Climate Change Science, Economics, and Policy

Climate Economics I.Climate Change Research II.Climate Change Economics III.Expert Opinion IV.Climate Surprises & Adaptation V.The IPCC and Policy Evolution

I. Climate Change Research Good science in economic models “From Ecology to Economics: The Case Against CO 2 Fertilization,” Ecological Economics, “Carbon Dioxide Effects on Plants: Uncertainties and Implications for Modeling Crop Response to Climate Change,” Agricultural Dimensions of Global Climate Change, St. Lucie Press, (w/ D. Wolfe)

Climate change policy and international realism “The Inefficiency and Unfairness of Tradable CO 2 Permits,” World Resource Review, The role of energy technology “Photovoltaic Technology: Markets, Economics, and Development,” World Development, (w/ D. Chapman) I. Climate Change Research

Technology evolution: R&D vs. Export markets “Residential Rural Solar Electricity in Developing Countries,” Contemporary Economic Policy, (w/ D. Chapman) “Solar Power and Climate Change Policy in Developing Countries,” Energy Policy, (w/ T. Drennen, D. Chapman) “Technological Learning and Renewable Energy Costs: Implications for U.S. Energy Policy,” Energy Policy, (w/ P. Kobos, T. Drennen) I. Climate Change Research

The China factor “Who Will Fuel China?,” Science, (w/ T. Drennen) “Scenario Analysis of Chinese Passenger Vehicle Growth,” Contemporary Economic Policy, (w/ P. Kobos & T. Drennen) I. Climate Change Research

The Kyoto protocol and production- based standards “International Trade and Carbon Embodiment: Loophole in the Kyoto Protocol,” 19 th Annual North American Conference of the International Association for Energy Economics, Albuquerque, NM, Oct , 1998 (w/ M. Zhang, T. Drennen) I. Climate Change Research

Abatement vs. adaptation in a stochastic world “The Future of Economics in the Century of the Environment,” Indian Journal of Applied Economics, “Incorporating Catastrophes into Integrated Assessment: Science, Impacts, and Adaptation,” Climatic Change, 2003 (w/ E. Wright) “Climate Variability, Economic Adaptation, and Investment Timing,” International J. of Global Env. Issues, 2003 (w/ E. Wright) I. Climate Change Research

II. Climate Change Economics A. Development 1983: National Academy of Science “CO2 Assessment Committee” 1991: “Sketch of the Economics of the Greenhouse Effect” & “To Slow or Not to Slow” 1992: “An Optimal Transition Path for Controlling Greenhouse Gases” 1994: Managing the Global Commons: the Economics of Climate Change (MIT Press) 1995 – present: Regional version of DICE; countless spin-offs to the Nordhaus framework. ~ Nordhaus DICE Model ~ “Considering the relatively short history of integrated assessment of climate, a surprising amount of knowledge has emerged. Probably the most striking result is that our current understanding of the damage of climate change does not justify more than modest emissions control.” - Kolstad, 1998

II. Climate Change Economics B. Basic Structure (DICE)DICE 1. Global macroeconomy represented by aggregate gross world output 2. Climate change impacts gross output production 3. Objective is to maximize the discounted value of world utility

II. Climate Change Economics B. Basic Structure Production  Emissions  GHG Concentration  Global average temperature change  Damage to gross output from both control expenditures and climate change costs

II. Climate Change Economics C. Technological Advance i. Estimates 1.3% per year ii. In future, gradually declines to 1% iii. In 100 years, today’s K and L could product 227% more output i. Declines independently at 1.25% / year ii. In 100 years, a dollar of gross world product will emit only 28% of today’s CO2 1. General technological progress 2. Declining carbon intensity 3. Interaction of (1) and (2) i. In 100 years, a given amount of capital and labor will have 35% less emissions with 2.27 times more output.

II. Climate Change Economics D. Policy Experiments Impact of Program (percent difference) No Controls Policy Optimal Policy Stabilize Emissions Stabilize Climate Geoengineering 0.559

II. Climate Change Economics E. Conclusions from the Economics of Climate Change “... a massive effort to slow climate change today would be premature given current understanding of the damages imposed by greenhouse warming.” - Nordhaus (1994, p.6) 1. Optimal control is relatively small 2. More aggressive control policies have negative net benefits 3. IPCC and science community is not behaving rationally.

Are Scientists and Policy- Makers Behaving Irrationally? Over 1500 scientists, including 104 out of 178 living nobel laureates, signed the World Call for Action initiated by the Union of Concerned Scientists at Kyoto, Japan in the Fall of Over 160 countries negotiated the Kyoto Protocol, committing 35 countries to reduce GHG emissions to 5.2% below 1990 levels by

III. Expert Opinion Mainstream economist v. environmental economists Damage functions by discipline Probability distribution of expert opinion

Monte Carlo Simulation v. DICE Model (Roughgarden and Schneider) Data Source Total Discounted Consumption (trillions of 1990 US $) Optimal Carbon Tax (1990 US $ per ton) DICE* Median Mean Tail (95 th )

... the significant chance of a “surprise” causes a relatively high level of optimal abatement. - Roughgarden & Schneider

Climate Surprises & Adaptation Ocean currents Ice caps and freshwater inputs Storm frequency and severity Natural positive feedback loops Economic positive feedback loops

An increase inmakes adaptation occur Constant one time adaptation costs (K 1 )LATER The scale of declining adaptation costs (K 2 )LATER The scale of investor's climate damages (b)EARLIER The investor's sensitivity to climate (c)EARLIER Percent of damages remaining after adaptation (h)LATER The discount rate (r)LATER The rate of capital depreciation (d)LATER The mean drift rate of temperature (m)EARLIER The standard deviation of temperature (s)LATER VARIABILITY AND ADAPTATION TIMING: An options value framework The “dumb” vs. “clairvoyant” farmer

IPCC and Policy Evolution IPCC established by WMO and UNEP, 1988  Three working groups (science, adaptation, mitigation) First Assessment of the IPCC, 1990  UN Framework Convention on Climate Change, 1992 Second Assessment of the IPCC, 1995  “... balance of evidence suggests...”  Kyoto Protocol to the UNFCC, 1997 Special Report: The Regional Impacts of Climate Change - An Assessment of Vulnerability, 1997 Third Assessment of the IPCC, 2001  ????

A Decade of Progress?