Mitigation versus compensation in global warming policy

Policy discussions on global warming are focused on mitigation and adaptation. Here the role of ex post compensation as a substitute for ex ante mitigation is considered. In a simple 2-period model the salient features of the global warming problem suggest mitigation is difficult to motivate. A key problem is that damages are very hard to identify even after the fact. The roles of endogenous private savings and a compensation fund as an alternative to ex ante mitigation are explored.Climate change

Multivariate trend comparisons between autocorrelated climate series with general trend regressors

Inference regarding trends in climatic data series, including comparisons across different data sets as well as univariate trend significance tests, is complicated by the presence of serial correlation and step-changes in the mean. We review recent developments in the estimation of heteroskedasticity and autocorrelation robust (HAC) covariance estimators as they have been applied to linear trend inference, with focus on the Vogelsang-Franses (2005) nonparametric approach, which provides a unified framework for trend covariance estimation robust to unknown forms of autocorrelation up to but not including unit roots, making it especially useful for climatic data applications. We extend the Vogelsang-Franses approach to allow general deterministic regressors including the case where a step-change in the mean occurs at a known date. Additional regressors change the critical values of the Vogelsang-Franses statistic. We derive an asymptotic approximation that can be used to simulate critical values. We also outline a simple bootstrap procedure that generates valid critical values and p-values. The motivation for extending the Vogelsang-Franses approach is an application that compares climate model generated and observational global temperature data in the tropical lower- and mid-troposphere from 1958 to 2010. Inclusion of a mean shift regressor to capture the Pacific Climate Shift of 1977 causes apparently significant observed trends to become statistically insignificant, and rejection of the equivalence between model generated and observed data trends occurs for much smaller significance levels (i.e. is more strongly rejected).Autocorrelation; trend estimation; HAC variance matrix; global warming; model comparisons

Energy, pollution control and economic growth

Growth in energy consumption is not just a by-product of economic growth, it is a causal factor. Attempts to constrain energy consumption can therefore be expected to impede economic growth

A Practical Guide to the Economics of Carbon Pricing

Canadian economists, politicians and even environmentalists are lining up enthusiastically behind pricing carbon as the solution to controlling greenhouse gas emissions in this country. Pricing carbon (or, more accurately, pricing carbon dioxide) is not just a fashionable policy approach; it is the most efficient way we have to ration emissions, as it allows emitters — businesses and consumers — to make the most rational decisions about where it makes economic sense to curtail carbon and where it does not. Painfully costly command-and-control reductions make little sense in Canada, given our marginal contribution to global emissions. When practiced globally, a carbon price deals with Canadian emitters as fairly as it does others. However, a beneficial outcome is not guaranteed: certain rules must be observed in order for carbon pricing to have its intended effect of achieving the optimal balance between emission reduction and economic growth. First and foremost, carbon pricing only works in the absence of any other emission regulations. If pricing is layered on top of an emission-regulating regime already in place (such as emission caps or feed-in-tariff programs), it will not only fail to produce the desired effects in terms of emission rationing, it will have distortionary effects that cause disproportionate damage in the economy. Carbon taxes are meant to replace all other climate-related regulation, while the revenue from the taxes should not be funnelled into substitute goods, like renewable power (pricing lets the market decide which of those substitutes are worth funding) but returned directly to taxpayers. The price of carbon is set according to what is known as the “social cost of carbon” — the quantified value of the impact that an emitted tonne of carbon today will have on humans in the future (adjusted to present value). That cost is not limitless; there is a point at which the cost of abating a tonne of carbon outweighs the cost of the impact that same tonne will have in the future (and some of that impact may be positive, not necessarily negative). Therefore, another important rule for creating a proper carbon-pricing system is to be as careful as possible in estimating the social cost of carbon. Estimates are all we have, and they vary wildly, from negative — meaning any carbon price is too high — to hundreds of dollars per tonne. Minor adjustments to the calculation’s inputs, such as the discount rate used and fluctuating estimates about climate sensitivity, produce dramatically different estimates. The social cost of carbon must be set with extreme prudence in order to set a reasonable carbon price. Whatever the carbon price, it will necessarily detract some degree from economic growth. But when a carbon tax is added in the presence of other taxes, such as income, sales and corporate taxes, its effect will be even more harmful, due to the compounded burden on economic activity. As a result, whatever the social cost of carbon is determined to be, the carbon price must be discounted below it by the marginal cost of public funds (MCPF) — that is, the economic cost of the government raising an additional dollar of tax, on top of what is already being raised. This varies by province, but estimates suggest that in Canada, the optimal carbon tax should be about half of the estimated social cost of carbon. Finally, it needs to be remembered that carbon pricing works because it is a marketbased policy: it works with market forces, not against them. But that means the policy maker needs to let the market play its role. Choosing the price means the market will set the quantity, and vice-versa. In response to a well-designed carbon price, the market may only reduce emissions a little, especially in the short term. Policy makers need to resist the temptation to reintroduce command-and-control rules and arbitrary quantity targets, which will simply unravel the gains from adopting the policy in the first place. There may be many reasons to recommend carbon pricing as climate policy, but if it is implemented without diligently abiding by the principles that make it work, it will not work as planned, and the harm to the Canadian economy could well outweigh the benefits created by reducing our country’s already negligible level of global CO2 emissions

Does air pollution cause respiratory illness? A new look at Canadian cities

It is routinely asserted that urban air pollution is a major cause of acute respiratory conditions, leading to thousands of hospitalizations each year. The claim is based on inferences from partial correlations between ambient air pollution levels and hospitalization rates. Yet questions persist about the statistical robustness of the epidemiological findings, and controlled experiments have not confirmed the statistical findings. In this paper we present and analyze a new monthly data base showing concentrations of five major air contaminants in 11 large Canadian cities from 1974 to 1994, matched with monthly hospital admission rates by age group for all lung diagnostic categories; as well as a comprehensive set of socioeconomic and meteorological covariates. We compare two estimation approaches: model selection and Bayesian model averaging. Almost all of our estimates of the health effects of air pollution are insignificant. Two pollutant types have significantly negative coefficients, indicating, if interpreted in the standard way, that these pollutants are actually beneficial for health. We do not claim this, but we conclude that the perceived statistical relationship between air pollution and health is not robust

Average Household Size and the Eradication of Malaria

Efforts to eradicate malaria during the 20th century succeeded in some parts of the world but failed in others. Malaria also disappeared spontaneously in several countries for reasons that remain an enigma. The connection between malaria and poverty has long been noted. Here we focus on a specific aspect: household size, which has hitherto received little attention. We find strong evidence that when average household size drops below four persons, the probability of malaria eradication jumps dramatically and its incidence in the population drops significantly. This effect is independent of all commonly-studied explanatory variables and was globally valid across all climate zones irrespective of counter measures, vector species, or Plasmodium species. We propose an explanation based on the dispersal mechanism of the parasite. Malaria is transmitted at night by mosquito bite. The mosquito typically spreads the Plasmodium only locally over short distances to new human victims. To survive, the Plasmodium depends on infected humans making social contacts over longer distances. When household size decreases sufficiently, these contacts cross a threshold value that changes the balance between extinctions and replacements and the Plasmodium disappears on its own. We test this interpretation by contrasting our malaria model with dengue fever, which is also poverty-related and mosquito-borne but transmitted differently, namely through daytime exposure. Household size is uncorrelated with dengue incidence, whereas an indicator of outdoor work that is insignificant in the malaria model is highly significant for dengue. We conclude that poverty-induced malaria infection risks are likely to persist, but a focus on reducing effective household size can be a feasible and promising means of its eradication.Malaria;dengue fever, household size, DDT

OPTIMAL COMPENSATION FOR ENDANGERED SPECIES PROTECTION UNDER ASYMMETRIC INFORMATION

This paper argues that policies based on economic instruments are preferable to command and control approaches for effectively protecting biological diversity. This is due to sources of inefficiencies because of informational asymmetries between the regulator and private land users. We propose a principal agent framework to design optimally structured and performance based economic incentives for private land owners.Environmental Economics and Policy, Resource /Energy Economics and Policy,

What Should Canada Do About Global Warming?

Abstract This essay makes th