Stock Of Greenhouse Gases Research Articles

Escaping Damocles’ Sword: Endogenous Climate Shocks in a Growing Economy

We consider a growing economy which is subject to recurring, random, uninsurable, and potentially large and long-lasting climate shocks leading to destruction of infrastructure, land degradation, collapse of ecosystems or similar loss of productive capacity. The associated damages and the hazard rate are endogenously driven by the stock of greenhouse gases. We highlight the important role of the relative risk aversion and provide analytical solutions for the optimal climate policy, the growth rate and the saving propensity of the economy. We stress the importance of jointly determining these variables, especially if the objective is to formulate meaningful policy prescriptions. If, for example, the growth rate or the saving rate are assumed to be exogenous, and thus independent of the characteristics of climate shocks and economic fundamentals, then future economic developments in the face of climate change and, consequently, the future mitigation efforts will deviate from the optimal paths. In a quantitative assessment we show that with log-utility and under favorable technological and climatic conditions the abatement expenditure represents only 0.5% of output, equivalent to $37 per ton carbon. Under less favorable conditions, coupled with a relative risk aversion which exceeds unity, the abatement propensity increases to 2.9%, equivalent to $212 per ton carbon, and it jumps to a striking 16% in the pessimistic scenario involving severe shocks and low efficiency of abatement technology.

The Impact of Sea Embankment Reclamation on Greenhouse Gas GHG Fluxes and Stocks in Invasive Spartina alterniflora and Native Phragmites australis Wetland Marshes of East China

The introduction of embankment seawalls to limit the expansion of the exotic C4 perennial grass Spartina alteniflora Loisel in eastern China’s coastal wetlands has more than doubled in the past decades. Previous research focused on the impact of sea embankment reclamation on the soil organic carbon (C) and nitrogen (N) stocks in salt marshes, whereas no study attempted to assess the impact of sea embankment reclamation on greenhouse gas (GHG) fluxes in such marshes. Here we examined the impact of sea embankment reclamation on GHG stocks and fluxes of an invasive Spartina alterniflora and native Phragmites australis dominated salt marsh in the Dongtai wetlands of China’s Jiangsu province. Sea embankment reclamation significantly decreased soil total organic C by 54.0% and total organic N by 73.2%, decreasing plant biomass, soil moisture, and soil salinity in both plants’ marsh. It increased CO2 emissions by 38.2% and 13.5%, and reduced CH4 emissions by 34.5% and 37.1%, respectively, in the Spartina alterniflora and Phragmites australis marshes. The coastal embankment wall also significantly increased N2O emission by 48.9% in the Phragmites australis salt marsh and reduced emissions by 17.2% in the Spartina alterniflora marsh. The fluxes of methane CH4 and carbon dioxide CO2 were similar in both restored and unrestored sections, whereas the fluxes of nitrous oxide N2O were substantially different owing to increased nitrate as a result of N-loading. Our findings show that sea embankment reclamation significantly alters coastal marsh potential to sequester C and N, particularly in native Phragmites australis salt marshes. As a result, sea embankment reclamation essentially weakens native and invasive saltmarshes’ C and N sinks, potentially depleting C and N sinks in coastal China’s wetlands. Stakeholders and policymakers can utilize this scientific evidence to strike a balance between seawall reclamation and invasive plant expansion in coastal wetlands.

Environmental Policy Instruments and the Long-Run Management of a Growing Stock of Pollutant

Most environmental damage can be reduced through investments in the management of the pollutants that cause this damage. In the case of climate change, for instance, the harmful effects of the accumulated stock of greenhouse gases depend on the adaptation effort. Our aim is to analyze which economic policy schemes can restore the social optimum in such contexts. We consider a simple endogenous growth model with a polluting non-renewable resource and directed technical change, in which the environmental damage (and unique externality) depends on the accumulated stock of pollutant as well as on a stock of green knowledge dedicated to its management. Here, the socially optimal policy consists in a tax on the environmental damage, which provides the right incentives to (a) invest in green knowledge and (b) mitigate pollutant flows. More usual—and more easily implementable—environmental policies like taxes on pollution flows (e.g., carbon tax) cannot yield first-best outcomes in this context since they do not provide the right incentives to invest in the management of the emitted pollutants. We nevertheless show how coupling such a type of policy tool with a subsidy to green R&D can restore the social optimum.

Escaping Damocles' Sword: Endogenous Climate Shocks in a Growing Economy

Climate economics has been criticized for ignoring uncertainty, catastrophic changes, and tipping points (Stern 2016). The present paper addresses these issues. We consider multiple climate shocks which are recurring, random, uninsurable, and potentially large. The associated damages and the hazard rate are endogenously driven by the stock of greenhouse gases. We provide closed-form solutions for the optimal climate policy and the growth rate of the economy. The optimal path is characterized by a constant growth rate of consumption and of the capital stock until a shock arrives, triggering a downward jump in both variables. The mitigation policy consists of a simple and intuitive rule which requires spending a constant fraction of output on emissions abatement. In a quantitative assessment we show that under favorable conditions the abatement expenditure represents 0.5% of output, equivalent to $37 per ton carbon. Under less favorable conditions with respect to abatement technology and damages, coupled with a relative risk aversion which exceeds unity, the abatement propensity increases to 2.9%, equivalent to $212 per ton carbon, and it jumps to a striking 10% in the pessimistic scenario involving severe shocks and a possible crossing of a tipping point.

Pricing Climate Derivatives With Nonlinear Models

Given the large number of processes affecting global temperature in the climate system and the fact that these processes operate on different time scales, one cannot assume that a single time scale characterises either the interannual variability of climate or the response of climate to radiative forcing imposed over decades to centuries. Therefore, when modelling climate, we must consider different regimes for the time scale depending on the external forcing. We do this by introducing uncertainty to the characteristic time and to the sensitivity of climate to the stock of greenhouse gases in the atmosphere. We also make allowance for the possibility of non-linear diffusion term representing the weather and add jumps in global temperature. As a result, we improve a simple model introduced in earlier work by presenting three different jump-diffusion models for solving the estimated time constant problem and accounting for non-linear climate forcings. Copyright © 2012 Wilmott Magazine Ltd.

Applying Climate Derivatives to Flood Risk Management

As part of a new approach to dealing with flood risk, we demonstrate that index-based derivatives can provide a hedge to protect sea front developers and governments against financial disruption in the aftermath of adverse climate events by allowing risks to be transferred between entities having to manage the costs associated with sea level rise. Given the large number of processes affecting global temperature in the climate system and the fact that these processes operate on different time scales, one cannot assume that a single time scale characterises either the interannual variability of climate or the response of climate to radiative forcing imposed over decades to centuries. Therefore, when modeling climate, we must consider different regimes for the time scale depending on the external forcing. We do this by introducing uncertainty to the characteristic time and to the sensitivity of climate to the stock of greenhouse gases in the atmosphere. We also make allowance for the possibility of jumps in global temperature. As a result, we improve a simple model introduced in earlier work by presenting three different jump-diffusion models for solving the estimated time constant problem and accounting for non-linear climate forcings. Finally, we apply such climate derivatives to flood risk management by assessing the costs and benefits on two projects: one relating to a rolling easement and the other incorporating the concept of a real option.

The Timing of National Greenhouse Gas Emission Reductions in the Presence of Other Environmental Policies

This paper shows in an empirical context that substantial cost reductions can be achieved in the implementation of Dutch national climate policy by (i) targeting the policy at the stock of greenhouse gases, thus allowing polluters flexibility in their timing of emission reductions; and (ii) integrating climate policy with other policies, thereby optimising the restructuring of the economy needed to achieve environmental policy targets. A dynamic applied general equilibrium model with bottom-up information on abatement techniques is used to show that the optimal timing of GHG emission reductions tends to follow the timing for the other environmental themes with an additional emphasis on emission reductions in the later periods. The optimal mix of technical measures and economic restructuring as source of emission reductions is affected by the strictness of environmental policy targets for all themes and hence can only be derived from an integrated analysis of these policies.

Global warming, endogenous risk, and irreversibility

This paper develops two-period analytical and numerical models to study the question: given a stock of greenhouse gases that poses a risk of future damages of unknown magnitude, and the possibility of learning about damages, how do sunk abatement capital and a nondegradable stock of greenhouse gases affect optimal first-period investment? We show that both affect investment, the former negatively and the latter positively. Additionally, endogenous risk--the risk of damages dependent on the stock of gases-- results in an increase in optimal investment for any level of capital "sunkness" or greenhouse gas degradability. Quantitatively, though, the effect of sunk capital is much stronger than the effect of greenhouse gas irreversibility or that of endogenous risk.