Showing papers by "Gary W. Yohe published in 2009"

Assessing Dangerous Climate Change Through an Update of the Intergovernmental Panel on Climate Change (IPCC) "Reasons for Concern"

Abstract: Article 2 of the United Nations Framework Convention on Climate Change [United Nations (1992) http://unfccc.int/resource/docs/convkp/conveng.pdf. Accessed February 9, 2009] commits signatory nations to stabilizing greenhouse gas concentrations in the atmosphere at a level that “would prevent dangerous anthropogenic interference (DAI) with the climate system.” In an effort to provide some insight into impacts of climate change that might be considered DAI, authors of the Third Assessment Report (TAR) of the Intergovernmental Panel on Climate Change (IPCC) identified 5 “reasons for concern” (RFCs). Relationships between various impacts reflected in each RFC and increases in global mean temperature (GMT) were portrayed in what has come to be called the “burning embers diagram.” In presenting the “embers” in the TAR, IPCC authors did not assess whether any single RFC was more important than any other; nor did they conclude what level of impacts or what atmospheric concentrations of greenhouse gases would constitute DAI, a value judgment that would be policy prescriptive. Here, we describe revisions of the sensitivities of the RFCs to increases in GMT and a more thorough understanding of the concept of vulnerability that has evolved over the past 8 years. This is based on our expert judgment about new findings in the growing literature since the publication of the TAR in 2001, including literature that was assessed in the IPCC Fourth Assessment Report (AR4), as well as additional research published since AR4. Compared with results reported in the TAR, smaller increases in GMT are now estimated to lead to significant or substantial consequences in the framework of the 5 “reasons for concern.”

Risk aversion, time preference, and the social cost of carbon

Abstract: The Stern Review reported a social cost of carbon of over $300/tC, calling for ambitious climate policy. We here conduct a systematic sensitivity analysis of this result on two crucial parameters: the rate of pure time preference, and the rate of risk aversion. We show that the social cost of carbon lies anywhere in between 0 and $120 000/tC. However, if we restrict these two parameters to matching observed behaviour, an expected social cost of carbon of $60/tC results. If we correct this estimate for income differences across the world, the social cost of carbon rises to over $200/tC.

Discounting for Climate Change

Abstract: It is well-known that the discount rate is crucially important for estimating the social cost of carbon, a standard indicator for the seriousness of climate change and desirable level of climate policy. The Ramsey equation for the discount rate has three components: the pure rate of time preference, a measure of relative risk aversion, and the rate of growth of per capita consumption. Much of the attention on the appropriate discount rate for long-term environmental problems has focussed on the role played by the pure rate of time preference in this formulation. We show that the other two elements are numerically just as important in considerations of anthropogenic climate change. The elasticity of the marginal utility with respect to consumption is particularly important because it assumes three roles: consumption smoothing over time, risk aversion, and inequity aversion. Given the large uncertainties about climate change and widely asymmetric impacts, the assumed rates of risk and inequity aversion can be expected to play significant roles. The consumption growth rate plays multiple roles, as well. It is one of the determinants of the discount rate, and one of the drivers of emissions and hence climate change. We also find that the impacts of climate change grow slower than income, so the effective discount rate is higher than the real discount rate. Moreover, the differential growth rate between rich and poor countries determines the time evolution of the size of the equity weights. As there are a number of crucial but uncertain parameters, it is no surprise that one can obtain almost any estimate of the social cost of carbon. We even show that, for a low pure rate of time preference, the estimate of the social cost of carbon is indeed arbitrary—as one can exclude neither large positive nor large negative impacts in the very long run. However, if we probabilistically constrain the parameters to values that are implied by observed behaviour, we find that the expected social cost of carbon, corrected for uncertainty and inequity, is approximate 60 US dollar per metric tonne of carbon (or roughly $17 per tonne of CO2) under the assumption that catastrophic risk is zero. Data material available at http://www.fnu.zmaw.de/FUND.5679.0.html

Toward an integrated framework derived from a risk-management approach to climate change

Abstract: Ackerman et al. (2009) criticize optimization applications of integrated assessment models of climate change on several grounds. First, they focus attention on contestable assumptions about the appropriate discount rate. Second, they worry that integrated assessment models base their damage estimates on incomplete information and questionable estimates of the value of human life and/or ecosystem services. Thirdly, they suggest that mitigation costs are systematically overestimated because they ignore technological innovation. So what good is economics in the climate arena? The authors suggest only one opportunity—investigate how the cost of achieving politically or hedging-based climate targets might be minimized. Their contribution provides a concise and internally consistent presentation of several sources of concern, but none is really new in their fundamental arguments. Antecedents of the points that they raise (and many others, for that matter) can be found in the established literature from the past 5 or 10 years; see, for example, Yohe (2003), Weitzman (2009) or Yohe and Tol (2008). This is not really a problem or a criticism for present purposes, though, because their discussion is so tightly articulated that it can be an effective springboard for discussions how improving economic analyses of climate change can do more than elaborate cost-minimizing strategies more thoroughly. On the one hand, dynamic cost–benefit frameworks cannot be discarded on the basis of what Ackerman, et al. or others say because official government agencies have not yet been convinced. Indeed, despite the now obvious concerns about the bases of estimates of the social cost of carbon derived from integrated assessment models, for example, such estimates are essential in bringing climate change to bear on a wide range of other policies and regulations. We cannot dismiss them, therefore; we must improve them and let practitioners know about their deficiencies. On the other hand, focusing on the economic underpinnings of risk-management techniques makes it clear that cost minimization is but of many roles for efficiency-based economic analysis.

Dangerous Climate Change: An Update of the IPCC Reasons for Concern

Abstract: Article 2 of the United Nations Framework Convention on Climate Change [United Nations (1992) http://unfccc.int/resource/docs/convkp/conveng.pdf. Accessed February 9, 2009] commits signatory nations to stabilizing greenhouse gas concentrations in the atmosphere at a level that “would prevent dangerous anthropogenic interference (DAI) with the climate system.” In an effort to provide some insight into impacts of climate change that might be considered DAI, authors of the Third Assessment Report (TAR) of the Intergovernmental Panel on Climate Change (IPCC) identified 5 “reasons for concern” (RFCs). Relationships between various impacts reflected in each RFC and increases in global mean temperature (GMT) were portrayed in what has come to be called the “burning embers diagram.” In presenting the “embers” in the TAR, IPCC authors did not assess whether any single RFC was more important than any other; nor did they conclude what level of impacts or what atmospheric concentrations of greenhouse gases would constitute DAI, a value judgment that would be policy prescriptive. Here, we describe revisions of the sensitivities of the RFCs to increases in GMT and a more thorough understanding of the concept of vulnerability that has evolved over the past 8 years. This is based on our expert judgment about new findings in the growing literature since the publication of the TAR in 2001, including literature that was assessed in the IPCC Fourth Assessment Report (AR4), as well as additional research published since AR4. Compared with results reported in the TAR, smaller increases in GMT are now estimated to lead to significant or substantial consequences in the framework of the 5 “reasons for concern.”

On the extraordinary value of “committing to commit”—an opportunity not to be missed

Abstract: On July 25, 1997, the US Senate passed what has become known as the “Byrd– Hagel Resolution” (Senate Resolution 98 of the 105th Congress; Byrd–Hagel Resolution 1997). Named after its two primary sponsors—Democratic Senator Robert Byrd from West Virginia and Republican Senator Chuck Hagel from Nebraska—its original language was dropped in the Senate hopper on June 12th. The language emerged without amendment (but with a preamble added) from the Foreign Relations Committee on July 21st; and the measure passed with 64 cosponsors by a vote of 95–0 on July 25th. Clearly, there was unusually swift action on a resolution with unambiguous support across the entire Senate. It said, in part, that (emphasis in italics by the author; the entire resolution, a complete list of co-sponsors and some analysis can be found at http://www.nationalcenter.org/KyotoSenate.html): It is the sense of the Senate that—

Discounting for Climate Change. ESRI WP276. January 2009

Abstract: It is well-known that the discount rate is crucially important for estimating the social cost of carbon, a standard indicator for the seriousness of climate change and desirable level of climate policy. The Ramsey equation for the discount rate has three components: the pure rate of time preference, a measure of relative risk aversion, and the rate of growth of per capita consumption. Much of the attention on the appropriate discount rate for long-term environmental problems has focussed on the role played by the pure rate of time preference in this formulation. We show that the other two elements are numerically just as important in considerations of anthropogenic climate change. The elasticity of the marginal utility with respect to consumption is particularly important because it assumes three roles: consumption smoothing over time, risk aversion, and inequity aversion. Given the large uncertainties about climate change and widely asymmetric impacts, the assumed rates of risk and inequity aversion can be expected to play significant roles. The consumption growth rate plays four roles. It is one of the determinants of the discount rate, and one of the drivers of emissions and hence climate change. We find that the impacts of climate change grow slower than income, so that the effective discount rate is higher than the real discount rate. The differential growth rate between rich and poor countries determines the time evolution of the size of the equity weights. As there are a number of crucial but uncertain parameters, it is no surprise that one can obtain almost any estimate of the social cost of carbon. We even show that, for a low pure rate of time preference, the estimate of the social cost of carbon is indeed arbitrary – as one can exclude neither large positive nor large negative impacts in the very long run. However, if we probabilistically constrain the parameters to values that are implied by observed behaviour, we find that the social cost of carbon, corrected for uncertainty and inequity, is 61 US dollar per metric tonne of carbon.