Optimal learning on climate change: Why climate skeptics should reduce emissions

Climate skeptics typically argue that the possibility that global warming is exogenous, implies that we should not take additional action towards reducing emissions until we know what drives warming. This paper however shows that even climate skeptics have an incentive to reduce emissions: such a directional change generates information on the causes of global warming. Since the optimal policy depends upon these causes, they are valuable to know. Although increasing emissions would also generate information, that option is inferior due its irreversibility. We show that optimality can even imply that climate skeptics should actually argue for lower emissions than believers.     

Cumulative carbon emissions and economic policy: In search of general principles

We exploit recent advances in climate science to develop a physically consistent, yet surprisingly simple, model of climate policy. It seems that key economic models have greatly overestimated the delay between carbon emissions and warming, and ignored the saturation of carbon sinks that takes place when the atmospheric concentration of carbon dioxide rises. This has important implications for climate policy. If carbon emissions are abated, damages are avoided almost immediately. Therefore it is optimal to reduce emissions significantly in the near term and bring about a slow transition to optimal peak warming, even if optimal steady-state/peak warming is high. The optimal carbon price should start relatively high and grow relatively fast.     

Would hotelling kill the electric car?

In this paper, we show that the potential for endogenous technological change in alternative energy sources may alter the behaviour of resource-owning firms. When technological progress in an alternative energy source can occur through learning-by-doing, resource owners face competing incentives to extract rents from the resource and to prevent expansion of the new technology. We show that in such a context, it is not necessarily the case that scarcity-driven higher traditional energy prices over time will induce alternative energy supply as resources are exhausted. Rather, we show that as we increase the learning potential in the substitute technology, lower equilibrium energy prices prevail and there may be increased resource extraction and greenhouse gas emissions. We show that the effectiveness and the incidence of emissions reduction policies may be altered by increased potential for technological change. Our results suggest that treating finite resource rents as endogenous consequences of both technological progress and policy changes will be important for the accurate assessment of climate change policy.     

Strategic climate policy with offsets and incomplete abatement: Carbon taxes versus cap-and-trade

This paper provides a first analysis of a “policy bloc” of fossil fuel importers which implements an optimal climate policy, faces a (non-policy) fringe of other fuel importers, and an exporter bloc, and purchases offset from the fringe. We compare a carbon tax and a cap-and-trade scheme for the policy bloc, in either case accompanied by an efficient offset mechanism for reducing emissions in the fringe. The policy bloc is shown to prefer a tax over a cap, since only a tax reduces the fuel export price and by more when the policy bloc is larger. Offsets are also more favorable to the policy bloc under a tax than under a cap. The optimal offset price under a carbon tax is below the tax rate, while under a cap and free quota trading the offset price must equal the quota price. The domestic carbon and offset prices are both higher under a tax than under a cap when the policy bloc is small. When the policy bloc is larger, the offset price can be higher under a cap. Fringe countries gain by mitigation in the policy bloc, more under a carbon tax since the fuel import price is lower.     

The understanding and role of uncertainty and risk in climate change adaptation: local and central authorities in Norway

A common claim is that emerging and future climate change is rendering traditional conceptions of uncertainty and risk obsolete. This is because a changing climate makes it quite a challenge to calculate uncertainties, establishing the measurable uncertainty as the basis for quantifying risk. Approaches that are capable of accommodating and possibly countering the wickedness caused by increasing uncertainty are necessary, the argument holds. Following up on previous studies of learning–knowledge and adapting to a changing climate, this article provides an analysis of how differences in the understanding of uncertainty and risk inform and determine governmental adaptation policies and actions of the local and central government in Norway, also discussing governance implications. The study finds that the understanding of uncertainty and risk generally is poor at the local level, but better at the state level, especially among highly educated staff with a background in, for example, natural sciences and engineering. On the other hand, a traditional understanding of uncertainty and risk is dominating: seeking to establish measurable uncertainty as a basis for quantifying risk. The article discusses combining different approaches of uncertainty and risk, thereby introducing a broader basis for governance, also implying multi-level network governance. On the one hand, this may help the local–central government in handling wicked problems of adapting to a changing climate but on other hand, it also possibly nurture struggles between different knowledge bases and stakeholder interest, thereby fuelling the wickedness of adaptation policies.     

Vertical fiscal externalities and the environment

We show that imposition of a state-level environmental tax in a federation crowds out pre-existing federal taxes. We explain how this vertical fiscal externality can lead unilateral state-level environmental policy to generate a welfare gain in the implementing state, at the expense of other states, even absent any environmental benefits. Using a computable general equilibrium model of the Canadian federation, we show that vertical fiscal externalities can be the major determinant of the welfare change following environmental policy implementation by a state government. Our numerical simulations indicate that – as a consequence of vertical fiscal externalities – state governments can reduce greenhouse gas emissions by over 20 percent without any net cost to themselves.     

Uncertainty analysis of climate change mitigation options in the forestry sector using a generic carbon budget model

Industrialized countries agreed on a reduction of greenhouse gas emissions under the Kyoto Protocol. Many countries elected forest management activities and the resulting net balance of carbon emissions and removals of non-CO₂ greenhouse gases by forest management in their climate change mitigation measures. In this paper a generic dynamic forestry model (FORMICA) is presented. It has an empirical basis. Several modules trace C pools relevant for the Kyoto Protocol and beyond: biomass, litter, deadwood and soil, and harvested wood products. The model also accounts for the substitution of fossil fuels by wood products and bioenergy.     

低碳经济与农业发展思考

大气中碳浓度的升高是导致全球气候变化的主要原因.以低能耗、低排放、低污染为特征的低碳经济是目前人类应对全球气候变化,减缓温室气体排放的根本出路.农业生产与全球气候变化息息相关,农业是温室气体的第二大重要来源,如何减少农业温室气体排放量并探寻减排方法已经成为当务之急.从低碳经济这一热点问题谈起,论述了农业生产与全球气候变化的关系,以及当前农业面临的问题和挑战,提出了发展低碳农业的对策以及具体措施,旨在为呼应低碳经济,应对全球气候变化提供科学决策,促进现代农业由高碳经济向低碳经济转型,实现农业的可持续发展.     

气候变化对亚高山暗针叶林土壤温室气体排放的影响

利用生物地球化学模犁Forest-DNDC模拟气候变化对贡嘎山亚高山暗针叶林土壤温室气体的释放的影响.以位于贡嘎山东坡海拔3 000 m的峨眉冷杉(Abies fabri)中龄林为研究对象,以1999-2006年8年的日气候数据进行平均得到的日平均最高温度、日平均最低温度和日平均降水总最作为基线(Base)气候情景,另外设置了温度+2℃(升)、温度.2℃(T-)、降水量+20%(P+)、降水量-20%(P-)、温度十2℃同时降水量+20%(T+P+)、温度-2℃同时降水量-20%(T-P-)、温度+2℃同时降水量-20%(T+P-)、温度-2℃同时降水量+20%(T-P+)8种气候变化情景.结果显示:贡嘎山峨眉冷杉林土壤CO_2释放随着温度增加而增加,土壤N_2O释放对降水量改变敏感,而土壤NO的释放对温度和降水的改变均比较敏感,二者表现为协同作用.温度+2℃同时降水量+20%(升P+)情景下土壤CO_2释放最高,高于基线情景的36.08%;温度-2℃同时降水量+20%(T-P+)情景下土壤CO_2释放最低,低于基线情景的36.89%.土壤N_2O释放随着降水量的增加而升高,随着降水量减少而降低;温度和降水最同时增加时土壤NO释放均高于单一增加温度或降水量情景,而温度和降水量同时降低时土壤NO释放均低于单一降低温度或降水量情景.     

Choice of threshold alters projections of species range shifts under climate change

One of the least explored sources of algorithmic uncertainty in bioclimatic envelope models (BEM) is the selection of thresholds to transform modelled probabilities of occurrence (or indices of suitability) into binary predictions of species presence and absence. We investigate the impacts of such thresholds in the specific context of climate change. BEM for European tree species were fitted combining 9 climatic models and emissions scenarios, 7 modelling techniques, and 14 threshold-setting techniques. We quantified sources of uncertainty in projections of turnover, and found that the choice of the modelling technique explained most of the variability (39%), while threshold choice explained 25% of the variability in the results, and their interaction an additional 19%. Choice of future climates explained 9% of total variability among projections. Estimated species range shifts obtained by applying different thresholds and models were grouped by IUCN-based categories of threat. Thresholds had a large impact on the inferred risks of extinction, producing 1.7- to 9.9-fold differences in the proportions of species projected to become threatened by climate change. Results demonstrate that threshold selection has large - albeit often unappreciated - consequences for estimating species range shifts under climate change.     

A tree and climate assessment tool for modelling ecosystem response to climate change

Understanding how vulnerable forest ecosystems are to climate change is a key requirement if sustainable forest management is to be achieved. Modelling the response of species in their regeneration niche to phenological and biophysical processes that are directly influenced by climate is one method for achieving this understanding. A model was developed to investigate species resilience and vulnerability to climate change within its fundamental-regeneration niche. The utility of the developed model, tree and climate assessment (TACA), was tested within the interior Douglas-fir ecosystem in south-central British Columbia. TACA modelled the current potential tree species composition of the ecosystem with high accuracy and modelled significant responses amongst tree species to climate change. The response of individual species suggests that the studied ecosystem could transition to a new ecosystem over the next 100 years. TACA showed that it can be an effective tool for identifying species resilience and vulnerability to changes in climate within the most sensitive stage of development, the regeneration phase. The TACA model was able to identify the degree of change in phenological and biophysical variables that control tree establishment, growth and persistence. The response to changes in one or more of these variables resulted in changes in the climatic suitability of the ecosystem for species and enabled a measure of vulnerability to be quantified. TACA could be useful to forest managers as a decision support tool for adaptation actions and by researchers interested in modelling stand dynamics under climate change.     

Numerical analysis of non-constant pure rate of time preference: A model of climate policy

When current decisions affect welfare in the far-distant future, as with climate change, the use of a declining pure rate of time preference (PRTP) provides potentially important modeling flexibility. The difficulty of analyzing models with non-constant PRTP limits their application. We describe and provide software (available online) to implement an algorithm to numerically obtain a Markov perfect equilibrium for an optimal control problem with non-constant PRTP. We apply this software to a simplified version of the numerical climate change model used in the Stern Review. For our calibration, the policy recommendations are less sensitive to the PRTP than widely believed.     

Rewilding in the face of climate change

Expansion of the global protected-area network has been proposed as a strategy to address threats from accelerating climate change and species extinction. A key step in increasing the effectiveness of such expansion is understanding how novel threats to biodiversity from climate change alter concepts such as rewilding, which have underpinned many proposals for large interconnected reserves. We reviewed potential challenges that climate change poses to rewilding and found that the conservation value of large protected areas persists under climate change. Nevertheless, more attention should be given to protection of microrefugia, macrorefugia, complete environmental gradients, and areas that connect current and future suitable climates and to maintaining ecosystem processes and stabilizing feedbacks via conservation strategies that are resilient to uncertainty regarding climate trends. Because a major element of the threat from climate change stems from its novel geographic patterns, we examined, as an example, the implications for climate-adaptation planning of latitudinal, longitudinal (continental to maritime), and elevational gradients in climate-change exposure across the Yellowstone-to-Yukon region, the locus of an iconic conservation proposal initially designed to conserve wide-ranging carnivore species. In addition to a continued emphasis on conserving intact landscapes, restoration of degraded low-elevation areas within the region is needed to capture sites important for landscape-level climate resilience. Extreme climate exposure projected for boreal North America suggests the need for ambitious goals for expansion of the protected-area network there to include refugia created by topography and ecological features, such as peatlands, whose conservation can also reduce emissions from carbon stored in soil. Qualitative understanding of underlying reserve design rules and the geography of climate-change exposure can strengthen the outcomes of inclusive regional planning processes that identify specific sites for protection.     

Evaluating and managing wildlife impacts of climate change under uncertainty

Wildlife managers face the daunting task of managing wildlife in light of uncertainty about the nature and extent of future climate change and variability and its potential adverse impacts on wildlife. A conceptual framework is developed for managing wildlife under such uncertainty. The framework uses fuzzy logic to test hypotheses about the extent of the wildlife impacts of past climate change and variability, and fuzzy multiple attribute evaluation to determine best compensatory management actions for adaptively managing the potential adverse impacts of future climate change and variability on wildlife. A compensatory management action is one that can offset some of the potential adverse impacts of climate change and variability on wildlife. Implementation of the proposed framework requires wildlife managers to: (1) select climate impact states, hypotheses about climate impact states, possible management actions for alleviating adverse wildlife impacts of climate change and variability, and future climate change scenarios; (2) choose biological attributes or indicators of species integrity; (3) adjust those attributes for changes in non-climatic variables; (4) define linguistic variables and associated triangular fuzzy numbers for rating both the acceptability of biological conditions under alternative management actions and the relative importance of biological attributes; (5) select minimum or maximum acceptable levels of the attributes and reliability levels for chance constraints on the biological attributes; and (6) define fuzzy sets on the extent of species integrity and biological conditions and select a fuzzy relation between species integrity and biological conditions. A constructed example is used to illustrate a hypothetical application of the framework by a wildlife management team. An overall best compensatory management action across all climate change scenarios is determined using the minimax regret criterion, which is appropriate when the management team cannot assign or is unwilling to assign probabilities to the future climate change scenarios. Application of the framework can be simplified and expedited by incorporating it in a web-based, interactive, decision support tool.     

Environmental policy à la carte: Letting firms choose their regulation

Under uncertainty, the optimal choice between price and quantity instruments depends on the technology of the regulated firms, which is often private information. We consider an environmental policy that delegates the prices-versus-quantities decision to the firms by offering them the choice between an emissions tax and permit trading. Such an approach is currently used in Swiss climate policy. We provide a detailed characterization of the optimal policy and show that this approach reduces expected social costs compared to a pure tax or permit-trading regime. We demonstrate that an optimal allocation of firms to instruments can be achieved despite substantial informational constraints, and that all firms gain from the introduction of the instrument choice compared to optimally designed single-instrument policies. Furthermore, we discuss the conditions under which this approach is likely to be preferable to a hybrid regulation.     

Economics of additionality for environmental services from agriculture

We present a model of additionality for offsets sold from agriculture to industrial sector sources regulated by cap-and-trade. We consider a potential policy where agricultural sources would not be covered by cap-and-trade requirements but would be eligible to receive offsets whenever their emissions fall below a policy-specified baseline, and would not be penalized for emissions above their baseline. Major results are: (1) The optimal baseline should be set above the average counterfactual emissions of participating farms, an unexpected result that has been missing from the literature. (2) The optimal trading ratio should be greater than one (a ton of offsets counts for less than a ton of covered emissions) even under emissions certainty. Previous research has justified such trading ratios by emissions uncertainty. (3) Emissions uncertainty does not justify a change in the baseline if the accompanying emissions model is unbiased. (4) An optimal combination of policies is to subsidize offsets and tighten the baseline relative to the no-subsidy case.     

Cost-effective environmental policy: implications of induced technological change

Cost-effective environmental policy generally requires that all emission sources are faced with the same tax. In this paper I discuss how the existence of induced technological change may alter this result, if at least some of the effect is external to the firm. Focusing on Learning by doing (LBD) effects in abatement activities, it is shown that emission sources with external learning effects should be faced with a higher tax than emission sources with only autonomous technological change. By using simple numerical simulations, it is further investigated to what degree a cost-effective climate policy differs from a free quota market, under various assumptions about learning effects, diffusion of technology and environmental targets. The results indicate that optimal taxes may be significantly higher in the industrial world than in the developing world. Moreover, the industrial world's share of global abatement may be much higher in a cost-effective solution than in a free quota market. The global cost savings of a fully flexible implementation of the Kyoto Protocol are further questioned, as potential spillover effects of technological growth in the industrial world are not internalised in the market.     

Voluntary corporate environmental initiatives and shareholder wealth

Researchers debate whether environmental investments reduce firm value or actually improve financial performance. We provide some compelling evidence on shareholder wealth effects of membership in voluntary environmental programs (VEPs). Companies announcing membership in EPA's Climate Leaders, a program targeting reductions in greenhouse gas emissions, experience significantly negative abnormal stock returns. The price decline is larger in firms with poor corporate governance structures, and for high market-to-book (i.e., high growth) firms. However, firms joining Ceres, a program involving more general environmental commitments, have insignificant announcement returns, as do portfolios of industry rivals. Overall, corporate commitments to reduce greenhouse gas emissions appear to conflict with firm value maximization. This has important implications for policies that rely on voluntary initiatives to address climate change. Further, we find that firms facing climate-related shareholder resolutions or firms with weak corporate governance standards – giving managers the discretion to make such voluntary environmentally responsible investment decisions – are more likely to join Climate Leaders; decisions that may result in lower firm value.     

Exploring the future of European crop production in a liberalised market, with specific consideration of climate change and the regional competitiveness

Long-term future development of European agriculture within the global market is highly uncertain, but can potentially have large impacts on the future of agricultural businesses, rural communities and amenities such as traditional landscapes and biodiversity. Despite great uncertainties it is of interest to explore the extent of these potential changes. This paper provides an explorative scenario of the European crop production in a liberalised world without European Union (EU) market interventions. The results do not form a prediction or a business as usual scenario, but rather a plausible and salient thought-experiment of a possible future based on the consistent integration of current conceptual and quantitative models.Future scenarios for climate, demography, technology and global demand for agricultural commodities are used to assess the competitiveness of European agriculture. Regional economic competitiveness is determined by combining indicators for the economic strength of farms in a region and population pressure on agricultural land, and subsequently used to determine where agricultural production is likely to sustain under the market liberalisation scenario. The method is illustrated for the 27 EU member state countries for three commodities: wheat, potato and milk (relying on grass).Results include maps of the dominant wheat, potato and milk producing regions across Europe as projected for 2050. They show that due to increased agricultural productivity, less agricultural land will be needed to supply the European demand for food and feed. In addition, production will concentrate in those regions which have a comparative advantage. This potentially leads to a strong polarisation between north-western Europe and southern Europe, which faces negative impacts of climate change and central and northern Europe where agricultural businesses lag in economic strength and farm size. A contrasting policy intervention scenario illustrates how differences in demand and productivity result in an expansion of the agricultural area, especially for the production of wheat.Although the complete liberalisation scenario may seem unlikely, and the underlying assumptions have great uncertainty, the results help identify and map market pressures on agricultural land use across regions in Europe. As such, it stimulates policy debate on the desired future for the European agricultural sector and the trade-offs between economic competitiveness under global market conditions and policy intervention. In addition, it provides a basis for the planning of alternative economic strategies for agriculturally less competitive regions.     

Enforcement and price controls in emissions trading

This paper examines how enforcement affects the structure and performance of emissions trading programs with price controls under uncertainty about firms' abatement costs. The analysis highlights how an enforcement strategy can cause abatement-cost risk to be transmitted to enforcement costs via the price of permits. When this occurs, accommodating the effect of abatement-cost risk with an optimal policy results in higher expected emissions and lower expected permit price than their second-best optimal values. However, it is possible to design an enforcement strategy that shields enforcement costs from abatement-cost risk by tying sanctions directly to permit prices. This enforcement strategy stabilizes enforcement effort, the optimal permit supply and price controls are independent of enforcement costs, and the policy produces the second-best optimal outcome.