A note on the economic cost of climate change and the rationale to limit it below 2°C

This note highlights a major reason to limit climate change to the lowest possible levels. This reason follows from the large increase in uncertainty associated with high levels of warming. This uncertainty arises from three sources: the change in climate itself, the change’s impacts at the sector level, and their macroeconomic costs. First, the greater the difference between the future climate and the current one, the more difficult it is to predict how local climates will evolve, making it more difficult to anticipate adaptation actions. Second, the adaptive capacity of various economic sectors can already be observed for limited warming, but is largely unknown for larger changes. The larger the change in climate, therefore, the more uncertain is the final impact on economic sectors. Third, economic systems can efficiently cope with sectoral losses, but macroeconomic-level adaptive capacity is difficult to assess, especially when it involves more than marginal economic changes and when structural economic shifts are required. In particular, these shifts are difficult to model and involve thresholds beyond which the total macroeconomic cost would rise rapidly. The existence of such thresholds is supported by past experiences, including economic disruptions caused by natural disasters, observed difficulties funding needed infrastructure, and regional crises due to rapid economic shifts induced by new technologies or globalization. As a consequence, larger warming is associated with higher cost, but also with larger uncertainty about the cost. Because this uncertainty translates into risks and makes it more difficult to implement adaptation strategies, it represents an additional motive to mitigate climate change.Climate Change Economics,Science of Climate Change,Climate Change Mitigation and Green House Gases,Adaptation to Climate Change,Transport Economics Policy&Planning

Projecting and valuing domestic water use at regional scale: A generic method applied to the Mediterranean at the 2060 horizon

International audienceThe present work focuses on the demand side of future water scarcity assessment, and more precisely on domestic water demand. It proposes a quantitative projection of domestic water demand, combined with an original estimation of the economic benefit of water at large scale. The general method consists of building economic demand functions taking into account the impact of the level of equipment, proxied by economic development. The cost and the price of water are assumed to grow with economic development.The methodology was applied to the Mediterranean region, at the 2060 horizon. Our results show the evolution of water demand and value, measured by surplus, over time. As long as GDP per capita and water price remain low, demand per capita increases along with economic development, and surplus per capita increases with demand. As demand approaches saturation, the combined negative effects of water cost and price increase on surplus grow stronger, and surplus per capita begins to decrease.The developed methodology is meant to be used for large-scale hydroeconomic modelling, in particular for regions with heterogeneous levels of development and low data-availability

Can natural disasters have positive consequences? Investigating the role of embodied technical change

International audienceIt has been suggested that disasters might have positive economic consequences, through the accelerated replacement of capital. This possibility is referred to as the productivity effect. This effect is investigated using a model with embodied technical change. in this framework, disasters can influence the production level but cannot influence the growth rate, in the same way than the saving ratio in a Solow-like model. Depending on reconstruction quality, indeed, accounting for embodied technical change can either decrease or increase disaster costs, but is never able to turn disasters into positive events. Moreover, a better but slower reconstruction amplifies the short-term consequences of disasters, but pays off over the long-term. Regardless, the productivity effect cannot prevent the existence of a bifurcation when disaster damages exceed the reconstruction capacity, potentially leading to poverty traps. (C) 2008 Elsevier B.V. All rights reserved

Adaptation et gestion des risques : usages et limites de l'analyse coût-bénéfice

An simplified application of cost-benefit analysis to sea level rise and to the increased risk of storm surges is performed for the Languedoc-Roussillon region of France. This analysis allows to show the interests and limits of cost-benefit analysis. It shows that taking into account the current level of protection is important. It also highlights that cost-benefit analysis is usefull to communicate on the opportunity to rise defenses. However, uncertainty and elements difficult to quantify, such as non monetary amenities prevent the cost-benefit analysis to be the sole basis for decision

An abrupt stochastic damage function to analyse climate policy benefits

Chapter in Alain Haurie and Laurent Viguier (eds.) 2005, The coupling of climate and economic dynamics, Essays on Integrated Assessment. Series: Advances in Global Change Research, Vol. 22 , Kluwerhttp://www.centre-cired.fr/perso/haduong/files/Dumas.ea-2004-AbruptStochasticDamage.pdfThis paper studies uncertainty about the non-linearity of climate change impact. The DIAM 2.3 model is used to compute the sensitivity of optimal CO2 emissions paths with respect to damage function parameters. This builds upon results of the EMF-14 uncertainty subgroup study by explicitly allowing for the possibility of threshold effects and hockey stick damage functions. It also extends to the cost-benefits framework previous studies about inertia of energy systems. Results show that the existence of a threshold in the damage function is critical to precautionary action. Optimal path are much less sensitive to uncertainty on the scale of the damages than on the threshold values

Adaptation to an uncertain climate change: cost benefit analysis and robust decision making for dam dimensioning

International audienceClimate models project large changes in rainfall, but disagree on their magnitude and sign. The consequences of this uncertainty on optimal dam dimensioning is assessed for a small mountainous catchment in Greece. Optimal dam design is estimated using a Cost-Benefit Analysis (CBA) based on trends in seasonal temperature and precipitations from 19 IPCC-AR4 climate models driven by the the SRES A2 emission scenario. Optimal reservoir volumes are modified by climate change, leading to up to 34% differences between optimal volumes. Contrary to widely-used target-based approaches, the CBA suggests that reduced rainfall should lead to smaller water reservoirs. The resulting change in the Net Present Value (NPV) of water supply is also substantial, ranging from no change to a large 25% loss, depending on the climate model, even assuming optimal adaptation and perfect foresight. In addition, climate change uncertainty can lead to design errors, with a cost ranging from 0.3 to 2.8% of the NPV, depending on site characteristics. This paper proposes to complement the CBA with a robust decision-making approach that focuses on reducing design-error costs. It also suggests that climate change impacts in the water sector may reveal large, that water reservoirs do not always provide a cost-efficient adaptation strategy, and that alternative adaptation strategies based on water conservation and non-conventional water production need to be considered. 2012 Springer Science+Business Media B.V