I have just come across the article “An Economist’s Guide to Climate Change Science“, written by Solomon Hsiang and Robert Kopp, published recently in the Journal of Economic Perspectives, Fall 2018. They mainly summarize the recent literature on climate change and provide some insights from economists on this topic. Should you read their article? What is missing from it?
Yossi Sheffi, a Professor of Engineering Systems at MIT, and Director of the MIT Center for Transportation and Logistics, recently wrote an article on Project Syndicate entitled “Green Lobby’s Misdirected Anger“. He argues that our current efforts to curb carbon emissions are insufficient to keep temperature increases below 1.5°C and suggests the only real alternative is geoengineering and nuclear fusion. I disagree.
In October 2018 IPCC published a special report on the impacts of global warming of 1.5 °C above pre-industrial levels. This report has been widely publicized in media across the globe such as BBC News, Financial Times, EURACTIVE or the New York Times. The conclusion is that there is an urgent need for a quick action. One issue that economists in general would have with this report is whether or not it makes sense to stick to the 1.5°C target from a cost-benefit point of view. So what do we know?
Seen today, one just above the other, on the top of the website of NY Times. Some interests are clearly not aligned:
In the paper “Climate Policy Must Favour Mitigation Over Adaptation”, I develop the argument that the world must prefer mitigation to adaptation at the global level. The argument rests on the observation that mitigation is a public good while adaptation is a private one. I have the feeling that the academic literature has completely missed this point, and especially the representative agent literature, but also integrated assessment models that introduce adaptation and mitigation.
Read on for more details, why I have trouble to get this published in a journal, the referees’ comments and my rebuffals.
I am happy to announce that my article entitled “The Aggregation Dilemma in Climate Change Policy Evaluation” has been accepted for publication in the journal Climate Change Economics.
The article deals with the following question:
We show that a policy maker who ignores regional data and instead relies on aggregated integrated assessment models is likely underestimating the carbon price and thus the required climate policy. Based on a simple theoretical model we give conditions under which the Aggregation Dilemma is expected to play a role in climate change cost-benefit analysis. We then study the importance of the Aggregation Dilemma with the integrated assessment model RICE (Nordhaus, 2000).
Aggregating all regions of the RICE-99 model into one region yields a 40% lower social cost of carbon than the RICE model itself predicts. Based on extrapolating the results a country-level integrated assessment model would give a more than eight times higher social cost of carbon compared to a fully aggregated model. We suggest that these tentative results require researchers to re-think the aggregation level used in integrated assessment models and to develop models at much lower levels of aggregation than currently available.
Here is the article if you are interested: pdf
Together with a co-author of mine, Martin Henseler from the Universite du Havre, France, I have a new working paper entitled “The impact of temperature on production factors”. We believe that the results significantly update previous studies on the impact of climatic variables on production factors and GDP growth and help policy makers to more clearly understand which impacts from climatic changes are likely to matter most in the future. Furthermore, these results should help to more carefully calibrate the damage functions in integrated assessment models.
Here is the abstract:
In a recent econometric study Burke et al. (2015) find that temperature affects economic growth non-linearly. We extend their analysis by investigating the influence of temperature on the main components of production, namely total factor productivity, capital stock and employment. Our panel dataset includes observations on 103 countries for the period 1961-2010. We confirm Burke et al. (2015) assumption that the main impacts of temperature arise in total factor productivity, which is significantly negatively affected for high levels of temperature. Neither capital nor employment seem to be affected by temperature. However, we find that temperature impacts rich and poor differently, with the poor being significantly more strongly impacted for higher temperature levels. These results hold across all components of production. We find these results to be robust across different cutoff points dividing the rich and poor samples, continue to hold if we use temperature anomaly instead of temperature, and also apply for further robustness exercises. The findings provide empirical evidence for negative impacts of temperature on poor countries and support the political and scientific discussions of mitigation policies and climate change impacts.