Climate Change and Global Equity

285 Pages·2014·1.541 MB·English

by  Frank Ackerman, Elizabeth A. Stanton

Climate Change and Global Equity
ANTHEM ENVIRONMENT AND SUSTAINABILITY
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ANTHEM FRONTIERS OF GLOBAL POLITICAL ECONOMY
Series Editors
Kevin Gallagher – Boston University, USA
Jayati Ghosh – Jawaharlal Nehru University, India
Editorial Board
Stephanie Blankenburg – School of Oriental and African Studies (SOAS), UK
Ha-Joon Chang – University of Cambridge, UK
Wan-Wen Chu – RCHSS, Academia Sinica, Taiwan
Léonce Ndikumana – University of Massachusetts-Amherst, USA
Alica Puyana Mutis – Facultad Latinoamericana de Ciencias Sociales
(FLASCO-México), Mexico
Matías Vernengo – Banco Central de la República Argentina, Argentina
Robert Wade – London School of Economics and Political Science (LSE), UK
Yu Yongding – Chinese Academy of Social Sciences (CASS), China
The Anthem Frontiers of Global Political Economy series seeks
to trigger and attract new thinking in global political economy, with particular
reference to the prospects of emerging markets and developing countries. Written
by renowned scholars from different parts of the world, books in this series provide
historical, analytical and empirical perspectives on national economic strategies and
processes, the implications of global and regional economic integration, the changing
nature of the development project, and the diverse global-to-local forces that drive
change. Scholars featured in the series extend earlier economic insights
to provide fresh interpretations that allow new understandings
of contemporary economic processes.
Climate Change and
Global Equity
Frank Ackerman and Elizabeth A. Stanton
Anthem Press
An imprint of Wimbledon Publishing Company
www.anthempress.com
This edition first published in UK and USA 2014
by ANTHEM PRESS
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Copyright © 2014 Frank Ackerman and Elizabeth A. Stanton
The moral right of the authors has been asserted.
All rights reserved. Without limiting the rights under copyright reserved above,
no part of this publication may be reproduced, stored or
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British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Ackerman, Frank, author.
Climate change and global equity / Frank Ackerman and
Elizabeth A. Stanton.
pages cm. – (Anthem environment and sustainability)
(Anthem frontiers of global political economy)
Includes bibliographical references.
ISBN 978-1-78308-020-5 (hardcover : alk. paper) – ISBN 1-78308-020-5
(hardcover : alk. paper)
1. Climatic changes–Economic aspects. 2. Climatic changes–Political aspects.
I. Stanton, Elizabeth A., author. II. Title.
QC903.A144 2014
363.738’74–dc23
2014011576
ISBN-13: 978 1 78308 020 5 (Hbk)
ISBN-10: 1 78308 020 5 (Hbk)
Cover photo: “Houses and Factories”
c. 1941, courtesy of the US Library of Congress, Farm Security
Administration/Office of War Information collection
This title is also available as an ebook.
TABLE OF CONTENTS
Introduction vii
Publication History xi
Part I: Perspectives on Climate and Equity
Chapter 1. Climate Economics in Four Easy Pieces 3
Chapter 2. Carbon Markets Are Not Enough 13
Chapter 3. Modeling Pessimism: Does Climate Stabilization
Require a Failure of Development? 21
Chapter 4. The Tragedy of Maldistribution: Climate,
Sustainability and Equity 37
Part II: Analyses of Climate Damages
Chapter 5. Climate Impacts on Agriculture: A Challenge to
Complacency? 57
Chapter 6. Did the Stern Review Underestimate US and
Global Climate Change? 67
Chapter 7. Can Climate Change Save Lives? A Comment on
“Economy-Wide Estimates of the Implications
of Climate Change: Human Health” 79
Part III: Theory and Methods of Integrated Assessment
Chapter 8. Inside the Integrated Assessment Models: Four
Issues in Climate Economics 93
Chapter 9. Limitations of Integrated Assessment Models
of Climate Change 115
vi CLIMATE CHANGE AND GLOBAL EQUITY
Chapter 10. Negishi Welfare Weights in Integrated Assessment
Models: The Mathematics of Global Inequality 133
Part IV: Applications of Integrated Assessment Models
Chapter 11. Climate Risks and Carbon Prices: Revising the
Social Cost of Carbon 151
Chapter 12. Epstein–Zin Utility in DICE: Is Risk Aversion Irrelevant to
Climate Policy? 169
Chapter 13. Fat Tails, Exponents, Extreme Uncertainty: Simulating
Catastrophe in DICE 183
Chapter 14. Climate Damages in the FUND Model: A Disaggregated
Analysis 203
Chapter 15. Climate Policy and Development: An Economic Analysis 217
Appendix. Supplementary Data for Chapter 3 231
Notes 235
References 249
INTRODUCTION
Technical solutions to the threat of climate change are not difficult to imagine.
Existing technologies could eliminate most or all greenhouse gas emissions
from electricity generation, transportation, and other carbon-intensive
activities. Progress in this direction would undoubtedly spur the development
of even better and cheaper techniques for reducing emissions in the future.
Yet ambitious measures to reduce carbon emissions are all too rare in reality.
The obstacles to climate protection are primarily economic and political,
rather than technological. Powerful interests strongly prefer the status quo to
massive investment in emission reductions. Debates over equitable sharing of
the costs of climate protection, both internationally and intranationally, have
stymied many efforts to move forward on this urgent issue.
This book presents our research related to these themes, addressing the
joint problems of climate and global equity. The articles included here, almost
all from peer-reviewed journals, argue that the impacts of inaction on climate
change will be far worse than the costs of ambitious climate policies, and that
progress toward global equity is indispensable to the attempt to stabilize the
climate.
The book is divided into four sections. The first presents our general
economic perspectives on climate and equity. “Climate Economics in Four
Easy Pieces” is a short summary of a framework for analysis, incorporating
four fundamental principles that should shape the field: the importance of
future generations, the central role of the risks of catastrophic outcomes,
the impossibility of monetization of all important impacts (and hence the
impossibility of traditional cost–benefit analysis), and the reasons why
damage costs are worse than protection costs. “Carbon Markets Are Not
Enough” argues that, especially for developing countries, carbon prices must
be combined with extensive nonprice policies in order to create equitable,
development-oriented climate policies. “Modeling Pessimism” suggests that
many climate scenarios assume slow growth for low-income countries, a cynical
assumption which has the effect of reducing projected global emissions. It
outlines the policy adjustments that would be needed for emission reduction
viii CLIMATE CHANGE AND GLOBAL EQUITY
in an equitable world, where many developing countries achieve high rates of
growth. “The Tragedy of Maldistribution” proposes a new approach to the
question of equity, treating it as a public good that is an important component
of sustainability.
In our recent review of the state of climate economics (Ackerman and
Stanton 2012a), we identified the measurement of climate damages as one
of the greatest weaknesses in current economic analyses of climate change.
The second section of this book includes three articles addressing questions
regarding climate damages. “Climate Impacts on Agriculture” examines an
area where recent research challenges more complacent earlier conclusions
and implies that there will be greater and more abrupt decreases in crop yields
as the world warms and precipitation patterns change. “Did the Stern Review
Underestimate US and Global Climate Damages?” coauthored by Chris
Hope, the economic modeler for the Stern Review, reexamines the model runs
and assumptions used by Nicholas Stern in his path-breaking analysis, finding
good reasons to believe that climate damages will be even worse than implied
by the Stern Review. “Can Climate Change Save Lives?” is a short critique of
a published analysis by other economists, in which they suggest that the first
stages of global warming could save vast numbers of lives; as we explain, that
conclusion rests on a series of errors.
The third and fourth sections of the book turn to integrated assessment
models (IAMs), which have become central to climate economics. IAMs
model the interacting processes of long-run economic growth and climate
change, aiming to capture the complex feedbacks between these processes.
The third section examines the framework and theory of IAMs. “Inside the
Integrated Assessment Models” is a review article assessing key aspects of
30 different IAMs found in recent literature, identifying wide differences in
assumptions and results. “Limitations of Integrated Assessment Models of
Climate Change” examines the economic theory underlying IAMs, finding
that they rely on questionable approaches, minimize catastrophic risks and
impacts on future generations, and do not provide reasonable policy guidance.
“Negishi Welfare Weights in Integrated Assessment Models” highlights a
technical procedure, used in solving many IAMs, that has the effect of freezing
the current global distribution of income, ensuring that the models’ solutions
do not include significant movements toward international equity.
The fourth section of the book includes five articles on IAMs in practice,
four based on well-known IAMs and a final one on our own efforts to create
a better IAM. While there are numerous IAMs in economics literature,
policy debate has often focused more narrowly on a handful of the best-
known and simplest models. Both the periodic reviews of economic literature
by the Intergovernmental Panel on Climate Change (IPCC) and the US
INTRODUCTION ix
government’s calculation of a “social cost of carbon” (i.e., the value of
the incremental damages caused by an additional unit of greenhouse gas
emissions) for use in policy assessment have relied on IAMs that appear to
have been chosen for familiarity or ease of use. In particular, the DICE model,
developed and publicly released by William Nordhaus, has become a de facto
open-access standard for research purposes. Like many other researchers, we
have experimented with modifications to DICE; the bare-bones simplicity of
the model, representing the entire global processes of economic growth and
climate change in a system of only 19 equations, essentially guarantees that
important features have been omitted.
“Climate Risks and Carbon Prices” develops sensitivity analyses of the US
government’s 2010 estimate of the social cost of carbon – the marginal damage
caused by an additional ton of carbon dioxide emissions. Their estimate was
a precise and small numerical value of $21 per ton. Using the DICE model,
we demonstrate that important uncertainties about future damages, the
discount rate, and the expected pace of climate change make this estimate
highly questionable, with risks of values more than an order of magnitude
higher. (The 2013 update to the US estimate raised the value somewhat, but
did not change the methodology of calculation, and did not approach the
higher values discussed in our article.)
“Epstein–Zin Utility in DICE” introduces an important theoretical
innovation from finance literature, allowing separate treatment of time
preference and risk aversion; conventional approaches in both climate
economics and finance conflate these two distinct factors, with paradoxical
results. With this innovation, DICE recommends much faster abatement of
emissions, but remains all but unable to model the effects of risk aversion. “Fat
Tails, Exponents, Extreme Uncertainty” is an attempt to provide an explicit
treatment of catastrophic risks in DICE; modifications to both the climate
sensitivity parameter (governing the pace of climate change) and the shape
of the damage function are required to make DICE predict catastrophic
outcomes. “Climate Damages in the FUND Model” addresses another one
of the most-discussed IAMs. A complex model with many more “moving
parts” than DICE, FUND often estimates lower climate damages and social
cost of carbon values than other models. This article explores the calculation
of damages in FUND, identifying serious problems of data and logic in its
treatment of agriculture.
Finally, “Climate Policy and Development” reports on our own IAM, the
Climate and Regional Economics of Development (CRED) model. CRED was
designed to model substantial transfers of resources between world regions,
simultaneously pursuing the goals of global equity and climate protection;
each scenario reports both climate and equity outcomes. Under some, but not