Soheil Shayegh

Adaptive stochastic integrated assessment modeling of optimal greenhouse gas emission reductions

We develop a method for finding optimal greenhouse gas reduction rates under ongoing uncertainty and re-evaluation of climate parameters over future decades. Uncertainty about climate change includes both overall climate sensitivity and the risk of extreme tipping point events. We incorporate both types of uncertainty into a stochastic model of climate and the economy that has the objective of reducing global greenhouse gas emissions at lowest overall cost over time. Solving this problem is computationally challenging; we introduce a two-step-ahead approximate dynamic programming algorithm to solve the finite time horizon stochastic problem. The uncertainty in climate sensitivity may narrow in the future as the behavior of the climate continues to be observed and as climate science progresses. To incorporate this future knowledge, we use a Bayesian framework to update the two correlated uncertainties over time. The method is illustrated with the DICE integrated assessment model, adding in current estimates of climate sensitivity uncertainty and tipping point risk with an endogenous updating of climate sensitivity based on the occurrence of tipping point events; the method could also be applied to other integrated assessment models with different characterizations of uncertainties and risks.

Price Adjustment Clauses and Submitted Bid Prices for Major Asphalt Line Items in Highway Projects

AbstractUnprecedented uncertainty in the price of asphalt cement over the last decade has been a source of major concern for state departments of transportation (state DOTs) and highway contractors. This uncertainty may lead to price speculation and inflated bid prices by highway contractors, in order to secure their financial positions against possible rising prices. One of the most common risk-sharing strategies widely used by transportation agencies is price adjustment clauses (PACs) that shift potential upside and downside risk of material prices from contractors to owners. PACs are aimed at eliminating extra risk premiums and therefore reducing contractors’ submitted bid prices. However, the actual effect of offering PACs on submitted bid prices for major asphalt line items has not been empirically studied. The research objective of this paper is to examine the effect of PACs offered by state DOTs on the variations of contractors’ submitted bid prices for major asphalt line items. Data on 841 transpo...

Adapting to rates versus amounts of climate change: a case of adaptation to sea-level rise

Adaptation is the process of adjusting to climate change in order to moderate harm or exploit beneficial opportunities associated with it. Most adaptation strategies are designed to adjust to a new climate state. However, despite our best efforts to curtail greenhouse gas emissions, climate is likely to continue changing far into the future. Here, we show how considering rates of change affects the projected optimal adaptation strategy. We ground our discussion with an example of optimal investment in the face of continued sea-level rise, presenting a quantitative model that illustrates the interplay among physical and economic factors governing coastal development decisions such as rate of sea-level rise, land slope, discount rate, and depreciation rate. This model shows that the determination of optimal investment strategies depends on taking into account future rates of sea-level rise, as well as social and political constraints. This general approach also applies to the development of improved strategies to adapt to ongoing trends in temperature, precipitation, and other climate variables. Adaptation to some amount of change instead of adaptation to ongoing rates of change may produce inaccurate estimates of damages to the social systems and their ability to respond to external pressures.

Empirical Study of Effects of Price Adjustment Clauses (PACs) on Highway Construction Bid

Volatility in price of critical materials used in transportation projects, such as asphalt cement, leads to considerable uncertainty about project cost. This uncertainty can lead to price speculation and inflated bid prices submitted by highway contractors to protect against possible price increases. One of the most common risk sharing strategies widely used by transportation agencies is price adjustment clauses (PAC) that divide potential upside and downside risk of material prices between contractors and owners. However, it is not clear whether offering PAC reduces risk premium of bids submitted by highway contractors. The research objective of this paper is to assess the impact of offering PAC for asphalt cement on submitted bids of one of the most common asphalt mixture line items. Data on 1520 highway projects consisting of the asphalt line item bided out in the state of Georgia from 1998 to 2013 were collected to analyze the impacts of PAC on bid prices. Multivariate regression analysis was conducted to evaluate the effect of several factors, such as project size, number of bidders, asphalt cement price, and availability of PAC on unit price bids material prices submitted by highway contractors. It is found that eligibility for PAC is not a statistically significant explanatory variable to explain the variation of submitted bid prices for the asphalt mixture items.

To Go or not to Go: Migration Alleviates Climate Damages even for Those Who Stay Behind

We examine the effect of climate change on fertility rates and human capital accumulation in developing countries, focusing on the instrumental role of migration. In particular, we investigate how climate-induced migration in developing countries will affect those who do not migrate. Holding all else constant, climate shocks raise the return to acquiring skills, because skilled individuals compared to unskilled ones have greater opportunity to migrate after the shock. In response to this change in incentives, parents choose to invest more in education and have less children, a process known as the ‘quantity-quality’ trade-off. These effects partially offset the damages of climate change, even for those who do not migrate.

Optimal Carbon Dioxide Removal in Face of Ocean Carbon Sink Feedback

Carbon dioxide removal (CDR) is a potentially important climate strategy for attaining low climate stabilization objectives. However, climate analysis has indicated a possible weakening of the ocean carbon sinks -the largest in the world- in relation to CDR deployment. Here, we provide an economic appraisal to assess the sensitivity of CDR and conventional abatement to CO2 outgassing from the oceans. We develop a theoretical framework to study the impact of the ocean-to-atmosphere transfer on the optimal mitigation strategies under different regimes that control the relationship between CO2 outgassing and the amount of CDR. We show that the optimal levels of emissions and CDR are correlated to the effectiveness of CDR expressed as a linear function of atmospheric concentrations. We incorporate this effect into an integrated assessment model of climate and economy (DICE model) and confirm the theoretical findings with numerical simulations. Further, we perform a sensitivity analysis to find the range of optimal abatement and CDR actions under different values of the CDR effectiveness coefficient.

The Role of Biofuels in Achieving a National Energy Independence Plan

Biofuel can play a crucial role in achieving energy independence goals. The success story of the Brazil’s ethanol program started in 1976 and during the past four decades it has gained remarkable achievements in terms of economic development and energy independence. The aim of this study is to show how Brazil has achieved its goal of energy independence by implementing and updating its renewable fuel policies over the past 40 years. We adopt an evolutionary policy framework to study the emergence of ethanol as an alternative fuel in Brazil. We propose a dynamic framework for technology diffusion policies that can explain why Brazil chose ethanol as an alternative fuel and how this policy affected the country’s energy market. We argue that the success of the Brazilian ethanol program is due to its flexibility and adaptability over the past four decades. In addition to this, we note that other domestic and international forces such as oil price and domestic politics have been largely responsible for the success or failure of these policies. Lastly, we discuss the key lessons from Brazil which can help the policy makers in other countries in devising a sustainable energy policy in the future.