class: center, middle, inverse, title-slide # Environmental Economics ## Climate Change ### David Ubilava ### January 2021 --- # GHG Emissions People, through their consumption and production decisions, facilitate Greenhouse Gas (GHG) emissions. Among the GHGs, Carbon dioxide (CO2) is especially important; other relevant GHGs include Methane (CH4), and Nitrous Oxide (N2O). <img src="Figures/Global-GHG-Emissions-by-gas.png" width="90%" style="display: block; margin: auto;" /> --- # GHG Emissions <img src="Figures/Emissions-by-sector-–-pie-charts.png" width="70%" style="display: block; margin: auto;" /> --- # GHG Emissions <img src="Figures/per-capita-co2-sector.png" width="90%" style="display: block; margin: auto;" /> --- # GHG Emissions <img src="Figures/per-capita-methane-sector.png" width="90%" style="display: block; margin: auto;" /> --- # GHG Emissions <img src="Figures/per-capita-nitrous-oxide-sector.png" width="90%" style="display: block; margin: auto;" /> --- # GHG Emissions These flows of GHG emissions accumulate into stocks of GHGs in the atmosphere. The rate at which stock accumulation occurs depends on the so-called 'carbon cycle,' including the earth's absorptive capabilities and other feedback effects. --- # GHG Emissions <img src="Figures/co2-concentration-long-term.png" width="90%" style="display: block; margin: auto;" /> --- # GHG Emissions ## Feedback Effects A feedback effect (or feedback loop) is where `\(X\)` causes `\(Y\)` which either reinforces `\(X\)` (positive feedback) or stabilizes `\(X\)` (negative feedback). <img src="10-Climate_files/figure-html/unnamed-chunk-2-1.png" style="display: block; margin: auto;" /> --- # GHG Emissions ## Feedback Effects Positive feedback effects of global warming include: - **Release of methane from the tundra**: as regions of permafrost begin to thaw, potentially large amounts of methane could be released—leading to more warming. - **Albedo effect**: warming means rain instead of snow as well as retreating polar ice caps and glaciers. This, in turn, means that the surface of the earth is darker, reflecting less solar radiation and absorbing more—leading to more warming. - **Electricity fuel demand**: warmer weather may increase demand for air conditioning—increasing carbon emissions. --- # GHG Emissions ## Feedback Effects Negative feedback effects of global warming include: - **Accelerated CO2 absorption**: as CO2 concentration levels increase, plants and oceans will likely take it up at a higher rate. This mitigates GHG levels and slows warming. - **Heating fuel demand**: Warmer weather on average may lower demand for heating fuels—reducing carbon emissions. - **Clouds**: a warmer climate could cause more water to be held in the atmosphere leading to an increase in cloudiness and altering the amount of sunlight that reaches the surface of the Earth. Less heat would get absorbed, which could slow the increased warming. --- # Global Warming The stock of GHGs in the atmosphere serves as a 'blanket' that traps heat and results in global warming. --- # Global Warming <img src="Figures/temperature-anomaly.png" width="90%" style="display: block; margin: auto;" /> --- # Global Warming <img src="Figures/berkeley-temp-anomaly-map.png" width="90%" style="display: block; margin: auto;" /> --- # Climate Change The process of global warming results in climate change. Climate change affects people, species, and plants in a variety of complex ways, most notably via water in some shape or form (storms, floods, droughts, sea-level rise). These changes will potentially transform the physical and human geography of the planet, affecting where and how we live our lives. Lower income countries to feel most severe effects. --- # Climate Change <img src="Figures/Greenhouse-gas-emission-scenarios-01.png" width="90%" style="display: block; margin: auto;" /> --- # Climate Change The problem of climate change is inherently a dynamic problem. - GHGs accumulate over time - CO2, in particular, has 'long-residence' and is 'well-mixed' in the atmosphere; - GHG emission-related impacts are to be felt in the future - both the future climate change and its impacts are uncertain; - major polluters may change over time; - technology improves over time; - we discount future benefits to current costs (trade-off between costs of abatement today vs benefit of less global warming in the future) - the choice of discount rate matters. --- # Climate Change Around 2007, two different teams conducted analyses to determine how much action society should undertake to reduce greenhouse gas emissions (to curb the negative effects of climate change): Nicholas Stern and team (LSE); and William Nordhaus (Yale). The two reached quite different conclusions, and much of the difference stemmed from the choice of discount rate: --- # Climate Change - Stern used `\(r\approx 0.014\)`, arguing that discount rate should be close to zero, because it's unethical for government to place substantially different weights on different generations. As a result, they suggested 53% emission reduction by 2015, and $360 carbon tax per ton of emissions. - Nordhaus used `\(r\approx 0.055\)`, a discount rate that was closer to what he believed was the rate at which people actually trade off net benefits between now and in the future. As a result, he suggested 15% emission reduction by 2015, and $35 carbon tax per ton of emissions. --- # Estimating the Effect of Climate Change Model-based: - Obtain parameters (lab/field experiments), and simulate economic outcomes under different climate change scenarios * Advantage: out-of-sample simulations * Disadvantage: heavily driven by parameters used Data-driven: - Estimate historical relationship between weather and economic outcome, and project the relationship under different climate change scenarios * Advantage: evidence-based * Disadvantage: lack of external validity --- # Estimating the Effect of Climate Change Cross-sectional data analysis - comparing across locations in a given time period: - Useful for estimating effect of climate; - Source of variation is differences in climate across locations; - Should capture adaptation, but may result in biased estimates. Time series data analysis - comparing over time in a given location: - Useful for estimating effect of weather; - Source of variation is differences in weather over time; - Relatively unbiased, but may not capture adaptation. --- # Tackling Climate Change Climate change is a global externality. For example, we obtain benefits from the demand for fossil fuels by powering factories, heating or cooling houses, driving cars, etc. In addition to the private cost of production, however, the use of fossil fuels imposes an external cost to society by emitting GHGs. To the extent that GHGs are a global externality, it is (even) harder to tackle. --- # Tackling Climate Change The problem of air pollution: - Pollution arises and affects agents within the same legal jurisdiction (local externality); - Government can implement policies that affect all producers equally (to correct externality), reducing free-riding incentives. The problem of climate change: - Emissions and damages arise in different jurisdictions (global externality); - Impossible for a single Government to tackle the problem: need international agreement or cooperation. --- # Tackling Climate Change Actions taken to reduce climate change are a global public good: you cannot exclude countries from benefiting from slower climate change. Free-rider effects inhibit participation in agreements on preventing or mitigating climate change. Countries have an incentive to defect from any agreement (not cut emissions) and benefit from the efforts of others nations. --- # Tackling Climate Change The challenge (goal) is to make cooperation self-reinforcing, in a way that there is no incentive to unilaterally defect from the agreement. Cooperation tends to be more successful when there is a smaller number of relatively homogeneous players (countries) with concrete abatement plane/technology. Cooperation becomes harder as the number of players increases. --- # Tackling Climate Change Certain strategies can make participation more likely by increasing the net benefits from participation: - Countries may simultaneously negotiate a climate change agreement and another economic agreement on a linked issue, e.g. trade; - Countries may agree on transfers from gainers to losers or a redistribution of net benefits.