Coupling climate and economic models in a cost-benefit framework: A convex optimisation approach

In this paper, we present a general method, based on a convex optimisation technique, that facilitates the coupling of climate and economic models in a cost-benefit framework. As a demonstration of the method, we couple an economic growth model à la Ramsey adapted from DICE-99 with an efficient intermediate complexity climate model, C-GOLDSTEIN, which has highly simplified physics, but fully 3-D ocean dynamics. As in DICE-99, we assume that an economic cost is associated with global temperature change: this change is obtained from the climate model, which is driven by the GHG concentrations computed from the economic growth path. The work extends a previous paper in which these models were coupled in cost-effectiveness mode. Here we consider the more intricate cost-benefit coupling in which the climate impact is not fixed a priori. We implement the coupled model using an oracle-based optimisation technique. Each model is contained in an oracle, which supplies model output and information on its sensitivity to a master program. The algorithm Proximal-ACCPM guarantees the convergence of the procedure under sufficient convexity assumptions. Our results demonstrate the possibility of a consistent, cost-benefit, climate-damage optimisation analysis with a 3-D climate model.     

Choices of ecosystem capital without discounting and prices

In the last decade, neo-classical economists have used the Consumption-Growth Based Utility (CGBU) framework to suggestan appropriate discount rate for eco-system capital. The CGBU framework, being based on the simplicity and single-valued nature of man-made capital, is subject to many limitations. Three general limitations of the framework, irrespective of its use for man-made capital or ecosystem capital, paradox of consumption growth, expectations' insensitive utility specification, and insensitivity to the nature of returns, arediscussed. With respect to its use for ecosystem capital, the framework has two limitations: ecosystems cannot be commoditizedand ecosystem capital satisfies differentiated needs, and, hence, gross substitution between different components of ecosystem capital or between ecosystem capital and man-made capital is not possible. Therefore, the rate of discount for ecosystem capital suggested on the basis of the framework is arbitrary. In the context of international security, choices ofecosystem capital are similar to the choices of military decisions. Similar to military decisions, ecosystem choices should be made without discounting and prices. The neo-classicalframework does not have appropriate tools for such decision analyses, and other streams of economics, specifically post-Keynesian economics, may assist decision- makers in analysing ecosystem choices without prices and discounting.     

Optimal Control Models and Elicitation of Attitudes towards Climate Damages

This paper examines the consequences of various attitudes towards climate damages through a family of stochastic optimal control models (RESPONSE): cost-efficiency for a given temperature ceiling; cost-benefit analysis with a pure preference for current climate regime and full cost-benefit analysis. The choice of a given proxy of climate change risks is actually more than a technical option. It is essentially motivated by the degree of distrust regarding the legitimacy of an assessment of climate damages and the possibility of providing in due time reliable and non controversial estimates. Our results demonstrate that (a) for early decades abatement, the difference between various decision-making frameworks appears to matter less than the difference between stochastic and non stochastic approach given the cascade of uncertainty from emissions to damages; (b) in a stochastic approach, the possibility of non-catastrophic singularities in the damage function is sufficient to significantly increase earlier optimal abatements; (c) a window of opportunity for action exists up to 2040: abatements further delayed may induce significant regret in case of bad news about climate response or singularities in damages.     

Cost-Benefit Analysis and the environment: The time horizon is of the essence

Cost-Benefit Analysis is a key tool for evaluating welfare gains or losses from an investment. It is now well established that environmental impacts are crucial to consider the full welfare implications of a project. Debate has focussed on approaches to improve the valuation of environmental impacts, and controversy in the discounting of future impacts to present values. The issue of the time horizon of analysis is frequently overlooked. The framing of the time horizon has major implications, as environmental costs and benefits often accrue in the long-term. The technical aspects of setting the time horizon are reviewed, along with updates to practice guidance, noting the longer time horizons now becoming typical. It is demonstrated that the time horizon can have a considerable impact on results, even more substantial than the discount rate. While uncertainty is noted as a technical challenge to longer-term analysis, the use of scenarios and sensitivity testing are noted as an appropriate response. For projects with long-term environmental effects, such as those related to air pollution, climate change and ecosystem damages, it is recommended to use timescales of 100+ years for economic evaluation of the impact. Failing to fully capture these long-term welfare gains and losses will distort analysis with a bias towards those projects that are more carbon-intensive, or environmentally damaging. Such a bias would undermine not only the evaluation, but welfare and sustainable development in general.     

International equity in climate change policy

Equity discussions in climate change policy focus on mitigation. Climate change impacts, adaptation and decision making are also important. General equity principles can be related to specific proposals for equitable sharing of mitigation but no objective preference for any principle exists. Most promising are mixed approaches, that combine various equity principles in a process oriented setting. This revised version was published online in July 2006 with corrections to the Cover Date.     

Time value of emission and technology discounting rate for off-grid electricity generation in India using intermediate pyrolysis

The environmental impact assessment of a process over its entire operational lifespan is an important issue. Estimation of life cycle emission helps in predicting the contribution of a given process to abate (or to pollute) the environmental emission scenario. Considering diminishing and time-dependent effect of emission, assessment of the overall effect of emissions is very complex. The paper presents a generalized methodology for arriving at a single emission discounting number for a process option, using the concept of time value of carbon emission flow. This number incorporates the effect of the emission resulting from the process over the entire operational lifespan. The advantage of this method is its quantitative aspect as well as its flexible nature. It can be applied to any process. The method is demonstrated with the help of an Intermediate Pyrolysis process when used to generate off-grid electricity and opting biochar route for disposing straw residue. The scenarios of very high net emission to very high net carbon sequestration is generated using process by careful selection of process parameters for different scenarios. For these different scenarios, the process discounting rate was determined and its outcome is discussed. The paper also proposes a process specific eco-label that mentions the discounting rates.     

The Biodiversity Crisis and Adaptation to Climate Change: A Case Study from Australia's Forests

If current trends continue, human activities will drastically alter most of the planet's remaining natural ecosystems and their composite biota within a few decades. Compounding the impacts on biodiversity from deleterious management practices is climate variability and change. The Intergovernmental Panel on Climate Change (IPCC) recently concluded that there is ample evidence to suggest climate change is likely to result in significant impacts on biological diversity. These impacts are likely to be exacerbated by the secondary effects of climate change such as changes in the occurrence of wildfire, insect outbreaks and similar disturbances. Current changes in climate are very different from those of the past due to their rate and magnitude, the direct effects of increased atmospheric CO₂ concentrations and because highly modified landscapes and an array of threatening processes limit the ability of terrestrial ecosystems and species to respond to changed conditions. One of the primary human adaptation option for conserving biodiversity is considered to be changes in management. The complex and overarching nature of climate change issues emphasises the need for greatly enhanced cooperation between scientists, policy makers, industry and the community to better understand key interactions and identify options for adaptation. A key challenge is to identify opportunities that facilitate sustainable development by making use of existing technologies and developing policies that enhance the resilience of climate-sensitive sectors. Measures to enhance the resilience of biodiversity must be considered in all of these activities if many ecosystem services essential to humanity are to be sustained. New institutional arrangements appear necessary at the regional and national level to ensure that policy initiatives and research directed at assessing and mitigating the vulnerability of biodiversity to climate change are complementary and undertaken strategically and cost-effectively. Policy implementation at the national level to meet responsibilities arising from the UNFCCC (e.g., the Kyoto Protocol) and the UN Convention on Biological Diversity require greater coordination and integration between economic sectors, since many primary drivers of biodiversity loss and vulnerability are influenced at this level. A case study from the Australian continent is used to illustrate several key issues and discuss a basis for reform, including recommendations for facilitating adaptation to climate variability and change.     

Climatic Implications of Revised IPCC Emissions Scenarios, the Kyoto Protocol and Quantification of Uncertainties

In December 1997, the United Nations Framework Convention on Climate Change (FCCC) adopted the Kyoto Protocol. This paper describes a framework that models the climatic implications of this international agreement, using Monte Carlo simulations and the preliminary Intergovernmental Panel on Climate Change emissions scenarios (SRES). Emissions scenarios (including intervention scenarios), climate sensitivity, and terrestrial carbon sink are the key sampled model parameters. This framework gives prior probability distributions to these parameters and, using a simple climate model, posterior distributions of global temperature change are determined for the future. Our exercise showed that the Kyoto Protocol's effectiveness will be mostly dependent upon which SRES world evolves. In some worlds the Protocol decreases the warming considerably but in others it is almost irrelevant. We exemplified this approach with a current FCCC issue, namely “hot air”. This modelling framework provides a probabilistic assessment of climate policies, which can be useful for decision-makers involved in global climate change management. This revised version was published online in July 2006 with corrections to the Cover Date.     

Integrated Assessment Modeling for Global Climate Change: An Infinite Horizon Optimization Viewpoint

In this paper one uses an infinite time horizon optimal control paradigm to deal with three important issues in global climate change integrated assessment, namely the equitable treatment of all the generations involved, the representation of technical progress, and the uncertainty concerning technological progress and climate change processes. The notion of economic sustainability is associated with the concept of turnpike in infinite horizon optimization models. The issue of deciding on the proper discount rate is addressed in this context and a method is proposed to reconcile long term sustainability and short term time preference for current generations. One also formulates a model where environmental damage and/or technical progress are represented as stochastic jump processes. One calls this random evolution a mode switching process. In this context, sustainability is represented by a family of turnpikes, and the economy will be driven from one steady state to the other as the modes switch. These concepts are illustrated on the DICE model and their possible implementation in other types of integrated assessment models is discussed.     

Climate Damage on Production or on Growth: What Impact on the Social Cost of Carbon?

Recent articles have investigated with integrated assessment models the possibility that climate damage bears on productivity (TFP) growth and not on production. Here, we compare the impact of these alternative representations of damage on the social cost of carbon (SCC). We ask whether damage on TFP growth leads to higher SCC than damage on production ceteris paribus. To make possible a controlled comparison, we introduce a measure of aggregate damage, or damage strength, based on welfare variations. With a simple climate-economy model, we compare three damage structures: quadratic damage on production, linear damage on growth and quadratic damage on growth. We show that when damage strength is the same, the ranking of SCC between a model with damage on production and a model with damage on TFP growth is not unequivocal. It depends on welfare parameters such as the utility discount rate or the elasticity of marginal social utility of consumption.     

Climate change decision-support and the tolerable windows approach

The Tolerable Windows Approach (TWA) to Integrated Assessments (IA) of global warming is based on external normative specifications of tolerable sets of climate impacts as well as proposed emission quotas and policy instruments for implementation. In a subsequent step, the complete set of admissible climate protection strategies which are compatible with these normative inputs is determined by scientific analysis. In doing so, minimum requirements concerning global and national greenhouse gas emission paths can be determined. In this paper we present the basic methodological elements of TWA, discuss its relation to more conventional approaches to IA like cost–benefit analyses, and present some preliminary results obtained by a reduced-form climate model.     

Reconciling National and Global Priorities in Adaptation to Climate Change: With an Illustration from Uganda

Many developing countries, especially in Africa, contribute only very small amounts to the world total of greenhouse gas emissions. For them, the reduction of such emissions is not a priority, and the more important issue is to find ways to reduce their vulnerability to the projected climate change which is being imposed upon them largely as a result of emissions from developed countries. This priority does not accord with the ultimate objective of the United Nations Framework Convention on Climate Change, which is to achieve stabilization of greenhouse gas emissions. This paper reports upon studies in Uganda designed to help in the development of a national adaptation strategy, and addresses the need to reconcile such a strategy with the global priority accorded to mitigation and with national economic development priorities. Some features of a national climate change adaptation strategy are identified and questions are raised about the need for an international regime to facilitate and support adaptation.     

Constructing “not Implausible” Climate and Economic Scenarios for Egypt

A space of “not-implausible” scenarios for Egypt's future under climate change is defined along two dimensions. One depicts representative climate change and climate variability scenarios that span the realm of possibility. Some would not be very threatening. Others portend dramatic reductions in average flows into Lake Nassar and associated increases in the likelihood of year to year shortfalls below critical coping thresholds; these would be extremely troublesome, especially if they were cast in the context of increased political instability across the entire Nile Basin. Still others depict futures along which relatively routine and relatively inexpensive adaptation might be anticipated. The ability to adapt to change and to cope with more severe extremes would, however, be linked inexorably to the second set of social–political–economic scenarios. The second dimension, defined as “anthropogenic” social/economic/political scenarios describe the holistic environment within which the determinants of adaptive capacity for water management, agriculture, and coastal zone management must be assessed. This revised version was published online in July 2006 with corrections to the Cover Date.     

Integrating Impacts into Adaptation Measures

A mechanism has been established to improve integration of international climate-related programmes. Known as the Climate Agenda it outlines a programme, that in a cost-effective way, responds to national obligations to respond to international agreements as well as their national needs for social and economic development. The paper briefly describes the Climate Agenda and the incorporation within it of studies of climate impact assessments and response strategies to reduce vulnerability. The need for increased emphasis on climate impact assessment and for the development of effective adaptation measures is emphasised following the elaboration of a Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC). UNEP's efforts to identify national programmes contributing to the Climate Agenda are described.The response from developing countries has, however, been very disappointing, even from countries where we know work is ongoing through funding by GEF or US Country Studies Program and other bilateral programmes. Initial compilation of information available so far shows that many developed countries are putting a lot into the area of impact assessment of not just climate change, but also climate variability. There remain some research gaps, especially in the area of assessment of climate impacts on ecosystems, hydrological systems, etc. Considerable efforts are presently being directed at reduction of emissions of greenhouse gases and in the case of developing countries, most efforts are being directed towards completing national communications and providing baseline data for future studies.The paper refers to early activities by UNEP in cooperation with other international organizations to undertake integrated assessments of the impacts of climate change on important socio-economic sectors and the later incorporation of lessons learned into the IPCC Guidelines for Assessing Impacts of Climate Change.Later sections outline the development of a handbook on methods for climate change impact assessment and adaptation strategies as a practical approach to national assessments and the development of appropriate and cost-effective response to climate change.The initiation of a GEF-funded project to apply the methods contained in the handbook and improve the results based on national studies is also described for both developed and developing countries.Working in collaboration with a team of international experts under the coordination of the Institute of Environmental Studies at Vrije University (Amsterdam), the goal of this ongoing project is to develop a valuable methodological tool that Parties to the UNFCCC may apply to develop national climate change impact and adaptation assessments. Development of these guidelines was linked to a series of country studies in Antigua and Barbuda, Estonia, Cameroon and Pakistan funded under a UNEP/GEF project. The application of the first version of the UNEP Handbook by national study teams in these four countries is making valuable technical and practical contributions and will ensure that the next version of the Handbook will be a more useful tool for experts in developing countries undertaking similar studies in the future. The methods contained in the Handbook are also the basis for similar assessments funded under bilateral development programmes in other countries. These and similar studies elsewhere are coordinated with the UNEP programme and will eventually aim to create reliable and comparable assessments, a compatible set of tools for such purpose and the identification of realistic adaptation options for incorporation into national planning for adapting to climate change. The paper also addresses how climate impact assessment and response strategies are undertaken as part of national enabling activities carried out in co-operation with UNEP.     

Energy forecasting and atmospheric CO2 perspectives: two worlds ignore each other

Macroeconomic models predict that the global primary energy demand will increase by a factor of 2–4 by the year 2050. In contrast, climate analyses made by the IPCC claim that CO₂ emissions in 2050 should not exceed the values of 1990 or even be 20% lower. By 2100 emissions should be reduced to one third of the present value. The common wisdom to deal with these opposing trends is the concept of de-carbonization, i.e., the continuous decrease of the carbon emission per unit energy utilization. De-carbonization rates needed to compensate for the growing demand while keeping the CO₂-emissions constant should at least be 2% per year compared to actual values of 0.3%. The potential of different de-carbonization rate measures is analyzed. It is argued that the goal can only be met if per capita energy utilization in the industrialized countries is significantly reduced from their typical level of 5000–10 000 W. As a realistic target we suggest 2000 Watt per capita, the present global average. This would leave expansion capacity for the developing countries which presently have per capita demand between 300 and 1000 W. Based on the example of Switzerland it is shown that the two key issues to attain this goal are the quality of buildings and the demand for mobility. It is concluded that the conversion of the present energy system into a 2000 W system is neither limited by technology nor by finances but by the acceptance of a new life style in which energy is used more efficiently and more intelligently than today. This revised version was published online in July 2006 with corrections to the Cover Date.     

A new model for climate system analysis: Outline of the model and application to palaeoclimate simulations

We present a new reduced-form model for climate system analysis. This model, called CLIMBER-2 (for CLIMate and BiosphERe, level 2), fills the current gap between simple, highly parameterized climate models and computationally expensive coupled models of global atmospheric and oceanic circulation. We outline the basic assumptions implicit in CLIMBER-2 and we present examples of climate system analysis including a study of atmosphere–ocean interaction during the last glacial maximum, an analysis of synergism between various components of the climate system during the mid-Holocene around 6000 years ago, and a transient simulation of climate change during the last 8000 years. These studies demonstrate the feasibility of a computationally efficient analysis of climate system dynamics which is a prerequisite for future climate impact research and, more generally, Earth system analysis, i.e., the analysis of feedbacks between our environment and human activities.     

On the optimal control of carbon dioxide emissions: an application of FUND

This paper presents the Climate Framework for Uncertainty, Negotiation and Distribution (FUND), an integrated assessment model of climate change, and discusses selected results. FUND is a nine‐region model of the world economy and its interactions with climate, running in time steps of one year from 1990 to 2200. The model consists of scenarios for economy and population, which are perturbed by climate change and greenhouse gas emission reduction policy. Each region optimizes its net present welfare. Policy variables are energy and carbon efficiency improvement, and sequestering carbon dioxide in forests. It is found that reducing conventional air pollution is a major reason to abate carbon dioxide emissions. Climate change is an additional reason to abate emissions. Reducing and changing energy use is preferred as an option over sequestering carbon. Under non‐cooperation, free riding as well as assurance behaviour is observed in the model. The scope for joint implementation is limited. Under cooperation, optimal emission abatement is (slightly) higher than under non‐cooperation, but the global coalition is not self‐enforcing while side payments are insufficient. Optimal emission control under non‐cooperation is less than currently discussed under the Framework Convention on Climate Change, but higher than observed in practice. This revised version was published online in July 2006 with corrections to the Cover Date.     

Climate Change and Climate Variability: Adaptations to Reduce Adverse Health Impacts

Global climate change is likely to have a range of consequences for human health as a result of disturbance or weakening of the biosphere's natural or human-managed life support systems. The full range of potential human health impacts of global climate change is diverse and would be distributed differentially spatially and over time. Changes in the mortality toll of heatwaves and changes in the distribution of vector-borne infectious diseases may occur early. The public health consequences of sea level rise and of regional changes in agricultural productivity may not occur (or become apparent) for several decades. Vulnerability is a measure of both sensitivity to climate change and the ability to adapt in anticipation of, or in response to, its impacts. The basic modes of adaptation to climate-induced health hazards are biological, behavioural and social. Adaptation can be undertaken at the individual, community and whole-population levels. Adaptive strategies should not introduce new health hazards. Enhancement of the acknowledged public health infrastructure and intervention programmes is essential to reduce vulnerability to the health impacts of climate change. In the longer-term, fundamental improvements in the social and material conditions of life and in the reduction of inequalities within and between populations are required for sustained reduction in vulnerability to environmental health hazards.     

Coupling Climate Damages and GHG Abatement Costs in a Linear Programming Framework

The paper discusses the coupling of non-linear non-convex damage costs due to climate change with a cost-efficiency analysis based on a technical-economic linear programming model like MARKAL and studies the implications for the computation of cooperative and non-cooperative solutions. Our empirical analysis of climate damages based on different world emissions levels and paths prove (a) that the dependency of damages on the trajectory of emissions may be neglected, so that the only relevant variables are the cumulative emissions in each country, and (b) that a linear relationship links regional damages and cumulative global emissions. Based on these results, cooperative and non-cooperative equilibria can be much more easily calculated by solving local optimization problems in a case where international trade effects of GHG policies are neglected: given the linearity of damage functions, each country chooses its non-cooperative strategy by considering only the part of its own damage cost due to its own emissions; in the cooperative case, each country takes into account its contribution to the damages done to all countries. Of course, any cost-benefit conclusion that will be produced by this approach is fully dependent on the damage functions. Also, this approach may be extended to the case where trade effects are modeled.     

Sharing the geo-Referenced Results of Climate Change Impact Research

The Prairie Adaptation Research Collaborative (PARC) has implemented an Internet Map Server (IMS) at the PARC web site (www.parc.ca) to 1) disseminate the geo-referenced results of PARC sponsored research on climate change impacts and adaptation, and 2) address data, information and knowledge management within the PARC network of researchers and partners. PARC facilitates interdisciplinary research on adaptation to the impacts of climate change in the Canadian Prairie Provinces. The web site is intended as a platform for sharing information and encouraging discussion of climate change impacts and adaptation. The IMS enables scientists and stakeholders to apply simple climate change scenarios to geo-referenced biophysical and social data, and dynamically create maps that display the geographic distribution of potential impacts of climate change. With a limited capacity for spatial analysis, most geo-processing and the climate impact modeling is done offline within a GIS environment. The IMS will serve the output from climate impact models, such that the model results can be customized by the web site user and be most readily applied to the planning and analysis of adaptation strategies.