Baptiste Perrissin Fabert

Financing transition in an adverse context: climate finance beyond carbon finance

The Cancun conference decided to establish a Climate Green Fund (CGF) to help developing countries align their development policies with the long-term UNFCCC objectives. This paper clarifies the links between the two underlying motives: the first, technical in nature, is the necessity to redirect the infrastructure instruments in these countries (energy, transportation, building, material transformation industry) to avoid lock-in in carbon-intensive pathways in the likely absence of a significant world carbon price in the coming decade; the second, political in nature, is the interpretation of the CGF as a practical translation of the notion of the common but differentiated responsibility principle, since the funds are expected to come from Annex 1 countries. This paper shows why this latter perspective might generate some distrust given the orders of magnitude of funds to be levied in Annex 1 countries especially in the context of the financial crisis and major constraints on public budgets. It then explores the basic principles around which it is possible to minimize these risks by upgrading climate finance in the broader context of the evolution of the financial and monetary systems. After exploring how such links could help make climate policies that contribute to reducing some of the imbalances caused by economic globalization by reorienting world savings and reducing investment uncertainty, it sketches how this perspective might be palatable for the OECD, the major emerging economies and fossil fuel exporters.

Why are climate policies of the present decade so crucial for keeping the 2 °C target credible?

Decision-makers have confirmed the long term objective of preventing a temperature increase greater than 2 °C. This paper aims at appraising by means of a cost-benefit analysis whether decision makers’ commitment to meet the 2 °C objective is credible or not. Within the framework of a cost-benefit type integrated assessment model, we consider that the economy faces climate damages with a threshold at 2 °C. We run the model for a broad set of scenarios accounting for the diversity of “worldviews” in the climate debate. For a significant share of scenarios we observe that it is considered optimal to exceed the threshold. Among those “non-compliers” we discriminate ”involuntary non-compliers” who cannot avoid the exceedance due to physical constraint from ”deliberate compliers” for whom the exceedance results from a deliberate costs-benefit analysis. A second result is that the later mitigation efforts begin, the more difficult it becomes to prevent the exceedance. In particular, the number of ”deliberate non-compliers” dramatically increases if mitigation efforts do not start by 2020, and the influx of involuntary non-compliers become overwhelming f efforts are delayed to 2040. In light of these results we argue that the window of opportunity for reaching the 2 °C objective with a credible chance of success is rapidly closing during the present decade. Further delay in finding a climate agreement critically undermines the credibility of the objective.

Disentangling the Stern/Nordhaus Controversy: Beyond the Discounting Clash

The Stern/Nordhaus controversy has polarized the widely disparate beliefs about what to do in order to tackle the climate challenge. To explain differences in results and policy recommendations, comments following the publication of the Stern Review have mainly focused on the role played by the discount rate. A closer look at the actual drivers of the controversy reveals however that Stern and Nordhaus also disagree on two other parameters: technical progress on abatement costs and the climate sensitivity. This paper aims at appraising the relative impacts of such key drivers of the controversy on the social cost of carbon and climate policy recommendations. To this end, we use the flexible integrated assessment model RESPONSE which allows us to compare very diverse worldviews, including Stern and Nordhaus’ ones within the same modelling framework and map the relative impacts of beliefs on the three key drivers of the controversy. Furthermore we appraise quantitatively, by means of a linear statistical model, the impacts on results of an extended set of core parameters of RESPONSE. We show that beliefs on long term economic growth, technical progress, the form of the climate damage function and the climate sensitivity have an impact as important as beliefs on pure time preference. Hence, we can qualify the role played by the discount rate in the Stern/Nordhaus controversy and more broadly in the definition of climate policies.

The Comparative Impact of Integrated Assessment Models’ Structures on Optimal Mitigation Policies

This paper aims at providing a consistent framework to appraise alternative modeling choices that have driven the so-called “when flexibility” controversy since the early 1990s, dealing with the optimal timing of mitigation efforts and the social cost of carbon (SCC). The literature has emphasized the critical impact of modeling structures on the optimal climate policy. We estimate within a unified framework the comparative impact of modeling structures and investigate the structural modeling drivers of differences in climate policy recommendations. We use the integrated assessment model (IAM) RESPONSE to capture a wide array of modeling choices. Specifically, we analyse four emblematic modeling choices, namely the forms of the damage function (quadratic vs. sigmoid) and the abatement cost (with or without inertia), the treatment of uncertainty, and the decision framework, deterministic or sequential, with different dates of information arrival. We define an original methodology based on an equivalence criterion to compare modeling structures, and we estimate their comparative impact on two outputs: the optimal SCC and abatement trajectories. We exhibit three key findings: (1) IAMs with a quadratic damage function are insensitive to changes of other features of the modeling structure, (2) IAMs involving a non-convex damage function entail contrasting climate strategies, (3) Precautionary behaviors can only come up in IAMs with non-convexities in damage.

The 'Doomsday' Effect in Climate Policies: Why is the Present Decade so Crucial to Tackling the Climate Challenge?

Despite growing scientific evidence that passing a 2°C temperature increase may trigger tipping points in climate dynamics, most Integrated Assessment Models (IAM) based on Cost Benefit Analysis (CBA) with smooth quadratic damage functions are unable to account for the possibility of strong increase in climate damage. Our IAM RESPONSE makes it possible to bridge this gap by integrating a threshold effect damage function which sets a threshold of temperature increase from which climate damages increase significantly. To fit with on-going climate negotiations, this threshold is set at 2°C. Regardless of the bleak prospect of passing the threshold, it turns out that among a broad set of scenarios accounting for the diversity of worldviews in the climate debate, overshooting the 2°C target and then facing the resulting damage may become an optimal strategy for many economic agents who are struck by what we call a “doomsday effect”. We show that this effect happens for any level of jump in damage and dramatically increases if the beginning of mitigation efforts is postponed till the decade 2010-2020 on. In light of these results, we believe that any further delay in reaching a clear international agreement will close the window of opportunity for meeting the 2°C target with a reasonable chance of diplomatic success.