Adaptation, Mitigation and “Green” R&D to Combat Global Climate Change. Insights From an Empirical Integrated Assessment Exercise

This work develops a framework for the analysis at the macro-level of the relationship between adaptation and mitigation policies. The FEEM-RICE growth model with stock pollution, endogenous R&D investment and emission abatement is enriched with a planned-adaptation module where a defensive capital stock is built through adaptation investment. Within this framework the optimal path of planned adaptation, the optimal inter and intra temporal mix between adaptation, mitigation and investment in R&D, and the sensitivity of a strategy to each other is identified. The major conclusions of this research show that adaptation, mitigation and R&D are strategic complements as all concur together to the solution of the climate change problem; nonetheless the possibility to adapt reduces the need to mitigate and partly crowds out other forms of investment like those in R&D. The optimal intertemporal distribution of strategies is also described: it requires to anticipate mitigation effort that should start already when climate damages are low and postpone adaptation intervention until they are substantial. Thus the possibility to adapt is not a justification to delay abatement activities. A sensitivity analysis demonstrates the robustness of these results to different parameterizations, in particular to changes in expected climate-change damages and in the discount rates.Climate Change Impacts, Mitigation, Adaptation, Integrated Assessment

Adapting and Mitigating to Climate Change: Balancing the Choice under Uncertainty

Nowadays, as stressed by important strategic documents like for instance the 2009 EU White Paper on Adaptation or the recent 2009 “Copenhagen Accord”, it is amply recognized that both mitigation and adaptation strategies are necessary to combat climate change. This paper enriches the rapidly expanding literature trying to devise normative indications on the optimal combination of the two introducing the role of catastrophic and spatial uncertainty related to climate change damages. Applying a modified version of the Nordhaus’ Regional Dynamic Integrated Model of Climate and the Economy it is shown that in both cases uncertainty works in the direction to make mitigation a more attractive strategy than adaptation. When catastrophic uncertainty is concerned mitigation becomes relatively more important as, by curbing emissions, it helps to reduce temperature increase and hence the probability of the occurrence of the event. Adaptation on the contrary has no impact on this. It is also shown that optimal mitigation responses are much less sensitive than adaptation responses to spatial uncertainty. Mitigation responds to global damages, while adaptation to local damages. The first, being aggregated, change less than the second in the presence of spatial uncertainty as higher expected losses in some regions are compensated by lower expected losses in other. Accordingly, mitigation changes less than adaptation. Thus if it cannot be really claimed that spatial uncertainty increases the weight of mitigation respect to that of adaptation, however its presence makes mitigation a “safer” or more robust strategy to a policy decision maker than adaptation.Climate Change, Mitigation, Adaptation, Uncertainty, Integrated Assessment Model

Estimating a Climate Change Damage Function through General Equilibrium Modeling

A Climate Change Damage Function (CCDF) is a reduced form relationship linking macroeconomic aggregates (e.g., potential GDP) to climate indicators (e.g., average temperature levels). This function is used in a variety of studies about climate change impacts and policy analysis. However, despite the fact that this function is key in determining results in many integrated assessment models, it is not typically calibrated in a consistent and rigorous way. This paper presents a novel approach, in which several different impacts of climate change are first assessed by means of a full-fledged computable general equilibrium model of the world economy, then results are interpolated to get a simple relationship of the CCDF type. The estimated CCDF is compared with other popular functions used in the literature, to highlight the possible implications associated with the alternative adoption of this functional relationship.Climate Change, Damage Function, Integrated Assessment, General Equilibrium.

Accounting for adaptation and its effectiveness in International Environmental Agreements

This paper analyses, within a standard International Environmental Agreement game, the effect of the introduction of adaptation on climate negotiation. The model expands the existing literature by considering a double relation between the two strategies. The common assumption that higher mitigation decreases the marginal benefit of adaptation and vice versa is enriched allowing for the possibility that mitigation, leading to lower and more manageable damages, determines a greater effectiveness of adaptive measures. We find the possibility for adaptation and mitigation to be strategic complements and not, as commonly believed, substitutes. Yet, as already known from the literature, the presence of adaptation can determine upward-sloping mitigation reaction functions regardless of the strategic relationship between mitigation and adaptation. When this is the case, the grand coalition can form. Nonetheless, large participation can induce substantive welfare gains only if adaptation and mitigation are strategic complements

Assessing the Economic Impacts of Climate Change. An Updated CGE Point of View

The present research describes a climate change integrated impact assessment exercise, whose economic evaluation is based on a CGE approach and modeling effort. Input to the CGE model comes from a wide although still partial set of up-to-date bottom-up impact studies. Estimates indicate that a temperature increase of 1.92°C compared to pre-industrial levels in 2050 could lead to global GDP losses of approximately 0.5% compared to a hypothetical scenario where no climate change is assumed to occur. Northern Europe is expected to benefit from the evaluated temperature increase (+0.18%), while Southern and Eastern Europe are expected to suffer from the climate change scenario under analysis (-0.15% and -0.21% respectively). Most vulnerable countries are the less developed regions, such as South Asia, South-East Asia, North Africa and Sub-Saharan Africa. In these regions the most exposed sector is agriculture, and the impact on crop productivity is by far the most important source of damages. It is worth noting that the general equilibrium estimates tend to be lower, in absolute terms, than the bottom-up, partial equilibrium estimates. The difference is to be attributed to the effect of market-driven adaptation. This partly reduces the direct impacts of temperature increases, leading to lower damage estimates. Nonetheless these remain positive and substantive in some regions. Accordingly, market-driven adaptation cannot be the solution to the climate change problem.Computable General Equilibrium Modeling, Impact Assessment, Climate Change

Energy Demand and Temperature: A Dynamic Panel Analysis

This paper is a first attempt to investigate the effect of climate on the demand for different energy vectors from different final users. The ultimate motivation for this is to arrive to a consistent evaluation of the impact of climate change on key consumption goods and primary factors such as energy vectors. This paper addresses these issues by means of a dynamic panel analysis of the demand for coal, gas, electricity, oil and oil products by residential, commercial and industrial users in OECD and (a few) non-OECD countries. It turns out that temperature has a very different influence on the demand of energy vectors as consumption goods and on their demand as primary factors. In general, residential demand responds negatively to temperature increases, while industrial demand is insensitive to temperature increases. As to the service sector, only electricity demand displays a mildly significant negative elasticity to temperature changes.Energy Demand, Temperature, Dynamic Panels

The Economic and Environmental Effects of an EU Ban on Illegal Logging Imports. Insights from a CGE Assessment

Illegal logging is widely recognized as a major economic problem and one of the causes of environmental degradation. Increasing awareness of its negative effects has fostered a wide range of proposals to combat it by major international conservation groups and political organizations. Following the 2008 US legislation which prohibits the import of illegally harvested wood and wood products, the European Union (EU) is now discussing a legislation proposal which would ban illegal timber from the EU market. In this study we use the ICES computable general equilibrium model to estimate the reallocation of global demand and timber imports following the pending EU legislation. With this exercise our final objective is to assess the economic impacts and measure the potential emission reduction resulting from the introduction of this type of policy. Results show that while the EU ban does not seem particularly effective in reducing illegal logging activities, its main effect will be the removal of illegal logs from the international markets. In addition, the unilateral EU ban on illegal logs increases secondary wood production in illegal logging countries as their exports become relatively more competitive. Through this mechanism, part of the banned, illegal timber will re-enter the international trade flows, but it will be “hidden” as processed wood. This effect is, however, limited. Finally, given the limited effect on overall economic activity, effects on GHG emissions are also limited. Direct carbon emissions from logging activities can decrease from 2.5 to 0.6 million tons per year.Forestry, Illegal Logging, International Trade, Economy and Environment, Computable General Equilibrium Models

A Review of Recent Studies on Cost Effectiveness of GHG Mitigation Measures in the European Agro-Forestry Sector

Over the last twenty years, climate change has become an increasing concern for scientists, public opinions and policy makers. Due to the pervasive nature of its impacts for many important aspects of human life, climate change is likely to influence and be influenced by the most diverse policy or management choices. This is particularly true for those interventions affecting agriculture and forestry: they are strongly dependent on climate phenomena, but also contribute to climate evolution being sources of and sinks for greenhouse gases. This paper offers a survey of the existing literature assessing cost, effectiveness and efficiency of greenhouse gas mitigation strategies, or broader economic reforms, targeted to the agricultural and forestry sectors. The specific focus is on European Countries. Different methodological approaches, research questions addressed and results are examined. The main finding is that agriculture and forestry can potentially provide GHG reduction at a competitive cost. Nevertheless this cost is positive; accordingly, mitigation policies should be carefully designed either to balance costs with expected benefits or to avoid excessive penalisation of the sectors involved. Finally needs are highlighted for improving the existing knowledge and research methodologies.Agriculture, Forestry, Climate Change, Greenhouse Gases, Policy Measures, Cost-Effectiveness, Meacap

Climate Policy and the Optimal Balance between Mitigation, Adaptation and Unavoided Damage

It has become commonly accepted that a successful climate strategy should compound mitigation and adaptation. The accurate combination between adaptation and mitigation that can best address climate change is still an open question. This paper proposes a framework that integrates mitigation, adaptation, and climate change residual damages into an optimisation model. This set-up is used to provide some insights on the welfare maximising resource allocation between mitigation and adaptation, on their optimal timing, and on their marginal contribution to reducing vulnerability to climate change. The optimal mix between three different adaptation modes (reactive adaptation, anticipatory adaptation, and investment in innovation for adaptation purposes) within the adaptation bundle is also identified. Results suggest that the joint implementation of mitigation and adaptation is welfare improving. Mitigation should start immediately, whereas adaptation somehow later. It is also shown that in a world where the probability of climate-related catastrophic events is small and where decision makers have a high discount rate, adaptation is unambiguously the preferred option. Adaptation needs, both in developed and developing countries, will be massive, especially during the second half of the century. Most of the adaptation burden will be on developing countries. International cooperation is thus required to equally distribute the cost of adaptation.Climate Change Impacts, Mitigation, Adaptation, Integrated Assessment Model

ECONOMY-WIDE ESTIMATES OF THE IMPLICATIONS OF CLIMATE CHANGE: HUMAN HEALTH

We use an updated and extended version of the Hamburg Tourism Model to simulate the effect of development and climate change on tourism. Models extensions are the explicit modelling of domestic tourism, and the inclusion of tourist expenditures. Climate change would shift patterns of tourism towards higher altitudes and latitudes. Domestic tourism may double in colder countries and fall by 20% in warmer countries (relative to the baseline without climate change). For some countries international tourism may treble whereas for others it may cut in half. International tourism is more (less) important than is domestic tourism in colder (warmer) places. Therefore, climate change may double tourist expenditures in colder countries, and halve them in warmer countries. In most places, the impact of climate change is small compared to the impact of population and economic growth.The quantitative results are sensitive to parameter choices, both for the baseline and the impact of climate change. The qualitative patternImpacts of climate change, human health, computable general equilibrium