summaryglobalwarming by Copenhagen Consensus Center

Summary

The Challenge of Global Warming Gary W. Yohe Department of Economics, Wesleyan University,

This paper was produced for the Copenhagen Consensus 2008 project. The final version of this paper can be found in the book, ‘Global Crises, Global Solutions: Second Edition’, edited by Bjørn Lomborg (Cambridge University Press, 2009)

copenhagen consensus 2008 global warming executive summary

Climate Change Gary W Yohe, Richard S J Tol, Richard G Richels and Geoffrey Blanford Introduction In a world where multiple changes are occurring simultaneously at an accelerating pace, climate change cannot be ignored. To do so would, quite simply, seriously compromise efforts to ameliorate other challenges. In this paper, we draw heavily on the recently published Fourth Assessment Report (AR4) of the International Panel on Climate Change (IPCC) to support our analysis of the challenge and our proposed design for cost-effective policy responses. Scoping the problem

Observed climate change through 2007 A statistically significant signal of anthropogenic climate change has been detected in every continent except Australia (where the signal is still quite evident). This is unequivocal evidence that humans are changing their climate; and perhaps more importantly for present purposes, it means that mitigation makes sense for countries on every continent. Warming, precipitation changes and more extreme weather events have been observed across the world, and specifically in those regions where poor people are already facing the other challenges covered by the Copenhagen Consensus.

Anticipated climate change impacts Warming is generally anticipated across the globe, but it will be unevenly distributed. The overall pattern will vary with specific global emissions scenarios, but impacts will also vary regionally for any specific outcome. For a typical set of three SRES (IPCC Special Report on Emissions Scenarios) scenarios (A1B, A2 and B1), a collection of global circulation models projects warming everywhere, but especially in northern latitudes. In Africa and Asia, this could mean average temperatures rising by between 2 and 5째C towards the end of the century. The exact consequences of this human-induced warming will depend on the actual changes in carbon emissions and the trajectory taken by future development. Inevitably, however, additional stresses on crop yields, biodiversity and other important factors in regions already facing a range of challenges will emerge. Indeed, the planet is already committed to average temperature increases of about 0.6째C even without further rises in atmospheric carbon dioxide concentration. Concentrations will rise, of course, so temperature increases in excess of 0.6째C will put many millions of people at increased risk of hunger, exacerbate problems of water supply for a billion or more, and put millions more at risk of coastal flooding. The exact numbers will depend, for example, on the extent to which crops react to the fertilization

copenhagen consensus 2008 global warming executive summary

effect of additional CO2 (for example) and the actual development pathways that emerge, but these impacts will be disproportionately large in Africa and Asia.

Anticipated climate change impacts on agriculture The connection with development pathways is derived from a simple observation. Vulnerability to climate change varies partly because the changes themselves are not uniform, but also because local socio-economic factors determine exposure and sensitivity and because both can be influenced by adaptive capacity which in term depends in part on economic development. For example, for projected unmitigated climate change, cereal yields show gains in some regions in the North, while significant reductions are expected across Africa and much of South Asia. Global averages can mask significant geographic variability.

Comparing adaptation and mitigation Because the planet is already committed to further warming, as noted above, it is now widely accepted that mitigation alone is not enough to solve the climate problem; indeed, even mitigation and adaptation together may not be sufficient. Taking the intermediate A2 emissions scenario (with high climate sensitivity) and looking at global vulnerabilities in 2050 and 2100, it is clear that developing countries could reduce their vulnerability by mid-century by achieving an adaptive capacity by 2100 typical of developed countries at the turn of the 21st century. However, climate impacts would overwhelm these advances by 2100. Adopting a least cost path to limit greenhouse gas concentration to 550 ppm carbon dioxide equivalent alone gives some improvement, but again is overwhelmed in both developed and developing countries by the impact of climate change by the end of the century. Only a combination of both adaptation and mitigation would achieve better results, and even this could be dominated by climate change for scenario derived from high but plausible values for climate sensitivity. Modeling emissions and climate impact scenarios

Emissions scenarios We used the MERGE model to construct six emissions scenarios. Three scenarios assume that no new energy technologies are deployed; they are termed "technology as usual" (TAU). The other three scenarios assume that a targeted R&D program produces an "accelerated technology path" (ATP). In each case, three alternative emissions control strategies are evaluated: one as a baseline with no price on carbon and two others with policy options that impose an implicit price on carbon emissions. Because full "where" and "when" flexibility to achieve any mitigation target at least cost is very difficult to implement in reality, we take a second-best approach where only UNFCCC Annex B countries (developed countries) are required to meet annual emissions targets. Costs are measured in terms of the deadweight loss in the economy as more expensive energy options become necessary. The Copenhagen Consensus process requires us to allocate $75 billion over four years, and we have therefore chosen specific targets to keep mitigation costs to this level. In practice, however, effective climate mitigation will require expenditure of an equivalent 2

copenhagen consensus 2008 global warming executive summary

fraction of global GDP through the 21st century and beyond. Using our model's assumptions about economic growth and discounting, extrapolating the equivalent of $75 billion over the next 4 years into the indefinite future gives a net present value of $800 billion, or roughly 0.05% of global GDP annually. To be consistent with our secondbest setting, though, we assume that these costs are felt each year so that the Convention budget constraint is met each year in proportion to GDP); that is, mitigation efforts do not necessarily use the $800 billion present value in the maximally efficient time profile. Finally, note that the full $800 billion is allocated to mitigation in the TAU scenarios only. For the ATP cases, $750 billion in present value is devoted to mitigation so that $50 billion can be devoted to funding energy R&D. The resulting six emissions scenarios are summarized in the table below.

Scenario TAU Reference TAU Cost Effective Mitigation TAU Limited Mitigation ATP Reference ATP Cost Effective Mitigation ATP Limited Mitigation

Policy Description No Policy

Global participation Stabilization at 5.2 W/m2

Annex B only Emissions constant at 2010 levels

Global participation Stabilization at 4.5 W/m2

Annex B only Emissions reduced by 0.275% per year from 2010 levels

No Policy

Global Emissions (billion tons CO2) 2000 2050 2100

Impacts scenarios We use the climate and impacts modules in the FUND model to evaluate climate damages associated with carbon emissions along these six emissions scenarios. This model calculates temperature trajectories based on various climate sensitivity assumptions, together with the costs of market and non-market damage, taking account of economically efficient reactive adaptations. Since FUND endogenizes a considerable amount of adaptation in this way, we devote only limited attention to a specific adaptation designed to confront some health impacts more aggressively over the near term for a modest additional cost of $1bn (NPV).

copenhagen consensus 2008 global warming executive summary

Scoping the proposed responses Using the FUND and MERGE in the manner described above, we explore four policy responses below. They have all been adjusted to cost $75bn over the first four years, but they must be viewed as the first steps of a long term set of mitigation and adaptation options whose discounted costs sum to a present value of $800bn. 1. Business as usual (the TAU reference case) This provides a baseline scenario against which other policy options can be assessed. 2. Mitigation only (annual) (the TAU Limited Mitigation case) Economic instruments such as a carbon tax are used to reduce annual emissions to the extent that the cost matches the Copenhagen Consensus annual budget each year, with no R&D investment or proactive adaptation. 3. R&D plus mitigation (annual) (the ATP Limited Mitigation case) Invest immediately in R&D to make carbon reduction and sequestration technologies available to increase the effectiveness of mitigation in the longer term. 4. Adaptation plus R&D plus mitigation (annual) (a portfolio approach) A combination of case 3 above with measures designed to ameliorate various health impacts related to other CC topics and respond to the likely exacerbation of health hunger problems. This option illustrates the value of simultaneously "fighting the disease" and "treating the symptoms". For a "business as usual" approach, global mean temperatures rise about 3.5째C above 2007 levels by 2100; this is roughly the middle of the range derived from the A2 "storyline" of the IPCC reported in the literature. R&D alone, although leading to good short-term mitigation, allows emissions to climb in the longer term (since there are no economic incentives to take full advantage of their poser). Results indicate that mitigation alone dominates R&D alone by the time you reach the 22nd century. However, a combination of R&D and mitigation gives a greater overall emissions reduction than mitigation by itself. Whether or not in combination with R&D, mitigation constrained to the Copenhagen Consensus budget requires an initial real shadow price of $20 per ton of CO2,, either via a carbon tax or other means, that climbs over time at roughly the rate of interest. Results A summary of the net present value of each option is given in the table below. The choice of discount rate is obviously crucial in these calculations, since the time frame is so long. We have used the same rate to discount future benefits as that for risk-free investment in the economic model (the marginal productivity of capital). This rate starts at 5% in 2007 and falls to 4% by the end of the century, and so it is consistent with observed and anticipated rates of return. It is important to note that our results do not 4

copenhagen consensus 2008 global warming executive summary

depend on the very low pure rate of time preference proposed by Stern in 2006 and by Cline in the 2004 and 2006 versions of the Copenhagen Consensus exercise. Scenario

Description

(2) Mitigation only (annual with partial “where flexibility”) (3) R&D + mitigation (annual with partial “where flexibility”)

Spend $18bn per year (rising with economic growth) on mitigation Accelerated phase-in of carbon-extensive energy technologies, followed by mitigation with a fixed annual budget As above plus purchase bednets and oral rehydration therapy for children in the least developed countries affected by climate change

(4) Adaptation + R&D + mitigation

NPV costs $800bn

NPV benefits $685bn

BCR

$800bn

$1717bn

2.1

$800bn

$2129bn

2.7

0.9

The benefits of adaptation appear almost immediately, but depreciate quickly with time as ancillary benefits of economic development overtake the need for such specific healthrelated adaptations. R&D plus mitigation plus adaptation therefore gives higher overall benefits until about 2100, but after that the trajectory followed is essentially the same as the option without targeted adaptation. Early investment in R&D gives a significant boost to the cost-effectiveness of climate change mitigation, for no additional expenditure even with a relatively high discount rate. By including short-term adaptation, the complementary effect means that the overall benefit-cost ratio is further increased at no additional cost. Discussion and caveats Here, we briefly discuss some extensions of our analysis; taken together, some of them work to increase the cost-effectiveness ratio of the combined mitigation-R&D-adaptation response portfolio even further.

Improved cost-effectiveness with "when flexibility" As discussed earlier, it is difficult to introduce policies which allocate resources and achieve mitigation most efficiently over time – the idea that is known in the literature as "when flexibility". However, achieving “when flexibility” would have a very significant overall effect. Consider funding a flexible, mitigation-only approach via an annuity that would underwrite the most efficient expenditure of $800bn (present value) over time. We estimate this flexibility would increase the BCR of mitigation alone from 0.9 to 3.3 5

copenhagen consensus 2008 global warming executive summary

because it would delay more stringent emissions reductions. Put another way, intertemporally flexible mitigation could reduce emissions to only 20 gigatons per year in 2100, compared to 55 gigatons/year for the same present value of economic cost.

Regional diversity Climate change, and therefore the benefits of any policy response, varies regionally. For modest short-term temperature rises, for example, there may be benefit in some market sectors in some developed economies even while damages are felt elsewhere. If this diversity were to be analyzed on the basis of population-based equity weights, however, then the aggregate would turn negative more rapidly. By way of contrast, non-market damages would have a negative impact across the world in the short term, but they could fall steeply for the former Soviet Union and LDCs as development increases adaptive capacity. In this case, deviation of the policy options one from the other would appear earlier in the century.

Adaptation We do not include adaptation as a stand-alone option because its scope is too limited. The overall trajectory of benefits with the health options that we did analyze changes very little over the long term even though the targeted payoffs appear very quickly. The problem is that they depreciate quickly with time as development overtakes the need for such health-related interventions. Nevertheless, incorporating these specific interventions into a policy portfolio with mitigation and R&D does produce exaggerated synergistic benefits.

Uncertainty Although our analysis is presented as if it were based on a set of firm assumptions, there are actually a large number of key uncertainties which make projectiing the future climate very difficult. One of the most important is climate sensitivity. For low values, even the mitigation option with "when flexibility" leads to negative net present values for the $800bn expenditure. On the other hand, higher but entirely plausible climate sensitivities can mean that mitigation alone would avert more than $5 trillion in damages to sustain a benefit-cost ratio of nearly 7.

Geo-engineering We have ignored the controversial issue of geo-engineering (for example, changing the albedo of the atmosphere) as a way to mitigate climate change. Although this may be needed if rates of warming exceed IPCC high-end projections, a major research effort is needed to understand more about the efficacy, costs and potential risks of such interventions. Some regard geo-engineering as a potential "quick fix" which obviates the need for critical adaptation and mitigation efforts, but we feel that this is a misguided approach at this time.

copenhagen consensus 2008 global warming executive summary

Concluding remarks All options other than the "mitigation only (annual)" approach have favorable benefit/cost ratios for discount rates in the 5% to 4% range. (and thus far higher than the factors used by Stern and Cline) However, a synergistic complementarity can be exploited by combining the options of R&D, mitigation and adaptation into a single policy portfolio. When combined with mitigation, R&D expenditures essentially pay for themselves; and small additional expenditures on health-related adaptation increase the net benefits even more. Profound uncertainties about the climate system persist, of course. Nevertheless, we argue here that we cannot ignore the risk-reducing value of climate policyies across many sectors that span many of the other topics addressed in the Copenhagen Consensus. Based on our current understanding of uncertainties relating to climate sensitivity, we conclude that the true benefit-cost ratio of the portfolio approach to climate is greater than 5. This is without exploiting "when flexibility" which, although appealing in terms of potential effectiveness gains, implies committing future generations to expenditure allocations which would be very difficult to enforce. While recognizing that climate change policy is for the very long term, we have nevertheless kept within the Copenhagen Consensus budget constraint. This constraint implies a rather modest price of around $20 per ton for CO2, in the first year of the policy in contrast to the hundreds of dollars per ton proposed by Cline for the 2004 exercise. However, we also have to admit that our proposals do not "solve the climate problem". Our portfolio approach lowers the average global temperature rise in 2100 from about 3.5Â°C to a little below 3.0Â°. If such changes are likely to be "dangerous" in the sense used by the UNFCCC, then the Copenhagen Consensus budget constraint has been overly restrictive. In this case, our preferred policy portfolio of mitigation, R&D and adaptation must be seen essentially as a cost-effective start from which an ongoing discussion of longer-term options must continue to evolve â&#x20AC;&#x201C; and giving decision-makers 4 years to talk in the meantime might be a very good idea.