Presentation on theme: "CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 1 Dottorato Climate Change and Policy Modelling Assessment An introduction to Integrated assessment."— Presentation transcript:
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 1 Dottorato Climate Change and Policy Modelling Assessment An introduction to Integrated assessment modelling Francesco Bosello
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 2 Is Climate Change a Problem? Yes if even though independently upon human contribution some negative consequences for our welfare may arise Is this an economic problem? Yes if we decide to act alleviating these adverse consequences given scarce resources In addition in the presence of a human contribution Costs and benefits of ADAPTATION strategies We may decide to intervene to reduce CC causes given scarce resources Costs and benefits of MITIGATION strategies Harmonizing MITIGATION ADAPTATION
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 3 When we come to economics the issue is to providing: A measure (through some indicators) of the welfare impact of climate change (possibly) indication on and rank of solutions (policies or policy mix) in term of effectiveness, efficiency, equity Information on the costs and benefits of different climate change mitigation and adaptation policies
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 4 Social economic environmental systems are integrated Environmental System Contribution to Global Warming and to Climate Change and Variability Sea level rise, air, water, land quality and availability, ecosystems change etc. Envir. impacts Change in production and consumption patterns and welfare Econ. impacts Vulnerability Policies Mitigation Adaptation Socioeconomic System Climatic impacts Econ. Pressures Changes in emissions and land cover Changes in quality/quanti ty of prod. factors Envir. Pressures
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 5 The object of the evaluation: areas of impact Water resources Agricultural and food security Terrestrial and freshwater ecosystems Coastal zones and marine ecosystems Human settlements Energy and industry Insurance and other financial services Human health STRESSES RESPONSES Source: IPCC, Climate Change 2001, Impacts and Vulnerabilities Climate Change
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 6 => Climate system dynamics Environmental system dynamics Social-economic system dynamics And of their interdependences is needed Integrated Assesment philosophy and modelling approach (increasingly used since the beginning of the 90) Some representation of:
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 7 Given this complexity We need to simplify: Using models simplified pictures of the true state of the world, but sufficiently representative. We need to adopt an integrated approach: all the different components of the problem should be represented. Integrated Assessment Models: Integrated Assessment (IA) is a process aimed at combining, interpreting and communicating knowledge from diverse scientific fields in order to tackle an environmental problem comprehensively by stressing its cause-effect links in their entirety. (Rotmans, Dowlatabady,1995)
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 8 Peculiarities of CC impact assessment and modeling UNCERTAINTY: the knowledge of environmental and socio-economic dynamics, and of the feedback between the two is still affected by a large amount of uncertainty. GEOGRAPHICAL SCALE: climate change is a global phenomenon affecting the whole world, at the same time environmental and socio- economic impulses and responses are highly differentiated across regions. TIME SCALE: climate change is a long-term phenomenon. Assessing impacts on environmental and socio-economic systems requires a long- run perspective.
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 9 Peculiarities of CC impact assessment and modeling EFFECTS INVOLVING INTERACTING SYSTEMS characterized by: Non linearity (in environmental and economic systems) Discontinuity (Jumps, abrupt changes of state e.g. extreme events, catastrophes, new technologies), Irreversibility (non-return point e.g. species extinction, irreversible investments high sunk costs). WELFARE MEASUREMENT (ethical judgements): Inter-personal utility comparison (is it possible to compare and aggregate utility?) Inter-temporal utility comparison (is it legitimate to discount and what discount rate has to be used?) Existence of NON market values which unit of measurement (money, loss of human life, multi-criteria approach)?
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 10 Aggregating welfare through space Examples of social welfare functions Any choice involves a subjective or ethical judgment! Utilitarian (Benthamite) Utilitarian equity weighted Rawlsian, maximin
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 11 Aggregating welfare through time The traditional role of time and discounting Reasons to discount Pure time preference (uncertainty) Distributional issues (equity) dr = 0 => present = future dr > 0 => present more important than future NB Time NB1 (dr1) NB2 (dr2) NB3 (dr3) dr1 < dr2 < dr3 T*T° Any choice involves a subjective or ethical judgment!
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 12 Welfare and non market values Total econ. value (TEV) Use Value (UV) Non Use Value (NUV) Direct Use Value (DUV) Indirect Use Value (IUV) Option Value (OV) Bequest Value (BV) Existence Value (EV) Direct economic benefits: e.g. tourism or production Functional benefits: e.g. protection vs geological risk Possible future use Heritage for future generations Intrinsic value of existence Travel cost Hedonic pricing Production function Averting behavior CV SCE Revealed preferences Stated preferences
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 13 Aggregating welfare and units of measure Good reasons in favour of money Nevertheless irreversibility is present, e.g.: extinction of ecosystem or species, biophysical limits, risk to human life Add to or substitute for money: number of species lost, increase in mortality, land area (see e.g.: ecological footprint) etc. Multi-criteria, multi-metric approaches
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 14 The climatic information can be seldomly used directly for an economic assessments Most likely, it has to be mediated by environmental impacts which on their turn have to be suitably translated into changes of meaningful economic variables Summarising, also at this preliminary stage, it is clear that… i.e. items to which, directly and/or indirectly, an economic value can be associated. The whole process is affected by large uncertainties
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 15 A temperature change can be associated to an economic assessment as long as: Example: the good or service produced by that activity (say food/rice) has a market value ( direct cost or change in preferences) the factor of production used (say land) has a market value associated to its productivity and the link between the two is clearly identifyied or modelled (production function approach) It can be linked to an impact on an activity relevant for human welfare e.g. agriculture and changes in agricultural productivity and
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 16 A model taxonomy: hard vs soft link Hard-linked climate-economic models Economic system Climate system Emissions Damages Climate and economics treated as a unified system represented by a consistent set of differential (climatic + economic) equations. Emissions from economic activity build CO2 concentration stock and temperature. A (more or less refined) damage function translates temperature increase into GDP losses. Mitgation Adaptation
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 17 A model taxonomy: hard vs soft link Soft-linked climate-economic models Climate System Environm. impact module(s) Economic Impact module(s) Economic Assessment O O I I Climate, environment and economics treated separately. Outputs of climate models are inputs to environmental impact modules. Outputs of environmental impact modules are inputs to economic impact modules these provide final economic assessment. Inputs and outputs need to be translated into the different languages or formats used by different models/disciplines O O I Mitgation Adaptation
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 18 Hard and soft link, examples (Some) Hard linked integrated assessment models: first generation DICE (Nordhaus, 1991), RICE (Nordhaus, Yang, 1995), CETA (Peck, Teisberg, 1992), second generation MERGEII (Manne, Richels, 2004)), RICE 99 (Nordhaus, Boyer, 2001), FEEM-RICE (Buonanno et al., 2002), third generation, MIND (Edenhofer et al, 2006), WITCH (Bosetti et al., 2007) (Some) Soft linked integrated assessment models: AIM (Morita et al. 1994 and updates), IMAGE II (Image team, 2002 and updates), ASF (Sankowsky et a., 2000 and updates), MESSAGE (Riahi and Roherl, 2000 and updates), MARIA (Mori, 2000 and updates), MINICAM (Edmonds et al., 1996 and updates) all used by IPCC to produce emission scenarios. Other: SGM (MIT), ICES (FEEM) exercise
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 19 Examples of Soft Linked Models
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 20 Hard vs Soft Link: pros and cons Hard-linkedSoft-linked Climate environmental economic details Time treatment Policy perspective Necessarily simplyfied high aggregation Can be very high high disaggregation Refined usually full intertemporal optimization Simplyfied usually (comparative) static or recursive-dynamic Links and feedback Better suited for policy optimisation Better suited for policy evaluation Fully consistent and integrated The feedback loops are not necessarily closed
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 21 A model taxonomy: static vs dynamic Static Models Dynamic Models They provide a snapshot of economic systems in a given (present or future) time. Adjustments to shocks (from the old to the new equilibrium) are instantaneous. No time no transition Time appears explicitly. Recursive dynamic: sequence of static equilibria (usually) linked by capital accumulation process. Myopic nature of (agents decision) the adjustment. - Myopic strict sense: exogenous investment. - Adaptive expectations: investment driven by the equalisation of rate of returns with mistakes - Fully dynamic: the equilibrium is irtertemporally consistent. Perfectly rational and fore sighting agent decides. No sistematic errors. - OLG CGE
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 22 A model taxonomy: static vs dynamic RE Structure Perfect foresight => Typically originated from
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 23 A model taxonomy: static vs dynamic AE Structure AE In the dynamic recursive structure of ICES Investment decisions determining future (next period) capital stock are taken only on the base of current (previous) period information. One piece of information is thus missing, that related to future (expected) rates of return to capital
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 24 A model taxonomy: partial vs general equilibrium Partial Equilibrium Models General Equilibrium Models All assessments and modelling approaches where the feedback inside the economic system are not taken into account. Rebound effects are neglected. Typical nature of bottom-up models, non market valuation exercises and direct costing evaluations. All markets are interdependent. Input and output re-locate inter- nationally/sectorally responding to price signals: (AUTONOMOUS ADAPTATION) This allows: - to study how initial shocks propagate - to highlight the difference between initial and final impacts The two approaches are not in opposition: PE basis for GE analysis (in addition remember the scale issue)
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 25 A model taxonomy: the technology Top-Down ModelsBottom-Up Models PhylosophyEconomicEngineering Economic viewGEPE Main variablesElasticity of substitution Technical progress: Exogenous AAEI or backstop approach Initial cost, installed capacity residual life, penetration of different technologies technological adoption/diffusion is thus endogenous DetailGeographically/sectorally high, economically high, technologically low Geographically high, economically low, technologically (energy sectors) high Energy demandTypically endogenousTypically exhogenous Energy substitution and emissions Pessimistic (high costs) Rebounds & lower cost options not usually accessible Optimistic (low costs) No rebounds & lower cost options accessible
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 26 Hybrid approaches, MARKAL- MACRO WITCH Connections between the two approaches are possible
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 27 A model taxonomy: the technology BARROSO
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 28 A model taxonomy: the technology Exogenous Dynamics > Population (World Bank) > Labor stock (ILO) > Labor productivity G-Cubed model version 48E (McKibbin, 2001) > Land productivity IMAGE 2.2, B1 Scenario (RIVM, 2001) > World Oil Price (61/barrel) in line with EU assessment (2008) > Energy (Coal, Oil, Oil Products and Gas) autonomous improvement (2% Per Year) in line with EU assessment (2008) > Tfp has been adjusted to move GDP closer to IPCC B2 scenario
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 29 A model taxonomy: the technology CO2 Emissions (Mton of CO2) GTAP-EEU assessment (EC, 2008) 2020 Baseline scenario45774294 2020 Reduction scenario36093468 EU Policy Impacts GTAP-E EU assessment (EC, 2008) CO2 reduction wrt 2020 BAU -21.15%-19% Carbon price /ton of CO2 39.3339 (GEME3) GDP loss -0.75%-0.35% Employment -0.23%-0.04% Electricity price 1.44%10-15% (PRIMES) Oil imports -9%< 0 Gas imports -31% < 0 Output En. Int. Ind. -2%
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 30 An assessment taxonomy Policy Evaluation Exercises Policy Optimization Exercises IF - THEN - What are the economic consequences (e.g. in terms of international/intersectoral trade, GDP, welfare etc.) of a specific perturbation (e.g. a tax levied on the production or consumption of a given good, a change in factor productivity and endowment) imposed on a system? - What is the tax or subsidy required to accomplish a given policy target? What is the path of a given control variable (e.g. the tax, or investment, or abatement rate) allowing to reaching a given target minimising cost or maximising welfare?
CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI 31 HANDS ON THE IMAGE MODEL