Download Impact on GDP of climate change / low carbon

THE MACROECONOMIC IMPACT OF
CLIMATE CHANGE
CONFERENCE
AT UNIVERSITY PARIS-DAUPHINE
PARIS, DECEMBER 16TH, 2016
by
Frédéric Gonand
University Paris-Dauphine
UIMM
Frédéric Gonand – Macroeconomic impact of climate change - December 2016
4 QUESTIONS:
1. What is the average global impact on GDP of climate change /
low carbon energy policies according to the literature?
-> rather low. A few % of GDP over some decades. Less than -0,05% per annum.
2. Based on these estimates, is there a rational basis for policy
action against climate change?
-> yes. The mean is low but the variance is high, with a probability of a sizeable
downside risk that can not be neglected.
3. Over the medium run (10/15 years), is there a concern for
growth related with climate change?
-> yes. For instance, air pollution can weigh on labor productivity by min. 5%.
4. Can we really curb down very sizably aggregate carbon
emissions only with a carbon tax and renewables?
-> probably not. Technological progress bolstering energy efficiency is required.
Frédéric Gonand – Macroeconomic impact of climate change - December 2016
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IMPACT ON GDP OF CLIMATE CHANGE / LOW CARBON
POLICIES ACCORDING TO THE LITERATURE (1/3)
The Integrated Assessment Models simulate the interactions
between the macroeconomy, the industrial sectors and the
environment at the global scale:
DICE – W.Nordhaus (1994), then RICE. Lower emissions assimilated to
investments in environmental capital.
DART – Decke et al. (2001). Effect of changes in agricultural
productivity + sea level.
WITCH – Bosetti et al. (2006) - strategic interactions between
countries in lowering CO2 emissions.
MERGE (Manne et al., 1995), FUND (Tol, 2005), FAIR, PAGE (1993)…
ENV-linkages (OECD), Peseta II (European Commission), IPCC (UN)…
Frédéric Gonand – Macroeconomic impact of climate change - December 2016
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IMPACT ON GDP OF CLIMATE CHANGE / LOW CARBON
POLICIES ACCORDING TO THE LITERATURE (2/3)
Current research does not suggest that global warming may
reduce sizably economic growth on average in the world:
around -0,05% GDP per annum:
• OECD: -2% world GDP in 2060 (-> around -0,05% GDP/y).
• WPII of IPCC (UN): between -0.2% and -2.0% if +2.5°C.
• Other studies confirm these orders of magnitude (cf. Tol, 2008).
• Main factor: rise in the level of the seas.
NB: had the global climate change been limited to around +1,1°C, it could
have enhanced global GDP according to the literature (higher agricultural
yields)…
Frédéric Gonand – Macroeconomic impact of climate change - December 2016
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IMPACT ON GDP OF CLIMATE CHANGE / LOW CARBON
POLICIES ACCORDING TO THE LITERATURE (3/3)
• Low-carbon transition policies: cf. special issue of The Energy
Journal (2010):
Different general equilibrium models assessing the aggregate effects of
policies aiming at the 450ppm objective (Knopf et al., 2010): MERGE,
REMIND-R...
Results: the 450ppm target is technologically feasible + would
entail a limited loss of GDP of -2,5% on average by 2050 - thus
around -0,05% per annum from now on.
Intuition: higher energy prices weigh on growth ceteris paribus, at least in
the sort/medium run.
• Thus: academic studies published in international peerreviewed journals suggest that a low-carbon transition can NOT
massively create jobs at the aggregate level (= in net terms).
Frédéric Gonand – Macroeconomic impact of climate change - December 2016
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IN THIS CONTEXT, IS THERE A SUFFICIENT, RATIONAL
MOTIVE TO DO ANYTHING?
Yes.
• Geographical inequality: economic impact of global warming
concentrated on South-East Asia and India (rise in the sea level
threatening dense urban areas).
• Limitations of the models: cf. rather ad hoc form of the
damage function relating GDP with higher temperatures, rightly
criticized by Pindyck (2014) + debate about the discount rate.
• Possibility of extreme climatic events if global warming gets
out of control: the insurance argument.
If +6°C -> massive changes in transoceanic circulation, meltdown of much ice in
Antarctic, methane emissions if Russian permafrost melts… Direct threat for human
life in some zones.
In this context, it is rational for contemporary economies to self-insure against this
risk by implementing policies limiting global warming.
Frédéric Gonand – Macroeconomic impact of climate change - December 2016
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OVER THE MEDIUM RUN (10/15 Y), IS THERE A CONCERN
FOR GROWTH RELATED WITH CLIMATE CHANGE?
Yes. The medium-term production function can be influenced.
The case of air pollution (same sources as climate change: transport, energy
sector…)
• Air pollution reduces significantly labor productivity (c.-5%) :
o A diminution of tropospheric ozone by -20g/m3 raises labor productivity by 5,5 % in a
farm in California (Zivin et Neidell, 2012). WHO threshold for ozone is 100g/m3.
o A rise of 10g/m3 of small particulate matter (< 2,5 microns) diminishes the
productivity of workers by close to 6% (fruit packaging company, California) (Chang,
Graff Zivin, Gross et Neidell, 2014).
o In China, the productivity of workers is diminished by 15% in case of severe air
pollution events (up to 200g/m3 of PM<2,5 microns)(cf. Li, Liu et Salvo, 2015).
• Air pollution also weighs on the number of hours effectively
worked (illness) : The closing of a refinery in Mexico City allowed for a diminution
of 20% of SO2 in the nearby 5km, and increased by 3,5% the number of hours worked
(Hanna et Oliva, 2014).
Frédéric Gonand – Macroeconomic impact of climate change - December 2016
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CARBON EMISSIONS UNLIKELY TO BE MUCH REDUCED ONLY
WITH CARBON TAX AND RENs -> NEED FOR HIGHER ENERGY EFFICIENCY
Source: Gonand and Jouvet (2016) (on German data).
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THANK YOU FOR YOUR ATTENTION
Contact: [email protected]
Frédéric Gonand – Macroeconomic impact of climate change - December 2016
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