U. Martin Persson

An Even Sterner Review - Introducing Relative Prices into the Discounting Debate

By estimating that the cost of unmitigated climate damages is an order of magnitude higher than most earlier estimates, the Stern Review on the Economics of Climate Change has had a major influence on the policy discussion on climate change. Not surprisingly, severe criticism has been levied against the report, especially by those who claim that the Stern Reviews results hinge mainly on a discount rate that is too low. While we have no strong objections to the discounting assumptions adopted in the Stern Review, our main point in this article is that the conclusions reached in the Stern Review can be justified without using a low discount rate. We argue that nonmarket damages from climate change are probably underestimated and that future scarcities caused by the changing composition of the economy and climate change should lead to rising relative prices for certain goods and services. This will raise the estimated damage of climate change and modify as well as counteract the effect of discounting. We illustrate this effect using a slightly modified version of Nordhauss DICE model and show that taking relative prices into account can have as large an effect on economically warranted abatement levels as a low discount rate.

Including Carbon Emissions from Deforestation in the Carbon Footprint of Brazilian Beef

Effects of land use changes are starting to be included in estimates of life-cycle greenhouse gas (GHG) emissions, so-called carbon footprints (CFs), from food production. Their omission can lead to serious underestimates, particularly for meat. Here we estimate emissions from the conversion of forest to pasture in the Legal Amazon Region (LAR) of Brazil and present a model to distribute the emissions from deforestation over products and time subsequent to the land use change. Expansion of cattle ranching for beef production is a major cause of deforestation in the LAR. The carbon footprint of beef produced on newly deforested land is estimated at more than 700 kg CO(2)-equivalents per kg carcass weight if direct land use emissions are annualized over 20 years. This is orders of magnitude larger than the figure for beef production on established pasture on non-deforested land. While Brazilian beef exports have originated mainly from areas outside the LAR, i.e. from regions not subject to recent deforestation, we argue that increased production for export has been the key driver of the pasture expansion and deforestation in the LAR during the past decade and this should be reflected in the carbon footprint attributed to beef exports. We conclude that carbon footprint standards must include the more extended effects of land use changes to avoid giving misleading information to policy makers, retailers, and consumers.

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.

Trading forests: land-use change and carbon emissions embodied in production and exports of forest-risk commodities

Production of commercial agricultural commodities for domestic and foreign markets is increasingly driving land clearing in tropical regions, creating links and feedback effects between geographically separated consumption and production locations. Such teleconnections are commonly studied through calculating consumption footprints and quantifying environmental impacts embodied in trade flows, e.g., virtual water and land, biomass, or greenhouse gas emissions. The extent to which land-use change (LUC) and associated carbon emissions are embodied in the production and export of agricultural commodities has been less studied. Here we quantify tropical deforestation area and carbon emissions from LUC induced by the production and the export of four commodities (beef, soybeans, palm oil, and wood products) in seven countries with high deforestation rates (Argentina, Bolivia, Brazil, Paraguay, Indonesia, Malaysia, and Papua New Guinea). We show that in the period 2000–2011, the production of the four analyzed commodities in our seven case countries was responsible for 40% of total tropical deforestation and resulting carbon losses. Over a third of these impacts was embodied in exports in 2011, up from a fifth in 2000. This trend highlights the growing influence of global markets in deforestation dynamics. Main flows of embodied LUC are Latin American beef and soybean exports to markets in Europe, China, the former Soviet bloc, the Middle East and Northern Africa, whereas embodied emission flows are dominated by Southeast Asian exports of palm oil and wood products to consumers in China, India and the rest of Asia, as well as to the European Union. Our findings illustrate the growing role that global consumers play in tropical LUC trajectories and highlight the need for demand-side policies covering whole supply chains. We also discuss the limitations of such demand-side measures and call for a combination of supply- and demand-side policies to effectively limit tropical deforestation, along with research into the interactions of different types of policy interventions.

Preserving the world's tropical forests - a price on carbon may not do.

Climate policy will create both disincentives and incentives for tropical deforestation. Disincentives if the carbon emissions from forest clearing are priced, as is currently being discussed within the United Nations Framework Convention on Climate Change (UNFCCC); incentives as a price on carbon will increase the demand for carbon-neutral energy sources, including bioenergy, making deforestation for biomass cultivation increasingly profitable. The question is whether the increased cost for forest clearing, through the price on carbon emissions, will be enough to counter-balance the increased profitability of deforestation through the escalating value of agricultural land. In an attempt to answer this question we analyze the profitability of tropical deforestation and subsequent bioenergy production, taking oil palm plantations as an illustrative example. We estimate that deforesting for palm oil bioenergy production is likely to remain highly profitable, even in the face of a price on the carbon emissions from forest clearing. Current efforts to include carbon emissions from tropical deforestation in a future international climate regime, while a step in the right direction, may therefore not suffice as protection for the worlds tropical forests. Additional, and stronger, protection measures for the worlds tropical forests will still be needed.

REDD+ readiness implications for Sri Lanka in terms of reducing deforestation

Any system to compensate countries for reduced emissions from deforestation and forest degradation (REDD+) requires a historical reference level against which future performance can be measured. Here we examine the possibilities Sri Lanka, a small forest country with limited data on forest carbon stocks, has to get ready for REDD+. We construct a historical reference level using available forest inventory data combined with updated 2008 and 2009 in situ carbon density data for Sri Lankan forests. Furthermore, we use a combination of qualitative and quantitative data to attribute the clearing of Sri Lankan forests in the latest years for which national forest inventory data are available, 1992-1996, to various proximate drivers and to estimate the opportunity cost of forest conservation. We estimate that baseline deforestation emissions in Sri Lanka amounted to 17MtCO(2)yr(-1) in the 1992-1996 period, but conclude that it is challenging for Sri Lanka to produce a robust and accurate reference level due to the lack of nationally based inventories. We find that the majority of forest clearing (87%) is due to small-scale, rainfed farming, with the two other major drivers being rice and tea cultivation. Further, Sri Lankan revenues from REDD+ participation could be substantial, but they are sensitive to REDD+ policy transaction cost, highly uncertain timber revenues, and particularly the carbon price paid for emission reductions. The latter needs to be higher than

Emerging Evidence on the Effectiveness of Tropical Forest Conservation

5-10/tCO(2) if there are to be substantial incentives for Sri Lanka to participate in REDD+. There is, however, a large gap in the knowledge of deforestation drivers that needs to be filled if Sri Lanka is to formulate an effective policy response to forest degradation in REDD+. For successful REDD+ implementation in Sri Lanka to happen, technological assistance, readiness assistance, and continued political momentum are crucial.

Climate metrics and the carbon footprint of livestock products: where’s the beef?

The PLOS ONE Collection “Measuring forest conservation effectiveness” brings together a series of studies that evaluate the effectiveness of tropical forest conservation policies and programs with the goal of measuring conservation success and associated co-benefits. This overview piece describes the geographic and methodological scope of these studies, as well as the policy instruments covered in the Collection as of June 2016. Focusing on forest cover change, we systematically compare the conservation effects estimated by the studies and discuss them in the light of previous findings in the literature. Nine studies estimated that annual conservation impacts on forest cover were below one percent, with two exceptions in Mexico and Indonesia. Differences in effect sizes are not only driven by the choice of conservation measures. One key lesson from the studies is the need to move beyond the current scientific focus of estimating average effects of undifferentiated conservation programs. The specific elements of the program design and the implementation context are equally important factors for understanding the effectiveness of conservation programs. Particularly critical will be a better understanding of the causal mechanisms through which conservation programs have impacts. To achieve this understanding we need advances in both theory and methods.

Comments on Simon Dietz and Nicholas Stern's Why Economic Analysis Supports Strong Action on Climate Change: A Response to the Stern Review's Critics

The livestock sector is estimated to account for 15% of global greenhouse gas (GHG) emissions, 80% of which originate from ruminant animal systems due to high emissions of methane (CH4) from enteric fermentation and manure management. However, recent analyses have argued that the carbon footprint (CF) of ruminant meat and dairy products are substantially reduced if one adopts alternative metrics for comparing emissions of GHGs-e.g., the 100 year global temperature change potential (GTP(100)), instead of the commonly used 100 year global warming potential (GWP(100))-due to a lower valuation of CH4 emissions. This raises the question of which metric to use. Ideally, the choice of metric should be related to a climate policy goal. Here, we argue that basing current GHG metrics solely on temperature impact 100 years into the future is inconsistent with the current global climate goal of limiting warming to 2 degrees C, a limit that is likely to be reached well within 100 years. A reasonable GTP value for CH4, accounting for current projections for when 2 degrees C warming will be reached, is about 18, leading to a current CF of 19 kg CO2-eq. per kilo beef (carcass weight, average European system), 20% lower than if evaluated using GWP(100). Further, we show that an application of the GTP metric consistent with a 2 degrees C climate limit leads to the valuation of CH4 increasing rapidly over time as the temperature ceiling is approached. This means that the CF for beef would rise by around 2.5% per year in the coming decades, surpassing the GWP based footprint in only ten years. Consequently, the impact on the livestock sector of substituting GTPs for GWPs would be modest in the near term, but could potentially be very large in the future due to a much higher (>50%) and rapidly appreciating CF.

Oil palm for biodiesel in Brazil—risks and opportunities

The science of economics has made a number of important contributions to understanding greenhouse gases and their optimal control. From basic economic theory, economists have pointed out the need to minimize the sum of mitigation costs and climate damages (Nordhaus 1992). From this simple insight, society can derive an elegant solution to greenhouse gases. The optimal policy for society should balance marginal mitigation costs with marginal damages. Economics also provides an important perspective on time. Time is valuable and cannot be ignored. This is especially critical for a problem that has a very long time horizon. Costs borne in the present are more burdensome than costs born in the future. Finally, economics has much to offer in quantifying both the costs of mitigating greenhouse gas emissions (Weyant 2008) and the damages that climate change will cause to society (Pearce et al. 1996; Tol 2002; Mendelsohn et al. 2006). Stern (2007) and Dietz and Stern (2008) largely reject all of these contributions by economics. They argue that “minimizing the present value of costs of climate change and costs of abatement is both misleading and dangerous.” They argue that treating future costs as though they are worth less than current costs is “unethical.” They reject the empirical analysis of actual impacts arguing that the impacts are unknowable. They reject the economic estimates of mitigation costs in favor of the free-lunch estimates of technologists. Dietz and Stern argue that “strong and urgent action is in fact good economics.” To make this case, they assume that the discount rate is effectively zero, that climate change poses “severe risks” far beyond any we can measure, and that the mitigation costs will be lower than the most optimistic scenario. Even then, they suggest a formal weighing of costs and damages is unacceptable and that instead society should turn to ethical principles to guide greenhouse gas policy. They invoke an “ethics of responsibility of current generations for future generations.” This is climate advocacy, not good economics. What can the current generation do for future generations? By investing in capital, infrastructure, and technology, many generations since the industrial revolution have spurred economic growth, allowing future generations to enjoy a much higher standard of living. Dollars invested in capital and new technology grow at the interest rate, providing a reward