PowerPointPrsentation

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Climate Change Forum
Are we ready for COP9? The Role of Economic
Analysis
Are we ready for COP9? The Role of Economic
Analysis
We are positive about this process and the aims
of the Kyoto Protocol. Russlands Präsident
Putin (AFP, 4. September 2002)
European Parliament, 26 November 2003Christoph
Böhringer, ZEW Mannheim
Heidelberg, den 22. Januar 2003PD Dr. Christoph
Böhringer
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Background
Climate Policy Consensus

• Need for global efforts to limit GHG emissions to
  prevent dangerous anthropogenic interference
  with the climate system (UNFCCC 1992)

Role of Economic Analysis

• Cost-benefit analysis to support rational
  decision making (choice of optimal response
  strategy) What, How, Where, When

• Immense uncertainties regarding cost and benefits

Risk aversion justifies Precautionary Principle!
Numerical model-based analysis

• Systematic consistent analysis of complex
  relationships between
• assumptions (inputs) and results (outputs)

• Relative importance of uncertainties

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(Incomplete) List of Cost Determinants
Cost range

• Baseline projections

• GDP growth, energy prices, emissions

• Market imperfections

• Initial taxes, Institutional constraints (e.g.
  involuntary unemployment) and market power

• Technologies (malleability) and preferences

• Value of substitution and demand elasticities

• Induced technological change

• Learning-by-doing, experience curves, Knowledge
  spillovers

• Expectations

• Myopic versus rational expectations

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The (Non-)Modelers Dilemma

• Wide-range of model results

• Data
• Assumptions

• Complexity of applied models

• No analytical solution
• Arbitrariness of results

• Results come as a black-box to non-expert modelers

• Fate of non-technical policy analysts

...deliver summary grunts of belief or
disbelief but find it difficult to articulate
reasons in a disciplined way.
(McCloskey, 1983, p. 502)
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Escapes to the Dilemma

• Systematic model comparison

• Providing explanations for cross-model
  differences
• Identifying policy-relevant robust insights
• Identifying high priority areas for future
  research (missing gaps)

• Examples

• Energy Modeling Forum (http//www.stanford.edu/gr
  oup/EMF/)
• EU-TranSust (http//www.transust.org)
• EU- Acropolis (http//www.ier.uni-stuttgart.de/pu
  blic/de/organisation/abt/esa/projekte/acropolis/)

• Caveats

• Harmonization efforts
• Cross-model expertise

Comparing the comparable
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Costs of Kyoto

• Before Marrakech/Bonn (Weyant et al.1999)

• U.S. compliance, no sinks
• CO2 only mitigation

Table Range of GDP losses for EU in 2010 in of
GDP (9 models)

• After Marrakech/Bonn (Böhringer et al. 2002,
  2003)

• U.S. non-compliance
• sinks
• CO2 only mitigation
• Annex 1 trading (Russian monopoly power)

Table Range of results (sensitivity analysis wrt
elasticities)
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Policy Appraisal

• Kyoto

• Market-based framework with unprecedented
  flexibility
• What, How, Where, When

• Iterative (sequential) commitment periods
• Adjustments for better information

• Weak short-term obligations (1st commitment
  period)
• Established global negotiation framework

• Post-Kyoto

• U.S. integration
• gradual commitments by developing countries
• design of effective sanctions