Non-market Damages Research Articles

The impact of climate conditions on economic production. Evidence from a global panel of regions

We present a novel data set of subnational economic output, Gross Regional Product (GRP), for more than 1500 regions in 77 countries that allows us to empirically estimate historic climate impacts at different time scales. Employing annual panel models, long-difference regressions and cross-sectional regressions, we identify effects on productivity levels and productivity growth. We do not find evidence for permanent growth rate impacts but we find robust evidence that temperature affects productivity levels considerably. An increase in global mean surface temperature by about 3.5°C until the end of the century would reduce global output by 7–14% in 2100, with even higher damages in tropical and poor regions. Updating the DICE damage function with our estimates suggests that the social cost of carbon from temperature-induced productivity losses is on the order of 73–142$/tCO2 in 2020, rising to 92–181$/tCO2 in 2030. These numbers exclude non-market damages and damages from extreme weather events or sea-level rise.

The economically optimal warming limit of the planet

Abstract. Both climate-change damages and climate-change mitigation will incur economic costs. While the risk of severe damages increases with the level of global warming (Dell et al., 2014; IPCC, 2014b, 2018; Lenton et al., 2008), mitigating costs increase steeply with more stringent warming limits (IPCC, 2014a; Luderer et al., 2013; Rogelj et al., 2015). Here, we show that the global warming limit that minimizes this century's total economic costs of climate change lies between 1.9 and 2 ∘C, if temperature changes continue to impact national economic growth rates as observed in the past and if instantaneous growth effects are neither compensated nor amplified by additional growth effects in the following years. The result is robust across a wide range of normative assumptions on the valuation of future welfare and inequality aversion. We combine estimates of climate-change impacts on economic growth for 186 countries (applying an empirical damage function from Burke et al., 2015) with mitigation costs derived from a state-of-the-art energy–economy–climate model with a wide range of highly resolved mitigation options (Kriegler et al., 2017; Luderer et al., 2013, 2015). Our purely economic assessment, even though it omits non-market damages, provides support for the international Paris Agreement on climate change. The political goal of limiting global warming to “well below 2 degrees” is thus also an economically optimal goal given above assumptions on adaptation and damage persistence.

Estimating the benefits of adaptation to extreme climate events, focusing on nonmarket damages

This paper provides a first approach on how to evaluate nonmarket damages from extreme climate events in monetary units by applying a Computable General Equilibrium (CGE) approach. We develop a static CGE model, which zooms into one single period of a standard Auerbach-Kotlikoff model. While we observe private and instantaneous adaptation in reaction to price changes, we explicitly model public adaptation funded by taxing either labor or capital. We apply our model to heat waves in Switzerland and are able to show that heat waves affect cohorts' utility in an unadapted economy in substantially different ways. While young and less vulnerable cohorts profit (in welfare terms and because of inheritance) from heat waves, vulnerable but surviving cohorts' welfare decreases substantially. Thus, without adaptation, vulnerable cohorts are worse off and might have even fewer possibilities to invest in private adaptation in the long run. Overall, we show that with adaptation, the negative impact of a 2003-like heat wave on output can be reduced from about −0.5% of GDP to −0.04% of GDP. Additionally, equivalent variation is reduced from about −1% to −0.18%.

Efficient and Equitable Climate Change Policies

This report describes the Integrated Assessment Model TIAM-MACRO, which is a Ramsey-type macroeconomic growth model linked with a technology-rich engineering model of the energy-system and with a stylized sub-model of climate change. TIAM-MACRO contributes to coherent and consistent policy analyses at both the world and regional level and correlates demand for energy services to macro-economic developments across regions and time until the end of the 21st century. With the help of this model, two contrasting scenarios are defined related to the reference development (BASE) case and the 2 °C (2DS) case that follow long-term policies on climatic change mitigation in the spirit of the Paris agreement. Finally, we define ex-post market and non-market damages together with the damages related to Local Atmospheric Pollutants (LAP). The stringency of the 2DS case requires the complete restructuring of the energy and transport systems to be relying on carbon-free technologies and fuels together with technologies of negative emissions, at high costs. The study concludes that carbon policies not only consist of an insurance against the risk of climate change but also improve the ambient air quality, as they have secondary benefits that compensate for part of the cost of carbon control. However, the stringency of the 2DS case is so demanding that the cost of climate policies is above benefits.

The sectoral and regional economic consequences of outdoor air pollution to 2060

This paper provides an assessment of the costs of inaction of outdoor air pollution in the coming decades, focusing on the market impacts relative to additional health expenditures, changes in labour productivity and crop yield losses. The results show that the global economic costs of outdoor air pollution gradually increase to 1% of global GDP by 2060, with highest GDP losses in China, the Caspian region and Eastern Europe. These economic consequences stem from a combination of exposure to high concentrations, aging population and relatively high pollution-related health expenditures that crowd out other consumption and savings. While the direct costs of these market impacts grow more or less at the same pace as total economic activity, the indirect economic costs induced by these impacts become increasingly significant over time. Numerical results are more sensitive to the specification of the feedbacks to the economic model than to the parameter values used in calibrating the impacts; the most optimistic specifications lead to significantly lower costs of air pollution, but qualitative conclusions on the sign of effects and ordering of regional consequences are robust. Non-market damages, especially the welfare losses from premature deaths, are potentially an order of magnitude larger than the market damages that this paper focuses on, but those do not directly affect the economy. These findings on the costs of inaction of outdoor air pollution underline the need for policy action that would reduce the health and environmental impacts as well as lead to economic benefits.

Reflections on Marine Resource Economics: Editor’s Introduction

Next article No AccessReflections on Marine Resource Economics: Editor’s IntroductionMartin D. SmithMartin D. SmithNicholas School of the Environment Duke University Search for more articles by this author Nicholas School of the Environment Duke UniversityPDFPDF PLUSFull Text Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Marine Resource Economics Volume 27, Number 3September 2012 Article DOIhttps://doi.org/10.5950/0738-1360-27.3.197 Views: 92Total views on this site Copyright © 2012 MRE Foundation, Inc.PDF download Crossref reports no articles citing this article.

The Remede Project: A Useful Framework for Assessing Non-Market Damages from Oil Spills?

As vessel traffic in the Baltic increases, in particular oil transports from Russia to the international market, so too does the risk of oil spills which above the environmental impacts impose costs on society including direct costs, market costs and non-market costs (e.g., losses in welfare from a damaged environment not easily valued in a market). While financial compensation addresses direct and market costs, environmental compensation (compensatory restoration) offsets welfare declines from the loss of resources or the services they provide. Although a clear international system for recovering environmental restoration costs from oil spills is still un-established, the EU's Environmental Liability Directive (ELD) from 2007 introduces a number of useful terms and concepts that may be applicable in the Baltic context.The European Commission (EC) funded development of the REMEDE Toolkit to help Member States carry out the ELD requirements. The Toolkit provides a useful framework for assessing non-market costs associated with oil spill damages by defining the types of ecological losses suffered by the public and providing interdisciplinary methods for scaling resource-based compensation projects whose cost should be incurred by the responsible polluter(s). This paper suggests that the ELD concepts and REMEDE methods could be transferred to the Baltic to help authorities recover environmental restoration costs from responsible polluters. We illustrate application of REMEDE-like concepts and methods to oil spill damages in the context of US regulations and the UN Compensation Commission and discuss the legal acceptance of these methods. The fact that the ELD cannot legally be invoked to address an oil spill in Europe should not preclude a discussion about how these relatively new European legal concepts, including the REMEDE methodology, could be used to establish a more consistent, transparent, and replicable framework for damage assessment in the sensitive marine environment of the Baltic Sea.

The REMEDE Project: A Useful Framework for Assessing Non-Market Damages from Oil Spills?

ABSTRACT As vessel traffic in the Baltic increases, in particular oil transports from Russia to the international market, so too does the risk of oil spills which above the environmental impacts im...

An Even Sterner Review: Introducing Relative Prices into the Discounting Debate

By estimating that the cost of unmitigated climate damages is an order of magnitude higher than most earlier estimates, the Stern Review on the Economics of Climate Change has had a major influence on the policy discussion on climate change. Not surprisingly, severe criticism has been levied against the report, especially by those who claim that the Stern Review's results hinge mainly on a discount rate that is too low. While we have no strong objections to the discounting assumptions adopted in the Stern Review, our main point in this article is that the conclusions reached in the Stern Review can be justified without using a low discount rate. We argue that nonmarket damages from climate change are probably underestimated and that future scarcities caused by the changing composition of the economy and climate change should lead to rising relative prices for certain goods and services. This will raise the estimated damage of climate change and modify as well as counteract the effect of discounting. We illustrate this effect using a slightly modified version of Nordhaus's DICE model and show that taking relative prices into account can have as large an effect on economically warranted abatement levels as a low discount rate.

Global climate change and the equity–efficiency puzzle

There is a broad consensus that the costs of abatement of global climate change can be reduced efficiently through the assignment of quota rights and through international trade in these rights. There is, however, no consensus on whether the initial assignment of emissions permits can affect the Pareto-optimal global level of abatement. This paper provides some insight into the equity–efficiency puzzle. Qualitative results are obtained from a small-scale model; then quantitative evidence of separability is obtained from MERGE, a multiregion integrated assessment model. It is shown that if all the costs of climate change can be expressed in terms of GDP losses, Pareto-efficient abatement strategies are independent of the initial allocation of emissions rights. This is the case sometimes described as ‘market damages’. If, however, different regions assign different values to nonmarket damages such as species losses, different sharing rules may affect the Pareto-optimal level of greenhouse gas abatement. Separability may then be demonstrated only in specific cases (e.g. identical welfare functions or quasi-linearity of preferences or small shares of wealth devoted to abatement).

An Integrated Assessment Model of Economy-Energy-Climate - The Model Wiagem

This paper presents an integrated economy-energy-climate model WIAGEM (World Integrated Assessment General Equilibrium Model) incorporating economic, energy and climatic modules in an integrated assessment approach. To evaluate market and nonmarket costs and benefits of climate change, WIAGEM combines an economic approach with a special focus on the international energy market, and integrates climate interrelations with temperature changes and sea level variations. WIAGEM is based on 25 world regions aggregated to 11 trading regions, each with 14 sectors. The representation of the economic relations is based on an intertemporal general equilibrium approach and contains the international markets for oil, coal and gas. The model incorporates all greenhouse gases (GHG) influencing potential global temperature, sea level variation and the assessed probable impacts in terms of climate change costs and benefits. Market and non-market damages are evaluated according to the impact assessment approaches of Tol [1]. Additionally, this model includes net changes in GHG-source emissions as well as removals by sinks resulting from land use change and de-foresting activities. This paper describes the model structure in detail and outlines general results with emphasis on the impacts of climate change. As a result, climate change impacts are significant within the next 50 years; developing regions face high economic losses in terms of welfare and GDP losses resulting from sinks and other GHG changes.