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Download The Impacts of Climate Change
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Economic Perspectives on Climate Change William D. Nordhaus Yale University Public Lecture Becker-Friedman Institute April 2014 1 The challenge of climate change • A new and controversial area: global, costly, large impacts • Affects virtually every area of society and the economy • I will emphasize an economic innovation: using the market mechanism to achieve environmental goals and particularly the role of carbon prices. 2 Emissions and climate science 3 Global CO2 emissions since 1900 4 Trend in CO2 emissions relative to GDP for US 5 CO2 Concentrations (ppm) 420 400 CO2: South Pole CO2: Hawaii 380 360 340 320 300 1960 1970 1980 1990 2000 2010 6 CO2 concentrations for last 800,000 years TODAY 7 Temperature record (°C), 200 - 1980 Long-term temperature records .6 Mann's proxy (based on tree rings, bore holes, etc.) .4 .2 .0 -.2 -.4 -.6 0700 Sources: [25] 0900 1100 1300 1500 1700 1900 2100 8 Merged temperature record (°C), 200 - 2012 Long-term temperature records .6 Mann's proxy (based on tree rings, bore holes, etc.) Instrumental record (average of 3) .4 .2 .0 -.2 -.4 -.6 0700 0900 1100 1300 1500 1700 1900 2100 9 The recent temperature record and modeling Actual and model prediction [degrees C from period average] 1.0 0.8 0.6 GISS record Hadley record NCDC record Model prediction 0.4 0.2 0.0 -0.2 -0.4 -0.6 1900 1925 1950 1975 2000 10 The Impacts of Climate Change The Copenhagen Accord 2009 recognized “the scientific view that the increase in global temperature should be below 2 degrees Celsius.” This is the most difficult area of climate science. Examples: – Agriculture – Potential species extinctions – “Tipping points” and abrupt climate change 11 Studies of impact of climate change: The example of low-latitude rice With adaptation Without adaptation 12 12 The example of temperate-zone wheat With adaptation Without adaptation 13 13 Major impacts: non market (here extinction rates) 60 Historical extinction rate (%/century) Extinction (% per period) 50 Projected extinction rate (%/century +) 40 30 20 10 0 14 Issues of Tipping Points and Catastrophic Risks • Major areas of concern: – Reversal of North Atlantic deepwater circulation – Impact of melting of Arctic summer icecap – Melting of Greenland and West Antarctic ice sheets – Abrupt climate change – Ocean carbonization 15 Example of Greenland Ice Sheet at 6 °C warming IPCC, Science, AR4, p. 830. 16 Aggregate damage estimates from different studies 17 Damages as pe of outp as percent Damages of output as percent Damages DICE model 1 34damage estimates from different studies Aggregate IPCC estimate 6 Damages as percent of output 5 4 0 23 -1 12 Tol survey -2 01 DICE model 2 -3 -10 0.0 -1 -2 1 -2 -3 3 IPCC estimate Global mean temperature increase (°C) 0.0 0.5 1.0 4.0 4.5 5.0 0.5 IPCC 2014 increase (°C) Global mean temperature 3.0 2.5 2.0 1.5 1.0 Estimate 3.5 4.0 4.5 5.0 -3 0 IPCC 5.0 4.5 4.0 estimate 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -1 1.5 2.0 2.5 3.5 3.0 Global mean temperature increase (°C) -2 -3 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Global mean temperature increase (°C) Source: Nordhaus, IPCC Impacts 2014, Tol 2011. 18 The Contribution of Economics: Integrated Assessment Models (IAMs) What are IA models? These are models that include the full range of cause and effect in climate change (“end to end” modeling). Major goals of IA models: Project trends in consistent manner Assess costs and benefits of climate policies Estimate the carbon price and efficient emissions reductions for different goals 19 Typical integrated assessment models CO2 emissions Carbon cycle and climate Policies (limits, taxes, subsidies, …) Impacts on humans and natural systems 20 An example: the Yale DICE model We can use the models to examine the effects of different policies: 1. No policies 2. “Optimal” policies 3. Limit temperatures to 2 degrees C 21 Emissions under policy and no policy CO2 emission (GtCO2) 120 Industrial CO2 Emissions 100 No controls Optimal 80 T < 2 degC 60 40 20 0 2010 2020 2030 2040 2050 2060 2070 2080 2090 22 Climate change under different scenarios Global temperature (degc, 1900 = 0) 7 Temperature Base 6 Optimal 5 Lim2t 4 3 2 1 0 2010 2035 2060 2085 2110 2135 2160 2185 23 Carbon prices under policy and no policy CO2 price (2005 $ per ton CO2) 140 Carbon Price 120 100 80 60 No controls 40 Optimal 20 Limit < 2 degC Today 0 2010 2020 2030 2040 2050 2060 2070 2080 2090 24 Policies to date Began with Framework Convention on Climate Change (1992), a voluntary agreement to “prevent dangerous” climate change. Kyoto Protocol (1997 - 2012) was conceptually a “cap and trade” approach After expiration of Kyoto Protocol in 2012, no binding international regime in place. 25 Kyoto Protocol suffered from extreme attrition … 70 Covered emissions as % of world Kyoto participants 60 European Union 50 40 30 20 10 0 1990 1995 2000 2005 2010 26 Economist’s Preferred Approach: Carbon tax • Tax goods proportional to their CO2 content. • Tax should be harmonized across all industries and countries. • Can reduce other taxes or use revenues for public goods CO2 price (2005 $ per ton CO2) 140 Carbon Price 120 100 80 60 No controls 40 Optimal 20 Limit < 2 degC 0 2010 2020 2030 2040 2050 2060 2070 2080 2090 27 Three inconvenient truths 1. An inconvenient scientific truth: Global warming is not a hoax. It will (almost surely) become an increasingly important and obvious feature of earth systems. 2. An inconvenient economic truth: To be efficient, firms and consumers must face a market price of carbon emissions that reflects the social costs. 3. An inconvenient political truth: To be effective, the price must be universal and harmonized in virtually every sector and country. 28 29