how much damage will climate change do recent estimates two reasons to be concerned about climate change are its unjust distributional impact and its negative aggregate effect on economic growth and welfare although our knowledge of the impact of climate change is incomplete and uncertain economic valuation is difficult and controversial and the effect of other developments on the impacts of climate change is largely speculative the authors find that poorer countries and people are more vulnerable than are richer countries and people a modest global warming is likely to have a net negative effect on poor countries in hot climates but may have a net positive effect on rich countries in temperate climates if one counts dollars the world aggregate may be positive if one counts people the world aggregate is probably negative negative impacts would become more negative and positive impacts would turn negative for more substantial warming the marginal costs of carbon dioxide emissions are uncertain and sensitive to assumptions that partially reflect ethical positions but are unlikely to be larger than 50 per tonne carbon

the kyoto protocol a review and perspectives international concern about climate change has led to the kyoto protocol negotiated in 1997 which contains legally binding emission targets for industrialized countries to be achieved during the commitment period 2008 2012 while proponents of the protocol celebrate it as a breakthrough in international climate policy opponents criticize that its approach namely setting targets and timetables for emission reductions is seriously flawed this paper provides a critical assessment of the protocols potential performance and discusses amendments to foster its effectiveness and efficiency it concludes that even without any effective emission reductions in the initial commitment period the ratification of kyoto is important for the further policy process of climate protection the kyoto protocol has established a flexible broad based international mechanism that provides a valuable starting point for shaping efficient climate policies in the future

double co2 and beyond benefits costs and compensation abstract economic decisions over what action if any to take concerning the greenhouse effect tend to revolve around the social discount rate implicitly the debate concerns how to attribute intertemporal weights to welfare and implies a moral stance that is rarely given explicit recognition refocusing on the outcomes of current actions emphasises the role of compensation a conflict is apparent between the view that the current generation need be unconcerned over the loss or injury caused to future generations because they will benefit from advances in technology investments in both man made and natural capital and direct bequests and the requirement to avoid harming the innocent changes in units of welfare cannot be viewed as equivalent regardless of their direction in general doing harm is not cancelled out by doing good the result is a rejection of the potential compensation principle which underlies the current economic stance and a reconsideration of the acceptability of compensation altogether the concept of human rights and a non utilitarian perspective are used to show how cost benefit analysis denies the existence of inalienable rights and economics limits the moral considerability of harm

the aggregation of climate change damages a welfare theoretic approach the economic value of environmental goods is commonly determined using the concepts of willingness to pay wtp or willingness to accept wta however the wtp wta observed in different countries or between individuals will differ according to socio economic characteristics in particular income this notion of differentiated values for otherwise identical goods say a given reduction in mortality risk has been criticized as unethical most recently in the context of the social cost chapter of the ipcc second assessment report these critics argue that being a function of income wtp wta estimates reflect the unfairness in the current income distribution and for equity reasons uniform per unit values should therefore be applied across individuals and countries this paper analyses the role of equity in the aggregation of climate change damage estimates using basic tools of welfare economics it shows one way of how wtp wta estimates can be corrected in aggregation if the underlying income distribution is considered unfair it proposes that in the aggregation process individual estimates be weighted with an equity factor derived from the social welfare and utility functions equity weighting can significantly increase aggregate global damage figures although some specifications of weighting functions also imply reduced estimates the paper also shows that while the postulate of uniform per unit values is compatible with a wide range of reasonable utility and welfare specifications there are also cases where the common value notion is not compatible with defensible welfare concepts

some economics of global warming the greenhouse effect itself is simple enough to understand and is not in any real dispute what is in dispute is its magnitude over the coming century its translation into changes in climates around the globe and the impacts of those climate changes on human welfare and the natural environment these are beyond the professional understanding of any single person the sciences involved are too numerous and diverse demography economics biology and the technology sciences are needed to project emissions atmospheric chemistry oceanography biology and meteorology are needed to translate emissions into climates biology agronomy health sciences economics sociology and glaciology are needed to identify and assess impacts on human societies and natural ecosystems and those are not all there are expert judgments on large pieces of the subject but no single person clothed in this panoply of disciplines has shown up or is likely to this article makes an attempt to forecast the economic and social consequences of global warming due to anthropogenic greenhouse gases and attempting to prevent it

the inflation discipline of currency substitution abstract we examine the argument that currency substitution should be encouraged since it provides an inflation discipline in highly stylized games of national welfare maximization we find that as currency substitution increases currency survival comes to dominate all other considerations and inflation rates do indeed come down however we find no reason to think that these competitive inflation rates will be optimal the discipline embodied in currency substitution may be too weak or too strong it may be a poor substitute for direct coordination of monetary and fiscal policies we try to relate our analysis to recent u k proposals

the role of exchange rate in inflation targeting the case of turkey the role of the exchange rates in emerging market economies that have adopted inflation targeting it is a critical and contentious issue in the relevant literature this article investigates whet

discounting and distributional considerations in the context of global warming the economics of global warming is reviewed with special emphasis on how the cost depends on the discount rate and on how costs in poor and rich regions are aggregated into a global cost estimate both of these factors depend on the assumptions made concerning the underlying utility and welfare functions it is common to aggregate welfare gains and losses across generations and countries as if the utility of money were constant but it is not if we assume that a e co2 equivalent dlubling implies costs equal to 1 5 of the income in both high and low income countries a pure rate of time preference equal to zero and a utility function which is logarithmic in income then the marginal cost of co2 emissions is estimated at 260 590 usd ton c for a time horizon in the range 300 1000 years an estimate which is large enough to justify significant reductions of co2 emissions on purely economic grounds the estimate is approximately 50 100 times larger than the estimate made by nordhaus in his dice model and the difference is almost completely due to the choice of discount rate and the weight given to the costs in the developing world as well as a more accurate model of the carbon cycle finally the sensitivity of the marginal cost estimate with respect to several parameters is analyzed

the social cost of carbon and its policy implications the shadow price or social cost of carbon is an important indicator of the global incremental damage done by emitting greenhouse gases today cost benefit analysis would set the optimal amount of greenhouse gas emission reduction at the point where this social cost just equals the incremental cost of controlling emissions the higher the value for the social cost of carbon the more control is warranted this comparison assumes that cost benefit analysis is the correct way of determining climate change policy and many believe this is not the case because of the very long term irreversible and potentially catastrophic nature of global warming but in the short run at least a comparison of cost and benefits is required and in any event all decisions imply costs and benefits but what is the right figure for the social cost of carbon this paper reviews the uk government s assessment of the cost and concludes that it has been set far too high because of a misreading of the integrated assessment models used to balance costs and benefits moreover adoption of the uk government s shadow price would have formidable implications for energy policy in the uk and for policies on afforestation copyright 2003 oxford university press

equitable cost benefit analysis of climate change policies the literature of welfare maximising greenhouse gas emission reduction strategies pays remarkably little attention to equity this paper introduces three ways to consider efficiency and equity simultaneously the first method inspired by kant and rawls maximises net present welfare without international cooperation as if all regions share the fate of the region affected worst by climate change optimal emission abatement varies greatly depending on the spatial and temporal resolution that is the grid at which maximum impact is defined the second method is inspired by varian s no envy emissions are reduced so as to equalise total costs and benefits of climate change over all countries of the world and over all time periods emission reductions are substantial this method approximately preserves the inequities that would occur in a world without climate change the third method uses non linear aggregations of welfare the utilitarian default is linear in a cooperative setting this method cannot distinguish between sources of inequity the higher the aversion to inequity the higher optimal greenhouse gas emission reduction

why the far distant future should be discounted at its lowest possible rate abstract a critical feature of the distant future is currently unresolvable uncertainty about what will then be the appropriate rate of return on capital to use for discounting this paper shows that there is a well defined sense in which the lowest possible interest rate should be used for discounting the far distant future part of any investment project some implications are discussed for evaluating long term environmental projects or activities like measures to mitigate the possible effects of global climate change

time horizon and the discount rate abstract we consider an economy a la lucas 1978 econometrica46 1429 1446 with a risk averse representative agent the exogenous growth rate of the economy follows a random walk we characterize the set of utility functions for which it is efficient to discount more distant cash flows at a lower rate the benchmark result is that when the growth rate is almost surely nonnegative the yield curve is decreasing if and only if relative risk aversion is decreasing with wealth relaxing the assumption on the absence of recession requires more restrictions on preferences such as increasing relative prudence journal of economic literature classification numbers d81 d91 q25 q28

estimation of the greenhouse gas externality with uncertainty the shadow price of carbon dioxide is the value of the external damage caused by an emission a shadow price model for calculating the present value of the external damage of a carbon dioxide emission is derived explicitly sixteen experts provided subjective high low and most likely parameter estimates because correct values for the eight model parameters are uncertain the estimation procedure retains parameter uncertainty while generating the main result which is a distribution of shadow price estimates major assumptions made in the estimation identify the basis for the results of the eight model parameters the discount rate dominates the determination of the shadow price for comparison expert estimates of the shadow price itself provide a second distribution of shadow price estimates

on international equity weights and national decision making on climate change abstract estimates of the marginal damage costs of carbon dioxide emissions require the aggregation of monetised impacts of climate change over people with different incomes and in different jurisdictions implicitly or explicitly such estimates assume a social welfare function and hence a particular attitude towards equity and justice we show that previous approaches to equity weighting are inappropriate from a national decision maker s point of view because domestic impacts are not valued at domestic values we propose four alternatives sovereignty altruism good neighbour and compensation with different views on concern for and liability towards foreigners the four alternatives imply radically different estimates of the social cost of carbon and hence the optimal intensity of climate policy

comparing augmented sustainability measures for scotland is there a mismatch we estimate and compare two empirical measures of the weak sustainability of an economy for the first time the change in augmented green net national product gnnp and the interest on augmented genuine savings gs yearly calculations are given for each measure for scotland during 1992 1999 augmentation means including using projections to 2020 changed production possibilities enabled by exogenous technical progress or changing oil prices the change in augmented gnnp and the interest on augmented gs are both always positive showing no sustainability problem for scotland then according to the assumptions underlying our weak sustainability calculations however the former greatly exceeds the latter even when macroeconomic fluctuations are taken into account this is a mismatch which poses an unresolved problem with the theory resolving it may require respecifying the utility functions used in mainstream growth theory

what determines urban households willingness to pay for co2 emission reductions in turkey a contingent valuation survey abstract this paper explores turkish urban households willingness to pay wtp for co2 emission reductions expected to result from improvements in power production a face to face questionnaire with a contingent valuation cv module prepared using the double bounded dichotomous choice elicitation framework was administered to 2422 respondents representative of urban turkey a developing country with low but rapidly increasing greenhouse gas emissions the determinants of wtp were identified by considering not only the impact of standard socio economic factors but also the effects of environmental knowledge attitudes and behaviour the relevance of the identity of the collection agent national versus international institutions in terms of trust people have towards them and the degree of perceived participation of others in the realization of the project our study confirms the existing literature in demonstrating that wtp figures reported by young and educated people that are active on environmental issues and who also possess material security and environmental knowledge are more likely to be high however their willingness to make contributions is hampered significantly by their belief that their fellow citizens will not contribute and the general lack of trust in institutions overall this study may be taken as a call to eliminate governance related uncertainties in climate change deals

renewable resources and economic sustainability a dynamic analysis with heterogeneous time preferences abstract in recent years there has been increasing interest in the study of economic sustainability and its relationship with natural resources this paper attempts to shed some light on the issue by taking into account the individual variations in time preferences for consumption and resource amenity we characterize the long run steady state analyze its asymptotic stability and explore the transational dynamics from any initial state the welfare implications of the optimal path are also discussed

the impact of greenhouse gas emissions in the eu food chain a quantitative and economic assessment using an environmentally extended input output approach in order to provide a valuable knowledge basis for future global warming mitigation strategies and policy implementation this study carries out an integrated assessment of greenhouse gas ghg emissions throughout the eu 25 food supply chain considering the highest available level of product disaggregation based on an environmentally extended input output ee io approach we estimate the environmental impacts resulting from the food and non alcoholic beverages supply chain from production to waste management by 44 food products grouped in 11 categories further we perform a structural path analysis to identify the hotspots along the supply chain with the highest emissions finally we carry out an assessment of the economic impact of ghg emissions on each product category considering both the related environmental pressure intensity and the cost of environmental damage social cost the results offer new insights on the amount composition and origin of ghg emissions in the food supply chain more precisely detailed evidence is provided in support of the findings of previous studies that have shown that the contribution of farm level activities on overall ghg emissions is mostly related to n2o and ch4 emissions moreover we highlight the large environmental impact associated with co2 emissions even if they are scattered among a very high number of activities with a limited contribution each hence we infer that multiple hotspots for co2 exist along the whole supply chain and that many of them occur in downstream stages e g transportation processing packaging waste disposal as well as in the cold chain activities as for the economic assessment of emissions the highest costs are attributed to the highest emitting product categories but the share of social costs of these emissions as compared to the overall production value affect each product differently hence the impact of a hypothetical price control measure introduced to internalize the social cost of emissions would vary significantly from one product category to another overall our findings suggest that in order to achieve effective and efficient ghg mitigation in the food system an integrated approach is required including both concrete technological and managerial measures at various stages of the food supply chain and for specific product categories as well as appropriate economic incentive based mechanisms accounting for the social cost of damage e g a carbon tax that can prompt polluters to reduce their emissions along the whole supply chain

optimal dynamic carbon taxes in a climate economy model with distortionary fiscal policy how should carbon be taxed as a part of fiscal policy the literature on optimal carbon pricing often abstracts from other taxes however when governments raise revenues with distortionary taxes carbon levies have fiscal impacts while they raise revenues directly they may shrink the bases of other taxes e g by decreasing employment this article theoretically characterizes and then quantifies optimal carbon taxes in a dynamic general equilibrium climate economy model with distortionary fiscal policy first this article establishes a novel theoretical relationship between the optimal taxation of carbon and of capital income this link arises because carbon emissions destroy natural capital they accumulate in the atmosphere and decrease future output consequently this article shows how the standard logic against capital income taxes extends to distortions on environmental capital investments second this article characterizes optimal climate policy in sub optimal fiscal settings where income taxes are constrained to remain at their observed levels third this article presents a detailed calibration that builds on the seminal dice approach but adds features essential for a setting with distortionary taxes such as a differentiation between climate change production impacts e g on agriculture and direct utility impacts e g on biodiversity existence value the central quantitative finding is that optimal carbon tax schedules are 8 24 lower when there are distortionary taxes compared to the setting with lump sum taxes considered in the literature

optimal emission taxes for full internalization of environmental externalities abstract the present study proposes a set of optimal emissions fees that could be used to reduce the damages caused by industrial pollution the approach we use allows for the setting of pollution taxes at their economically appropriate level in particular tax rates are computed for china india and 19 sub saharan african countries all other world regions are grouped according to income level such as low income lower middle income upper middle income and high income economies our results show that constructed optimal pollution taxes range as high as 2 9 per 1 dollar of output for heavy manufacturing in the high income countries and as low as 0 01 in the service sectors of the low income countries these results show that a full internalization of the damages in each sector calls for raising the tax rates in some sectors and lowering them in others

choosing a monetary value of greenhouse gases in assessment tools a comprehensive review there is a societal need for using monetary estimates of social impacts of co2 and other greenhouse gases in different assessment tools such as cost benefit analysis and life cycle assessment a number of estimates are available in the literature since these differ by several orders of magnitude there is ambiguity and confusion about which to use this review aims to give some guidance on this issue the variation in carbon value estimates depends on several uncertain aspects which will remain uncertain including climate sensitivity assumptions about future emissions and decision makers ethical standpoints hence there is no single correct monetary value for co2 it will depend on the ethical standpoint of the user due to this estimates of social costs of co2 emissions cannot be used for calculating an optimal emission level although they can inform such assessments it is suggested that marginal abatement cost values are used for emissions capped by binding targets in short term assessments and that social cost of carbon values should be used for all other emissions benchmark principles for choosing a monetary carbon value are suggested along with associated estimates depending on the choices made with regard to ethical standpoints and assumptions about future emissions and climate sensitivity estimates can be significantly higher than the ones typically used in assessment tools today the estimates need continuous updating and there is need for better understanding and communication around the limitations and uncertainties involved

weight factors in cost benefit analysis of climate change equity considerations may justify the use of weight factors when estimating the costs of climate change this paper reviews different weight factors that have been used in the climate economics literature based on a simple model it is shown that although the different weight factors imply substantially different cost damage estimates they actually yield the same optimal emission reductions this paradox is explained by the fact that some of the approaches require that also the abatement costs are weighted and this offsets the effect of the diverging cost damage estimates the model is then used to analyse the importance weighting may have on the overall cost benefit analysis at present when most of the global emissions of fossil co2 originate from the industrialised countries the global optimal emissions are considerably lower if costs are weighted however the more the emissions in developing countries grow the less important becomes the introduction of weight factors in cost benefit analysis of climate change for the global emission reductions in the model developed here on a regional level the introduction of weight factors continues to play an important role implying substantially lower emissions in the rich region and slightly higher in the poor

positive time preference the case for positive time preference is absolutely compelling unless there is an infinite time horizon with the expectation of unending technological advance combined with what we call drastically diminishing marginal utility this finding holds both in the positive and normative senses a corollary is that savings are interest elastic

the damage costs of climate change toward more comprehensive calculations it is argued that estimating the damage costs of a certain benchmark climate change is not sufficient what is needed are cost functions and confidence intervals although these are contained in the integrated models and their technical manuals this paper brings them into the open in order to stimulate discussion after briefly reviewing the benchmark climate change damage costs region specific cost functions are presented which distinguish tangible from intangible losses and the losses due to a changing climate from those due to a changed climate furthermore cost functions are assumed to be quadratic as an approximation of the unknown but presumably convex functions results from the damage module of the integrated climate economy model fund are presented next uncertainties are incorporated and expected damages are calculated it is shown that because of convex loss functions and right skewed uncertain ties the risk premium is substantial calling for more action than analysis based on best guess estimates the final section explores some needs for further scientific research