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All Past Seminars | Climate Economics | Climate Science | Environmental EconomicsClimate Economics
Fixing a Critical Climate Accounting Error
November 18, 2009, 11:00 am to 12:30 pm
Timothy D. Searchinger (Princeton University)
Abstract: The Kyoto Protocol and European and proposed U.S. climate legislation contains a fixable but far-reaching accounting flaw that could lead to widespread deforestation. By exempting all emissions from the consumption of bioenergy while also not limiting emissions from land use, these measures effectively treat all bioenergy use as carbon neutral regardless of the source. Actual reductions by bioenergy depend on the source, and reductions depend on whether the biomass consists of "additional carbon," meaning carbon that would not otherwise be stored in plants or soils. The solution is to count carbon dioxide emissions from bioenergy consumption and to credit bioenergy only to the extent it results from additional carbon.
The RCP Scenarios for the IPCC AR4 (and beyond): 250 years of pollutant and GHG emissions
September 16, 2009, 10;30 am to noon
Steven J. Smith (Joint Global Change Research Institute; Pacific Northwest National Laboratory and the University of Maryland)
Abstract: Consistent long-term scenarios for emissions of greenhouse gases and air pollutants, land-use, socio-econmic variables, and energy consumption are needed for coordinated analysis of future climate change, impacts, mitigation, and adaptation. To meet this need, the integrated assessment, earth-system modeling, and emission inventory development communities have organized to implement a new process for scenario development and application. This is a departure from past practice, whereby the Intergovermental Panel on Climate Change (IPCC) has organized scenario construction exercises, the most recent being the Special Report on Emissions Scenarios (SRES). The initial phase of this new community-lead process is nearing completion: the release of a set of Representative Concentration Pathways (RCPs) to be used for model inter-comparison experiments leading to the IPCC AR5. The RCP scenarios are intended to represent the full range of potential future radiative forcing pathways ranging from a no-climate policy high forcing scenario (8.5 W/m^2 total anthropogenic forcing in 2100) to a "peak and decline" scenario (with 2.6 W/m^2 forcing in 2100). The RCP scenarios were developed using integrated assessment models that combine economics, technology, and physical processes. The scenarios include a full suite of greenhouse gas concentrations, spatially explicit emissions for pollutant gases and aerosols, and spatially explicit land-use and land-use change information. The RCP scenarios, the development process, and the next phases of scenario research will be discussed.
Forestry & Agriculture Greenhouse Gas Policy Design and Coordination Insights from Recent Modeling
Wednesday, July 15, 2009 (10:30 am to noon)
Steven Rose (EPRI)
Abstract: Changes in land related activities could have a potentially large greenhouse gas mitigation role in domestic offset programs and in climate stabilization. Recent modeling has estimated that land-based mitigation could cost-effectively contribute to achieving near- and long-term mitigation objectives. However, most modeling assumes a comprehensive, immediate, and global land-use abatement policy. Thus, a mitigation program is assumed to exist that offers credit for all mitigation activities, the program is active immediately (e.g., 2010 or 2012), and the program is implemented globally. This set of assumptions has been assumed regardless of the climate policy being considered in the energy, transportation, and commercial sectors domestically and abroad. Yet, given the recognized challenges associated with implementing agriculture and forestry abatement programs (domestically or internationally), it is reasonable to assume that programs will evolve over time.
There are a variety of forestry and agricultural activities that have the technical potential to mitigate GHG emissions. However, there are differences across activities in terms of cost, the quantity of emissions that can be mitigated, and the implementation challenges that must be overcome to create well-defined and climate beneficial assets. Because of these differences, some options will be more tractable than others; and, therefore more attractive to policy-makers, regulators, and markets. For instance, in forestry, carbon sequestered by new forests grown on previous unforested land (i.e., afforestation) is readily quantifiable with current knowledge and capabilities, as is the capture of methane by covering livestock manure lagoons. In addition to the issue of which forestry and agricultural activities to credit, there is the issue of timing and coordination in the crediting of activities—across regions and within regions. What are the implications of delaying programs, changes in coverage over time, and programs implemented at different times across regions?
This seminar presents insights from various new analyses that explore the implications of forestry and agriculture mitigation programs that are not comprehensive, immediate, and global. In general, the analyses show that less than comprehensive policies will have leakage, but interactions between activities, countries, and over time are even more complex. For instance, domestic and global forestry & agriculture activities are not independent (i.e., they cannot be stacked, or unstacked). The abatement potential for one activity depends on the GHG incentives for other activities. Furthermore, domestic mitigation potential is a function of international climate policy. Finally, we find that commitment to a comprehensive future global forest carbon policy could moderate leakage and offer significant mitigation potential with the long-run protection and expansion of global forests.
The Effects of Increased U.S. Renewable Fuel Standard
May 27, 2009 (1 to 2:30 pm)
Antonio M. Bento (Cornell University)
Abstract: The purpose of this paper is to examine the effects of the renewable fuels standard, employing an econometrically based multi-market simulation model to evaluate the policy’s efficiency impacts. We investigate the impacts of increased U.S. biofuels mandates on overall blended fuel consumption, relating these impacts to changes in fuel mix (regular gasoline and ethanol), changes in fleet composition (shifts to higher mileage automobiles) and vehicle miles traveled (VMT). The presenter will also examine the impacts of increased U.S. biofuels mandates on agricultural production, relating these effects to changes in crop acreage, rotation practices, tillage systems and land allocated to the conservation reserve program (CRP). Finally, he will evaluate the economy-wide costs of higher biofuels mandates, and explore how pre-existing distortions caused by the ethanol volumetric tax credit and the gasoline tax affect these costs.
What's Wrong with Infinity -- A Note on Weitzman's Dismal Theorem
April 1, 2009 (10:30 am to 12:00 noon), Room 4144 EPA West, 1301 Constitution Ave., NW, Washington, DC
Andreas Lange (University of Maryland)
Abstract: Dr. Lange will discuss the meaning of Weitzman's (2008) dismal theorem, and demonstrate that his indicator of marginal expected rate of substitution is of limited relevance for cost-benefit analysis: cost-benefit analysis under uncertainty must jointly consider marginal willingness and the options/technologies of transferring income. Dr. Lange's approach shows that an infinite expected marginal willingness to substitute between today's and future's consumption does not generally jeopardize cost-benefit-analysis.
The Income-Temperature Relationship in a Cross-Section of Countries and its Implications for Predicting the Effects of Global Warming
December 2, 2008 (2-3:30 pm)
John Horowitz (University of Maryland)
Abstract: Hotter countries are poorer on average. This paper attempts to separate the historical and contemporaneous components of this income-temperature relationship. Following ideas by Acemoglu, Johnson, and Robinson, the authors use colonial mortality data to account for the historical role of temperature, since colonial mortality was highly correlated with countries’ average temperatures. The authors argue that the remaining income-temperature gradient, after colonial mortality is accounted for, is most likely contemporaneous.
This contemporaneous temperature effect can be used to estimate the cost of global warming. The authors predict that a 2 degree Fahrenheit temperature increase across all countries will cause a decrease of roughly 4 percent in world GDP. This prediction is robust across samples, functional forms, and two methods for separating historical effects.
Analysis of U.S. Greenhouse Gas Tax Proposals
November 13, 2008, 1 to 2:30pm
Gilbert Metcalf (Tufts University)
Abstract: The U.S. Congress is considering a set of bills designed to limit the nation's greenhouse gas (GHG) emissions. Several of these proposals call for a cap-and-trade system; others propose an emissions tax. This paper complements the analysis by Paltsev et al. (2007) of cap-and-trade bills and applies the MIT Emissions Prediction and Policy Analysis model to carry out an analysis of the tax proposals. Several lessons emerge from this analysis. First, a low starting tax rate combined with a low rate of growth in the tax rate will not reduce emissions significantly. Second, the costs of GHG reductions are reduced with the inclusion of non-CO2 gases in the carbon tax scheme. The costs of the Larson plan, for example, fall by 20% with inclusion of the other GHGs. Third, welfare costs of the policies can be affected by the rate of growth of the tax, even after controlling for cumulative emissions. Fourth, a carbon tax — like any form of carbon pricing — is regressive. However, general equilibrium considerations suggest that the short-run measured regressivity may be overstated. A portion of the carbon tax is passed back to workers, owners of equity, and resource owners. To the extent that relatively wealthy resource and equity owners bear some fraction of the tax burden, the regressivity will be reduced. Additionally, the regressivity can be offset with a carefully designed rebate of some or all of the revenue. Finally, the carbon tax bills that have been proposed or submitted are for the most part comparable to many of the carbon cap-and-trade proposals that have been suggested. Thus the choice between a carbon tax and cap-and-trade system can be made on the basis of considerations other than their effectiveness at reducing emissions over some control period. Either approach (or some hybrid of the two approaches) can be equally effective at reducing GHG emissions in the United States.
Cap-and-Trade Allowance Allocation Issues
September 23, 2008 (1-2:30 pm)
Dallas Burtraw (Resources for the Future)
Abstract: Policies to cap emissions of carbon dioxide (CO2) in the U.S. economy could pose significant costs on the electricity sector, which contributes roughly 40 percent of total CO2 emissions in the U.S. The electricity sector is especially important because it is where the lion’s share of emission reductions is expected to occur in the early decades of a program. These costs fall unevenly on firms and households. Using a detailed simulation model we evaluate alternative ways that emission allowances can be allocated. Most previous programs have allocated the major portion of allowances for free to incumbent emitters. In the electricity sector this approach would lead to changes in electricity price that vary by region primarily based on whether prices are market-based or determined by cost-of-service regulation. Moreover, the value of the allocation far exceeds the change in market value for the affected firms. Allocation to customers, which could be achieved by allocation to local distribution companies (retail utilities) would recover symmetry in the effect of free allocation and lead to significantly lower overall electricity prices. Unfortunately, this form of compensation provides an implicit subsidy to electricity consumption, which will increase the overall cost of climate policy. The presenter demonstrates the impacts at the household level across regions and income groups under these approaches, and compare these with several other approaches to allocation with the goal of cost-effective compensation for parties most severely affected by climate policy.
This presentation draws on three papers:
- Burtraw, D. and Palmer, K. 2008. “Compensation Rules for Climate Policy in the Electricity Sector,” 2008. Journal of Policy Analysis and Management, 27 (4):819-847.
- Paul, A., Burtraw D. and Palmer K. 2008. “Free Allocation to Electricity Consumers Under a US CO2 Emissions Cap,"
RFF Discussion Paper 08-25 (July).
- Burtraw, D., Sweeney R. and Walls M. 2008. “The Incidence of U.S. Climate Policy: Where You Stand Depends on Where You Sit,” RFF Discussion Paper 08-28 (August).
The Impact of Carbon Price Policies on U.S. Industry Output and Employment
July 10, 2008 (10:30 am)
Mun S. Ho, Richard Morgenstern, Jhih-Shyang Shih (Resources for the Future)
Abstract: While there are many different proposals to control carbon emissions in the U.S. they all have very different impacts on the various industries. Furthermore, the effect on industry output and employment may change over time as the economy adjusts to the carbon policy. Firms may substitute capital for energy, and consumers may substitute towards less carbon-intensive goods or imports. The length of time for these substitutions to take place vary and the long run impact may well be very different from the short run. This paper aims to inform the Congressional debates about the impact of carbon policies at the detailed industry level. Some policy proposals include an off-setting tax on imports, and we consider its impact. There are also proposals to compensate industries with free allowances under a cap-and-trade system and we estimate the level of such compensation for each industry.
Where Does Energy R&D Come From? A First Look at Crowding Out from Environmentally-Friendly R&D
June 17, 2008 (2 pm)
David C. Popp (Syracuse University) and Richard Newell (Duke University)
Abstract: Recent efforts to endogenize technological change in climate policy models demonstrate the importance of accounting for the opportunity cost of climate R&D investments. Because the social returns to R&D investments are typically higher than the social returns to other types of investment, any new climate mitigation R&D that comes at the expense of other R&D investment may dampen the overall gains from induced technological change. Unfortunately, there has been little empirical work to guide modelers as to the potential magnitude of such crowding out effects. This presentation is a first attempt to address this question. In it, the authors consider the private opportunity costs of climate R&D, asking whether an increase in climate R&D represents new R&D spending, or whether some (or all) of the additional climate R&D comes at the expense of other R&D.
Incorporating Price Effects into Lifecycle Analysis
March 5, 2008 (1 pm)
Mark Delucchi (Institute of Transportation Studies, U.C. Davis)
Abstract: Professor Delucchi's talk argued that no existing models of lifecycle carbon dioxide-equivalent greenhouse-gas (LC-CO2E-GHG) emissions from transportation fuels account for the interaction of policy, the production of new fuels, prices, production and consumption, and finally GHG emissions. In the real world, the production of biomass and biofuels and the substitution of biofuels for petroleum will affect the prices of a wide range of commodities, from gasoline and coal to fertilizer and steel. A change in the price of a commodity will affect the production and consumption of that commodity, of course, but also will affect the price and hence production and consumption of substitutes for and complements of the commodity, products derived from the commodity, and inputs used to make the commodity. So, for example, an increase in use of biofuels in the U. S. can lead to an increase in the use of home heating oil, via the effect of biofuel substitution for gasoline on oil prices. The increase in heating oil will be partly a substitution of oil for other sources of heat, and partly a net increase in heating. Both of these affect GHG emissions and climate change. A general equilibrium model of the world economy, including government sectors, is needed to trace out all of the relevant economic effects of a particular biofuel policy or assumed market outcome.
There are at least four different ways to combine life-cycle analysis (LCA) and general-equilibrium analysis: build a combined model from scratch; connect an existing LCA and an existing general equilibrium model in a meta-modeling framework; add technological detail, input-output linkages, and emission factors to an equilibrium model; or add price-production-GHG relationships to an LCA model. The focus of this talk will mainly be on the last alternative.
Working Paper related to seminar:
Delucchi, Mark A. (2005)
Incorporating the Effect of Price Changes on CO2-Equivalent Emissions From Alternative-Fuel Lifecycles: Scoping the Issues. (PDF, 647 kb) ITS-Davis.October 2005. Publication No. UCD-ITS-RR-05-19.
Estimating the Effect of Climate Change on Crop Yields and Farmland Values: The Importance of Extreme Temperatures
February 12, 2008 (1 pm)
Wolfram Schlenker (Columbia University)
Abstract: Prof. Schlenker summarized a paper written with Anthony Fisher, Michael Hanemann, and Michael Roberts. The paper pairs a panel of yearly crop yields in the United States with a fine-scale weather data set that incorporates the whole distribution of temperatures between the minimum and maximum within each day and across all days in the growing season. Yields increase in temperature until about 29°C for corn, 30°C for soybeans, and 32°C for cotton, but temperatures above these thresholds become very harmful. The slope of the decline above the optimum is significantly steeper than the incline below it. This has strong implications for global warming which is predicted to increase the frequency of temperatures above the critical threshold that are harmful for yields. Area-weighted average yields given current growing regions are predicted to decrease by 31-43% under the slowest warming scenario and 67-79% under the most rapid warming scenario by the end of the century. There is limited potential for adaptation within a crop species as the same nonlinear and asymmetric relationship is found if we look only at the time series or cross-section, and the latter should pick up how farmers adapt to warmer climates.
A cross-sectional analysis of farmland values that accounts for an even wider set of adaptation possibilities gives comparable, robust impacts. Mean impacts range from a 27 decrease under the slow warming scenario to a 69 decrease under the fast warming scenario by the end of the century. The increased frequency of very hot temperatures is again responsible for the largest share of the predicted impacts.
Intergeneratonal Discounting
January 22, 2008
Billy Pizer (Resources for the Future)
Abstract: Dr. Pizer discussed the challenges of discounting benefits and costs of policies that occur over multiple generations. He is a recognized expert in the economics of energy and climate change. His remarks on intergenerational discounting focused on his 2003 analysis with Richard Newell of incorporating uncertainty about discount rates on estimates of the benefits of reducing greenhouse gases. This article, the abstract of which is provided below, was awarded the Petry Research Prize for the economics of Climate Change by the Association of Environmental and Resource Economists.
Article related to January 22 seminar:
Discounting the Distant Future: How Much Do Uncertain Rates Increase Valuations?
Richard G. Newell and William A. Pizer
Journal of Environmental Economics and Management, Vol. 46, No. 1 (July, 2003), pp. 52-71.
Paper abstract:
The authors demonstrate that when the future path of the discount rate is uncertain and highly correlated, the distant future should be discounted at significantly lower rates than suggested by the current rate. They then use two centuries of US interest rate data to quantify this effect. Using both random walk and mean-reverting models, we compute the ‘‘certainty-equivalent rate’’ that summarizes the effect of uncertainty and measures the appropriate forward rate of discount in the future. Under the random walk model they find that the certainty-equivalent rate falls continuously from 4% to 2% after 100 years, 1% after 200 years, and 0.5% after 300 years. At horizons of 400 years, the discounted value increases by a factor of over 40,000 relative to conventional discounting. Applied to climate change mitigation, they find that incorporating discount rate uncertainty almost doubles the expected present value of mitigation benefits.