Economic Analysis of Climate Change Impacts in Europe: a Sectoral Approach Antonio Soria, Juan Carlos Ciscar, Laszlo Szabo...
The IPTS <ul><li>The  Institute for Prospective Technological Studies ( IPTS), based in Sevilla, is one of the 7 scientifi...
<ul><li>Question of Interest: </li></ul><ul><li>What are the  economic  consequences of  </li></ul><ul><ul><li>climate cha...
TAR IPCC (2001) Stern report (2007) Source: IPCC 4AR (2007), vol. II, Ch. 20 What is known: aggregate impacts
What is known: social cost of carbon (marginal damage) <ul><li>Tol (2005) review of literature </li></ul><ul><ul><li>Mean ...
What is unknown <ul><li>Non-market effects  (e.g. biodiversity, ecosystems) </li></ul><ul><li>Extreme weather risks </li><...
Outline <ul><li>Overview of the PESETA project </li></ul><ul><li>Methodology: the economic CGE model </li></ul><ul><li>Sec...
<ul><li>About PESETA </li></ul><ul><li>PESETA  stands for :  Projection of Economic impacts of climate change in Sectors o...
Project partners and scope <ul><li>Climate scenarios: DMI, CRU </li></ul><ul><li>Six sectoral assessments: </li></ul><ul><...
Integrated economic impact assessment <ul><li>Starting point : physical impact estimates </li></ul><ul><li>Some sectors pr...
 
 
Grouping of countries
Climate Scenarios <ul><li>Data needs: 50 km resolution; daily and monthly </li></ul><ul><li>Selection of scenarios </li></...
Four 2080s Scenarios
Temperature 3.9°C (A2 Hadley)  5.4°C (A2 Echam)
Precipitation 3.9°C (A2 Hadley)  5.4°C (A2 Echam)
Methodologies for Physical Impacts Assessment <ul><li>Detailed process modelling </li></ul><ul><li>Agriculture, DSSAT crop...
Economic impact assessment <ul><li>Starting point : physical impact estimates </li></ul><ul><li>Some sectors provide with ...
<ul><li>2. The general equilibrium economic model </li></ul>The  GEM-E3  Model: General Equilibrium Model for  Energy-Econ...
General equilibrium <ul><li>Neoclassical framework </li></ul><ul><li>Each agent pursues its own interest </li></ul><ul><li...
 
Advantages of CGE modelling <ul><li>Consistency </li></ul><ul><ul><li>Theory (microeconomics foundations, within a consist...
Criticisms / disadvantages of CGE modelling <ul><li>Weak empirical validation (calibration versus econometric estimation) ...
The GEM-E3 model:  European m odel version <ul><li>Computable General Equilibrium model </li></ul><ul><ul><li>Representing...
The  GEM-E3  model: Production Reserves <ul><li>Perfect competition </li></ul><ul><li>Nested CES production function  </li...
The  GEM-E3  model: Consumption <ul><li>Intertemporal maximization of consumer’s utility  </li></ul><ul><ul><li>involving ...
<ul><li>3. Sectoral results </li></ul>
<ul><li>Agriculture </li></ul>
Modelling of physical impacts and link to general equilibrium model <ul><li>Site-evidence on average yield change across E...
<ul><li>Agriculture </li></ul><ul><li>Crop yield changes (t/Ha), production losses and gains </li></ul>
<ul><li>Agriculture: crop yield changes (%) </li></ul><ul><li>compared to 1961-1990 </li></ul>
<ul><li>Coastal Systems </li></ul>
Coastal systems: the method <ul><li>DIVA model </li></ul><ul><li>Impact categories: sea floods, migration, other </li></ul...
<ul><li>Coastal systems </li></ul><ul><li>No adaptation  </li></ul><ul><li>With adaptation </li></ul>
<ul><li>Coastal Systems </li></ul><ul><li>people flooded (1000s/year) in main scenarios with high climate sensitivity, wit...
<ul><li>River Floods </li></ul>
River Floods: the methodology <ul><li>LISFLOOD model; integration of damages for various return periods (from several ‘rep...
<ul><li>River Floods </li></ul><ul><li>Change in Economic damage (note  red  means a decrease) </li></ul>
<ul><li>River floods </li></ul><ul><li>expected economic damage (million €/year) </li></ul>
<ul><li>Human health </li></ul>
Human Health average annual heat-related (left) and cold-related (right) death rates (per 100,000 population)  3.9°C scena...
<ul><li>Tourism </li></ul>
Tourism TCI scores in summer <ul><li>control </li></ul><ul><li>5.4 ° C </li></ul><ul><li>4.1 ° C </li></ul>
<ul><li>Tourism </li></ul><ul><li>Change in expenditure receipts (million €) </li></ul>
<ul><li>4. Overall economic impact </li></ul><ul><li>Effects of 2080s climate  </li></ul><ul><li>On European economy as of...
<ul><li>Annual damage  </li></ul><ul><li>in terms of GDP changes (million €) </li></ul>
<ul><li>Annual damage  </li></ul><ul><li>in terms of Welfare changes (%) </li></ul>
<ul><li>Sectoral decomposition  </li></ul><ul><li>of welfare changes (%) </li></ul>
<ul><li>5. Conclusions </li></ul><ul><li>Integration of various disciplines, consistency requirements </li></ul><ul><li>Fu...
http://peseta.jrc.ec.europa.eu/
http://www.pnas.org/content/early/2011/01/27/1011612108.abstract   <ul><li>Muchas gracias ! </li></ul>
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Climate change impacts economic analysis in Europe: a sectorial approach

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Intervención de Laszlo Szabo en el marco de las Jornadas de los Mercados de Carbono.
16_02_2011
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  • 02/03/11
  • 02/03/11
  • 02/03/11
  • Climate change impacts economic analysis in Europe: a sectorial approach

    1. 1. Economic Analysis of Climate Change Impacts in Europe: a Sectoral Approach Antonio Soria, Juan Carlos Ciscar, Laszlo Szabo (JRC, European Commission) jornadas eoi ‘carbon markets and emission reduction’ 17 February 2011, Madrid
    2. 2. The IPTS <ul><li>The Institute for Prospective Technological Studies ( IPTS), based in Sevilla, is one of the 7 scientific institutes of the European Commission's Joint Research Centre (JRC) </li></ul><ul><li>Mission </li></ul><ul><li>to provide customer-driven support to the EU policy-making process by researching science-based responses to policy challenges that have both a socio-economic and a scientific or technological dimension </li></ul>
    3. 3. <ul><li>Question of Interest: </li></ul><ul><li>What are the economic consequences of </li></ul><ul><ul><li>climate change in Europe? </li></ul></ul><ul><ul><li>- overall order of magnitude </li></ul></ul><ul><ul><li>- distribution (space, time, sector) </li></ul></ul><ul><li><Mitigation and Adaptation policies> </li></ul><ul><li>White Paper on Adaptation (April 2009) </li></ul><ul><li>Literature: few references, mainly based on expert judgement (G1) </li></ul>
    4. 4. TAR IPCC (2001) Stern report (2007) Source: IPCC 4AR (2007), vol. II, Ch. 20 What is known: aggregate impacts
    5. 5. What is known: social cost of carbon (marginal damage) <ul><li>Tol (2005) review of literature </li></ul><ul><ul><li>Mean $97/tC </li></ul></ul><ul><ul><li>Standard deviation $203/tC </li></ul></ul><ul><li>Key, and controversial, assumptions </li></ul><ul><ul><li>Discount rate </li></ul></ul><ul><ul><li>Equity weighting </li></ul></ul>
    6. 6. What is unknown <ul><li>Non-market effects (e.g. biodiversity, ecosystems) </li></ul><ul><li>Extreme weather risks </li></ul><ul><li>Socially contingent effects </li></ul><ul><li>Long-term catastrophic risks </li></ul>
    7. 7. Outline <ul><li>Overview of the PESETA project </li></ul><ul><li>Methodology: the economic CGE model </li></ul><ul><li>Sectoral results </li></ul><ul><li>Overall economic impacts </li></ul><ul><li>Conclusions </li></ul>
    8. 8. <ul><li>About PESETA </li></ul><ul><li>PESETA stands for : Projection of Economic impacts of climate change in Sectors of the European union based on boTtom-up Analyses </li></ul><ul><li>Main purpose: Quantitative, multi-sectoral assessment of the monetary estimates of impacts of climate change in Europe </li></ul><ul><li>JRC funded project </li></ul><ul><li>To support policymakers </li></ul><ul><li>Largely based on past DG Research-funded projects (PRUDENCE, DINAS-Coast, cCASHh, NewExt,…) </li></ul>
    9. 9. Project partners and scope <ul><li>Climate scenarios: DMI, CRU </li></ul><ul><li>Six sectoral assessments: </li></ul><ul><li>Agriculture: U. Politécnica de Madrid </li></ul><ul><li>Human health: AEA Technology </li></ul><ul><li>River basin flooding: JRC/IES </li></ul><ul><li>Coastal systems: FEEM/Southampton U. </li></ul><ul><li>Tourism: U. Maastricht-ICIS </li></ul><ul><li>Coordination and integration into CGE model: JRC/IPTS </li></ul>
    10. 10. Integrated economic impact assessment <ul><li>Starting point : physical impact estimates </li></ul><ul><li>Some sectors provide with direct effects estimates (e.g. river floods) </li></ul><ul><li>Overall effects (direct + indirect) assessed with a computable general equilibrium model of Europe </li></ul>
    11. 13. Grouping of countries
    12. 14. Climate Scenarios <ul><li>Data needs: 50 km resolution; daily and monthly </li></ul><ul><li>Selection of scenarios </li></ul><ul><li>2011-2040 period: A2 IPCC SRES scenario </li></ul><ul><ul><li>data from the Rossby Center </li></ul></ul><ul><li>2071-2100 period: data from PRUDENCE </li></ul><ul><ul><li>A2, B2 IPCC SRES scenarios </li></ul></ul><ul><ul><li>2 regional climate models, RCMs (HIRHAM, RCA) </li></ul></ul><ul><ul><li>2 global circulation models, GCMs (HadCM3, ECHAM4) </li></ul></ul>
    13. 15. Four 2080s Scenarios
    14. 16. Temperature 3.9°C (A2 Hadley) 5.4°C (A2 Echam)
    15. 17. Precipitation 3.9°C (A2 Hadley) 5.4°C (A2 Echam)
    16. 18. Methodologies for Physical Impacts Assessment <ul><li>Detailed process modelling </li></ul><ul><li>Agriculture, DSSAT crop model </li></ul><ul><li>River basin flooding, LISFLOOD hydrological model </li></ul><ul><li>Coastal systems, DIVA model </li></ul><ul><li>Reduced-form exposure-response functions </li></ul><ul><li>Tourism </li></ul><ul><li>Human Health </li></ul>
    17. 19. Economic impact assessment <ul><li>Starting point : physical impact estimates </li></ul><ul><li>Some sectors provide with economic direct effects estimates (e.g. river floods) </li></ul><ul><li>Overall effects (direct + indirect) assessed with a computable general equilibrium model of Europe: GEM-E3 model </li></ul>
    18. 20. <ul><li>2. The general equilibrium economic model </li></ul>The GEM-E3 Model: General Equilibrium Model for Energy-Economics-Environment interactions
    19. 21. General equilibrium <ul><li>Neoclassical framework </li></ul><ul><li>Each agent pursues its own interest </li></ul><ul><li>Decentralised information (preferences of consumers and technology of firms) </li></ul><ul><li>Simultaneous optimal behaviour </li></ul><ul><li>Interaction of all markets </li></ul><ul><li>Interaction of all agents (consumers, firms, government, rest of the world) </li></ul>
    20. 23. Advantages of CGE modelling <ul><li>Consistency </li></ul><ul><ul><li>Theory (microeconomics foundations, within a consistent macroeconomic framework) </li></ul></ul><ul><ul><li>Data (Input-output, National Accounts, SAM) </li></ul></ul><ul><li>Structural model (versus reduced-form models): explain behaviour of agents in markets , taking into account institutions </li></ul><ul><li>Transparency </li></ul><ul><li>Systematic analysis; not mechanical </li></ul><ul><li>Flexibility </li></ul><ul><li>Can address a broad range of policy issues </li></ul>
    21. 24. Criticisms / disadvantages of CGE modelling <ul><li>Weak empirical validation (calibration versus econometric estimation) </li></ul><ul><li>The critical role of functional forms </li></ul><ul><li>Simplification of exogenous elements of the model </li></ul><ul><li>Data requirements </li></ul><ul><li>Heavy computational load </li></ul>
    22. 25. The GEM-E3 model: European m odel version <ul><li>Computable General Equilibrium model </li></ul><ul><ul><li>Representing multiple production sectors and countries </li></ul></ul><ul><ul><li>Integrating energy and environment in the economy </li></ul></ul><ul><li>GEM-E3: Standard Version </li></ul><ul><ul><li>24 countries , 18 sectors ( Eurostat) </li></ul></ul><ul><ul><li>Perfect competition for all commodity markets </li></ul></ul><ul><ul><li>Environmental module fully incorporated (All GHGs included) </li></ul></ul>
    23. 26. The GEM-E3 model: Production Reserves <ul><li>Perfect competition </li></ul><ul><li>Nested CES production function </li></ul><ul><li>Fully flexible coefficients </li></ul><ul><li>EU econometric evidence on elasticities </li></ul>
    24. 27. The GEM-E3 model: Consumption <ul><li>Intertemporal maximization of consumer’s utility </li></ul><ul><ul><li>involving consumption, savings, leisure </li></ul></ul><ul><ul><li>labour supply also derived from utility maximization </li></ul></ul><ul><ul><li>steady state solution used </li></ul></ul><ul><li>LES with durable and non-durable goods </li></ul>
    25. 28. <ul><li>3. Sectoral results </li></ul>
    26. 29. <ul><li>Agriculture </li></ul>
    27. 30. Modelling of physical impacts and link to general equilibrium model <ul><li>Site-evidence on average yield change across Europe, DSSAT model </li></ul><ul><li>Yield changes (t/Ha) </li></ul><ul><li>Interpreted as TFP change </li></ul><ul><li>Y = TFP CES(K, LEM) </li></ul>
    28. 31. <ul><li>Agriculture </li></ul><ul><li>Crop yield changes (t/Ha), production losses and gains </li></ul>
    29. 32. <ul><li>Agriculture: crop yield changes (%) </li></ul><ul><li>compared to 1961-1990 </li></ul>
    30. 33. <ul><li>Coastal Systems </li></ul>
    31. 34. Coastal systems: the method <ul><li>DIVA model </li></ul><ul><li>Impact categories: sea floods, migration, other </li></ul><ul><li>Integration into the CGE model: </li></ul><ul><ul><li>Interpretation of sea flood cost as capital loss </li></ul></ul><ul><ul><li>Interpretation of migration cost as additional obliged consumption (welfare loss) </li></ul></ul>
    32. 35. <ul><li>Coastal systems </li></ul><ul><li>No adaptation </li></ul><ul><li>With adaptation </li></ul>
    33. 36. <ul><li>Coastal Systems </li></ul><ul><li>people flooded (1000s/year) in main scenarios with high climate sensitivity, without adaptation </li></ul>
    34. 37. <ul><li>River Floods </li></ul>
    35. 38. River Floods: the methodology <ul><li>LISFLOOD model; integration of damages for various return periods (from several ‘representative basins’) </li></ul><ul><li>Economic valuation: projection of change in 100-year flood damage for the scenario (relative to control) </li></ul><ul><li>Integration into the GEM-E3 model: </li></ul><ul><ul><li>Damage to residential buildings (additional obliged consumption) </li></ul></ul><ul><ul><li>Damage to productive sectors (industry, services,…): </li></ul></ul><ul><ul><ul><li>Capital loss </li></ul></ul></ul><ul><ul><ul><li>Production loss </li></ul></ul></ul>
    36. 39. <ul><li>River Floods </li></ul><ul><li>Change in Economic damage (note red means a decrease) </li></ul>
    37. 40. <ul><li>River floods </li></ul><ul><li>expected economic damage (million €/year) </li></ul>
    38. 41. <ul><li>Human health </li></ul>
    39. 42. Human Health average annual heat-related (left) and cold-related (right) death rates (per 100,000 population) 3.9°C scenario Note: using climate-dependent health functions (no acclimatisation)
    40. 43. <ul><li>Tourism </li></ul>
    41. 44. Tourism TCI scores in summer <ul><li>control </li></ul><ul><li>5.4 ° C </li></ul><ul><li>4.1 ° C </li></ul>
    42. 45. <ul><li>Tourism </li></ul><ul><li>Change in expenditure receipts (million €) </li></ul>
    43. 46. <ul><li>4. Overall economic impact </li></ul><ul><li>Effects of 2080s climate </li></ul><ul><li>On European economy as of today </li></ul><ul><li>Assuming there is no public adaptation, so that priorities for adaptation within the EU can be explored </li></ul>
    44. 47. <ul><li>Annual damage </li></ul><ul><li>in terms of GDP changes (million €) </li></ul>
    45. 48. <ul><li>Annual damage </li></ul><ul><li>in terms of Welfare changes (%) </li></ul>
    46. 49. <ul><li>Sectoral decomposition </li></ul><ul><li>of welfare changes (%) </li></ul>
    47. 50. <ul><li>5. Conclusions </li></ul><ul><li>Integration of various disciplines, consistency requirements </li></ul><ul><li>Further research is needed, concerning: </li></ul><ul><ul><li>Costs and benefits of adaptation </li></ul></ul><ul><ul><li>Cross-sectoral consistency </li></ul></ul><ul><ul><li>Land use modelling </li></ul></ul><ul><ul><li>Monte Carlo analysis </li></ul></ul>
    48. 51. http://peseta.jrc.ec.europa.eu/
    49. 52. http://www.pnas.org/content/early/2011/01/27/1011612108.abstract <ul><li>Muchas gracias ! </li></ul>

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