193 research outputs found
A note on the economic cost of climate change and the rationale to limit it below 2°C
Get PDFThis note highlights a major reason to limit climate change to the lowest possible levels. This reason follows from the large increase in uncertainty associated with high levels of warming. This uncertainty arises from three sources: the change in climate itself, the change’s impacts at the sector level, and their macroeconomic costs. First, the greater the difference between the future climate and the current one, the more difficult it is to predict how local climates will evolve, making it more difficult to anticipate adaptation actions. Second, the adaptive capacity of various economic sectors can already be observed for limited warming, but is largely unknown for larger changes. The larger the change in climate, therefore, the more uncertain is the final impact on economic sectors. Third, economic systems can efficiently cope with sectoral losses, but macroeconomic-level adaptive capacity is difficult to assess, especially when it involves more than marginal economic changes and when structural economic shifts are required. In particular, these shifts are difficult to model and involve thresholds beyond which the total macroeconomic cost would rise rapidly. The existence of such thresholds is supported by past experiences, including economic disruptions caused by natural disasters, observed difficulties funding needed infrastructure, and regional crises due to rapid economic shifts induced by new technologies or globalization. As a consequence, larger warming is associated with higher cost, but also with larger uncertainty about the cost. Because this uncertainty translates into risks and makes it more difficult to implement adaptation strategies, it represents an additional motive to mitigate climate change.Climate Change Economics,Science of Climate Change,Climate Change Mitigation and Green House Gases,Adaptation to Climate Change,Transport Economics Policy&Planning
How economic growth and rational decisions can make disaster losses grow faster than wealth
Get PDFAssuming that capital productivity is higher in areas at risk from natural hazards (such as coastal zones or flood plains), this paper shows that rapid development in these areas -- and the resulting increase in disaster losses -- may be the consequence of a rational and well-informed trade-off between lower disaster losses and higher productivity. With disasters possibly becoming less frequent but increasingly destructive in the future, average disaster losses may grow faster than wealth. Myopic expectations, lack of information, moral hazard, and externalities reinforce the likelihood of this scenario. These results have consequences on how to design risk management and climate change policies.Hazard Risk Management,Natural Disasters,Labor Policies,Insurance&Risk Mitigation,Economic Theory&Research
From growth to green growth -- a framework
Get PDFGreen growth is about making growth processes resource-efficient, cleaner and more resilient without necessarily slowing them. This paper aims at clarifying these concepts in an analytical framework and at proposing foundations for green growth. The green growth approach proposed here is based on (1) focusing on what needs to happen over the next 5-10 years before the world gets locked into patterns that would be prohibitively expensive and complex to modify and (2) reconciling the short and the long term, by offsetting short-term costs and maximizing synergies and economic co-benefits. This, in turn, increases the social and political acceptability of environmental policies. This framework identifies channels through which green policies can potentially contribute to economic growth. However, only detailed country- and context-specific analyses for each of these channels could reach firm conclusion regarding their actual impact on growth. Finally, the paper discusses the policies that can be implemented to capture these co-benefits and environmental benefits. Since green growth policies pursue a variety of goals, they are best served by a combination of instruments: price-based policies are important but are only one component in a policy tool-box that can also include norms and regulation, public production and direct investment, information creation and dissemination, education and moral suasion, or industrial and innovation policies.Environmental Economics&Policies,Climate Change Economics,Economic Theory&Research,Transport Economics Policy&Planning,Labor Policies
A Cost-Benefit Analysis of the New Orleans Flood Protection System
Get PDFIn the early stages of rebuilding New Orleans, a decision has to be made on the level of flood protection the city should implement. Such decisions are usually based on cost-benefit analyses. But in such an analysis, the results are contingent on a number of underlying assumptions and varying these assumptions can lead to different recommendations. Indeed, though a standard first-order analysis rules out category 5 hurricane protection, taking into account climate change and other human-related disruptions of environment, second-order impacts of large-scale disasters, possible changes in the discount rate, risk aversion and damage heterogeneity may make such a hurricane protection a rational investment, even if countervailing risks and moral hazard issues are included in the analysis. These results stress the high sensitivity of the CBA recommendation to several uncertain assumptions, highlight the importance of second-order costs and damage heterogeneity in welfare losses, and show how climate change creates an additional layer of uncertainty in infrastructure design that increases the probability of either under-adaptation (and increased risk) or over-adaptation (and sunk costs).Cost-Benefit analysis; Hurricane risk; New Orleans; Climate change
Designing climate change adaptation policies : an economic framework
Get PDFAdaptation has long been neglected in the debate and policies surrounding climate change. However, increasing awareness of climate change has led many stakeholders to look for the best way to limit its consequences and has resulted in a large number of initiatives related to adaptation, particularly at the local level. This report proposes a general economic framework to help stakeholders in the public sector to develop effective adaptation strategies. To do so, it lays out the general issues involved in adaptation, including the role of uncertainty and inertia, and the need to consider structural changes in addition to marginal adjustments. Then, it identifies the reasons for legitimate public action in terms of adaptation, and four main domains of action: the production and dissemination of information on climate change and its impacts; the adaptation of standards, regulations and fiscal policies; the required changes in institutions; and direct adaptation actions of governments and local communities in terms of public infrastructure, public buildings and ecosystems. Finally, the report suggests a method to build public adaptation plans and to assess the desirability of possible policies.Climate Change Economics,Wetlands,Climate Change Mitigation and Green House Gases,Adaptation to Climate Change,Science of Climate Change
Why economic growth dynamics matter inassessing climate change damages: illustrationon extreme events
Get PDFExtreme events are one of the main channels through which climate and socio- economic systems interact and it is likely that climate change will modify their probability distributions. The long-term growth models used in climate change as- sessments, however, cannot capture the effects of such short-term shocks. To inves- tigate this issue, a non-equilibrium dynamic model (NEDyM) is used to assess the macroeconomic consequences of extreme events. In the model, dynamic processes multiply the extreme event direct costs by a factor 20. Half of this increase comes from short-term processes, that long-term growth models cannot capture. The model exhibits also a bifurcation in GDP losses: for a given distribution of extremes, there is a value of the ability to fund reconstruction below which GDP losses increases dramatically. This bifurcation may partly explain why some poor countries that experience repeated natural disasters cannot develop. It also shows that changes in the distribution of extremes may entail significant GDP losses and that climate change may force a specific adaptation of the economic organization. These results show that averaging short-term processes like extreme events over the yearly time step of a long-term growth model can lead to inaccurately low assessments of the climate change damages.Dynamics; Extreme events; Economic impacts; Climate Change
Just Transition Fund in Taranto: An analysis of the goals for a social just green transition.
No full textThis paper examines social justice in the context of green transition, specifically for the EU fund “Just Transition Fund” and the Italian region of Apulia’s plans for the city of Taranto. We analyze the plans and their correlation to mainstream theorist Stephane Hallegatte and, the more critical theorist, Jason Hickel. We further discuss these correlations to understand how the JTF complies with their theoretical definitions of achieving a socially just green transition. Methodologically we use qualitative articles by theorist Stephane Hallegatte and Jason Hickel, and we use a case study to understand the JTF and its plans for Taranto. Our theoretical approach includes operationalizing the concept of achieving a socially just green transition for Hallegatte and Hickel, the main theories researched are green growth and degrowth. Based on our research we conclude that the plans, in many aspects, are similar to mainstream theorist Stephane Hallegatte's theory. Fundamentally the plans don’t correlate to Hickel’s theory on degrowth, but elements of the plans could be achieved through a degrowth scenario. Further research using additional methods such as focus group interviews could enhance the understanding of local perspectives and the potential impacts of green transition initiatives
Climate Policies and Nationally Determined Contributions: Reconciling the Needed Ambition with the Political Economy
No full textCountries have pledged to stabilize global warming at a 1.5 to 2°C increase. Either target requires reaching net zero emissions before the end of the century, which implies a major transformation of the economic system. This paper reviews the literature on how policymakers can design climate policies and their Nationally Determined Contributions (NDCs) to reach zero-net emissions before the end of the century in a socially and politically-acceptable manner. To get the ambition right, policymakers can use sectoral roadmaps with targets and indicators that track progress towards zero emissions (e.g. regarding renewable power or reforestation). Indeed, monitoring economy-wide emissions reductions alone would not ensure that short-term action contributes meaningfully to the long-term decarbonization goal. To get the political economy right, climate policies can be designed so that they contribute to non-climate objectives and create coalitions of supporters. For instance, revenues from carbon taxes can fund social assistance and infrastructure investment, while reducing tax evasion and informality. To minimize social and economic disruptions and avoid stranded assets, policymakers can start with a low carbon price level and use complementary policies. Designed at the sector level, complementary policies such as performance standards or feebates for cars, building norms, or moratoriums on new coal power plants can be negotiated in partnership with local stakeholders and trigger a transition to zero carbon without creating disruptive stranded assets
Time and space matter: how urban transitions create inequality
Get PDFTo analyze the response of cities to urban policies or transportation shocks, describing a succession of stationary states is not enough, and urban dynamics should be taken into account. To do so, the urban economics model NEDUM is proposed. This model reproduces the evolution of a monocentric city in continous time and captures the interaction between household moves, changes in at sizes, rent levels, and density of housing service supply. NEDUM allows, therefore, for a temporal and spatialized analysis of urban transitions. Applied to climate policies, this model suggests that the implementation of a transportation tax causes a larger welfare loss than can be inferred from traditional models. Moreover, such a tax increases signi cantly inequalities if its implementation is not anticipated enough. According to these results, therefore, smooth and early implementation paths of climate policies should be favored over delayed and aggressive action.City, Housing, Transportation
When Starting with the Most Expensive Option Makes Sense: Optimal Timing, Cost and Sectoral Allocation of Abatement Investment
No full textThis paper finds that it is optimal to start a long-term emission-reduction strategy with significant short-term abatement investment, even if the optimal carbon price starts low and grows progressively over time. Moreover, optimal marginal abatement investment costs differ across sectors of the economy. It may be preferable to spend 15 for the marginal ton in a sector with lower cost or lower abatement potential. The reason, distinct from learning spillovers, is that reducing greenhouse gas emissions requires investment in long-lived abatement capital such as clean power plants or public transport infrastructure. The value of abatement investment comes from avoided emissions, but also from the value of abatement capital in the future. The optimal leveled cost of conserved carbon can thus be higher than the optimal carbon price. It is higher in sectors with higher investment needs: those where abatement capital is more expensive or sectors with larger abatement potential. We compare our approach to the traditional abatement-cost-curve model and discuss implications for policy design
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