Suchergebnisse

First-best climate policy is a uniform carbon tax which gradually rises over time. Civil servants have complicated climate policy to expand bureaucracies, politicians to create rents. Environmentalists have exaggerated climate change to gain influence, other activists have joined the climate bandwagon. Opponents to climate policy have attacked the weaknesses in climate research. The climate debate is convoluted and polarized as a result, and climate policy complex. Climate policy should become easier and more rational as the Paris Agreement has shifted climate policy back towards national governments. Changing political priorities, austerity, and a maturing bureaucracy should lead to a more constructive climate debate.

I estimate the cost of meeting the EU 2030 targets for greenhouse gas emission reduction, using statistical emulators of ten alternative models. Assuming a first-best policy implementation, I find that total and marginal costs are modest. The statistical emulators allow me to compute the risk premiums, which are small, because the EU is rich and the policy impact is small. The ensemble of ten models allows me to compute the ambiguity premium, which is small for the same reason. I construct a counterfactual estimate of recent emissions without the climate policy and use that to test the predictive skill of the ten models. The models that show the lowest cost of emission reduction also have the lowest skill for Europe in recent times.

This paper surveys the literature on the economic impact of climate change. Different methods have been used to estimate the impact of climate change on human welfare. Studies agree that there are positive and negative impacts. In the short term, positive impacts may dominate, but these are largely sunk. In the longer term, there are net negative impacts. Poorer people tend to be more vulnerable to climate change. There is a trade-off between development policy and climate policy. Estimated aggregate impacts are not very large, but they are uncertain and incomplete. Estimates of the marginal impacts suggest that greenhouse gas emissions should be taxed, and that the emission reduction targets announced by politicians are probably too ambitious.

The Intergovernmental Panel on Climate Change has a monopoly on the provision of climate policy advice at the international level and a strong market position in national policy advice. This may have been the intention of the founders of the IPCC. I argue that the IPCC has a natural monopoly, as a new entrant would have to invest time and effort over a longer period to perhaps match the reputation, trust, goodwill, and network of the IPCC. The IPCC is a not-for-profit organization, and it is run by nominal volunteers; it therefore cannot engage in the price-gouging that is typical of monopolies. However, the IPCC has certainly taken up tasks outside its mandate; the IPCC has been accused of haughtiness; innovation is slow; quality may have declined; and the IPCC may have used its power to hinder competitors. There are all things that monopolies tend to do, against the public interest. The IPCC would perform better if it were regulated by an independent body which audits the IPCC procedures and assesses its performance; if outside organizations would be allowed to bid for the production of reports and the provision of services under the IPCC brand; and if policy makers would encourage potential competitors to the IPCC.

The European Commission did not publish a cost-benefit analysis for its 2020 climate package. This paper fills that gap, comparing the marginal costs and benefits of greenhouse gas emission reduction. The uncertainty about the marginal costs of climate change is large and skewed, and estimates partly reflect ethical choices (e.g., the discount rate). The 2010 carbon price in the ETS can readily be justified by a cost-benefit analysis. Emission reduction is not expensive provided that policy is well-designed, a condition not met by planned EU policy. It is probably twice as expensive as needed, costing one in ten years of economic growth. The EU targets for 2020 are unlikely to meet the benefit-cost test. For a standard discount rate, the benefit-cost ratio is rather poor (1/30). Only a very low discount rate would justify the 20% emission reduction target for 2020.

Previous versions of the FUND model assumed, like many integrated assessment models, that the carbon cycle is independent of climate change. I here introduce a feedback through which warming leads to higher net emissions. This increases the atmospheric concentration of carbon dioxide in the year 2100 by 100 (20-200) ppm. This leads to a higher estimate of the Pigou tax. The benefit of emission reduction now includes the direct benefits of lower emissions as well as the indirect benefits of a smaller feedback, but the latter effect is small. For any given stabilization target, abatement costs are substantially higher with the climate feedback than without. Abatement costs become sensitive to assumptions about climate change. Non-CO2 emission reduction becomes essential for meeting CO2 concentration targets. For pessimistic assumptions about the strength of the feedback, model results (for the 21st century) become sensitive to small variations in parameters.

I study the feasibility of stringent targets for stabilizing ambient greenhouse gas concentrations. Climate policy has diminishing returns, and there is therefore a maximum to what can be achieved. The success of climate policy is hampered if the terrestrial biosphere turns from a carbon sink to a carbon source because of climate change. All major countries have to reduce their emissions in order to meet the more ambitious stabilization targets. The cost of climate policy would be lower if the stabilization target can be exceeded in the interim. The EU target of 2 °C warming above pre-industrial is infeasible under almost all assumptions. A cost-benefit analysis would endorse a target of 4.5 Wm⁻² (but not much stricter than that) if all major emitters engage in abatement. Under the same condition, the median US voter would support a 3.7 Wm⁻² target (but not much stricter than that). International permit trade would encourage large developing countries to reduce emissions, but the trade flows would be substantial relative to product trade and much larger than official development aid.

The EU has proposed four flexibility mechanisms for the regulation of greenhouse gas emissions in the period 2013-2020: (1) the Emissions Trade Scheme (ETS), a permit market between selected companies; (2) trade in non-ETS allotments between Member States; (3) the Clean Development Mechanism (CDM) to purchase offsets in developing countries; and (4) trade in CDM warrants between Member States. This paper shows that aggregate abatement costs fall as flexibility increases. However, limited flexibility creates rents so that increasing flexibility raises costs in some Member States. Costs are reduced more by the CDM than by non-ETS trade. The CDM warrants market reduces costs by a small amount only; market power is a real issue. However, the warrants market is obsolete in case there is non-ETS trade. The CDM leads to price convergence between the ETS and non-ETS market. There would be one price for carbon in the European Union if the proposed limits on CDM access are relaxed slightly.