NATURAL RESOURCE ECONOMICS
Sponsored by a Grant TÁMOP-4.1.2-08/2/A/KMR-2009-0041 Course Material Developed by Department of Economics,
Faculty of Social Sciences, Eötvös Loránd University Budapest (ELTE) Department of Economics, Eötvös Loránd University Budapest
Institute of Economics, Hungarian Academy of Sciences Balassi Kiadó, Budapest
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NATURAL RESOURCE ECONOMICS
Week 13
Climate Change
Gábor Ungvári
•
HW in advance, summarizing most important effects – globally and in relation to Hungary.•
Part II / Ch3 How climate change will affect people around the worldOutline
• Are we going to be surprised?
• Do we understand properly the changes?
• Influencing and/or adaptation?
• What is the value of the Kyoto process?
• Opportunities for collective decision-making after the Cold War
• The Stern Report and its context
• The conclusions and critiques of the report
• What sort of decisions were supported in the report?
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The climate change process and recognizing the need for action
• Looking back, the development usually appears linear and almost necessary
• http://www.metoffice.gov.uk/climatechange/guide/timeline/
• Swift or slow response-time?
• What is targeted by the response?
– Mitigation – Adaptation
• Understanding the problem reflects our thinking process, but how about the detected process?
– We detect the change, but can we really control these global processes as we currently plan to do so?
– The stake of taking action: expended resources, the opportunity cost of these same resources and the risk involved in the transformation of the event horizon – which is our current option
Understanding the change
• The peculiarity of the time scale
– Our time scale finally (again?) recognize the planet’s minimum changing level – end of the illusion of permanency and stability
– CO2 level and the temperature are also varied – examples from the history of Earth
– Does it make sense setting up planet conditions to be reached?
– Can the processes be controlled within the time scale of collective action?
(How to approach the challenges faced by Bangladesh in a 100 years time?) Even if our goals are straightforward, the transition takes a very long time, independent management processes are necessary.
• Problems with our understanding – the pitfalls and limits of collective action.
– Should we, can we act collectively in a globalized, thus homogenous sphere?
4 F.4 Off the charts with CO2
Source: Lüthi and others 2008.
Note: Analysis of air bubbles trapped in an Antarctic ice core extending back 800,000 years documents the Earth’s changing CO2 concentration. Over this long period, natural factors have caused the atmospheric CO2 concentration to vary within a range of about 170 to 300 parts per million (ppm). Temperature-related data make clear that these variations have played a central role in determining the global climate. As a result of human activities, the present CO2 concentration of about 387 ppm is about 30 percent above its highest level over at least the last 800,000 years. In the absence of strong control measures, emissions projected for this century would result in a CO2
concentration roughly two to three times the highest level experienced in the past 800,000 or more years, as depicted in the two projected emissions scenarios for 2100.
•
Cultural history of climate, longer time scale5
Steps taken so far
• 1992 UN Framework Convention on Climate Change (UNFCCC)
• 1997 UNFCCC Kyoto Protocol – agreement under the auspices of the UN to reduce the amount of unit-value emission of CO2 to the 1990 level, for the period between 2008 and 2012.
• Financial mechanisms to reduce costs of commitments
• How much? Clarifying preparation and methodology problems – still ongoing, e.g.
in the case of forests.
• Participating countries – and others, reasons for participation:
– Economic interests versus self-image and diplomatic manoeuvres – The responsibility of perpetrators
– The right to develop
– Approach to those directly affected
• Participating conferences (COPs), most recent being Copenhagen, Cancún
6 F.3 High-income countries have historically contributed a disproportionate
share of global emissions and still do
Sources: DOE 2009; World Bank 2008c; WRI 2008 augmented with land-use change emissions from Houghton 2009.
Note: The data cover over 200 countries for more recent years. Data are not available for all countries in the 19th century, but all major emitters of the era are included. Carbon dioxide (CO2) emissions from energy include all fossil-fuel burning, gas flaring, and cement production. Greenhouse gas emissions include CO2, methane (CH4), nitrous oxide (N2O), and high-global-warming-potential gases (F-gases). Sectors include energy and industrial processes, agriculture, land-use change (from Houghton 2009), and waste. Overuse of the atmospheric commons relative to population share is based on deviations from equal per capita emissions; in 2005 high-income countries
constituted 16 percent of global population; since 1850, on average, today’s high- income countries constituted about 20 percent of global population.
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• Developing countries land-use originated CO2 emission (mainly the emission of deforestation) is comparable to the industrial CO2 emission of developed states.
The flexibility mechanisms of the Kyoto Protocol (KP)
• International Emission Trade (IET)
– Transferring the direct AAU (Assigned Amount Units) among participating states
– Cap-and-trade (AAU)
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• Joint Implementation (JI)
– Reducing the emission produced as part of the GHG countering projects in KP partner states
– With AAU transfer among KP partner states
– Baseline-and-credit (Emission Reduction Unit (ERU) – AAU)
• Clean Development Mechanism (CDM)
– Reducing the emission produced as part of the GHG countering projects in non-KP partner states
– No AAU transfer, but AAU is created
– Baseline-and-credit (Certified Emission Reduction (CER) – AAU)
The flexibility mechanisms of the Kyoto Protocol
The concept of additionality
The question of additionality is the weakest link of the baseline-and-credit systems:
1. Environment protection additionality: what is the amount of GHG emission- EU-15
Bubble JI
CDM
Inter-state
AAU trade
EU-15 Bubble JI
CDM
Inter-state
AAU trade
9 reduction corresponding to the relevant financing?
2. Financial additionality: is it necessary to trade the unused emission amounts, so that the project is financially feasible?
10 Hungary’s KP commitment, changes and forecast
of its net GHG emission; mt CO2e
FA F.1 Global emissions of greenhouse gases have been increasing
0 20000 40000 60000 80000 100000 120000
1985-1987 1990
1991 1992
1993 1994
1995 1996
1997 1998
1999 2000
2001 2002
2003 2004
2005 2006
2007 2008
2009 2010
2011 2012
2013
Mo. ÜHG kerete a KJ-ben nettó ÜHG kibocsátás -6%
Total excess:
70-90 mt CO2e
0 20000 40000 60000 80000 100000 120000
1985-1987 1990
1991 1992
1993 1994
1995 1996
1997 1998
1999 2000
2001 2002
2003 2004
2005 2006
2007 2008
2009 2010
2011 2012
2013
Mo. ÜHG kerete a KJ-ben nettó ÜHG kibocsátás -6%
Total excess:
70-90 mt CO2e
World D evelopment R eport 2010 Source: Reproduced from Barker and others 2007.
Note: This figure shows the sources and growth rates of some of the medium-to long-term greenhouse gases. Fossil fuels and land-use change have been the major sources of CO2, while energy and agriculture contribute about equally to emissions of CH4. N2O comes mainly from agriculture. Additional greenhouse gases not included in the figure are black carbon (soot), tropospheric ozone, and halocarbons. The comparisons of the equivalent emissions of different gases are based on the use of the 100-year Global Warming Potential; see note 9 for explanation.
World D evelopment R eport 2010 Source: Reproduced from Barker and others 2007.
Note: This figure shows the sources and growth rates of some of the medium-to long-term greenhouse gases. Fossil fuels and land-use change have been the major sources of CO2, while energy and agriculture contribute about equally to emissions of CH4. N2O comes mainly from agriculture. Additional greenhouse gases not included in the figure are black carbon (soot), tropospheric ozone, and halocarbons. The comparisons of the equivalent emissions of different gases are based on the use of the 100-year Global Warming Potential; see note 9 for explanation.
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The effect of the Kyoto Protocol
•
Failure to re-set the emission•
The Kyoto Protocol can be critiqued for a number of reasons, but the most surprising is that it started to work•
Clarifying opportunities, research, systemisation, the development of a sectorF.8 The full portfolio of existing measures and advanced technologies, not a silver bullet, will be needed to get the world onto a 2°C path
12 BoxF.8 It’s not just about energy: At high carbon prices the combined mitigation potential of agriculture and forestry is greater than that of other individual sectors of the economy
The climate’s “sector policy”
– The Stern Report
• Decision supporting, economics-based analysis of the actions necessary to prevent the detrimental effects of climate change
• „Climate change is an externality that is global in both its causes and consequences. Both involve deep inequalities that are relevant for policy.”
• The climate is communal good, where due to a lack of market feedback inappropriate amount and quality of services is produced.
• Main groups of those affected
– Differentiated based on generations
World D evelopment R eport 2010 Source: Barker and others 2007b, figure TS.27.
Note: EIT = economies in transition. The ranges for global economic potentials as assessed in each sector are shown by black vertical lines.
World D evelopment R eport 2010 Source: Barker and others 2007b, figure TS.27.
Note: EIT = economies in transition. The ranges for global economic potentials as assessed in each sector are shown by black vertical lines.
13 – Based on economic status; the direct impact in poorer regions is greater (this
is a direct consequence of the fact that the livelihood of these populations depends more on the use of natural environment)
– Favourable and unfavourable effects based on geographical location
Questions to consider prior to measurement – relationships between generations
• Effects on future generations can be judged based on sustainability – but does this mean the preservation of living standard (resource transformation by conservation) or the conservation of individual resources?
• Assessing damages? The increasingly harmful effects of climate change, that are generated by current processes as opposed to an unchanging world? But in the case of an ongoing process, how can one pinpoint the baseline. In this case will future extra costs materialize from current consumption or from the lack of adaptation?
• For generational comparison – defining discount rates
Questions to consider prior to measurement – taking into account welfare level differences
• The problem regarding the overview of regional effects: in the case of simple aggregation the lesser effect experienced in rich states can off-set the more significant effects presenting in poorer states:
– Value of market products and services
– Values connecting to health, quality of nature, and individual lives – Costs incurred by renewal for infrastructure maintenance
– Effect-estimations based on percentage-based economic performance – Is welfare weighting acceptable?
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Questions to consider prior to measurement – sub-groups or global approach?
• Is a global summary justified?
• On higher latitudes the changing level of chilling-heating energy use is estimated to be favourable, while on lower attitudes it is estimated to be unfavourable
• The balance of changing number of deaths due to heat and cold
• Severe heat waves on vegetation periods cause agricultural losses, while the production potential on higher latitudes improves (e.g. 2003 heat wave in Europe)
• What is the decision-making forum where these effects can be implemented?
F.2 Rebalancing act: Switching from SUVs to fuel-efficient passenger cars in the U.S. alone would nearly offset the emissions generated in providing electricity to 1.6 billion more people
Source: WDR team calculations based on BTS 2008.
Note: Estimates are based on 40 million SUVs (sports utility vehicles) in the United
15 States traveling a total of 480 billion miles (assuming 12,000 miles a car) a year. With average fuel efficiency of 18 miles a gallon, the SUV fleet consumes 27 billion gallons of gasoline annually with emissions of 2,421 grams of carbon a gallon. Switching to fuel- efficient cars with the average fuel efficiency of new passenger cars sold in the
European Union (45 miles a gallon; see ICCT 2007) results in a reduction of 142 million tons of CO2 (39 million tons of carbon) annually. Electricity consumption of poor
households in developing countries is estimated at 170 kilowatt-hours a person-year and electricity is assumed to be provided at the current world average carbon intensity of 160 grams of carbon a kilowatt-hour, equivalent to 160 million tons of CO2 (44 million tons of carbon). The size of the electricity symbol in the global map corresponds to the number of people without access to electricity.
What can an economist do?
•
Take into account – The effects, – Those affected,– Measure costs and benefits, – Handle uncertainty,
– Within a framework of comparative analysis of alternative scenarios.
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Did the Report take us closer to the resolution?16
Handling assumptions – effects – costs
• Connections between climate attributes and temperature changes (Box 3.1 5/60.
functional forms of effects)
• The assumptions and scenarios Box 3.2 6/61 – Differentiating socio-economic and climate changes – development without climate change (??) – taking into account the level of adaptation
• Question: is there a baseline, if there is no climate change?
Conclusions
• The benefits of early and determined actions significantly exceed the costs of no action.
• The costs are approximated to 1% of the GDP 1%, while costs incurred due to lack of actions will reach at least 5% of the GDP. (In worst case scenarios, this can reach 20%). Investments of the next 10-20 year can have fundamental effects on climate change in the second half this century and the next century.
• The question is, what can these practical steps be? – Who would finance what?
17 How could commitments be regulated? Can cooperation eclipse the fundamental quality differences of state management?
Sentiments
• Arrow: The methodology can be critiqued for a number of reasons, many did so because of the low discount rate, but the results are robust in the sense that the benefits of prevention are at least on par with the damages incurred by lack of action.
• Stiglitz: If there was political will, the internalisation of the problem could be
achieved with the application of much simpler tools. Adaptation can be ensured by imposing a tax on CO2 value unit emissions. Any state that does not take part in the process, provides unauthorized subsidy, and this question can be managed within the framework of WTO procedures.
Detailed effects – summary for the preparation
• Water p62/CH7 the effects do not have feedback to the eco-systems
• Comestibles p67/CH12, combined effects Table 3.2 p71/CH16 point-based
perceived values Fig 3.6 p73/CH18 conversation, is there a point of such a table?;
• Health 3.4 p74/19 hot-cold, the balance is mentioned, but the emphasis is on the effects of warming;
• 3.5 Surface of Earth p76/CH21 – sea level, floods,
• 3.6 Infrastructure systems – damages, shortened cycle of capital replenishment.
• 3.7 Environment – extinctions;
• 3.8 Non-linear effects – thresholds
18 ELTE Faculty of Social Sciences, Department of Economics
