Abstract
Critics of the Intergovernmental Panel on Climate Change’s Special Report on Emission Scenarios claim that the use of market exchange rates (MER) rather than purchasing power parity (PPP) to measure gross domestic product (GDP) has led to a significant upward bias in projections of greenhouse gas emissions, and hence unrealistically high future temperature. Rather than revisit the debate on the choice of exchange rates, we address a much simpler question: when it comes to temperature change, how much does it matter if potential GDP is expressed in MER rather than PPP? Employing a computable general equilibrium model designed to examine a variety of issues in the climate debate, we find that there is a difference, but that it is only minor.
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