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.     

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.     

A missed opportunity: The Stern Review on climate change fails to tackle the issue of non-substitutable loss of natural capital

The Stern Review on The Economics of Climate Change is one of the few cost-benefit analyses of climate change to come out in favour of immediate and decisive action to reduce greenhouse gas emissions. The choice of a low discount rate is the main reason for the Review's divergence in conclusions compared to other economic studies. I argue that the Review's ethical reasons for a low discount rate are defendable, but unlikely to find wider public support. In order to justify spending a large amount of scarce resources for the purpose of limiting climate change, it is necessary to move beyond the discounting debate. Unfortunately, the Review did not develop a persuasive argument for why climate change threatens to inflict upon future generations irreversible and non-substitutable damage to and loss of natural capital. This represents a missed opportunity as it would have provided a much more compelling case for drastic action than the Review's arguments for a low discount rate.     

面向福祉和公平的需求侧减排路径、潜力与政策

需求侧减排是协同实现碳中和目标与民生福祉、社会公平改善的重要抓手,也是以“人”为中心连接不同可持续发展目标的关键纽带。IPCC第六次评估报告首次独立成章（第五章）介绍应对气候变化的需求侧解决方案。报告将需求侧减排与福祉、公平等目标关联起来,依循“避免-转变-改进（ASI）”的战略框架,梳理了需求侧的减排措施和减排潜力;揭示了社会文化、心理活动、技术水平和基础设施等因素对需求侧减排的关键驱动作用,指出多种驱动因素之间相互依赖,呈现叠加效应;明确了激发需求侧减排的动力和能力需要科学的行为干预和政策设计以推动系统性变革。文中对该章主要结论做扼要解读,同时就该章节对中国的相关研究和政策启示展开讨论。     

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.     

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.     

Activating the legacy motive mitigates intergenerational discounting in the climate game

Climate change will have dangerous impacts on future generations. Accordingly, people in the present have an obligation to make sacrifices for the benefit of future others. However, research on temporal and social discounting shows that people are short-sighted and selfish—they prefer immediate over delayed benefits, and they prefer benefits for themselves over others. Discounting over long-term time horizons is known as intergenerational discounting, and is a major obstacle to climate action. Here, we examine whether persuasive messages that activate the legacy motive—the desire to build a positive legacy—can increase the willingness of current actors to make sacrifices for future generations. Using a climate change public goods game, we find that when the benefits of cooperation accrue to decision makers in the present, high levels of cooperation are sustained, whereas when the benefits accrue to future generations, intergenerational discounting makes cooperation elusive. Crucially, when the legacy motive is activated—by promoting death awareness, feelings of power asymmetry, and intergenerational reciprocity—intergenerational discounting is attenuated, and cooperation is restored. Our results suggest climate action can be fostered by framing climate change as an intergenerational dilemma, and by crafting persuasive messages that activate people’s drive to leave a positive legacy.     

Ecosystem Evaluation, Climate Change and Water Resources Planning

This paper considers ecosystem evaluation under conditions of climate change in the context both of the U.S. Water Resources Council's Principles and Guidelines (P&G) and the more general Federal regulations governing environmental evaluation. Federal water agencies have responsibilities for protecting aquatic ecosystems through their regulatory programs and operations and planning missions. The primary concern of water resources and aquatic ecosystems planning in the United States is on the riparian or floodplain corridors of river systems. In the context of climate change, planning for these systems focusses on adaptation options both for current climate variability and for that engendered by potential climate change.Ecosystems appear to be highly vulnerable to climate change, as described in IPCC reports. Aquatic ecosystems are likely to be doubly affected, first by thermally induced changes of global warming and second by changes in the hydrologic regime. Perhaps as much as any of the issues dealt with in this issue, the evaluation of ecosystems is linked to fundamental questions of criteria as well as to the details of the Federal environmental planning system. That system is a densely woven, interlocking system of environmental protection legislation, criteria and regulations that includes a self-contained evaluation system driven by the National Environmental Policy Act (NEPA) procedural guidelines (United States Council on Environmental Quality, 1978) and Environmental Impact Statement (EIS) requirements. The Corps of Engineers must use both the P&G and the NEPA/EIS system in discharging its responsibilities.If U.S. Federal agencies are to take the lead in formulating and evaluating adaptation options, there needs to be a reexamination of existing evaluation approaches. Among the elements of the P&G that may require rethinking in view of the prospects of global climate change are those relating to risk and uncertainty, nonstationarity, interest rates, and multiple objectives. Within the government planning process, efforts must be made to resolve inconsistencies and constraints in order to permit the optimal evaluation of water-based ecosystems under global climate change. The interrelationships of the two systems are described in this paper, and alternative ways of viewing the planning process are discussed. Strategic planning and management at the watershed level provides an effective approach to many of the issues. Current NEPA/EIS impact analysis does not provide a suitable framework for environmental impact analysis under climate uncertainty, and site-specific water resources evaluation relating to climate change appears difficult at current levels of knowledge about climate change. The IPCC Technical Guidelines, however, provide a useful beginning for assessing the impacts of future climate states.     

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.     

A CER discounting scheme could save climate change regime after 2012

We can generate a net global GHG emission reduction from developing countries (in an UNFCCC term, non-Annex 1 Parties) without imposing targets on them, if we discount CERs generated from CDM projects. The CER discounting scheme means that a part or all of CDM credits, i.e., CERs, made by developing countries through unilateral CDM projects will be retired rather than sold to developed countries to increase their emissions. It is not feasible to impose certain forms of target (whether sectoral or intensity targets) on non-Annex 1 whose emission trend is hard to predict and whose industrial structure is undergoing a rapid change.

Instead of imposing targets (a command and control approach), we should apply market instruments in generating a net global emission reduction from non-Annex 1. Since April 2005 when the first unilateral CDM was approved by the CDM Executive Board, CDM has been functioning as a market mechanism to provide incentives for developing countries to initiate their own emission reduction projects. As CDM is the only market mechanism engaging developing countries in the Kyoto Protocol, we should try to re-design CDM so that it can generate net global emission reductions by introducing the idea of discounting CERs. But in order to produce meaningful GHG emission reductions by discounting CERs, the project scope of CDM has to be expanded by relaxing project additionality criteria while maintaining strict technical additionality criteria. Agreeing on the CERs Discounting Scheme will have a better political chance than agreeing on imposing emission reduction targets on developing countries.     

针对IPCC评估报告中海洋碳循环的疑问——δ13C收支平衡法的验证

 通过对比IPCC历次评估报告中全球碳循环的收支发现,尽管评估报告在估算各主要碳库及其间的通量时差别不大,但表层至中深层海水间溶解无机碳通量却存在巨大差异。利用δ¹³C的收支平衡检验了这一通量的适用范围,结果表明：IPCC 1996年和2007年评估报告对此通量估计过大,而1990年和2001年评估报告估计偏小。     

Climate change 1992: The supplementary report to the IPCC impacts assessment: edited by W.J. McG. Tegart, G.W. Sheldon and J.H. Hellyer Australian Government Publishing Service, Canberra, 1993, 112 pp

The Intergovernmental Panel on Climate Change (IPCC) completed its first round of assessments of the science, impacts and response to climate change in 1990. In 1992, the IPCC pulled together updates to the first round of reports (J. Houghton, G.J. Jenkins and J.J. Ephraums, eds, Climate Change: The IPCC Scientific Assessment, Cambridge University Press, Cambridge, 1990; W.J. McG. Tegart, G.W. Sheldon and D.C. Griffiths, eds, Climate Change: The IPCC Impacts Assessment, Australian Government Publishing Service, Canberra, 1990). At the same time, the literature on the potential impacts of climate change has expanded enormously. Four volumes are reviewed here.     

Replacing carbon lost from forests: an assessment of insurance, reserves, and expiring credits

Concern over the “non-permanence” or reversibility of carbon sequestration projects has been prominent in discussions over how to develop guidelines for forest project investments under the Clean Development Mechanism (CDM) of the UNFCCC Kyoto Protocol. Accordingly, a number of approaches have been proposed that aim to help ensure that parties do not receive credit for carbon that is lost before project obligations are fulfilled. These approaches include forest carbon insurance, land reserves, and issuance of expiring credits. The potential costs of each of these different approaches are evaluated using a range of assumptions about project length, risk and discount rate, and a comparison of costs is ventured based on the estimated reduction in value of these credits compared with uninsured, and permanent credits. Obstacles to participation in the different approaches are discussed related to problems of long-term commitments, project scale, rising replacement costs, and low credit value. It is concluded that a system of expiring credits, which could be coupled with insurance or reserves, could guarantee obligations that span time-scales longer than that of conventional insurance policies while maintaining incentives for long-term sequestration.     

气候变化与生计和贫困研究的认知

本文介绍了IPCC第五次评估报告中关于气候变化、生计和贫困研究的认知。研究者采用生计透镜的方法,评估气候变化与多维角度的贫困之间的相互作用。气候变化作为“威胁放大器”,对于贫困人口及其生计增加了额外的负担。同时强调了气候变化可能产生新的贫困人口类群。通过对气候变化政策响应的综述,得出气候变化政策响应通常并不能使贫困人口受益的结论。     

Why is risk aversion unaccounted for in environmental policy evaluations?

U.S. environmental regulations are increasingly influenced by cost-benefit analyses that are performed based on the guidance of the Office of Management and Budget (OMB). The OMB’s Circular A-4 directs Federal agencies to assume “risk neutrality” in conducting regulatory analysis, and in important instances, this guidance is not supported by economic theory. Risk neutrality is computationally convenient, and it can be justified when only the costs and benefits of regulations themselves are uncertain, because these risks are spread across a large population. However, the Circular A-4 does not distinguish between regulations that cause uncertainty and those that reduce pre-existing (i.e. baseline) uncertainty, such as the potential for catastrophic climate change. Basic economic theory shows that risk aversion should be incorporated into evaluations of policies that reduce pre-existing environmental uncertainty. Regulatory analyses generally ignore these risk-reduction benefits, leading to misinformed policymaking. Quantifying risk premiums is difficult and controversial, but no more so than discounting future costs and benefits to present value terms. Similar to how OMB has established discount rates for use in regulatory analyses, a method for when and how to incorporate risk aversion into policy evaluations should replace the blanket guidance for risk neutrality.     

IPCC AR6报告解读：水循环变化

水循环在全球和区域气候变化中扮演重要角色,与全球变暖背景下水循环变化密切相关的淡水资源短缺、副热带干旱区扩张、极端旱涝灾害频发等问题日益突出,严重制约生态系统和人类社会的可持续发展。在IPCC第六次评估报告中,第一工作组首次单独设立一章,即第八章,用于系统性评估全球水循环变化。评估显示,自20世纪中叶以来,人类活动已经显著地改变了全球水循环,包括大气湿度和降水强度的整体性增加,全球干旱模态改变,南半球风暴轴向极地移动等。已经发生的水循环变化受到温室气体、气溶胶、土地利用在内的多种人类强迫的影响,而未来全球水循环变化将逐渐由温室气体主导。     

对IPCC第五次评估报告中可持续发展与公平相关问题的解读

可持续发展和公平是IPCC第五次评估报告第三工作组报告中关键的框架性和交叉性问题,贯穿报告各章节。此次评估报告依据近年来最新研究成果,在以往评估报告的基础上,进一步拓展和深化了对气候变化、可持续发展与公平相互关系的认识,强调要在可持续发展与公平框架下综合评估气候政策,促进减缓气候变化与可持续发展和公平的多目标协同,防范和减少减缓行动带来的风险,努力实现发展路径的转型。     

On the role of climate scenarios for adaptation planning

Climate scenarios have been widely used in impact, vulnerability and adaptation assessments of climate change. However, few studies have actually looked at the role played by climate scenarios in adaptation planning. This paper examines how climate scenarios fit in three broad adaptation frameworks: the IPCC approach, risk approaches, and human development approaches. The use (or not) of climate scenarios in three real projects, corresponding to each adaptation approach, is investigated. It is shown that the role played by climate scenarios is dependant on the adaptation assessment approach, availability of technical and financial capacity to handle scenario information, and the type of adaptation being considered.     

Revised Rules of Procedure for the IPCC Process

The Intergovernmental Panel on Climate Change (IPCC)held its fifteenth Plenary session in San Jose, CostaRica in April, 1999. One major item on the agenda wasthe adoption of a revised set of rules of procedurefor the Panel's work with its Third Assessment Report(TAR). The IPCC process is already a time-consumingand cumbersome process, and the new rules of procedureadopted at the fifteenth Plenary session adds furthercomplexity and bureaucracy to the process.