The social cost of carbon revisited

An estimate of the social cost of carbon (SCC) is crucial to climate policy. But how should we estimate the SCC? A common approach uses an integrated assessment model (IAM) to simulate time paths for the atmospheric CO₂ concentration, its impact on temperature, and resulting reductions in GDP. I have argued that IAMs have deficiencies that make them poorly suited for this job, but what is the alternative? I present an approach to estimating an average SCC, which I argue can be a useful guide for policy. I rely on a survey of experts to elicit opinions regarding (1) probabilities of alternative economic outcomes of climate change, but not the causes of those outcomes; and (2) the reduction in emissions required to avert an extreme outcome, i.e., a large climate-induced reduction in GDP. The average SCC is the ratio of the present value of lost GDP from an extreme outcome to the total emission reduction needed to avert that outcome. I discuss the survey instrument, explain how experts were identified, and present results. I obtain SCC estimates of $200/mt or higher, but the variation across experts is large. Trimming outliers and focusing on experts who expressed a high degree of confidence in their answers yields lower SCCs, $80 to $100/mt, but still well above the IAM-based estimates used by the U.S. government.     

Multinational corporations and the EU Emissions Trading System: The specter of asset erosion and creeping deindustrialization

This study seeks to investigate the causal effect of the EU Emissions Trading System (EU ETS) on firms' holdings of fixed assets as an early indicator of industrial relocation, exploiting installation level inclusion criteria of the regulation. To single out companies with particularly low relocation costs, global multinational enterprises (MNEs), we identify ownership structures for the full sample of EU ETS-firms. Matched Difference-in-Differences estimates provide robust evidence that contradicts the specter of an erosion of European asset bases. Baseline results for the manufacturing sector indicate that the EU ETS led to an on average increase of treated firms' asset bases of 12,1%. However, for a particular subgroup of MNEs, this increase is a mere 2.1%. For these companies, the EU ETS may have induced a shift in investment priorities.     

Long-term impacts of exposure to high temperatures on human capital and economic productivity

Weather anomalies have a range of adverse contemporaneous impacts on health and socio-economic outcomes. This paper tests if temperature anomalies around the time of birth can have long-term impacts on individuals' economic productivity. Using unique data sets on historical weather and earnings, place and date of birth of all 1.5 million formal employees in Ecuador, we find that individuals who have experienced in-utero temperatures that are 1 °C above average are less educated and earn about 0.7% less as adults. Results are robust to alternative specifications and falsification tests and suggest that warming may have already caused adverse long-term economic impacts.     

Long-run dynamics of renewable energy consumption on carbon emissions and economic growth in the European union

This paper examines long-run and short-run dynamics of renewable energy consumption on carbon dioxide (CO₂) emissions and economic growth in the European Union. This study employs cointegration tests, Granger causality tests and vector error correction estimates to examine the direction of Granger causality, the long-run dynamics of economic growth and energy variables on carbon emissions. This study analyses time series data from the World Development Indicators over the period from1961 to 2012. The results of this study support a link between renewable energy consumption, economic growth, industrialization, exports and CO₂ emissions in the long-run and short-run. The results support that the sign of the long-run dynamics from the endogenous variables to the CO₂ emissions variable is negative and significant, which implies that the energy and environmental policies of the European Union aimed at curbing CO₂ emissions must have been effective in the long-term. Furthermore, renewable energy consumption and exports have significant negative impact on CO₂ emissions in the short-run. However, industrialization and economic growth have positive impact on CO₂ emissions in the short-run. The results suggest that both economic growth and industrialization must have been achieved at the cost of harming the environment. The finding suggests that the increasing consumption of renewable energy tends to play an important role in curbing carbon emissions in the region.     

Non-cooperative and cooperative climate policies with anticipated breakthrough technology

Global warming can be curbed by pricing carbon emissions and thus substituting fossil fuel with renewable energy consumption. Breakthrough technologies (e.g., fusion energy) can reduce the cost of such policies. However, the chance of such a technology coming to market depends on investment. We model breakthroughs as an irreversible tipping point in a multi-country world, with different degrees of international cooperation. We show that international spill-over effects of R&D in carbon-free technologies lead to double free-riding, strategic over-pollution and underinvestment in green R&D, thus making climate change mitigation more difficult. We also show how the demand structure determines whether carbon pricing and R&D policies are substitutes or complements.     

Restoration of ecosystems for biodiversity and carbon sequestration: Simulating growth dynamics of brigalow vegetation communities in Australia

Restoration of abandoned and degraded ecosystems through enhanced management of mature remnant patches and naturally regenerating (regrowth) forests is currently being used in the recovery of ecosystems for biodiversity protection and carbon sequestration. Knowledge of long-term dynamics of these ecosystems is often very limited. Vegetation models that examine long-term forest growth and succession of uneven aged, mixed-species forest ecosystems are integral to the planning and assessment of the recovery process of biodiversity values and biomass accumulation. This paper examined the use of the Ecosystem Dynamics Simulator (EDS) in projecting growth dynamics of mature remnant brigalow forest communities and recovery process of regrowth brigalow thickets. We used data from 188 long-term monitored plots of remnant and regrowth forests measured between 1963 and 2010. In this study the model was parameterised for 34 tree and shrub species and tested with independent long-term measurements. The model closely approximated actual development trajectories of mature forests and regrowth thickets but some inaccuracies in estimating regeneration through asexual reproduction and mortality were noted as reflected in stem density projections of remnant plots that had a mean of absolute relative bias of 46.2 (±12.4)%. Changes in species composition in remnant forests were projected with a 10% error. Basal area values observed in all remnant plots ranged from 6 to 29 m² ha⁻¹ and EDS projections between 1966 and 2005 (39 years) were 68.2 (±10.9)% of the observed basal area. Projected live aboveground biomass of remnant plots had a mean of 93.5 (±5.9) t ha⁻¹ compared to a mean of 91.3 (±8.0) t ha⁻¹ observed in the plots. In regrowth thicket, the model produced satisfactory projections of tree density (91%), basal area (89%), height (87%) and aboveground biomass (84%) compared to the observed attributes. Basal area and biomass accumulation in 45-year-old regrowth plots was approximately similar to that in remnant forests but recovery of woody understorey was very slow. The model projected that it would take 95 years for the regrowth to thin down to similar densities observed in original or remnant brigalow forests. These results indicated that EDS can produce relatively accurate projections of growth dynamics of brigalow regrowth forests necessary for informing restoration planning and projecting biomass accumulation.