEST on current landscape 9

Process for identifying climate impact on ES: Step 2: ▫Create future landscape scenarios by interacting climate predictions with land change modelers 10

Process for identifying climate impact on ES: Step 3: Run InVEST on future landscapes Step 4: Calculate change in value for specific geographic locations Step 5: Use this information in the Ecosystem- Services sector in the DCGE to assess what the long-term growth impacts are. 11

Preliminary Results As a proof of concept, I have created a 3-sector model with a simple damage function ▫Calibrated to IPCC A1F1 Scenario ▫Damages based on Weisman Formula 12

Preliminary Results Model predicts fast growth at first, but eventually climate damages offset growth in capital 13

Validation – Replicates Past Data with Backcasting 14

Where I Still Need Help Getting good at InVEST! Data for InVEST inputs Identifying the correct set of damage functions 15

Thank you Questions? Feel free to any questions or to request more information and works cited to Additional information on this model and presentation included at justinandrewjohnson.com/climate 16