Climate Policy Analysis Research Articles

An analysis of China's climate policy using the China-in-Global Energy Model

The primary approach to address climate change in China has been the use of CO2 intensity targets coupled with targets for low carbon energy deployment. We evaluate the impact of extending similar targets through 2050 on China's energy use profile and CO2 emissions trajectory using the China-in-Global Energy Model (C-GEM). The C-GEM is a global computable equilibrium model that includes energy and economic data provided by China's statistical agencies, calibration of savings, labor productivity, and capital productivity dynamics specific to China's stage of development, and regional aggregation that resolves China's major trading partners. We analyze the combined impact of extending CO2 intensity targets, implemented via a cap-and-trade program, and low carbon energy policies (directives for nuclear power expansion and feed-in tariffs for wind, solar, and biomass energy) through 2050. Although with the policy, simulated CO2 emissions are around 43% lower in 2050 relative to a reference (No Policy) counterfactual, China's CO2 emissions still increase by over 60% between 2010 and 2050. Curbing the rise in China's CO2 emissions will require fully implementing a CO2 price, which will need to rise to levels higher than $25/ton in order to achieve China's stated goal of peaking CO2 emissions by 2030.

Investing in low-carbon transitions: energy finance as an adaptive market

The amount of capital required to transition energy systems to low-carbon futures is very large, yet analysis of energy systems change has been curiously quiet on the role of capital markets in financing energy transitions. This is surprising given the huge role finance and investment must play in facilitating transformative change. We argue this has been due to a lack of suitable theory to supplant neoclassical notions of capital markets and innovation finance. This research draws on the notion from Planetary economics: Energy, climate change and the three domains of sustainable development, by Grubb and colleagues, that planetary economics is defined by three ‘domains’, which describe behavioural, neoclassical, and evolutionary aspects of energy and climate policy analysis. We identify first- and second-domain theories of finance that are well established, but argue that third-domain approaches, relating to evolutionary systems change, have lacked a compatible theory of capital markets. Based on an analysis of electricity market reform and renewable energy finance in the UK, the ‘adaptive market hypothesis' is presented as a suitable framework with which to analyse energy systems finance. Armed with an understanding of financial markets as adaptive, scholars and policy makers can ask new questions about the role of capital markets in energy systems transitions.Policy relevanceThis article explores the role of financial markets in capitalising low-carbon energy systems and long-term change. The authors demonstrate that much energy and climate policy assumes financial markets are efficient, meaning they will reliably capitalise low-carbon transitions if a rational return is created by subsidy regimes or other market mechanisms. The authors show that the market for renewable energy finance does not conform to the efficient markets hypothesis, and is more in line with an ‘adaptive’ markets understanding. Climate and energy policy makers that design policy, strategy, and regulation on the assumption of efficient financial markets will not pay attention to structural and behavioural constraints on investment; they risk falling short of the investment levels needed for long-term systems change. In short, by thinking of financial markets as adaptive, the range of policy responses to enable low-carbon investment can be much broader.

Modeling Uncertainty in Climate Change: A Multi-Model Comparison

The economics of climate change involves a vast array of uncertainties, complicating both the analysis and development of climate policy. This study presents the results of the first comprehensive study of uncertainty in climate change using multiple integrated assessment models. The study looks at model and parametric uncertainties for population, total factor productivity, and climate sensitivity. It estimates the pdfs of key output variables, including CO2 concentrations, temperature, damages, and the social cost of carbon (SCC). One key finding is that parametric uncertainty is more important than uncertainty in model structure. Our resulting pdfs also provide insights on tail events.

China-U.S. cooperation on China's subnational low carbon planning toolkit development and application

In May 2011, the China-based Global Environmental Institute and the US-based Center for Climate Strategies successfully joined the China-U.S. EcoPartnership program. The cooperation aims to adapt a methodology and tools used for making U.S. state climate action plans to China's subnational and municipal contexts, in order to help subnational governments achieve carbon emission targets by making scientific and effective climate and energy policies. To achieve this objective, a China subnational low carbon planning toolkit including a systematic process of selection, design and analysis of climate and energy policies was developed and successfully demonstrated in Chongqing Municipality. Through technical exchange and training, the capabilities of Chinese officials and experts who cooperated with us to quantitatively analyze low carbon development policies have been improved. The cooperation also promoted exchange between Chinese provinces and U.S. states on climate and energy policy.

U.S. Air Quality and Health Benefits from Avoided Climate Change under Greenhouse Gas Mitigation.

We evaluate the impact of climate change on U.S. air quality and health in 2050 and 2100 using a global modeling framework and integrated economic, climate, and air pollution projections. Three internally consistent socioeconomic scenarios are used to value health benefits of greenhouse gas mitigation policies specifically derived from slowing climate change. Our projections suggest that climate change, exclusive of changes in air pollutant emissions, can significantly impact ozone (O3) and fine particulate matter (PM2.5) pollution across the U.S. and increase associated health effects. Climate policy can substantially reduce these impacts, and climate-related air pollution health benefits alone can offset a significant fraction of mitigation costs. We find that in contrast to cobenefits from reductions to coemitted pollutants, the climate-induced air quality benefits of policy increase with time and are largest between 2050 and 2100. Our projections also suggest that increasing climate policy stringency beyond a certain degree may lead to diminishing returns relative to its cost. However, our results indicate that the air quality impacts of climate change are substantial and should be considered by cost-benefit climate policy analyses.

Impacts of rising air temperatures and emissions mitigation on electricity demand and supply in the United States: a multi-model comparison

The electric power sector both affects and is affected by climate change. Numerous studies highlight the potential of the power sector to reduce greenhouse gas emissions. Yet fewer studies have explored the physical impacts of climate change on the power sector. The present analysis examines how projected rising temperatures affect the demand for and supply of electricity. We apply a common set of temperature projections to three well-known electric sector models in the United States: the US version of the Global Change Assessment Model (GCAM-USA), the Regional Electricity Deployment System model (ReEDS), and the Integrated Planning Model (IPM®). Incorporating the effects of rising temperatures from a control scenario without emission mitigation into the models raises electricity demand by 1.6 to 6.5 % in 2050 with similar changes in emissions. The increase in system costs in the reference scenario to meet this additional demand is comparable to the change in system costs associated with decreasing power sector emissions by approximately 50 % in 2050. This result underscores the importance of adequately incorporating the effects of long-run temperature change in climate policy analysis.

Multiplicative decomposition of aggregate carbon intensity change using input–output analysis

Abstract The indicator “aggregate carbon intensity”, such as that given by the ratio of a country’s CO 2 emissions to its GDP, is often used by researchers and policymakers in the study of climate change or environmental performance. A better understanding of the determinants of this indicator is useful in climate policy analysis. This paper introduces four different models to calculate a country’s aggregate carbon intensity using the input–output framework. The models are developed based on different combinations of input–output models, country imports assumptions, and approaches to calculating GDP. Using the four models and multiplicative structural decomposition analysis, the determinants of the aggregate carbon intensity change of China from 2007 to 2010 are studied. The results given by the models are compared and attribution analysis on one of the determinants is conducted. The proposed procedure can be similarly applied to study changes in other aggregate intensity indicators, such as the ratio of energy consumption, water consumption or material use of a country to its GDP.

Climate Economics: Economic Analysis of Climate Change and Climate Policy, edited by Richard S. J.Tol. Published by Edward Elgar, Cheltenham, UK, 2014, pp. 208 pages, ISBN: 178 254 591 3, AU$ 149 (hard cover), AU$ 47.36 (paperback).

Climate Economics: Economic Analysis of Climate Change and Climate Policy, edited by Richard S. J.Tol. Published by Edward Elgar, Cheltenham, UK, 2014, pp. 208 pages, ISBN: 178 254 591 3, AU$ 149 (hard cover), AU$ 47.36 (paperback).

Climate economics: economic analysis of climate, climate change and climate policy

This unique and erudite text on the economics of climate change and climate policy can be used at three different levels – advanced undergraduate, post-graduate and doctoral. It comprehensively covers the critical issues and clearly identifies the specific sections each level of reader should explore. Topics include the costs and benefits of adaptation and mitigation, discounting, uncertainty, policy instruments, and international agreements. Lectures can be combined with exercises, guided reading, or the building and application of an integrated assessment model. The book is accompanied by a website with background material, data, opinion pieces and videos. Although primarily intended for use in the classroom, anyone with an interest in climate policy can use this text as a reference.

Modeling Uncertainty in Climate Change: A Multi-Model Comparison

The economics of climate change involves a vast array of uncertainties, complicating both the analysis and development of climate policy. This study presents the results of the first comprehensive study of uncertainty in climate change using multiple integrated assessment models. The study looks at model and parametric uncertainties for population, total factor productivity, and climate sensitivity. It estimates the pdfs of key output variables, including CO2 concentrations, temperature, damages, and the social cost of carbon (SCC). One key finding is that parametric uncertainty is more important than uncertainty in model structure. Our resulting pdfs also provide insights on tail events.

Women's human rights in a changing climate: highlighting the distributive effects of climate policies

A women's rights perspective can inform and structure research on climate policy impacts on women. To date, climate policy analysis has mostly considered women as agents of climate protection, that is, objects of mitigation policies, rather than subjects in their own right. However, climate change mitigation involves direct and indirect distributive effects depending on which sectors are involved, which instruments are chosen and how funds are obtained and allocated. Since gender roles impact on individual livelihoods and activities, distributive effects are likely to be gendered. This paper suggests that women's human rights can be used as a framework for research aiming to fill this gap. They provide a well-developed, tested range of criteria for gender justice. Such assessments would allow for a more systematic and comprehensive understanding of the gendered distributive effects of climate policies, notably with regard to the particularly understudied situation in the industrialized world.

Optimally differentiated carbon prices for unilateral climate policy

Economic thought on climate policy as an instance of environmental regulation is strongly influenced by the principle of a uniform carbon price. Economists acknowledge that this principle breaks down in a “second-best” world with other distortions, such as taxes and market power in domestic and international markets. However, systematic analysis of this point in the economic climate policy literature is scarce. In the present paper, a computable general equilibrium (CGE) set-up is chosen in order to examine what pattern of differentiated carbon prices emerges as optimal in a second-best world.The CGE model WorldScan, which is considered to be representative of the class of models routinely used for numerical climate policy analysis, produces three main results: First, the optimal pattern of carbon prices is highly differentiated, ranging from almost prohibitive taxes to high subsidies (with a range of more than 1700 euros per ton of CO2). Second, the welfare gain from switching from a uniform price to optimally differentiated prices is enormous, equivalent to a 27% emission reduction for free. Third, the most important drivers of carbon price differentiation are market power in export markets as well as taxes on consumption, intermediate inputs and domestic output. This shows that carbon price differentiation cannot be dismissed as a policy option lightly. However, before translating these findings into concrete policy advice, the relevant features of modelling pre-existing distortions in CGE models need close revision.

Integrated technological-economic modeling platform for energy and climate policy analysis

CGE (computable general equilibrium) and bottom-up models each have unique strengths and weakness in evaluating energy and climate policies. This paper describes the development of an integrated technological, economic modeling platform (HYBTEP), built through the soft-link between the bottom-up TIMES (The Integrated MARKAL-EFOM system) and the CGE GEM-E3 models. HYBTEP combines cost minimizing energy technology choices with macroeconomic responses, which is essential for energy-climate policy assessment. HYBTEP advances on other hybrid tools by assuming ‘full-form’ models, integrating detailed and extensive technology data with disaggregated economic structure, and ‘full-link’, i.e., covering all economic sectors. Using Portugal as a case study, we examine three scenarios: (i) the current energy-climate policy, (ii) a CO2 tax, and (iii) renewable energy subsidy, with the objective of assessing the advantages of HYBTEP vis-à-vis bottom-up approach. Results show that the economic framework in HYBTEP partially offsets the increase or decrease in energy costs from the policy scenarios, while TIMES is very sensitive to energy services-price elasticities, setting a wide range of results. HYBTEP allows the computation of the economic impacts of policies in a technological detailed environment. The hybrid platform increases transparency of policy analysis by making explicit the mechanisms through which energy demand evolves, resulting in high confidence for decision-making.

Zero discounting can compensate future generations for climate damage

In cost–benefit analysis of climate policy there are two main approaches to discounting, each with implications conflicting with our moral intuitions. Thus, discounted utilitarianism implies that we hardly need to protect future generations against climate change, while classical utilitarianism implies that we should reduce our consumption across the board to benefit future generations. The insolubility of the debate derives from the fact that both classical and discounted utilitarianism permit only a single discount rate for all consequences occurring in the same future year, while our intuitions clearly do distinguish between consequences, depending on whether we cause adverse effects on other people's interests and violate their rights. Most people share the moral intuition that we ought to refrain from harming others, and ought to compensate them if we were unable to prevent harm. To regain a reflective equilibrium between such deontological intuitions and economic theory there is a need to accept different discount rates for different situations: a zero consumption discount rate in the case of cost–benefit analysis of measures to prevent wrongful harm to future generations, and standard discounting in all other cases. Applying a zero consumption discount rate means that future generations are automatically largely compensated for climate damage that remains unmitigated.

Economic Growth Assumptions in Climate and Energy Policy

The assumption that the economic growth seen in recent decades will continue has dominated the discussion of future greenhouse gas emissions and the mitigation of and adaptation to climate change. Given that long-term economic growth is uncertain, the impacts of a wide range of growth trajectories should be considered. In particular, slower economic growth would imply that future generations will be relatively less able to invest in emissions controls or adapt to the detrimental impacts of climate change. Taking into consideration the possibility of economic slowdown therefore heightens the urgency of reducing greenhouse gas emissions now by moving to renewable energy sources, even if this incurs short-term economic cost. I quantify this counterintuitive impact of economic growth assumptions on present-day policy decisions in a simple global economy-climate model (Dynamic Integrated model of Climate and the Economy (DICE)). In DICE, slow future growth increases the economically optimal present-day carbon tax rate and the utility of taxing carbon emissions, although the magnitude of the increase is sensitive to model parameters, including the rate of social time preference and the elasticity of the marginal utility of consumption. Future scenario development should specifically include low-growth scenarios, and the possibility of low-growth economic trajectories should be taken into account in climate policy analyses.

A New Toolkit for Developing Scenarios for Climate Change Research and Policy Analysis

Yogi Berra succinctly captured how economic growth, technology change, demographic change, and climate change are altering visions of what the future could bring: “the future ain't what it used to ...

European decarbonisation pathways under alternative technological and policy choices: A multi-model analysis

This paper explores in a systematic manner the required energy system transformations and the associated costs incurred for the EU in order to meet the decarbonisation targets as specified in the EU Roadmap 2050, i.e. the 80% GHG emissions reduction target and the equivalent carbon budget by 2050. Seven large-scale energy-economy models, namely PRIMES, TIMES-PanEu, GEM-E3, NEMESIS, WorldScan, Green-X and GAINS, which have been extensively used in EU climate and energy policy analysis are employed for the simulation and quantification of alternative EU decarbonisation pathways under technological limitations and climate policy delays. The multi-model perspective provides valuable insights for the formulation of robust policies. The model results show that the EU emissions reduction target is feasible with currently known technological options at low costs (lower than 1% of GDP in the period 2015–2050). Models confirm the EU Roadmap priorities for 2050 with regard to accelerated energy efficiency, transport electrification and supply-side restructuring with high RES, CCS and nuclear deployment. Decarbonisation targets are found feasible even in cases with technological limitations regarding CCS and nuclear technologies and delays in transport electrification albeit with higher costs. Delaying emission reduction action until 2030 has significant adverse effects on energy system costs and stresses the system capabilities for decarbonisation.

Advancing methodological thinking and practice for development-compatible climate policy planning

There are growing calls for identifying climate mitigation and adaptation policy packages that would also support human development objectives at the national and regional levels. The literature on climate policy analysis and impact assessment continues to be driven by standard economics with its body of competitive general equilibrium optimization models and cost-benefit analysis techniques of aggregation and monetization. However, its recommendations for climate action are often based on highly restrictive underlying assumptions, which have been increasingly criticized for being too prescriptive, not adequately capturing salient observed socioeconomic realities, and not acknowledging pluralism in values. The main aim of this paper is to put forward a new methodological approach that seeks to address these deficiencies. A generic but comprehensive framework eliciting mitigation-adaptation-development interactions, accounting for institutional barriers, and drawing on a combination of an emerging body of new climate economics and multi-criteria decision analysis is suggested. We purport that, by using this framework, multi-dimensional impacts and multi-stakeholder interests could be better represented when planning climate policy actions. We also argue that analytical tools drawing on economic thinking which embraces interdisciplinary analysis and deep uncertainty and avoids the fallacy of unique optimal solutions, may deliver more effective strategies for pushing economies onto the transformational pathways required.

Understanding Marginal Abatement Cost Curves in Energy-intensive Industries in China: Insights from Comparison of Different models

The Kyoto Protocol inspires the idea of establishing emissions trading scheme, regarding economic-effectiveness as a significant factor to achieve reduction targets and meet obligation. With this trend, marginal abatement cost curves (MACCs) have been used in climate policy analysis under general equilibrium framework, and have been proved a valid device to highlight the superiority of ETS. This paper focuses on the comparison of MACCs at industry level in China, derived by us from CGE, GCAM and TIMES respectively. It's clear that there is no dynamic adjustment process in these models, so we use linear interpolation method to introduce carbon tax to simulate actual situation. Meanwhile, we also take data from potential and cost study into account. To make our work more targeted, we pay close attention to energy-intensive industries with high carbon emissions level such as electricity, cement and steel, which are most likely to be covered in carbon market. The results indicate how MACCs change and illustrate why they change, depending on applied methodology and underlying assumptions. As we ignore the indirect effects, for instance, tax distortions and non-financial costs during above simulation, the emissions abatement cost we achieve by using integral calculus won’t be equivalent to real cost. Therefore, it's a wise decision for government department and research institute to be cautious when using MACCs as basis of policy making and academic studies.

Specifications of Social Welfare in Economic Studies of Climate Policy: Overview of Criteria and Related Policy Insights

An important assumption in economic studies of climate policy is the social welfare function. This paper shows that applying distinct decision or social welfare criteria can result in different optimal policies of climate control, notably if climate change impacts are uncertain. First, decision criteria in current climate-economic studies are reviewed. Next, the most important alternatives are discussed, including their (mathematical) formalization and incorporation in economy-climate models. Most of these alternative criteria suggest more stringent climate policies to be optimal than the standard discounted utilitarianism approach. However, several important welfare criteria have not or hardly seen any application in the economic analysis of climate policy. We conclude that there is clear need for systematic research on this theme, for which the current review provides a solid basis.