The Economics of Mitigating Climate Change: What Can We Know?

Abstract

The long-term economics of mitigating climate change over the long run has played a high profile role in the most important analyses of climate change in the last decade, namely the Stern Report and the IPCC’s Fourth Assessment. However, the various kinds of uncertainties that affect these economic results raise serious questions about whether or not the net costs and benefits of mitigating climate change over periods as long as 50 to 100 years can be known to such a level of accuracy that they should be reported to policymakers and the public. This paper provides a detailed analysis of the derivation of these estimates of the long-term economic costs and benefits of mitigation. It particularly focuses on the role of technological change, especially for energy efficiency technologies, in making the net economic results of mitigating climate change unknowable over the long run. Because of these serious technical problems, policymakers should not base climate change mitigation policy on the estimated net economic impacts computed by integrated assessment models. Rather, mitigation policies must be forcefully implemented anyway given the actual physical climate change crisis, in spite of the many uncertainties involved in trying to predict the net economics of doing so.

Diversely moving towards a green economy: Techno-organisational decarbonisation trajectories and environmental policy in EU sectors

“…Based on interviews with sector experts (Borghesi et al, 2015a;Carrillo-Hermosilla et al, 2010;Baker et al, 2014), we adopt a qualitative ex-ante approach to the issue at hand that complements (i) the quantitatively oriented literature that assesses the drivers of innovation ex-post (Horbach et al, 2012;Borghesi et al, 2015b, among others) and (ii) work on macro modelling, such as integrated assessment models (McGlade and Ekins, 2015), GTAP-energy models (Antimiani et al, 2013), and agent-based models (Monasterolo et al, 2014). These studies, which are based on plausible assumptions about the endogenisation of technological change and innovation Durance and Godet, 2010;Rosen and Guenther, 2015), are aimed at generating medium/ long-term scenarios for GDP, CO 2 and other variables of interest. Conversely, as Carrillo-Hermosilla et al (2010) note, "case studies are able to capture the details of eco-innovations, which are unnoticed in top-down aggregate quantitative analysis" (p.1078).…”

The scope for better industry representation in long-term energy models: Modeling the cement industry

“…[50]. 6 In 2017, the median IEA price of industrial natural gas was $6.3/GJ [23]. 7 These substitutes can either be used to replace clinker in the cement or the concrete mix (product change) or can be introduced in the kiln feed (feedstock change) to replace limestone.…”

“…Major international assessments such as the Intergovernmental Panel of Climate Change (IPCC) special reports [3], and the Global Energy Assessment (GEA) [4], for instance, rely heavily on the scenarios produced by IAMs. Due to their global and economy-wide scope, the level of detail in the industry modules of many IAMs is often not detailed enough to allow for sector specific technology representation [5,6], with many of the IAMs assessing the industry in an aggregated manner without sub-sector division [7]. Still, making good estimates of the short and long-term energy and GHG reduction potentials and associated costs, and understanding the material demand and resource availability and their impact on energy use is very important when evaluating mitigation strategies and developing industry specific policies.…”

Constant elasticity of substitution functions for energy modeling in general equilibrium integrated assessment models: a critical review and recommendations

“…Yet, (Rosen and Guenther 2015) found "no literature comparing investment decisions for energy-consuming 21 equipment implicit in IAMs with real-world trends in the past", a test the CES approach fails in Section 2.1. A recent 22…”