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.
Here is the link to the paper
In a recent piece entitled “Our Climate Future Is Actually Our Climate Present” (April 19, 2017) the New York Times discusses what Benteng Zou and myself in an article published in the Journal of Environmental Economics and Management in 2008 called Pollution Perception. We argued that individuals perceive pollution to differ from its actual level because ” consecutive generations are not truly aware of, or cannot fully relate to, the environment as it was a generation ago.” We argued that this not only leads to higher levels of pollution and lower welfare, but also that it poses problems for the most commonly used measures of intergenerational equity.
Interestingly, a psychologist had already defined this concept earlier than us, and we were unfortunately not aware of this. This shows how little interaction there is among different academic disciplines sometimes. Peter Kahn, a Psychology Professor from Washington, called this “environmental generational amnesia.”
What the NYtimes article emphasized was that “”it’s possible to adapt and diminish the quality of human life.” Adapting to avoid or cope with the suffering wrought by climate change might gradually create other suffering.” This is quite interesting and a valid point that we did not study. For example, increased carbon emissions will lead to more heat death due to warmer climates, but it could also trigger large scale shifts in ecosystems which would result from e.g. a change in the Thermohauline Circulation. If we can mentally adapt to warmer temperatures, which would arise from a change in pollution perception, then we may be less inclined to lower our carbon emissions and thereby make the shifts in the ecosystems more likely. Thus, in a sense, a limited pollution perception or environmental amnesia implies a decrease in the social cost of carbon and, while it may be argued to be an adaptation mechanism, it can have unwanted side effects.
The other point is obviously whether or not we want our future generations to adapt to a worsened environment. For example, a variety of studies “found that the reported happiness of people who lost a body part was only marginally lower than the reported happiness of population means. Therefore, people are simply able to learn to live with certain health problems.” Nevertheless, forcing our future generations to adapt to a worsened environment decreases their menu of choice, which in turn is likely to decrease their capabilities or opportunities. And if we believe philosophers like Amartya Sen, then precisely these are to be maximized.
There was an interesting panel discussion (Climate and energy policy after the Paris Agreement) at the excellent EAERE 2016 conference in Zurich with Scott Barrett (Columbia University), Lucas Bretschger (ETH Zurich), Thomas Sterner (University of Gothenburg) and Herman Vollebergh (Netherlands Environmental Assessment Agency and Tinbergen University), all four of whom have been widely involved in climate negotiations or research thereof. So I chased them up in order to get their views on what economists should do, or prepare for, to help make COP22 in Marrakesh successful.
I have a new working paper which is joint work with Fabien Prieur (see further information below) who just accepted a professor position at the University of Nanterre in Paris, France. Our paper is entitled “[t]he role of conflict for optimal climate and immigration policy”, and we show the following:
In this article we investigate the role that internal and external conflict plays for optimal climate and immigration policy. Reviewing the empirical literature, we put forward five theses regarding the link between climate change, migration, and conflict. Based on these theses, we then develop a theoretical model in which we take the perspective of the North who unilaterally chooses the number of immigrants from a pool of potential migrants that is endogenously determined by the extent of climate change. Accepting these migrants allows increases in local production which not only increases climate change but also gives rise to internal conflicts. In addition, those potential migrants that want to move due to climate change but that are not allowed to immigrate may induce external conflict. While we show that the external and internal conflict play a significant yet decisively different role, it is the co-existence of both conflicts that makes policy making difficult. Considering only one conflict induces significant immigration but no mitigation. Allowing for both types of conflict, then depending on parameters, either a steady state without immigration but with mitigation will be optimal, or a steady state with a larger number of immigrants but less mitigation. Furthermore, we find the possibility of Skiba points, signaling that optimal policy depends on initial conditions, too. During transition we examine the substitutability and complementarity between the mitigation and immigration policy.
You can find the full paper HERE. In a post during the next days I hope to write a more policy-oriented view of this topic.
Some information on my co-author:
Fabien Prieur held a professor position at the University of Montpellier but has now accepted a professor position at the University of Nanterre. Fabien also holds a visiting position at Toulouse School of Economics. He is a researcher in environmental and resource economics and has published, among others, in journals such as the European Economic Review, Economic Theory, and Journal of Economic Dynamics and Control. If you google his images then he is the guy with the beard and glasses, not the one with the gold chain and the beers…
I have a new working paper which clearly shows that a policy maker who evaluates mankind’s well-being would fully favour mitigation over adaptation. In fact, the result is that a policy maker should not invest in adaptation, because this may reduce global well-being significantly. If you want to know more, please do read on.
Dan Farber suggests that there may be an upcoming war of attrition between fossil producing companies and those trying to curb climate change. In fact, I argue below that we are already in a war of attrition, not with the industry but with fossil fuel exporting countries.