Transcript Slide 1

Integrated Assessment Models
of Economics of Climate Change
Economics 331b
Spring 2009
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Fossil fuel use
generates CO2
emissions
The
emissions
-climateimpactspolicy
nexus
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, …)
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DICE and RICE models
DICE: global aggregate (like Y-Econ models).
Excel version as well as GAMS (math programming) version.
Simple and transparent; reduced form modules.
Latest full version 2007 in readings (Question of Balance)
RICE: 12 regions
Most recent version only Excel; earlier GAMS as well.
Better regional resolution, but difficult to use and
understand.
Latest full version 2010 in readings (Proc Nat Acad Sci US).
(Both models available on my website DICE and RICE models.)
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Screenshot of DICE: parameters
DICE2010_091410b.xlsx
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Screenshot of DICE: baseline
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Screenshot of DICE: optimal carbon tax
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Screenshot of DICE: GAMS program
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Reprise on computational complexity
Climate models: Linear in NT (variables x time periods)
Economic models (LP/DICE): Polynominal ≈ (NT)3
Choice of technologies/student travel/
backpack problem/: NP or ≈ 2NT
Problem
Climate
DICE
Student summer trip
NT
1,000,000,000
6,000
100
Fraction of
time since
Seconds
1,000
6
1.E+21
3E-15
2E-17
3E+03
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Scenarios for Analysis in RICE-2010
1. Baseline. No emissions controls.
2. Economic cost-benefit “optimum.” Emissions and carbon
prices to maximize discounted economic welfare.
3. Limit to 2 °C. Climatic constraints with global
temperature increase limited to 2 °C above 1900
4. Copenhagen, all countries. Uses US emissions targets
joined by other rich countries, with developing
countries entering after 1 -3 decades.
5. Copenhagen, rich only. Uses US emissions reductions
joined by other rich countries, with developing
countries staying out.
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Structure of policies
Kyoto Protocol: Rich countries only, 7 percent average cuts, only
for first “budget period”: 2008 – 2012. Minimal global cuts.
Copenhagen Accord: Deep cuts for rich countries (see next slide
for US). In principle, developing countries follow soon.
Copenhagen, rich countries only: Same as Accord, with
developing countries not participating till 2200.
Key issue of whether have the “trade” in “cap-and-trade”
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Rate of growth of CO2-GDP ratio:
History and Congressional proposals
Growth (percent per year)
0
-1
Congressional
proposals
-2
-3
-4
-5
-6
-7
50
60
70
80
90
00
10
20
30
40
50
Structure of policies
Assumption for Copenhagen Accord:
MAJOR ASSUMPTIONS FOR COPENHAGEN ESTIMATES
Capping
region:
Date of
participation
2015
US
EU
2005
Japan
2005
Russia
2005
Eurasia
2020
China
2030
India
2040
Middle East
2050
Africa
2070
Latin America
2030
OHI
2015
Other non-OECD Asia2040
Base year
Commitment
year
Fraction of
base year in
commitment
year
2005
2015
0.84
1990
1990
1990
1990
2030
2040
2050
2070
2030
2015
2040
1995
1995
2005
2020
2030
2040
2050
2070
2030
2015
2040
0.80
0.94
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
Further
reductions
tied to
[follows
House bill]
US
US
US
US
US
US
US
US
US
US
US
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Structure of policies
Assumption for Copenhagen Accord: Rich countries only
MAJOR ASSUMPTIONS FOR COPENHAGEN (Rich only)
Capping
region:
Date of
participation
2015
US
EU
2005
Japan
2005
Russia
2005
Eurasia
2150
China
2150
India
2160
Middle East
2160
Africa
2205
Latin America
2150
OHI
2015
Other non-OECD Asia2170
Base year
Commitment
year
Fraction of
base year in
commitment
year
2005
2015
0.84
1990
1990
1990
1990
2150
2160
2160
2205
2150
2015
2170
1995
1995
2005
2020
2150
2160
2160
2205
2150
2015
2170
0.80
0.94
1.00
1.00
1.00
0.90
0.90
0.75
0.90
1.00
0.90
Further
reductions
tied to
[follows
House bill]
US
US
US
.
.
.
.
.
.
US
.
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Emissions
CO2 emissions (GtC per year)
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Optimal
Baseline
Lim T<2
Copen trade
Copen rich
20
15
10
5
0
2005
2025
2045
2065
2085
2105
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Global Mean Temperature
Global mean temperature (degrees C)
7.0
Optimal
Baseline
Lim T<2
Copen trade
Copen rich
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2005
2025
2045
2065
2085
2105
2125
2145
2165
2185
2205
15
Carbon Price
1,600
Global carbon price
Carbon price (2005 $ per ton C)
1,400
Optimal
1,200
Lim T<2
1,000
Copen Trade
800
Copen rich
600
400
200
0
2005
2025
2045
2065
2085
2105
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Carbon Price
100
Carbon price (2005 $ per ton C)
90
80
70
60
50
40
30
20
10
0
2005
Optimal
2015
Lim T<2
2025
Copenhagen Trade
2035
2045
Copenhagen Rich
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Carbon Price
100
Carbon price (2005 $ per ton C)
90
80
Actual
equivalent
global carbon
price = $4/tC
70
60
50
40
30
20
10
0
2005
Optimal
2015
Lim T<2
2025
Copenhagen Trade
2035
2045
Copenhagen Rich
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Net impacts by region to 2050 of Copenhagen proposal with generous
allocations to developing countries and full trading
100
Other
OHI
Africa
Middle East
India
China
Russia
Latin America
-150
Eurasia
-100
Japan
-50
EU
0
US
Net benefit through 2050 (billions)
50
-200
-250
-300
-350
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Abatement cost by region Copenhagen Accord
Total cost including permit purchases
(% of national income)
1.5%
US
Russia
India
Latin America
1.0%
EU
China
Africa
0.5%
0.0%
2005
2015
2025
2035
2045
2055
2065
2075
2085
-0.5%
-1.0%
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Environmentalist critique
Stern/Krugman critique* of the DICE model approach:
1. Uses too high a discount rate
2. Ignores the uncertainty and the “fat tail” of lowprobability catastrophic outcomes
3. Uses a temperature sensitivity coefficient of 3 °C per
CO2 doubling instead of more realistic 6 °C
Next slide shows the sensitivity of the emissions control
rate if we introduce these sequentially. Which are most
important?
*Stern Review : http://webarchive.nationalarchives.gov.uk/+/http://www.hmtreasury.gov.uk/sternreview_index.htm
Krugman, “Building a Green Economy,” NYT Magazine, 2010,
http://www.nytimes.com/2010/04/11/magazine/11Economy-t.html
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Emissions Controls for Environmentalist Assumptions
1.0
Emissions control rate
0.9
0.8
Optimal: base assumptions
0.7
6 deg C
0.6
6 deg C and double damages
0.5
Base and low discounting
0.4
6 °C and low discounting
0.3
6 deg C, double damages, and
low discounting
0.2
0.1
0.0
2005
2025
2045
2065
2085
2105
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From Science to Implementation
1. Understand the basic science
2. Weigh costs and benefits to determine a “reasonable
policy ” for emissions, economic, and climate trajectory
3. Design an approach for translating the policy into
actual steps (taxes, regulations, subsidies, …)
4. Negotiate both among nations (e.g., Copenhagen) and
in national decision-making bodies (Congress, CCP, EU
bodies,…)
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