Economic Analysis of Climate Change Impacts in Europe: a Sectoral Approach Antonio Soria, Juan Carlos Ciscar, Laszlo Szabo (JRC, European Commission) jornadas eoi ‘carbon markets and emission reduction’ 17 February 2011, Madrid
Jan 13, 2015
Economic Analysis of Climate Change Impacts in Europe: a Sectoral Approach
Antonio Soria, Juan Carlos Ciscar, Laszlo Szabo (JRC, European Commission)jornadas eoi ‘carbon markets and emission reduction’
17 February 2011, Madrid
The IPTSThe IPTS
The Institute for Prospective Technological Studies (IPTS), based in Sevilla, is one of the 7 scientific institutes of the European Commission's Joint Research Centre (JRC)
Mission
to provide customer-driven support to the EU policy-making process by researching science-based responses to policy challenges that have both a socio-economic and a scientific or technological dimension
Question of Interest:
What are the economic consequences of
climate change in Europe?
- overall order of magnitude
- distribution (space, time, sector)
<Mitigation and Adaptation policies>
White Paper on Adaptation (April 2009)
Literature: few references, mainly based on expert judgement (G1)
TAR IPCC (2001) Stern report (2007)
Source: IPCC 4AR (2007), vol. II, Ch. 20
What is known: aggregate impactsWhat is known: aggregate impacts
What is known: social cost of carbonWhat is known: social cost of carbon(marginal damage)(marginal damage)
Tol (2005) review of literature
• Mean $97/tC
• Standard deviation $203/tC
Key, and controversial, assumptions
• Discount rate
• Equity weighting
What is unknownWhat is unknown
• Non-market effects (e.g. biodiversity, ecosystems)
• Extreme weather risks
• Socially contingent effects
• Long-term catastrophic risks
OutlineOutline
1. Overview of the PESETA project
2. Methodology: the economic CGE model
3. Sectoral results
4. Overall economic impacts
5. Conclusions
About PESETAAbout PESETA
PESETA stands for: Projection of Economic impacts of climate change in Sectors of the European union based on boTtom-up Analyses
Main purpose: Quantitative, multi-sectoral assessment of the monetary estimates of impacts of climate change in Europe
JRC funded projectTo support policymakersLargely based on past DG Research-funded projects
(PRUDENCE, DINAS-Coast, cCASHh, NewExt,…)
Project partners and scopeProject partners and scope
Climate scenarios: DMI, CRU
Six sectoral assessments: Agriculture: U. Politécnica de Madrid Human health: AEA Technology River basin flooding: JRC/IES Coastal systems: FEEM/Southampton U. Tourism: U. Maastricht-ICIS
Coordination and integration into CGE model: JRC/IPTS
Integrated economic impact assessment
Starting point: physical impact estimates
Some sectors provide with direct effects estimates (e.g. river floods)
Overall effects (direct + indirect) assessed with a computable general equilibrium model of Europe
Socioeconomic scenario: GDP, population assumptions
Agriculturemodel
Coastal Systems
model
RiverFlooding
model
Tourismmodel
Stage 1:Modelingfuture climate
Physical impacts
agriculture
Physical impacts coasts
Physical impacts floods
Physical impacts tourism
Stage 2:Modelingphysicalimpacts
Stage 3:Modelingeconomicimpacts
Climate model
General Equilibrium model
Climate data(T, P, SLR)
Economicimpacts
Valuationagriculture
impacts
Valuationcoasts impacts
Valuationfloods impacts
Valuationtourism impacts
Socioeconomic scenario: GDP, population assumptions
Agriculturemodel
Coastal Systems
model
RiverFlooding
model
Tourismmodel
Agriculturemodel
Coastal Systems
model
RiverFlooding
model
Tourismmodel
Stage 1:Modelingfuture climate
Physical impacts
agriculture
Physical impacts coasts
Physical impacts floods
Physical impacts tourism
Physical impacts
agriculture
Physical impacts coasts
Physical impacts floods
Physical impacts tourism
Stage 2:Modelingphysicalimpacts
Stage 3:Modelingeconomicimpacts
Climate model
General Equilibrium model
Climate data(T, P, SLR)
Economicimpacts
Climate model
General Equilibrium model
Climate data(T, P, SLR)
Economicimpacts
Valuationagriculture
impacts
Valuationcoasts impacts
Valuationfloods impacts
Valuationtourism impacts
Valuationagriculture
impacts
Valuationcoasts impacts
Valuationfloods impacts
Valuationtourism impacts
Valuationagriculture
impacts
Valuationcoasts impacts
Valuationfloods impacts
Valuationtourism impacts
Socioeconomic scenario: GDP, population assumptions
Agriculturemodel
Coastal Systems
model
RiverFlooding
model
Tourismmodel
Stage 1:Modelingfuture climate
Physical impacts
agriculture
Physical impacts coasts
Physical impacts floods
Physical impacts tourism
Stage 2:Modelingphysicalimpacts
Stage 3:Modelingeconomicimpacts
Climate model
General Equilibrium model
Climate data(T, P, SLR)
Economicimpacts
Valuationagriculture
impacts
Valuationcoasts impacts
Valuationfloods impacts
Valuationtourism impacts
Socioeconomic scenario: GDP, population assumptions
Agriculturemodel
Coastal Systems
model
RiverFlooding
model
Tourismmodel
Agriculturemodel
Coastal Systems
model
RiverFlooding
model
Tourismmodel
Stage 1:Modelingfuture climate
Physical impacts
agriculture
Physical impacts coasts
Physical impacts floods
Physical impacts tourism
Physical impacts
agriculture
Physical impacts coasts
Physical impacts floods
Physical impacts tourism
Stage 2:Modelingphysicalimpacts
Stage 3:Modelingeconomicimpacts
Climate model
General Equilibrium model
Climate data(T, P, SLR)
Economicimpacts
Climate model
General Equilibrium model
Climate data(T, P, SLR)
Economicimpacts
Valuationagriculture
impacts
Valuationcoasts impacts
Valuationfloods impacts
Valuationtourism impacts
Valuationagriculture
impacts
Valuationcoasts impacts
Valuationfloods impacts
Valuationtourism impacts
Valuationagriculture
impacts
Valuationcoasts impacts
Valuationfloods impacts
Valuationtourism impacts
Climate Scenarios
Data needs: 50 km resolution; daily and monthly
Selection of scenarios 2011-2040 period: A2 IPCC SRES scenario
data from the Rossby Center 2071-2100 period: data from PRUDENCE
A2, B2 IPCC SRES scenarios 2 regional climate models, RCMs (HIRHAM, RCA) 2 global circulation models, GCMs (HadCM3, ECHAM4)
2.5°C 3.9°C 4.1°C 5.4°C
World population in 2100 (1012) 10.4 15.1 10.4 15.1
World GDP in 2100 (1012, 1990US$) 235 243 235 243
CO2 Concentration (ppm) 561 709 561 709
Δ Temperature (ºC)*World 2.4 3.1 2.3 3.1EU‡ 2.5 3.9 4.3 5.4 Northern Europe 2.9 4.1 3.6 4.7 British Isles 1.6 2.5 3.2 3.9 Central Europe North 2.3 3.7 4.0 5.5 Central Europe South 2.4 3.9 4.4 6.0 Southern Europe 2.6 4.1 4.3 5.6
Δ Precipitation (%)*EU‡ 1 -2 2 -6 Northern Europe 10 10 19 24 British Isles -5 -2 10 5
Central Europe North 3 1 6 -1 Central Europe South 2 -2 -4 -16 Southern Europe -7 -15 -13 -28
Sea Level Rise (high climate sensitivity) (cm) 49 56 51 59
Scenarios
*Increase in the period 2071–2100 compared to 1961–1990. ‡European regions: Southern Europe (Portugal, Spain, Italy, Greece, and Bulgaria), Central Europe South (France, Austria, Czech Republic, Slovakia, Hungary, Romania, and Slovenia), Central Europe North (Belgium, The Netherlands, Germany, and Poland), British Isles (Ireland and UK), and Northern Europe (Sweden, Finland, Estonia, Latvia, and Lithuania).
Four 2080s ScenariosFour 2080s Scenarios
Methodologies for Physical Impacts Assessment
Detailed process modelling Agriculture, DSSAT crop model River basin flooding, LISFLOOD hydrological model Coastal systems, DIVA model
Reduced-form exposure-response functions Tourism Human Health
Economic impact assessment
Starting point: physical impact estimates
Some sectors provide with economic direct effects estimates (e.g. river floods)
Overall effects (direct + indirect) assessed with a computable general equilibrium model of Europe: GEM-E3 model
2. The general equilibrium economic model
The The GEM-E3 GEM-E3 Model:Model:General Equilibrium Model for General Equilibrium Model for Energy-Economics-Environment Energy-Economics-Environment
interactionsinteractions
General equilibriumGeneral equilibrium
• Neoclassical framework• Each agent pursues its own interest• Decentralised information (preferences of
consumers and technology of firms)• Simultaneous optimal behaviour• Interaction of all markets• Interaction of all agents (consumers, firms,
government, rest of the world)
Advantages of CGE modelling
• Consistency• Theory (microeconomics foundations, within a consistent
macroeconomic framework)• Data (Input-output, National Accounts, SAM)
• Structural model (versus reduced-form models): explain behaviour of agents in markets, taking into account institutions
• Transparency• Systematic analysis; not mechanical• Flexibility• Can address a broad range of policy issues
Criticisms / disadvantages of CGE modelling
• Weak empirical validation (calibration versus econometric estimation)
• The critical role of functional forms• Simplification of exogenous elements of the model• Data requirements• Heavy computational load
The GEM-E3 model: European model version
Computable General Equilibrium model
Representing multiple production sectors and countries Integrating energy and environment in the economy
GEM-E3: Standard Version 24 countries, 18 sectors (Eurostat) Perfect competition for all commodity markets Environmental module fully incorporated (All GHGs
included)
The The GEM-E3GEM-E3 model: Production model: Production
Production (output)
CapitalLabourEnergy
Materials bundle
Electricity
LabourMaterails
Fuels bundleFuels
Coal
Gas
Oil
Labour
Materials
Agriculture
Non-market services
Market services
Credit & insurance
Credit & insurance
Telecommunication
Building/ Constr.
Consumer goods
Other equipment
Transport equip.
Electrical goods
Other en. intensive
chemicals
Ferrous, ore, metals
Level 1
Level 2
Level 3
Level 4
Reserves
• Perfect competition
• Nested CES production function
• Fully flexible coefficients
• EU econometric evidence on elasticities
The The GEM-E3GEM-E3 model: Consumption model: Consumption
Intertemporal maximization of consumer’s utility involving consumption,
savings, leisure labour supply also derived
from utility maximization steady state solution used
LES with durable and non-durable goods
Total Income
Leisure
Labour Supply
Consumption
Savings
Investment indwellings
MonetaryAssets
Durable goods Non-durable goods andservices
Cars Heating Systems Electric Appliance
Food Clothing Housing Housing furniture and
operation Medical care and health
expenses Purchased transport Communication recreation, entrertainment etc. Other services Fuels and power Operation of transports
Consumption of non-durableslinked to the use of durables
Disposableincome
Modelling of physical impacts and link to general equilibrium model
Site-evidence on average yield change across Europe, DSSAT model
Yield changes (t/Ha)
Interpreted as TFP change
Y = TFP CES(K, LEM)
Agriculture: crop yield changes (%)
compared to 1961-1990
B2 HadAM3h A2 HadAM3h B2 ECHAM4 A2 ECHAM42.5°C 3.9°C 4.1°C 5.4°C
Northern Europe 37 39 36 52 62British Isles -9 -11 15 19 20Central Europe North -1 -3 2 -8 16Central Europe South 5 5 3 -3 7Southern Europe 0 -12 -4 -27 15
EU 3 -2 3 -10 17
2025
Coastal systems: the methodCoastal systems: the method
DIVA model
Impact categories: sea floods, migration, other
Integration into the CGE model: Interpretation of sea flood cost as capital loss Interpretation of migration cost as additional obliged
consumption (welfare loss)
Coastal Systems
people flooded (1000s/year) in main scenarios with high climate sensitivity, without adaptation
B2 HadAM3h A2 HadAM3h B2 ECHAM4 A2 ECHAM4 A2 ECHAM42.5°C 3.9°C 4.1°C 5.4°C high SLR
Northern Europe 20 40 20 56 272British Isles 70 136 86 207 1,279Central Europe North 345 450 347 459 2,398Central Europe South 82 144 85 158 512Southern Europe 258 456 313 474 1,091
EU 775 1,225 851 1,353 5,552
River Floods: the methodologyRiver Floods: the methodology
LISFLOOD model; integration of damages for various return periods (from several ‘representative basins’)
Economic valuation: projection of change in 100-year flood damage for the scenario (relative to control)
Integration into the GEM-E3 model: Damage to residential buildings (additional obliged
consumption) Damage to productive sectors (industry, services,…):
Capital loss Production loss
River floods
expected economic damage (million €/year)
B2 HadAM3h A2 HadAM3h B2 ECHAM4 A2 ECHAM4 simulated2.5°C 3.9°C 4.1°C 5.4°C 1961-1990
Northern Europe -325 20 -100 -95 578British Isles 755 2,854 2,778 4,966 806Central Europe North 1,497 2,201 3,006 5,327 1,555Central Europe South 3,495 4,272 2,876 4,928 2,238Southern Europe 2,306 2,122 291 -95 1,224
EU 7,728 11,469 8,852 15,032 6,402
Human Healthaverage annual heat-related (left) and cold-related (right) death rates (per 100,000 population) 3.9°C scenario
Note: using climate-dependent health functions (no acclimatisation)
TourismTourismTCI scores in summerTCI scores in summer
Ideal
Excellent
Very good
Good
Acceptable
Marginal
Unfavourable
Ideal
Excellent
Very good
Good
Acceptable
Marginal
Unfavourable
Ideal
Excellent
Very good
Good
Acceptable
Marginal
Unfavourable
control
5.45.4°°CC
4.14.1°°CC
Tourism
Change in expenditure receipts (million €)
B2 HadAM3h 2.5ºC
A2 HadAM3h 3.9ºC
B2 ECHAM4 4.1ºC
A2 ECHAM4 5.4ºC
Norhern Europe 443 642 1,888 2,411British Isles 680 932 3,587 4,546Central Europe North 634 920 3,291 4,152Central Europe South 925 1,763 7,673 9,556Southern Europe -824 -995 -3,080 -5,398EU 1,858 3,262 13,360 15,268
4. Overall economic impact
• Effects of 2080s climate • On European economy as of today• Assuming there is no public adaptation, so that priorities for adaptation within the EU can be explored
Annual damage Annual damage
in terms of GDP changes (million €)in terms of GDP changes (million €)
-70000
-60000
-50000
-40000
-30000
-20000
-10000
0
10000
SouthernEurope
Central EuropeSouth
Central EuropeNorth
British Isles NorthernEurope
EU
2.5°C3.9°C
4.1°C
5.4°C
5.4°C, 88 cm SLR
Annual damage Annual damage
in terms of Welfare changes (%)in terms of Welfare changes (%)
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
SouthernEurope
Central EuropeSouth
Central EuropeNorth
British Isles NorthernEurope
EU
2.5°C
3.9°C4.1°C
5.4°C
5.4°C, 88 cm SLR
Sectoral decomposition Sectoral decomposition
of welfare changes (%)of welfare changes (%)
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%2.
5oC
3.9o
C
5.4o
C
5.4i
oC
2.5o
C
3.9o
C
5.4o
C
5.4i
oC
2.5o
C
3.9o
C
5.4o
C
5.4i
oC
2.5o
C
3.9o
C
5.4o
C
5.4i
oC
2.5o
C
3.9o
C
5.4o
C
5.4i
oC
2.5o
C
3.9o
C
5.4o
C
5.4i
oC
Southern Europe Central Europe South Central Europe North British Isles Northern Europe EU
Tourism
River floods
Coastal systems
Agriculture
5. Conclusions
• Integration of various disciplines, consistency requirements• Further research is needed, concerning:
• Costs and benefits of adaptation• Cross-sectoral consistency• Land use modelling • Monte Carlo analysis
http://www.pnas.org/content/early/http://www.pnas.org/content/early/2011/01/27/1011612108.abstract2011/01/27/1011612108.abstract
Muchas gracias !