Course 609 - PowerPoint Presentation

Slide1

Course 609

(

i

) Climate Science

(ii) Integrated Assessment

Models of Climate Change

(iii) DICE/RICE ModelsSlide2

Climate vs WeatherWeather – conditions of the atmosphere (e.g., temperature, humidity) over a short period of timeClimate – how the atmosphere behaves over relatively long periods of time (e.g., decadal average temperature)

In other words climate is the

distribution

of weather events

Climate change (CC) – change in the parameters of the distribution (e.g., mean or variance)Slide3

Representing Climate ChangeComplete global description of climate infeasible

K

ey state variable describing climate –

global mean surface temperature

(other variables – sea level…)

Control variable – emissions of greenhouse gases (GHGs)

Climate change – change in the state variable

T(t) = increase in global mean temperature (

0

C) compared to the pre-industrial (circa 1750) steady state

Initial condition T(0) = 0 – ‘steady state’ last 10,000 years

T(300) = temperature increase by year 2050

Goal: T(∞) = 2

0

C – we shall have more to say on this later

Is this the real goal?Slide4

Estimate

of the Earth’s annual and global mean energy balance

Over the long term, the amount of incoming solar radiation absorbed by the Earth and atmosphere is balanced by the Earth and atmosphere releasing the same amount of outgoing longwave radiation. About half of the incoming solar radiation is absorbed by the Earth’s surface. This energy is transferred to the atmosphere by warming the air in contact with the surface (thermals), by evapotranspiration and by longwave radiation that is absorbed by clouds and greenhouse gases. The atmosphere in turn radiates longwave energy back to Earth as well as out to space. Source: FAQ 1.1, Figure 1.

http://www.ipcc.ch/pdf/assessment-report/ar4/wg1/ar4-wg1-faqs.pdf

. Slide5

The Greenhouse Effect (1)

The warming of the atmosphere by heat reflected from the earth is called the greenhouse effect.

The greenhouse effect actually makes the earth habitable. Without the greenhouse effect, the earth would be much

colder (-

180

o

C)!Main greenhouse gases (GHGs) in the atmosphere include CO2 , CH4, N2O, CFCs.Increased concentration of GHGs causes more heat to be retained in atmosphere, more heat to be reflected back to the earth surface and rise in average global temperatures (global warming).Slide6

The Greenhouse Effect (2)

The ‘natural’ greenhouse effect warms the temperature of the atmosphere to 15

o

C

at the Earth’s surface.

This natural warming allows water to exist on the Earth’s surface, the basis of life support.

The problem is of “too much” warming due to human interference/activities.

Also, the earth goes through cooling/warming cycles, but again the pace and scale of human interference is the problem.Slide7
Slide8

Intergovernmental Panel on Climate Change (IPCC)

Formed by United Nations Environment

Programme

(UNEP) and World Meteorological Organization (WMO) in 1988.

Conduct ‘assessments’ of state of knowledge of CC, vulnerabilities and consequences of CC, options to avoid, prepare for, and respond to changes

All countries that signed UNEP or WMO convention are members of IPCCSlide9

IPCC: ‘scientific’

basis for climate change

“Scientific

, technical and socioeconomic information relevant for the understanding of the risk of human-induced climate change."

Though

IPCC organized within political institutional framework, basically

scientific body of

leading scientists from around the world.

To

keep to its

mandate

and maintain

objectivity IPCC does not make policy

recommendations

(it is ‘policy relevant’ not ‘policy prescriptive’).

IPCC Assessments (five so far) most

comprehensive

evaluations

of climate

change on

which climate policy is

based (AR1, AR2, etc.)Slide10

IPCC Structure

Working Group 1 (WG 1):

The Physical Science Basis

(What

is happening vis-à-vis CC

?)

Working Group 2 (WG 2):

Impacts and Adaptation(How CC will impact regions, how do we cope?)Working Group 3 (WG 3):Mitigation(What should/can we do about it?)Slide11
Slide12
Slide13

Climate Change Then…

IPCC 4th Assessment

(2007)

“Warming of the climate system is

unequivocal

, as

is now evident from observations of

increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global average sea level”Slide14

Climate Change Now…

IPCC

5th

Assessment

(2014)

Warming

of the climate system is

unequivocal - many of the observed changes unprecedented over decades to millenniaThe atmosphere and ocean have warmed, the amounts of snow and ice have diminished, sea level has risenConcentrations of greenhouse gases have increasedEach of the last three decades has been successively warmer at the Earth’s surface than any preceding decade since 1850In the Northern Hemisphere, 1983–2012 was likely the warmest 30-year period of the last 1400

yearsSlide15

Changes in global average surface temperature

Eleven of the last twelve years rank among the twelve warmest years in the instrumental record of global surface temperature

50 years 0.128

o

C

100 years 0.074

o

C

Period Rate

/

decade

Source: IPCCSlide16

Global average sea level has risen by 1.8mm/year since 1961 and by 3.1mm/year since 1993Slide17

Anthropogenic activities are increasing concentration of greenhouse gases

Main

sources of GHG

emissions:

Burning of fossil fuels (coal, oil, natural

gas, shale)

Industrial

activitiesBurning and exploiting forestsFood production (methane), cattleWaste landfills (methane)Concentration of CO2 in the atmosphere increased from 295 ppm in 1870 to 405 ppm in Dec 2016.CO

2

versus Carbon? (12+16+16 = 44)/12 =

3.67

CO

2

e = 490 ppm (Global Warming Potential…)

CO2 emissions (2010) approx. 36GtCO2 (1 Gt = 1 billion tons)Slide18
Slide19
Slide20
Slide21

The bottomline about stabilization

In order to stabilize concentration of GHGs (a

‘stock’

) emissions (

‘flow’

) need to

peak

and decline thereafter.Tighter the stabilization target more quickly this peak and decline would need to occur.Delaying emission reductions:makes it harder to achieve low stabilization concentration; and/or requires faster and deeper cuts in futureClimate system has inertia

(like stopping

a

supertanker)

global

avg.

temp at equilibrium NOT

global avg.

temp at time of stabilization!Slide22

Source: IPCC,

Climate Change 2001 - Synthesis ReportSlide23
Slide24

The cost of delay

(Nicholas) Stern Review in 2006 proposed

stabilizing CO

2

-eq concentration at or below 550 ppm.

At 550 ppm, about 0.5 probability of < 3

0

C rise by 2100, and unlikely that rise > 40C (relatively to pre-industrial).Under “business as usual” (BAU) there is a 0.5 probability of 50C rise.Assuming emissions peak in 2020, can achieve 550 ppm with annual emission cuts of 1- 3% thereafter.10 year delay doubles annual rate of emissions decline required.Slide25

UN Framework Convention on Climate Change (UNFCCC)

Non binding convention but lays down the architecture of global negotiations (which is now under threat)

Objective

: “

stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system

”Slide26

UNFCCC Principles

Industrialised countries have

historical responsibility

for climate change and are

more developed

(Annex 1 countries)

Thus, they are to

take the lead in emissions reductionsPrinciple of common but differentiated responsibilities (CBDR)Commitment to transfer financial resources and technology to developing countries (non-Annex 1 countries)Slide27

Conference of Parties under UNFCCC

Annual meeting – COP1 in 1995

COP3 at Kyoto (1997)

“Kyoto Protocol”

COP8 at New Delhi (2002)

COP15 at

Copenhagen

(2009)COP20 at LimaCOP21 at Paris (2015)and so on…Slide28

International agreement: desirable features

Effective

(deep cuts…

sooner than

later)

Inclusive

of major contributors to stock of GHGs in atmosphereCost-effective in achieving its goalsEquitable for all parties involvedFundamental paradigm shift required from current trajectorySlide29

Options available for mitigating GHG atmospheric concentrations

T

wo ways to move towards a goal of reducing the rate of growth of atmospheric GHG concentrations:

Increase the capacity of

sinks

that sequester CO2 and other GHGs from the atmosphere -- geo-engineering such as afforestation, carbon capture and storage (CCS), solar radiation management (SRM) and ocean fertilization.

Decrease emissions of GHGs below business as usual (BAU) thereby reducing GHG inflows into the atmosphere – aka ‘mitigation’ (distinct from adaptation).Slide30

Climate Change – Distinctive Features

GHG emissions – an externality and thus there is market failure

Distinctive features

global public

bad [abatement

= global public

good] stock not a flow – stock externality – implications… long-term view uncertainties regarding timing and scale of damages and costs of abatement (huge scale of possible damages) Implications for economic analysis ethical treatment of values within & between generations incentives for global cooperation treatment of risk non-marginal changesSlide31

Attaining GHG emissions or Atmospheric Concentration Targets: Key Takeaways (1)

Cost of achieving a given target in terms of levels of allowable

GHG emissions

or

stabilised

GHG concentrations increases as magnitude of emissions or concentration target declines. Other things equal, cost of achieving any given target increases the higher are baseline emissions. The cost of achieving any given target varies with the date (speed) at which targets are to be met, but does so in quite complex ways. It is not possible to say in general whether early (fast) control measures are ‘better’ than late (slow) controls – “climate policy ramp”Slide32

Key Takeaways (2)

Some scope for GHG emissions to be reduced at zero or negative net social cost. Magnitude is uncertain, depends on the size of three kinds of opportunities and extent to which barriers limiting their exploitation are overcome:

overcoming market imperfections (and so reducing avoidable inefficiencies);

ancillary or co-benefits of GHG abatement (such as reductions in traffic congestion) aka ‘win-win’

double dividend effects

Slide33

Key Takeaways (3)

Abatement costs are lower the more cost-effectively abatement is obtained. Thus:

Costs lower for strategies that focus on

all GHGs

, rather than just CO2 and are able to find cost-

minimising

abatement mixes among the set of GHGs. [It is not just carbon emissions or concentrations that matter.]

Costs lower for strategies that focus on all sectors, rather than just one sector or a small number of sectors. E.g., while reducing emissions in energy production is of great importance, the equimarginal principle suggests cost minimisation requires a balanced multi-sectoral approach. The more ‘complete’ is the abatement effort in terms of countries involved, the lower will be overall control costs. This is just another implication of the equimarginal cost principle, and it is also necessary to minimise problems of carbon (or other GHG) leakage.Thus, in principle achieving targets at least cost can happen through uniform global GHG taxes. Alternatively, use could be made of a set of freely tradable emissions permits

(one set for each gas, with tradability

between

sets at appropriate conversion rates), with quantities of permits fixed at the desired cost-

minimising

target levels.Slide34

Key Takeaways (4)

Climate-change decision-making is essentially a sequential process under uncertainty. The value of new information is likely to be very high, and so there are important quasi-option values that should be considered

.

Option value/price

- value placed

on private willingness to pay for

preserving a public good/service even if there is little or no likelihood of the individual actually ever using it. It’s not related to current use - the value attached to future use opportunities.Quasi-option value – (in the context of irreversibility and uncertainty) Costs and benefits are not known with certainty, but uncertainty can be reduced by gathering information. Any decision made now and which commits resources or generates costs that cannot subsequently be recovered or reversed, is an irreversible decision.In this context of uncertainty and irreversibility it may pay to delay making a decision to commit resources.The value of the information gained from that delay is quasi-option value.Slide35

35What is the

economic

bottomline

?

35

The fundamental problem is the climate-change externality – a “global public good”

Economic participants (millions of firms, billions of people, trillions of decisions) need to face realistic carbon prices if their decisions about consumption, investment, and innovation are to be

correct

To be effective, we need a market price of carbon emissions that reflects the

social

costs

(SCC)

Moreover, to be efficient, the price must be universal and harmonized

across

every sector and country.

Slide36

This is also the IPCC view

An

effective carbon-price signal could realise significant mitigation potential in all sectors.

Modelling studies show global carbon prices rising to 20-80 US$/tCO

2

-eq by 2030 are consistent with

stabilisation

at 550 ppm CO2-eq by 2100.Induced technological change may lower these prices ranges to 5-65 US$/tCO2-eq in 2030.Slide37

Source: Newbery, D.M. (2003).

Sectoral

dimensions of sustainable development: energy & transport.

Economic Survey of Europe 2

.Slide38
Slide39

Central questions for climate policy

How sharply should countries reduce CO2 and other GHG emissions?

What

should be the time profile of emissions reductions?

How

should the reductions be distributed across industries and countries?

Should there be a system of emissions limits imposed on

firms, industries, and nations? Should emissions reductions be primarily induced through taxes on GHGs? Should we subsidize green industries? What should be the relative contributions of rich and poor households or nations? Are regulations an effective substitute for fiscal instruments?Slide40

Economic modeling of climate changeI

ntegrate

geophysical stocks and flows with economic stocks and

flows.

The major difference between IAMs and geophysical models is that economic measures include not only quantities but also valuations, which for market or near-market transactions are

prices

.

Values using a discount rate are deep issues in economics.Economic welfare – properly measured – should include everything that is of value to people, even if those things are not included in the marketplace.Slide41

Integrated Assessment ModelsEnvironmental problems

have

strong roots in

natural sciences.

For example, climate

change involves a wide variety of sciences such as atmospheric chemistry and

other climate

sciences, ecology, economics, political science, game theory, and international law.Integrated assessment models (IAMs) can be defined as approaches that integrate knowledge from two or more domains into a single framework. These are sometimes theoretical but are increasingly computerized dynamic models of varying levels of complexity.Slide42

42

Integrated Assessment (IA) Models in Climate Change

What are IAMs?

These are models that include the full range of cause and effect in climate change (“end to end” modeling)

Major goals of IAMs

Project trends in consistent manner

Assess costs and benefits of climate policies

Estimate the carbon price and efficient emissions reductions for different goals

Integrated Assessment (IA) Models in Climate Change

Integrated Assessment Models (IAMs)Slide43

Why IAMs?The challenge of

climate change particularly

difficult because it spans many disciplines and parts of society.

This

multi-faceted

nature also poses a challenge to natural and social scientists who must incorporate a wide variety of geophysical, economic, and political disciplines into their diagnoses and prescriptions.

The task of integrated

modeling is to pull together the different aspects of a problem so that a decision or an analysis can consider all important endogenous variables that operate simultaneously.The point emphasized in IAMs is we need to have at a first level of approximation models that operate all the modules simultaneously.In other models there is no linkage from the climate models to the economy and then back to emissions.This linkage is the purpose of integrating different parts of the climate change nexus in IAMs.Slide44

History of IAMsWeyant

et al. (1996)

emphasized,

the importance of multiple approaches to development of IAMs because of the difficulty of encompassing all the important elements in a single

model

Policy evaluation vs. policy optimization

Kolstad

(1998) writes “nearly all the results have come from the so-called policy optimization models, the top-down economy-climate models. Virtually no new basic understanding appears to have emerged from the policy evaluation models…”Uncertainty remains outside the modelsSlide45

Precursors of IAMs

Several of the current

IAMs

grew out of

energy

models of the 1970s and 1980s.

The

first IAMs in climate change were basically energy models with an emissions model included and later with other modules such as a carbon cycle and a small climate model.The earliest versions of the DICE and RICE models in Nordhaus (1992, 1994) moved to a growth-theoretic framework similar to the Manne and Manne-Richels energy models.Notable IAMs: PACE, IMAGE, MRN-NEEM, GTEM, MiniCAM, SGM, IGSM, WITCH, ADAGE, GEMINI, POLES, IGEM, MESSAGE, FUND, ETSAP-TIAM, MERGE, and DART.Slide46

The process of human-induced climate change

Five key links

from people to emissions

from emissions to stocks

from stocks to rising temperature

from rising temperature to climate change

from climate change to human impactSlide47

47

Fossil fuel use

generates CO2

emissions

Carbon cycle:

redistributes around

atmosphere, oceans, etc.

Climate system: change

in radiative warming, precip,

ocean currents, sea level rise,…

Impacts on ecosystems,

agriculture, diseases,

skiing, golfing, …

Measures to control

emissions (limits, taxes,

subsidies, …)

The emissions-climate-impacts-policy nexus: Slide48

Optimising Models (top down)

Economists typically derive policy

recommendations via

optimisation.

To analyse a stock

pollution

problem i.e., climate change we start

by defining an objective function (e.g., SWF).SWF usually PV of utility or stream of consumption over some planning horizon.Functional form commonly used is constant intertemporal elasticity of substitution (treat consumption at different points in time as different goods – substitution in response to change in relative prices) – more on this later.Relevant constraints identified and stated mathematically.One (or more) variables in optimal growth model are instrumental/control (policy) variables.It is these that the policy maker can ‘control’Policy choices emerge from maximization of economic welfare (e.g., SWF) subject to relevant constraints.Slide49

Optimising models continued

The outputs of the optimisation exercise yield:

A

time path of quantities for the control or choice variable(s) that maximise the objective function Policy choices emerge from maximization of economic welfare (e.g., SWF) subject to relevant constraints.

A time path of ‘shadow prices’ which are the dual of the optimising quantities – usually interpreted as ‘efficient’ tax rates, such in a decentralised market their imposition would lead economic agents to behave in a way that would generate the socially efficient (optimal) outcome.

IAMs such as DICE/RICE are examples of such models.Slide50

DICE Model Overview (1)

DICE

(

Dynamic Integrated model of Climate and the Economy

)

is a globally aggregated model.RICE (Regional Integrated model of Climate and the Economy) essentially same except that output and abatement have 12 regions.The DICE model views the economics of climate change from the perspective of neoclassical economic growth theory.Economies make investments in capital, education, and technologies, thereby reducing consumption today, in order to increase consumption in the future.The DICE model extends this approach by including the “natural capital” of the climate system as an additional kind of capital stock.It views concentrations of GHGs as negative natural capital, and emissions reductions as investments that raise the quantity of natural capital.By devoting output to emissions reductions (abatement), economies reduce consumption today but prevent economically harmful climate change and thereby increase consumption possibilities in the future [TRADEOFF!]Slide51

DICE/RICE Model Overview (2)

Optimal

growth

models

augmented by

a science

component that

models emissions paths into GHG atmospheric concentrations, and then into implied time paths for global mean temperature changes.An inter temporal optimisation model of CC policy.Objective function = PV of global consumption/utility. DICE is estimates a global efficient emissions reduction schedule (time path) and rates and time path of carbon tax that would bring about an efficient outcome i.e., maximised PV of global consumption net of GHG damage and abatement costs - aka ‘optimal policy’.It is an application of a stock pollution model to the problem of global climate change [Perman ch.16]Slide52

DICE/RICE Model Structure

Assume economic and climate policies should be designed to optimize the flow of consumption over time.

Consumption – “

generalised

consumption” - includes not only traditional market goods and services but also non-market goods and services – leisure, health

, clean air, water (

env

svcs)Mathematically – policies chosen to max a SWF, W, discounted sum of population weighted utility of per capita cons, c.

DICE/RICE assume utility represented by constant elasticity utility function.

Let’s just use

C

t

– population/LF weighted

pcc

(by time/region)

 Slide53

Utility Function (CIES)

Constant elasticity of MU of consumption

=

-

η

< 0

Elasticity is a parameter that represents the extent of substitutability of the consumption of different generations.

If η close to zero, then consumption of different generations are close substitutes.When η = 0, MU does not change with consumption, U(C) is a straight line.Or in other words social planner is indifferent between different consumption time profiles.Note: inverse of formula above gives the intertemporal elasticity of substitution of consumption.So when η

= 0

willingness

to substitute consumption

intertemporally

is infinite.

 Slide54

Utility FunctionIf

η

is high then the consumptions of different generations are not close substitutes.

So when

η

= ∞

cannot substitute consumption intertemporally.Slide55

η represents the curvature of the utility functionSlide56
Slide57

Inequality AversionCan also think of

η

as inequality aversion parameter (Atkinson Index or Atkinson inequality measure).

When

η

=

0 no aversion to inequality.

When η = ∞ high (infinite) aversion to inequality.Slide58

Specification of W

Assumes value of consumption in period t is proportional to population (growth

rate follows

logistic function)

Well being/utility of of future generations is

discounted

.

] Slide59

Results

of DICE-2007

simulationsSlide60

Net present value (NPV) benefit of the optimal policy, relative to a business as usual or ‘uncontrolled’

baseline is

$

3.1

trillion. This and other characteristics of the optimal policy are shown in the second row of the table (the row labelled ‘Optimal

’).

Global

temperature rises over its 1900 level by 2.6°C in 2100 and by 3.4°C in 2200.Despite the fact substantial amounts of climate change mitigation are taking place, the PV of climate change damages still very large at $17.3 trillion. But those damages would be $22.6 trillion in the uncontrolled baseline case, and so are cut by $5.3 trillion.However, the PV of abatement costs are $2.2 trillion. When this figure is deducted from the $5.3 trillion fall in climate change damages, we arrive at the NPV of $3.1 trillion mentioned above.$3 trillion approx 0.15% of discounted world GDP.[Values in constant 2005 $ aggregated over countries using PPP exchange rates.]Slide61

2005

U.S.

$

per ton of

carbon (

tC

)

Time path of carbon prices (or taxes) for various mitigation strategiesSlide62

Level of carbon prices (or taxes) over time indicates

tightness

of policy restraint

being

imposed on

emissions for

any particular control

strategy.Table shows carbon tax under ‘optimal’ policy at 2 points in time, 2010 and 2100. A complete profile of carbon prices over next 100 years for the optimal path in next slide.These are tax rates which if globally imposed on each ton of carbon emissions, would generate the economically ‘optimal’ path.By construction, along an optimal path MC of abatement equal to MB of carbon abatement, with each being equal to the carbon tax.

Optimal

carbon price follows a

gradually

rising

path

from

initial

value of about $

27/

tC to approx. $200/tC in 2100.Trajectory of optimal carbon prices rises sharply over time as a result of rising marginal damages and the need for increasingly tight restraints.To what level would carbon price need to rise eventually? Depends on

the cost at which a zero-carbon

backstop technology

becomes available in sufficient quantity to replace carbon-based fuel in all uses.

It

is evident from the graph that such a price is likely to exceed $ 200/

tC

.Slide63

Note:While $200/

tC

is a large tax rate, by

2100

under

an optimal mitigation strategy the intensity of control would be such that carbon emission flows will have been driven down to low

levels so

total carbon tax payments need not be large [convert carbon prices into CO2 prices?] If a backstop technology were to become available at both low cost and in large volume in not too distant future would be enormous gains in net economic welfare. The whole carbon tax profile would shift down in response to the reduced costs of abatement. As a result, there are potentially very large returns to investment in R&D in ‘promising’ backstops, perhaps including nuclear fusion technology.Slides also show a number of other mitigation strategies and their associated carbon tax profiles.Slide64

Structure of DICE (1)

Economic module:

Standard economic production structure

Ramsey-Cass-Koopmans model with labor, capital, carbon capital,

GHG abatement

,

damage

GHG emissions are global externality 12 regions, multiple periodsCO2/Climate module:Emissions = f(output (Q), carbon price, time)Concentrations = g(emissions, diffusion: 3 C reservoirs)Temperature change = h(GHG forcings, time lag)Economic damage = F(output, T, CO2, sea level rise)Slide65

Structure of DICE (2)DICE employs an optimal economic growth modelling framework, integrated with a science component which comprises a carbon cycle and a system of climate equations.

The carbon cycle is based on a three-reservoir model calibrated to existing carbon-cycle models and historical data.

The three reservoirs are the atmosphere, the upper oceans and the biosphere and the deep oceans.

Carbon flows in both directions between adjacent reservoirs. The mixing between the deep oceans and other reservoirs is extremely slow. Slide66

Structure of DICE (3)

The climate equations include an equation for radiative forcing and two equations for the climate system.

The

radiative-forcing

equation calculates the impact of the accumulation of GHGs on the radiation balance of the globe.

The climate equations calculate the mean surface temperature of the globe and the average temperature of the deep oceans for each time-step. These equations draw upon and are calibrated to large-scale general circulation models of the atmosphere and ocean systems.

Only GHG subject to controls is industrial CO

2 since CO2 is the major contributor to global warming, and because other GHGs are likely to be controlled in different ways. Other GHGs (CO2 emissions from land-use changes, other well-mixed GHGs, and aerosols) included as exogenous trends in radiative forcing.Slide67

Structure of DICE (4)

CO

2

emissions depend on:

total output

a time-varying emissions-output ratio

an emissions-control rate.

The emissions-output ratio is estimated for individual regions, and then aggregated to the global ratio. The emissions-control rate is determined by the climate-change policy being examined. The emissions abatement cost function is parameterized by a log-linear function calibrated to recent studies of the cost of emissions reductions. Projected damages from the economic impacts of climate change rely on estimates from earlier syntheses of the damages, with updates in light of more recent information. The basic assumption is that the damages from gradual and small climate changes are modest, but the damages rise nonlinearly with the extent of climate change.Slide68

Baseline case using DICE

Using consensus estimates of values for the key driving variables (such as growth of labour force, capital stock, technical change, emissions-to-output ratios, and so on) and assuming that no significant additional emissions reductions are imposed, one can use DICE to generate predictions about GDP, climate change, and the impacts of climate change over some suitable future span of time.

These model inputs and outputs define what is called the baseline case.

Although

Nordhaus

does not use this term, such a baseline simulation is also known as a “Business As Usual” or BAU case.Slide69

Safe minimum standard

(precautionary approach)

The large uncertainties which exist in climate change modelling regarding the damages that climate change could bring about lead many to conclude that mitigation policy should be based on a precautionary principle.

This would entail that some ‘safe’ threshold level of allowable climate change is imposed as a constraint on admissible policy choices.

Support for a safe minimum standard approach in the climate change context has grown in recent years for two main reasons.

First, the science increasingly points to non-linearities in the dose-response function linking temperature change to induced damages, with damages rising at increasingly large marginal rates at higher levels of global mean temperatures, and possibly discontinuously.

Secondly, positive feedbacks in the linkage between GHG concentration rates and temperature responses are increasingly likely to kick-in as atmospheric GHG concentrations rise, so that the climate sensitivity coefficients rise endogenously. Slide70
Slide71

The Kyoto Protocol

Attempts to secure internationally coordinated reductions in GHG emissions have taken place largely through a series of international conventions

organised

under the auspices of the United Nations.

1992 ‘Earth Summit’: Framework Convention on Climate Change (FCCC) was adopted, requiring signatories to conduct national inventories of GHG emissions and to submit action plans for controlling emissions.

By 1995, parties to the FCCC had established two significant principles: emissions reductions would initially only be required of

industrialised

countries; second, those countries would need to reduce emissions to below 1990 levels. Slide72

The Kyoto Protocol (2) Kyoto Protocol: the first substantial agreement to set country-specific GHG emissions limits and a timetable for their attainment.

To come into force and be binding on all signatories, the Protocol would need to be ratified by at least 55 countries, responsible for at least 55% of 1990 CO2 emissions of FCCC ‘Annex 1’ nations.

The key objective set by the Protocol was to cut combined emissions of five principal GHGs from

industrialised

countries by 5% relative to 1990 levels by the period 2008–2012.

The Protocol did not set any binding commitments on developing countries. Slide73

Subsequent activitySince 1997, there have been annual meetings of the parties that signed the Kyoto Protocol.

Initially, those meetings were largely concerned with the institutional structures and mechanisms and ‘rules of the game’ required to implement the protocol, such as how emissions and reductions are to be measured, the extent to which CO2 absorbed by sinks will be counted towards Kyoto targets, and compliance mechanisms.

 The twin conditions required for the Protocol to become operational were met in early 2005. While

the Kyoto Protocol came into force at that time, it did so without the participation of the USA, thereby significantly weakening its potential impact.

The first phase of the Kyoto Protocol will end in 2012.

Recent meetings of the parties have been concerned with making preparations for its second phase. Slide74

The Kyoto Protocol’s flexibility mechanisms

These generate incentives for control to take place in sources that have the lowest abatement costs, and so create the potential for greatly reducing the total cost of attaining any given overall policy target.

Emissions Trading:

Allows emissions trading among Annex 1 countries; countries in which emissions are below their allowed targets may sell ‘credits’ to other nations, which can add these to their allowed targets.

Banking

Emissions targets do not have to be met every year, only on average over the period 2008–2012. Moreover, emissions reductions above Kyoto targets attained in the years 2008–2012 can be banked for credit in the following control period.

Joint Implementation (JI)

allows for bilateral bargains among Annex 1 countries, whereby one country can obtain ‘Emissions Reduction Units’ for undertaking in another country projects that reduce net emissions, provided that the reduction is additional to what would have taken place anyway. Clean Development Mechanism (CDM): By funding projects that reduce emissions in developing countries, Annex 1 countries can gain emissions credits to offset against their abatement obligations. Effectively, the CDM generalises the JI provision to a global basis. The CDM applies to sequestration schemes (such as forestry programmes) as well as emissions reductions. Slide75
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