The economics of inaction on climate change: a sensitivity analysis

Abstract

Economic models of climate change often take the problem seriously, but paradoxically conclude that the optimal policy is to do almost nothing about it. We explore this paradox as seen in the widely used DICE model. Three aspects of that model, involving the discount rate, the assumed benefits of moderate warming, and the treatment of the latest climate science, are sufficient to explain the timidity of the model's optimal policy recommendation. With modifications to those three points, DICE shows that the optimal policy is a much higher and rapidly rising marginal carbon price; and that higher carbon price has a greater effect on physical measures of climate impacts. Our modifications exhibit nonlinear interactions; at least at low discount rates, there is synergy between individual changes to the model. At low discount rates, the inherent uncertainty about future damages looms larger in the analysis, rendering long-run economic modelling less useful. Our analysis highlights the sensitivity of the model to three debatable assumptions; it does not, and could not, lead to a more reliably ‘optimal’ cost of carbon. Cost-effectiveness analysis, focusing on the generally shorter-term cost side of the problem, reduces the economic paradoxes of the long run, and may make a greater contribution than economic optimization modelling.     

Discounting and relative prices

Environmentalists are often upset at the effect of discounting costs of future environmental damage, e.g., due to climate change. An often-overlooked message is that we should discount costs but also take into account the increase in the relative price of the ecosystem service endangered. The effect of discounting would thus be counteracted, and if the rate of price rise of the item was fast enough, it might even be reversed. The scarcity that leads to rising relative prices for the environmental good will also have direct effects on the discount rate itself. The magnitude of these effects depends on properties of the economy’s technology and on social preferences. We develop a simple model of the economy that illustrates how changes in crucial technology and preference parameters may affect both the discount rate and the rate of change of values of environmental goods. The combined effect of discounting and the change of values of environmental goods is more likely to be low – or even negative – the lower the growth rate of environmental quality (or the larger its decline rate), and the lower the elasticity of substitution between environmental quality and produced goods.     

Economics of climate change mitigation forest policy scenarios for Ukraine

Abstract

This article reveals the contribution of woodland expansion in Ukraine to climate change mitigation policies. The opportunities for climate change mitigation of three policy scenarios: (1) carbon storage in forests, (2) carbon storage and additional wood-for-fuel substitution, and (3) carbon storage with additional sink policy for wood products, are investigated by using a simulation technique, in combination with cost—benefit analysis. The article concludes that the Ukraine's forests and their expansion offer a low-cost opportunity for carbon sequestration. Important factors that influence the results are the discount rate and the time horizon considered in the models. The findings provide evidence that the storage climate change mitigation forest policy scenario is most viable for the country, under the assumptions considered in this research.     

Economics of climate change: risk and responsibility by world region

The impacts of predicted climate change will not be distributed evenly around the world. As post-Kyoto negotiations unfold, relating the geographical distribution of projected impacts to responsibility for emissions among world regions is essential for achieving an equitable path forward. This article surveys the current knowledge of regional climate consequences, and delves into the regional predictions of economic assessment models to date, examining how the uncertainties, assumptions and ethical dimensions influence the portrayal of risk at this scale. The few studies that quantitatively compared regional risk and responsibility are reviewed, and the analytical framework from one such study is applied to the 2006 Stern Review's projections to give the first regional comparison to take purchasing power and welfare considerations into account. Synthesizing burden and blame in this way is informative for policy makers; the world's most vulnerable communities—in Africa, the Indian subcontinent, Latin America, and small island states—accounted for less than 33% of global greenhouse gas emissions over the period 1961–2000, but may experience more than 75% of the ensuing climate damages this century. This analysis reinforces the call for industrialized nations to lead mitigation efforts, and to do so decisively and swiftly.     

The economics of climate change: a post-stern perspective

What have we learned from the outpouring of literature as a result of the Stern Review of the Economics of Climate Change? A lot. We have explored the model space and the parameter space much more thoroughly. The Stern Review has catalyzed a fundamental rethinking of the economic case for action on climate change. We are in a position to give some conditions that are sufficient to provide a case for strong action on climate change, but we need more work before we have a fully satisfactory account of the relevant economics. In particular, we need to understand better how climate change affects natural capital—the natural environment and the ecosystems comprising it—and how this in turn affects human welfare.     

Policy uncertainty and diffusion of carbon capture and storage in an optimal region

Abstract

The social cost of carbon (SCC) is the value of the climate change impacts from 1 tonne of carbon emitted today as CO₂, aggregated over time and discounted back to the present day. We used PAGE2002, the same probabilistic integrated assessment model as used by the Stern Review (Stern et al., 2006), to calculate the SCC and to examine how it varies with discount rate; and find that it is not sensitive to the path of emissions on which the tonne of carbon is superimposed. The mean value of the SCC is $43 per tonne under both a business-as-usual scenario, and under a scenario aimed at stabilizing CO₂ concentrations at 550 ppm. This counter-intuitive result is caused by the interplay between the logarithmic relationship between forcing and concentration, the nonlinear relationship of damage to temperature, and discounting. However, the SCC is sensitive to a number of scientific and economic inputs to the model. Two recent distributions for the sensitivity of climate to a doubling of atmospheric CO₂ (Murphy et al., 2004; Stainforth et al., 2005) increase the mean value of the SCC from $43 to $68 and $90 per tonne. Using a pure rate of time preference of 0.1% per year, as in the Stern Review, gives a mean SCC of $365 per tonne.     

The economics of climate change in Mexico: implications for national/regional policy

The recent Mexican government study, The Economics of Climate Change in Mexico (ECCM), which has largely influenced Mexico's stance on climate change issues and international negotiations, is critically reviewed. Whilst the importance of such government-supported national studies as a first attempt to provide estimates on the anticipated costs of climate change is recognized, there is scope to strengthen the underlying analysis. It is argued that some of the key policy recommendations of ECCM are weakly supported by its analysis, that it has some methodological weaknesses, and that there are inconsistencies with the approach adopted in the Stern Review. Furthermore, it is likely that the estimated costs severely under-represent future climate change damages in the case of Mexico, which could deter drastic mitigation and adaptation efforts. New estimates of the costs of climate change are presented based on the impact functions of two integrated assessment models.

Policy relevance

Due to its large influence in building a regional view of what climate change could imply for Latin America, the analysis of the ECCM highlights the need to strengthen the analysis of national climate documents to ensure they properly support national/regional policy making. The academic evaluation of national climate change documents is a necessary prerequisite for the development of sound climate policy.     

Climate governance,justice, and transnational civil society

Justice dilemmas associated with climate change and the regulatory responses to it pose challenges for global governance, arguably hampering progress and raising concerns over efficacy and relevance. Scholarly literature suggests that transnational civil society groups can help address problems of governance and injustice that cross borders and pit states against each other. Findings of a comparative, qualitative study of climate justice advocacy suggest, however, that civil society groups' work in the US and EU is significantly shaped by institutional factors specific to those regimes, limiting advocates' broader impact. Moreover, political opportunities for the pursuit of climate action, and justice particularly, have diminished in those settings. By contrast, the United Nations Framework Convention on Climate Change (UNFCCC) provides greater opportunities for discussions of justice, although civil society actors are significantly constrained within it. It is argued that greater roles for civil society in the UNFCCC could prove constructive in the face of current challenges connected with justice issues. Three themes in civil society advocacy linking principles of global justice with current climate policy debates are summarized. Finally, it is suggested that the first iteration of the UNFCCC Periodic Review provides timely opportunities to more fully draw upon civil society's potential contributions toward a fair and effective global climate regime.

Policy relevance

The roles of civil society organizations in climate governance were examined in three policy contexts: the UNFCCC, the US, and the EU, with special attention to advocacy addressing issues of equity and justice, identified as key challenges for a post-2012 global agreement. Findings suggest that (1) civil society roles are significantly constrained in each context, and (2) political opportunities for climate advocacy have diminished since 2009 in the US and EU, underlining (3) the continued salience of the UNFCCC as a forum for engagement and the construction of effective and equitable climate policy. Potential exists for increased civil society involvement at the UNFCCC to help resolve obstacles based in divergent national priorities. Three areas of justice-focused civil society activity are reviewed for current negotiation topics and the governance structure of the institution. The current UNFCCC Periodic Review is identified as an opportunity to increase civil society involvement.     

When worry about climate change leads to climate action: How values,worry and personal responsibility relate to various climate actions

The IPCC's report on Global Warming of 1.5°C positioned climate change as one of the most worrying issues mankind has ever faced. Although many people worry about climate change, there is still much unknown about the origins and outcomes of worry about climate change; particularly, whether and how it can motivate specific and personal climate actions. The current paper investigates this critical relationship with data from the European Social Survey Round 8 (44,387 respondents from 23 countries). As expected, the more individuals worried about climate change, the more likely they were to take and support climate action. Yet, the process through which this association occurred differed between actions. Specifically, worry was both directly and indirectly, via feelings of personal responsibility to reduce climate change, associated with climate policy support; whereas worry was mostly indirectly associated with personal climate mitigation behaviours, via personal responsibility. In addition, worry about climate change appears partly rooted in biospheric values (i.e., caring about nature and the environment), and biospheric values were also clearly, directly and positively related to personal climate mitigation behaviours. The relationships were highly consistent across countries but varied somewhat in size. The results show how generic feelings about climate change can directly and indirectly affect both climate policy support and personal climate mitigation behaviours, thereby providing critical insights for science and policy making.     

Time Discounting and Optimal Emission Reduction: An Application of FUND

Time preferences are a dominant influence in cost-benefit analyses of long-term issues such as climate change. FUND, a model for optimal emission control, is used to spell out this influence. Classic discounting at various rates is contrasted with Heal discounting where the discount factor depends logarithmically on the time distance (it does linearly in the classic case), and Rabl discounting where the discount rate is set to zero at a certain point in the future. The choice of the discount rate has a strong influence on total and short-term emission reduction. The effect of Rabl and Heal discounting is like lowering the classic discount rate. International cooperation has a larger effect on optimal emission reduction, however, than does the discount rate. Larger still is the influence of explicitly taking up long-term goals for atmospheric concentrations in the welfare function, using a modification of the Chichilnisky criterion.     

Environmental impacts of sequestering carbon through forestation

An issue that arises when considering the potential damages of climate change is whether it is possible to slow or stop human caused climate change. One suggestion to reduce the threat of global warming is to change our management of forests to offset carbon emissions. This study examines the impacts of such a policy on environmental amenities in existing Douglas-fir forests. In this analysis Douglas-fir forest management is modelled in a Faustmann framework, where the forest produces three goods: timber, carbon sequestration and amenities. Using this framework, the level of amenities under profit-maximizing and carbon-sequestration management regimes are compared. The change in the level of seven specific amenities is modelled. These amenities include trout, wildlife diversity, visual aesthetics, soil stability, deer populations, elk populations, and water yield. The study finds that the effect of a carbon sequestration policy will depend on the discount rate chosen. In most situations externalities vary less than plus or minus ten percent. However, those externalities that exhibit discontinuities in their relationship to forest age may vary a hundred percent or more depending on the discount rate used.     

Personalized risk messaging can reduce climate concerns

One potential barrier to climate policy action is that individuals view climate change as a problem for people in other parts of the world or for future generations. As some scholars argue, risk messaging strategies that make climate change personally relevant may help overcome this barrier. In this article, we report a large-n survey experiment on San Francisco Bay Area residents to investigate how providing spatially-resolved risk information to individuals shapes their climate risk perceptions in the context of sea-level rise. Our results suggest that personalized risk messaging can sometimes reduce concern about sea-level rise. These experimental effects are limited to respondents who believe that climate change is happening. Further, we do not find an effect of providing local risk messages on an individual's willingness to pay for regional climate adaptation measures. Our results emphasize that local messaging strategies around sea-level rise risks may not have the clear impacts that some advocates and scholars presume.     

Accounting for uncertainties and time preference in economic analysis of tackling climate change through forestry and selected policy implications for Scotland and Ukraine

The paper discusses the development of economic techniques for dealing with uncertainties in economic analysis of planting trees to mitigate climatic change. In consideration of uncertainty, time preference and intergenerational equity, the traditional cost-benefit analysis framework is challenged with regard to the discounting/non-discounting of carbon uptake benefits, and because it usually uses a constant and positive discount rate. We investigate the influence of various discounting protocols on the outputs of economic analysis. The idea of using the declining discount rate is also considered. Several numerical examples dealing with the analysis of afforestation for carbon sequestration in Scotland and Ukraine are provided. We show that the choice of discounting protocols have a considerable influence on the results of economic analysis, and therefore, on the decision-making processes related to climate change mitigation strategies. The paper concludes with some innovative insights on accounting for uncertainties and time preference in tackling climate change through forestry, several climate policy implications of dealing with uncertainties, and a brief discussion of what the use of different discounting protocols might imply for decision making.     

Understanding public complacency about climate change: adults’ mental models of climate change violate conservation of matter

Public attitudes about climate change reveal a contradiction. Surveys show most Americans believe climate change poses serious risks but also that reductions in greenhouse gas (GHG) emissions sufficient to stabilize atmospheric GHG concentrations can be deferred until there is greater evidence that climate change is harmful. US policymakers likewise argue it is prudent to wait and see whether climate change will cause substantial economic harm before undertaking policies to reduce emissions. Such wait-and-see policies erroneously presume climate change can be reversed quickly should harm become evident, underestimating substantial delays in the climate’s response to anthropogenic forcing. We report experiments with highly educated adults – graduate students at MIT – showing widespread misunderstanding of the fundamental stock and flow relationships, including mass balance principles, that lead to long response delays. GHG emissions are now about twice the rate of GHG removal from the atmosphere. GHG concentrations will therefore continue to rise even if emissions fall, stabilizing only when emissions equal removal. In contrast, most subjects believe atmospheric GHG concentrations can be stabilized while emissions into the atmosphere continuously exceed the removal of GHGs from it. These beliefs – analogous to arguing a bathtub filled faster than it drains will never overflow – support wait-and-see policies but violate conservation of matter. Low public support for mitigation policies may arise from misconceptions of climate dynamics rather than high discount rates or uncertainty about the impact of climate change. Implications for education and communication between scientists and nonscientists (the public and policymakers) are discussed.     

1980—2017年四川省气候变化综合区划北大核心

基于四川省1980—2017年主要气象要素观测资料,运用ArcGIS空间分析法,分别探讨了气温、降水量和极端气候指数的年际空间变化特征;同时建立极端气候指标体系,结合熵权法、模糊综合评价法开展综合极端气候指数区划,最终完成1980—2017年四川省气候变化综合区划。研究表明:1980—2017年四川省极端气候事件的发生率呈上升趋势,从区域分布上大致表现为东高西低;根据四川省气温和降水量变化速率区划、综合极端气候指数区划,将四川省划分为6个气候变化区,其中,川东北地区综合气候变化速率最快。     

Is hope good for motivating collective action in the context of climate change? Differentiating hope’s emotion- and problem-focused coping functions

Climate change may be the most fundamental collective action problem of all time. To solve it through collective action, collective motivation is required. Yet, given the complexity and scale of the collective problem, it may be difficult for individuals to experience such motivation. Intriguingly, the experience of hope may increase collective motivation and action. We offer an integrative coping perspective on hope and collective action in the context of climate change. It explains how hope stimulates individuals’ collective motivation to act against climate change (serving a problem-focused coping function), or fails to do so (serving an emotion-focused coping function). Testing these competing hypotheses, we conducted three studies that experimentally manipulated a core antecedent of hope (i.e., the perceived possibility of change) among US participants (total N = 1020). Across the board, this manipulation increased individuals’ hope but not their collective motivation and action. Furthermore, collective motivation predicted collective action intentions across all three studies. Hoping thus seems to serve an emotion-focused coping function and hence may not increase the collective motivation required for collective action in the context of climate change.     

The economics of avoiding dangerous climate change. An editorial essay on The Stern Review

The problem of avoiding dangerous climate change requires analysis from many disciplines. Mainstream economic thinking about the problem has shifted with the Stern Review from a single-discipline focus on cost-benefit analysis to a new inter-disciplinary and multi-disciplinary risk analysis, already evident in the IPCC Third Assessment Report. This shift is more evidence of the failure of the traditional, equilibrium approach in general to provide an adequate understanding of observed behaviour, either at the micro or macro scale. The economics of the Stern Review has been accepted by governments and the public as mainstream economic thinking on climate change, when in some critical respects it represents a radical departure from the traditional treatment. The conclusions regarding economic policy for climate change have shifted from “do little, later” to “take strong action urgently, before it is too late”. This editorial sets out four issues of critical importance to the new conclusions about avoiding dangerous climate change, each of which have been either ignored by the traditional literature or treated in a misleading way that discounts the insights from other disciplines: the complexity of the global energy-economy system (including the poverty and sustainability aspects of development), the ethics of intergenerational equity, the understanding from engineering and history about path dependence and induced technological change, and finally the politics of climate policy.     

Adapting to climate change impacts on water resources in England—An assessment of draft Water Resources Management Plans

Climate change is expected to produce reductions in water availability in England, potentially necessitating adaptive action by the water industry to maintain supplies. As part of Ofwat's fifth Periodic Review (PR09), water companies recently released their draft Water Resources Management Plans, setting out how each company intends to maintain the balance between the supply and demand for water over the next 25 years, following Environment Agency guidelines. This paper reviews these plans to determine company estimates of the impact of climate change on water supply relative to other resource pressures. The approaches adopted for incorporating the impact in the plans and the proposed management solutions are also identified.Climate change impacts for individual resource zones range from no reductions in deployable output to greater than 50% over the planning period. The estimated national aggregated loss of deployable output under a “core” climate scenario is ∼520 Ml/d (3% of deployable output) by 2034/2035, the equivalent of the supply of one entire water company (South West Water). Climate change is the largest single driver of change in water supplies over the planning period. Over half of the climate change impact is concentrated in southern England. In extreme cases, climate change uncertainty is of the same magnitude as the change under the core scenario (up to a loss of ∼475 Ml/d). 44 of the 68 resource zones with available data are estimated to have a climate change impact. In 35 of these climate change has the greatest impact although in 10 zones sustainability reductions have a greater impact. Of the overall change in downward pressure on the supply-demand balance over the planning period, ∼56% is accounted for by increased demand (620 Ml/d) and supply side climate change accounts for ∼37% (407 Ml/d). Climate change impacts have a cumulative impact in concert with other changing supply side reducing components increasing the national pressure on the supply-demand balance. Whilst the magnitude of climate change appears to justify its explicit consideration, it is rare that adaptation options are planned solely in response to climate change but as a suite of options to provide a resilient supply to a range of pressures (including significant demand side pressures). Supply-side measures still tend to be considered by water companies to be more reliable than demand-side measures.     

Virtue and vulnerability: Discourses on women, gender and climate change

In the limited literature on gender and climate change, two themes predominate - women as vulnerable or virtuous in relation to the environment. Two viewpoints become obvious: women in the South will be affected more by climate change than men in those countries and that men in the North pollute more than women. The debates are structured in specific ways in the North and the South and the discussion in the article focuses largely on examples from Sweden and India. The article traces the lineage of the arguments to the women, environment and development discussions, examining how they recur in new forms in climate debates. Questioning assumptions about women's vulnerability and virtuousness, it highlights how a focus on women's vulnerability or virtuousness can deflect attention from inequalities in decision-making. By reiterating statements about poor women in the South and the pro-environmental women of the North, these assumptions reinforce North-South biases. Generalizations about women's vulnerability and virtuousness can lead to an increase in women's responsibility without corresponding rewards. There is need to contextualise debates on climate change to enable action and to respond effectively to its adverse effects in particular places.     

A Social Discount Rate for Climate Damage to Future Generations Based on Regulatory Law

This article examines the implications for the social discount rate for damage due to climate change if risk to future generations is handled in accordance with the laws regulating our handling of risk to contemporaries. The conclusions are the following. Under current law, neither geographic distance nor differences in wealth between risk creator and risk bearer play any part in establishing a standard of ‘reasonable care'. The concept of intergenerational justice requires these same principles to be applied in the intergenerational context too, implying a zero consumption rate of interest for climate damage. Assuming that the extent to which mitigation is at the expense of alternative investments is equal to society's marginal propensity to save, the social discount rate becomes society's marginal propensity to save times the long-term market rate of return on private investment, implying a social discount rate of around one per cent or a fraction of one per cent. This formula is exact under the assumption of average saving behaviour and by attributing consumption losses due to investment in damage prevention before damage occurs to the risk creator and after damage occurs to the risk bearer.