1. Ramblings from an Ongoing and Never Ending Effort Presented at the Climate Change Class, March 2003 Economic Vulnerability under Climate Change : With an Agricultural Emphasis Bruce A. McCarl Distinguished Professor of Agricultural Economics Texas A&M University mccarl@tamu.edumccarl@tamu.edu http://agecon2.tamu.edu/people/faculty/mccarl- bruce/ Energy Climate Change Adaptation Climate Change Mitigation Climate Change Effects

2. Economic Issues in Climate Change Assessment of Impact Externality and Market Failure Mitigation Policy Cost Benefit Analysis

3. Economic Issues – Assessment of Impact Measuring Economic Value Income Distribution Inter-generational Equity

4. Basic Setting D S Price Quantity

5. D S Price Quantity ScScScSc a b c e d f g CS 0 =a+b+d+f PS 0 =c+e+g TSW 0 =a+b+c+d+e+g CS c =a PS c = b+c TSW c =a+b+c ∆CS c =-b-d-f PS c = b-e-g TSW c =-d-e-f-g

6. Basic Setting between regions D Price Quantity S region1 S region2 region1 region2 demand

7. Basic Setting between regions D Price Quantity SCC region1 region1 region2 demand S region1 SCC region2 S region2

8. Basic Setting between regions No Climate change D Price Quantity region1 region2 S region1 ED Sregion2

9. Basic Setting between regions No Climate change D Price Quantity region1 region2 S region1 ED Sregion2 Q s1 QdQdQdQd Q s2 P

10. Basic Setting between regions With Climate change D Price Quantity region1 region2 S region1 ED Sregion2 Q s1 QdQdQdQd Q s2 P SCC region1 QCC d Region 1 loses mkt share and produces less and produces less Region 2 gains mkt share and produces more and produces more Consumers gain All producers gain (I think) SCC region2 QCC s1 QCC s2 QCC s1 PCC

11. Extent of Damages Uncertainties in Impact Assessment Assumptions on scope of impact Economic approach to estimating welfare Economic Issues – Cost/Benefit Analysis

12. Would Climate Change Hurt/Benefit ?

13. Assessment Methodology - Summary Steps Identify sectors and physical effects Determine spatial and time scales Develop scenario regarding non-climatic factors Obtain GCM projections Chose analytical framework (econ theory foundation and models to be used) and adapt or estimate models Assess physical impact of GCM projections Make assumptions about unmodeled phenomena Incorporate physical impact into economic models Incorporate data on possible adaptations to climate change Do analysis including sensitivity analysis

14. Scope of Assessment Identify sectors and physical effects –The question relates to the choice of sector of the economy for impact assessment – agriculture, water, etc. Can this really be treated independently? Economic and geographic scale –Firm level or sector level assessment, regional or national or international Time frame –Climate change is a long-term phenomenon that requires analysts to decide the time frame of analysis, which would determine impact assessment results –Dynamic Vs Static Analysis

15. Scenario Development Non-climatic Scenarios Climate change Scenarios Time frame and uncertainty

16. Non Climatic - Socio-Economic Scenarios Population Demand (Product/Input Markets) Economic growth Economic structure

17. Non climate scenarios  Include at least two scenarios "baseline" or "reference" scenario and "mitigation scenario"  Assumptions e.g. economic growth, technology, etc. Source: CC 2001 mitigation p. 24 at http://www.grida.no/climate/ipcc_tar/wg3/015.htm#24 Figure TS.1: Qualitative directions of SRES scenarios for different indicators

18. Climate Change Scenarios Synthetic scenarios Assumed changes in temperature and precipitations Kaiser et al.; Mendelsohn, Adams et al. Global Circulation Models (GCMs) Model based predictions of temperature and precipitations for certain geo-graphic resolution US national assessment, Rosenzweig and Hillel

19. Obtain GCMs Projections Data Distribution Center of IPCC maintains GCM projections (http://ipcc-ddc.cru.uea.ac.uk/) Decide GCM scenarios whose projections you would use (Ref. Guide to GCM Scenarios - DDC) Visualization pages /Downloadable files Chose GCMs that have better calibrated base climate for the assessment country/region Compuate percentage changes in temp. and precipt for a grid and apply to weather stations Choose more than one GCMs for sensitivity analysis

20. Source : IPCC AR4t Climate models predict increasing emissions will cause a temp increase GCM Projections climate change - What is projected Where we are

21. GCM Projections Precipitation Projections John Nielson –Gammon, TAMU

22. GCM - Geographic Scale Circa 2001 HADCM: 3.75 x 2. 5 deg. (96 X 72 grids) CGCM: 3.75 x 3.75 deg. (96*48 grids) GDFL: 7.5 x 4.5 deg. (48*40 grids) Texas was covered by 4 grids (Rosenzweig and Hillel)

23. Hotter Time scale What is projected

24. Effects to Consider Temp Rainfall CO2 SeaLevel ExtremeEvents Plants Crop and forage growth X X X X Crop /forage water need X X X X Soils Soil moisture supply X X X Irrigation demand X X X X Soil fertility X X X Animals Performance X X X Pasture/Range Carry cap X X X X Irrigation Water Supply Evaporation loss X X X Run-off/general supply X X X Non-AG competition X X X Other Water borne transport X X X Port facilities X X X Pest and diseases X X Insurance X X X

25. Choose Analytical Framework Spatial Analogue/current data Structural Approach

26. Analytical Framework - Spatial Analogue Ricardian Land Rent Approach Profit Function Approach In both cases EconValue = f(controls,climate)

27. Analytical Framework - Structural App. Modeling biophysical and physical sensitivity to climate change Modeling demand/supply sensitivity to unmodeled climate sensitivity Integrated Assessment Modeling

28. Appraisal Approaches Physical assessments that only consider changes in physical character (e.g. changes in yield) Changes in cost as estimated in Chen and McCarl (Land rent, and Profit) Welfare estimates (market and non- market)

29. Physical Impacts to Economic Impacts Estimate physical impacts using structural or spatial analogue Make assumptions about unmodeled phenomenon Incorporate physical impacts into economic/empirical models

30. Analytical Framework Climate Scenarios – GCMs Crop Simulation – regional crop yields (dry and irrigated) regional irrigated crop water use Hydrologic simulation –irrigation water supply, Expert opinion – livestock performance, Range and hay simulation and calculation -- livestock pasture usage, animal unit month grazing supply Other studies – international supply and demand Regression – pesticide usage Economics – ASM sector model

31. Adaptations to Climate Change Sensitivity vs Vulnerability Nature of Adaptations Producers Markets/Policy Technology Cost of Adaptations

32. Analysis and Senstivity Analysis Analysis Assumptions and limitations Policy relevance/Know your audience Sensitivity Analysis Identify factors of sensitivity Analyze results within realistic bounds

33. Selected Assessments Fischer et al. (1996) Mendelsohn, Morrison, and Andronova (2000) U.S. National Assessment (Adams et al.)

34. Assessment - Fischer et al. (1996) Scope: Global (112 sites from 18 countries) Sector: Food production Timeframe: 2030, 2060 Socio-Econ Scenario: Pop. and Tech (Ag.) GCMs: GISS, GFDL, and HADCM models Assess. Meth.: Structural approach (Ag.) Adaptations: Two levels of adaptation No major global loss in global production of food Marked regional differences in impacts

35. Assessment - Mendelsohn, Morrison, and Andronova (2000) Global (184 countries) Agriculture, Forestry, and Coastal Areas Timeframe: 2060 Socio-Econ Scenario: Pop. and GDP growth GCMs: Assumed 2 deg. temp. increase Assess. Meth.: Spatial Analogue Adaptations: Implicitly imbeded in model results $0.278 bil. loss, with $215 bil. from ag. OECD gains $69 bil., while rest of world loses $348 bil.

36. U.S. National Assessment Scope: National Sectors: Agri., Forest, Water, Coastal Area, & Health Timeframe: 2060 Socio-Econ Scenario: Only climate changed (Ag.) GCMs: HADCM and CGCM Assess. Meth.: Structural approach Adaptations: Planting schedule, tech., market $0.5 bil. loss, with $12.5 bil. gain Gains from trade

37. Emerging or Untreated Issues in Assessment Probability and severity of extreme events Valuation of non-market impacts (loss of life and bio-diversity) Distributional issues (weights) Aggregation and extrapolation from limited geographic studies hides heterogeneity of responses to climate change How can we alter policy/research innovation investment to achieve a more desirable mix of CC effects