Christian Azar

Discounting and distributional considerations in the context of global warming

The economics of global warming is reviewed with special emphasis on how the cost depends on the discount rate and on how costs in poor and rich regions are aggregated into a global cost estimate. Both of these factors depend on the assumptions made concerning the underlying utility and welfare functions. It is common to aggregate welfare gains and losses across generations and countries as if the utility of money were constant, but it is not. If we assume that a e CO2-equivalent dlubling implies costs equal to 1.5% of the income in both high and low income countries, a pure rate of time preference equal to zero, and a utility function which is logarithmic in income, then the marginal cost of CO2 emissions is estimated at 260–590 USD/ton C for a time horizon in the range 300–1000 years, an estimate which is large enough to justify significant reductions of CO2 emissions on purely economic grounds. The estimate is approximately 50–100-times larger than the estimate made by Nordhaus in his DICE model and the difference is almost completely due to the choice of discount rate and the weight given to the costs in the developing world as well as a more accurate model of the carbon cycle. Finally, the sensitivity of the marginal cost estimate with respect to several parameters is analyzed.

Socio-ecological Indicators for Sustainability.

A systematic framework of indicators for sustainability is presented. In our approach there is an emphasis on societal activities that affect nature and on the internal societal resource use, as opposed to environmental quality indicators. In this way the indicators may give a warning signal to an unsustainable use of resources early in the chain from causes in societal activities to environmental effects. The aim is that these socio-ecological indicators shall serve as a tool in planning and decision-making processes at various administrative levels in society. The formulation of the indicators is made with respect to four principles of sustainability, which lead to four complementary sets of indicators. The first deals with the societal use of lithospheric material. The second deals with emissions of compounds produced in society. The third set of indicators concerns societal manipulation of nature and the long-term productivity of ecosystems. Finally, the fourth set deals with the efficiency of the internal societal resource use, which includes indicators for a just distribution of resources.

Are the economic costs of stabilising the atmosphere prohibitive

Abstract Macro economic studies of the costs of reducing CO2 emissions generally estimate the global cost of stabilising the atmospheric concentrations of CO2 in the range 350–550 ppm in trillions of USD. This creates the impression that the cost of CO2 reductions is so large that it threatens economic development. But, presented in another way, a completely different picture emerges. There is widespread agreement amongst the more pessimistic macro economic studies that stringent carbon controls are compatible with a significant increase in global and regional economic welfare. Even if the cost of CO2 abatement rises to 5% of global income per year by the end of this century, this reduction is minor compared with the tenfold increase in global income that is expected. Since income is assumed to grow by a couple of percent per year, the trillion USD cost could also be expressed as a few years delay in achieving an order of magnitude higher income levels. Similar observations can also be made as regards near-term abatement targets such as the Kyoto protocol. A more widespread recognition of the fact that carbon abatement policies will only marginally affect economic growth is likely to increase the willingness to introduce carbon abatement policies.

Material constraints for thin-film solar cells

Harnessing solar energy by using photovoltaic cells has the potential to become a major CO2-free energy source. Materials requirements for the solar cells based on four types of thin-film photovoltaics have been estimated and compared with global reserves, resources and annual refining. The use of solar cells based on Cd, Ga, Ge, In, Ru, Se and Te as a major energy-supply technology has severe resource constraints. Other systems such as a-Si without Ge and crystalline silicon do not involve such constraints. For some of these metals, there is the risk of enhanced, environmentally deleterious concentrations in the ecosphere due to leakage from manufacturing, use or waste handling.

Weight Factors in Cost-Benefit Analysis of Climate Change

Equity considerations may justify the use of weight factors when estimating the costs of climate change. This paper reviews different weight factors that have been used in the climate economics literature. Based on a simple model, it is shown that although the different weight factors imply substantially different cost-damage estimates, they actually yield the same optimal emission reductions. This paradox is explained by the fact that some of the approaches require that also the abatement costs are weighted – and this offsets the effect of the diverging cost-damage estimates. The model is then used to analyse the importance weighting may have on the overall cost-benefit analysis. At present, when most of the global emissions of (fossil) CO2 originate from the industrialised countries, the global optimal emissions are considerably lower if costs are weighted. However, the more the emissions in developing countries grow, the less important becomes the introduction of weight factors in cost-benefit analysis of climate change for the global emission reductions, in the model developed here. On a regional level, the introduction of weight factors continues to play an important role, implying substantially lower emissions in the rich region and slightly higher (!) in the poor.

Allowance allocation in the European emissions trading system: a commentary

Abstract We review the total allocations under the EU ETS first phase and compare these against historical emissions, projections, and national Kyoto targets. We conclude that most Phase 1 allocations are excessive on all these measures, particularly the last, and argue that this is potentially damaging in several respects. We argue that: fundamentally different allocation methodologies (that avoid updating and referencing against projected emissions) must be considered for Phase 2; that industrial concerns about competitiveness should be carefully scrutinized on a specific sub-sector basis rather than taken as a generic reason for generous allocations; and that EU-level institutions should agree stronger guidelines to ensure a greater degree of coordination, comparability and transparency in Phase 2 national allocation plans.

Are Optimal CO 2 Emissions Really Optimal

Although the greenhouse effect is by many considered as one of the most serious environmental problems, several economic studies of the greenhouse effect, most notably Nordhauss DICE model, suggest that it is optimal to allow the emissions of greenhouse gases (GHG) to increase by a factor of three over the next century. Other studies have found that substantial reductions can be justified on economic grounds. This paper explores into the reasons for these differences and identifies four (partly overlapping) crucial issues that have to be dealt with when analysing the economics of the greenhouse effect: low-probability but catastrophic events; cost evaluation methods; the choice of discount rate; the choice of decision criterion. The paper shows that (i) these aspects are crucial for the policy conclusions drawn from models of the economics of climate change, and that (ii) ethical choices have to be made for each of these issues. This fact needs wider recognition since economics is very often perceived as a value neutral tool that can be used to provide policy makers with “optimal” policies.

Meeting global temperature targets?the role of bioenergy with carbon capture and storage

In order to meet stringent temperature targets, active removal of CO2 from the atmosphere may be required in the long run. Such negative emissions can be materialized when well-performing bioenergy systems are combined with carbon capture and storage (BECCS). Here, we develop an integrated global energy system and climate model to evaluate the role of BECCS in reaching ambitious temperature targets. We present emission, concentration and temperature pathways towards 1.5 and 2 C targets. Our model results demonstrate that BECCS makes it feasible to reach temperature targets that are otherwise out of reach, provided that a temporary overshoot of the target is accepted. Additionally, stringent temperature targets can be met at considerably lower cost if BECCS is available. However, the economic benefit of BECCS nearly vanishes if an overshoot of the temperature target is not allowed. Finally, the least-cost emission pathway over the next 50 years towards a 1.5 C overshoot target with BECCS is almost identical to a pathway leading to a 2 C ceiling target.

Induced technological change in a limited foresight optimization model

The threat of global warming calls for a major transformation of the energy system the coming century. Modeling technological change is an important factor in energy systems modeling. Technological change may be treated as induced by climate policy or as exogenous. We investigate the importance of induced technological change (ITC) in GET-LFL, an iterative optimization model with limited foresight that includes learning-by-doing. Scenarios for stabilization of atmospheric CO2 concentrations at 400, 450, 500 and 550 ppm are studied. We find that the introduction of ITC reduces the total net present value of the abatement cost over this century by 3-9% compared to a case where technological learning is exogenous. Technology specific polices which force the introduction of fuel cell cars and solar PV in combination with ITC reduce the costs further by 4-7% and lead to significantly different technological solutions in different sectors, primarily in the transport sector.

The feasibility of large-scale lignocellulose-based bioenergy production

Global, large-scale use of bioenergy may replace a significant part of present fossil fuel use. We show that labor availability and water resources are large compared to those required to operate a bioenergy system of such size. The present study contradicts the assertion by Giampietro et al. [Bioscience 47(9) (1997) 587], that labor and water availability provide invincible barriers to a large-scale use of biofuels. We examine water and labor requirements under more reasonable assumptions about bioenergy supply options and demand levels. Bioenergy supplies are based on dedicated plantations of lignocellulosic crops and bioenergy demand is based on the renewable intensive global energy scenarios (RIGES). We find that labor and water requirements are an order of magnitude lower than the estimates by Giampietro et al. For instance, labor requirements do not exceed 1 percent of the estimated total work force in any country.