RICE-MED, an integrated assessment model for the Mediterranean basin: assessing the climate-economy-agriculture nexus

In this work we update the regionalization and the calibration of the Regional dynamic Integrated model of Climate and the Economy (RICE) in its 1999 version developed by Nordhaus and Boyer (2000), with a focus on the Mediterranean countries. Our aim is to assess the impact of climate change damages on their main macroeconomic variables in a context where all economies are fossil fuel based. In addition, we extend the model by introducing the uncertainty associated with a possible future catastrophic event, triggered by the temperature increase and variation over time, following the approach of Castelnuovo et al. (2003). We then develop an empirical exercise to asses the impact of climate change on the agricultural sector at country level. In this framework, we implement the traditional IAMs scenarios, namely the Business As Usual, the Social Optimum and the Temperature Limit, where population dynamics is calibrated according to the IIASA SSP2 projections. Among our findings, we show that, in the absence of renewable energy sources and break-through technologies, meeting the limit of a temperature increase of less than 2°C requires a carbon tax of more than 700 USD/tC by 2050, doubling by the end of this century. When uncertainty is introduced, the higher the probability of a possible catastrophic event and the greater the associated utility loss, the more society is willing to pay for a rising cost of carbon. The upward trend of the carbon tax relative to the no-uncertainty model is reduced by the end of the century in the temperature-limit scenario, due to the benefits associated with this policy and the inclusion in the model of societal awareness of the potential risks of climate change. In both versions of the model, the agricultural sector in the Southern Mediterranean countries is severely affected, and stringent policies can partially mitigate these impacts and reduce damages by 2100

RICE-MED, an integrated assessment model for the Mediterranean basin: assessing the climate-economy-agriculture nexus

In this work we update the regionalization and the calibration of the Regional dynamic Integrated model of Climate and the Economy (RICE) in its 1999 version developed by Nordhaus and Boyer (2000), with a focus on the Mediterranean countries. Our aim is to assess the impact of climate change damages on their main macroeconomic variables in a context where all economies are fossil fuel based. In addition, we extend the model by introducing the uncertainty associated with a possible future catastrophic event, triggered by the temperature increase and variation over time, following the approach of Castelnuovo et al. (2003). We then develop an empirical exercise to asses the impact of climate change on the agricultural sector at country level. In this framework, we implement the traditional IAMs scenarios, namely the Business As Usual, the Social Optimum and the Temperature Limit, where population dynamics is calibrated according to the IIASA SSP2 projections. Among our findings, we show that, in the absence of renewable energy sources and break-through technologies, meeting the limit of a temperature increase of less than 2°C requires a carbon tax of more than 700 USD/tC by 2050, doubling by the end of this century. When uncertainty is introduced, the higher the probability of a possible catastrophic event and the greater the associated utility loss, the more society is willing to pay for a rising cost of carbon. The upward trend of the carbon tax relative to the no-uncertainty model is reduced by the end of the century in the temperature-limit scenario, due to the benefits associated with this policy and the inclusion in the model of societal awareness of the potential risks of climate change. In both versions of the model, the agricultural sector in the Southern Mediterranean countries is severely affected, and stringent policies can partially mitigate these impacts and reduce damages by 2100

A review of macroeconomic models for the WEFE nexus assessment

The Water, Energy, Food and Ecosystems (WEFE) nexus refers to the system of complex and highly non-linear interconnections between these four elements. It now represents the basic framework to assess and design policies characterized by an holistic environmental end economical perspective. In this work, we provide a systematic review of the macroeconomic models investigating its components as well as combinations of them and their interlinkages with the economic system. We focus on four different types of macroeconomic models: Computable General Equilibrium (CGE) models, Integrated Assessment Models (IAMs), Agent-based Models (ABMs), and Dynamic Stochastic General Equilibrium (DSGE) models. On the basis of our review, we find that the structure of IAMs is currently the most used to represent the nexus complexity, while DSGE models focus only on single components but appear to be better suited to account for the randomization of exogenous shocks. CGE models and ABMs could be more effective on the side of the policy perspective. Indeed, the former can account for interlinkages across sectors and countries, while the latter can define theoretical frameworks that better approximate reality

Gotta Catch ’Em All: CCUS with endogenous technical change

Carbon Capture Utilization and Storage (CCUS) stands as a pivotal technology crucial for achieving the most ambitious climate objectives. Despite its prominent inclusion in energy mix projections, its current deployment falls short of the requisite level. Additionally, uncertainties surrounding future developments pose potential obstacles to its optimal diffusion. This study addresses two primary shortcomings that could impede the widespread adoption of CCUS. Firstly, it investigates how investments in CCUS technologies either compete with or complement other green research and development (R&D) activities. Secondly, it explores how the heterogeneity among different economies and the factors influencing the technology might lead to alternative configurations compared to the current trajectory. To address these issues, this study introduces CCUS into a regional Integrated Assessment Model (IAM) incorporating endogenous green R&D and heterogeneous cost functions. The model generates optimal pathways for both CCUS and green R&D, revealing a significant challenge: an insufficient valuation of R&D costs could potentially displace all investment in CCUS. Furthermore, the distribution of CCUS capital across regions by the end of the century necessitates substantial investments from regions with currently lower values, such as Europe and lower-income countries. This research underscores the imperative need for policies that mitigate uncertainties surrounding future technologies and coordinate contemporary state investments. Such policies are essential for CCUS to attain the envisaged contributions to emission reduction targets

A review of macroeconomic models for the {WEFE} nexus assessment

The Water, Energy, Food and Ecosystems (WEFE) nexus refers to the system of complex and highly non-linear interconnections between these four elements. It now represents the basic framework to assess and design policies characterized by an holistic environmental end economical perspective. In this work, we provide a systematic review of the macroeconomic models investigating its components as well as combinations of them and their interlinkages with the economic system. We focus on four different types of macroeconomic models: Computable General Equilibrium (CGE) models, Integrated Assessment Models (IAMs), Agent-based Models (ABMs), and Dynamic Stochastic General Equilibrium (DSGE) models. On the basis of our review, we find that the structure of IAMs is currently the most used to represent the nexus complexity, while DSGE models focus only on single components but appear to be better suited to account for the randomization of exogenous shocks. CGE models and ABMs could be more effective on the side of the policy perspective. Indeed, the former can account for interlinkages across sectors and countries, while the latter can define theoretical frameworks that better approximate reality