Methodological aspects of recent climate change damage cost studies

This paper discusses methodological aspects of recent climate change damage studies. Assessing the total and/or marginal damage costs of environmental change is often difficult and it is certainly difficult in the case of climate change. A major obstacle is the uncertainty on the physical impacts of climate change, especially related to extreme events and so-called ‘low-probability high-impact’ scenarios. The subsequent transposition of physical impacts into monetary terms is also a delicate step, given that climate change impacts involve both market and non-market goods and services, covering health, environmental and social values, and that impacts may be distant in time and space. The complexity of climate change cost assessment thus involves several crucial dimensions, including non-market evaluation, risk and uncertainty, baseline definition, equity and discounting, further elaborated in this paper in the course of the overview of the literature and of the overview and evaluation of the key methodological issues.Climate change damage costs, cost of inaction, methodological aspects, risk and uncertainty, discounting, equity

Simple rules for climate policy and integrated assessment

A simple integrated assessment framework that gives rules for the optimal carbon price, transition to the carbon-free era and stranded carbon assets is presented, which highlights the ethical, economic, geophysical and political drivers of optimal climate policy. For the ethics we discuss the role of intergenerational inequality aversion and the discount rate, where we show the importance of lower discount rates for appraisal of longer run benefit and of policy makers using lower discount rates than private agents. The economics depends on the costs and rates of technical progress in production of fossil fuel, its substitute renewable energies and sequestration. The geophysics depends on the permanent and transient components of atmospheric carbon and the relatively fast temperature response, and we allow for positive feedbacks. The politics stems from international free-rider problems in absence of a global climate deal. We show how results change if different assumptions are made about each of the drivers of climate policy. Our main objective is to offer an easy back-on-the-envelope analysis, which can be used for teaching and communication with policy makers.Series: Ecological Economic Paper

Individuals Time Preference and Social Discounting: A Survey and a Meta-Analysis

The choice of an appropriate social rate of discount is critical in the decision-making process on public investments. In this paper we review concisely the literature on social discounting and refer explicitly to a recently growing field of related research, that is, individual time preference. The consideration and analysis of behavioural factors of individuals in the definition and use of an appropriate social discount rate are critical for balanced decision-making, for example, in the field of environmental policy. The empirical literature shows quite some variation in the estimated values of individual discount rates. Therefore, we present results from a meta-analysis conducted over more than 40 experimental and field studies reporting individual discount rate estimates. We find that the experimental design of a study has a great impact on these estimates and conclude that our meta-regression function has a low transfer value.

A tragedy of the horizons? An intertemporal perspective on public support for carbon taxes

Altres ajuts: acords transformatius de la UABAltres ajuts: Ghent University (BES-2016-078156)Most collective dilemmas-that is, situations in which private interests contrast with collective interests-have an embedded intertemporal component in that they often imply that the rewards from defection are immediate but the rewards from cooperation are delayed and often accrue to people in the future. This also applies to carbon taxes since they imply additional individual costs for benefits which will mostly be enjoyed by future generations, which undermines their political support. In an experiment on a representative sample of 1000 United States adults, we presented individuals with twelve alternative carbon tax formulations with varying start dates, temporal horizons of carbon abatement objectives and revenue uses. We find that public support is highest when individuals can pre-commit to policies that start a few years into the future and for policies that express their emission cuts objectives in more distant and ambitious terms -i.e. achieving carbon neutrality by 2050 as opposed to halving emissions by 2030. Individual temporal discounting, exogenously measured, account for large part of these preferences. These preferences are in contrast with the most efficient policy, which is the one that starts immediately and distributes equitably mitigation costs across time. We find two ways to realign preferences with it. First, the most efficient policy becomes politically feasible when the tax includes a dividend that is redistributed to citizens. Delivering an economic compensation at the same time of the individual costs of the tax neutralizes the effect of individual discounting and of the policy's temporal context on tax support. Secondly, when the price of the carbon tax is adjusted upward to compensate for the opportunity cost of delaying its introduction, individuals start trading off its delay with avoidance of tax increases

Essays in environmental and resource economics

The dissertation also deals with conflicts between successive regulators that can arise when policy makers have self-control problems, or because successive regulators share a common concern for long-term environmental outcomes, but each regulator would like his successors to shoulder the costs of preventative policies. Lastly, it contains a chapter that highlights the importance of energy reserves for the location of energy-intensive manufacturing industries.

Simple Rules for Climate Policy and Integrated Assessment

A simple integrated assessment framework that gives rules for the optimal carbon price, transition to the carbon-free era and stranded carbon assets is presented, which highlights the ethical, economic, geophysical and political drivers of optimal climate policy. For the ethics we discuss the role of intergenerational inequality aversion and the discount rate, where we show the importance of lower discount rates for appraisal of longer run benefit and of policy makers using lower discount rates than private agents. The economics depends on the costs and rates of technical progress in production of fossil fuel, its substitute renewable energies and sequestration. The geophysics depends on the permanent and transient components of atmospheric carbon and the relatively fast temperature response, and we allow for positive feedbacks. The politics stems from international free-rider problems in absence of a global climate deal. We show how results change if different assumptions are made about each of the drivers of climate policy. Our main objective is to offer an easy back-on-the-envelope analysis, which can be used for teaching and communication with policy makers

Economic viability of building energy efficiency measures: a review on the discount rate

How does the issue of the discount rate intersect the research on building energy efficiency and the topics into which it has branched? This contribution tries to answer the previous question through a comprehensive review of related studies. Those studies usually rely on two alternative assumptions. The first refers, explicitly or implicitly, to the notion of cost of capital and, hence, to the position of private stakeholders involved in the decision processes focusing on the adoption of energy-efficient measures in buildings. The second assumption relates to the notion of the social discount rate, which is meant to pursue intergenerational equity and environmental sustainability. As far as the results are concerned, the literature agrees that the discount rate is among the key parameters\u2014possibly the most prominent\u2014affecting the evaluation. However, despite the crucial role it plays, its calculation seldom relies on acknowledged methods and models. Furthermore, data sources sometimes lack consistency and accuracy. Some guidance and suggestions are provided as to the improvement of the discount rate estimation

Social Discounting and the Tragedy of the Horizon: from the Stern-Nordhaus debate to target-consistent prices

This paper reviews debates related to the social cost of carbon (SCC) and the challenge of pricing uncertain damages that will occur only in the future. They often revolve around the pure time preference rate, which reflects how much one favors present over future well-being. The SCC measures the marginal cost of the impact on economic growth caused by the emission of a quantity of greenhouse gases equivalent to an additional ton of carbon dioxide (tCO2eq). There is significant variance among estimates of the SCC; one of the reasons for it is a disagreement on how to bring future damages to present values, especially over the so-called "delta parameter" – the pure time preference rate – of the corresponding discount function. On the one hand, the descriptive approach, associated with William Nordhaus, proposes to use the time preference empirically observed among individuals, which would result in a significant limitation of the present value attributed to the distant future. On the other hand, the normative approach, associated with Nicholas Stern, proposes to treat everyone impartially, in every generation, and so implies transferring more resources to future generations. In the limit, assuming exponential population growth, it would lead to a philosophical stance akin to the so-called "longtermism" (as defended by William MacAskill in What we owe the future). In addition, the analysis points out obstacles to using the SCC to price carbon for climate policies. These include aspects related to economic methodology (such as ecological economics critiques of welfarist accounts of intergenerational allocations) as well as political philosophy. Thus, challenges related to uncertainty about socioeconomic development trajectories, intergenerational justice, and public reason become key. Finally, we present the target-consistent pricing approach, where one calculates a carbon price compatible with specific mitigation targets – an alternative to SCC methodologies. This approach is advocated as a way to avoid the uncertainty and the disagreements associated with the SCC, emphasizing the importance of meeting goals set by binding political decisions – such as the Paris Agreement