Hope c 20150709_1730_upmc_jussieu_-_room_207

Prepared for the International Scientific Conference “Our

Common Future Under Climate Change”

9 July 2015

by

Dr Chris Hope

Cambridge Judge Business School, University of Cambridge

[email protected]

www.chrishopepolicy.com

@cwhope

Carbon price in a long-term, normative perspective

Plan of talk

• How the carbon price should be set.

• The PAGE09 integrated assessment model.

• Climate change impacts and the social cost of CO2.

•Equal to the extra NPV of global impact that would be caused if one

more tonne of CO2 is put up into the atmosphere today.

•This goes by the name of the social cost of CO2 (SCCO2).

•The polluter pays principle tells us that the SCCO2 is what anyone who

puts a tonne of carbon dioxide into the atmosphere this year should

have to pay, and economic theory agrees that the best way for them to

pay is by charging a climate change tax equal to this on every tonne of

emissions.

How the carbon price should be set

Calculating the social cost of CO2

0

50000

100000

150000

2000 2050 2100 2150 2200

Mtonnes

year

Total CO2 emissions

Calculating the social cost of CO2

1. Find mean NPV of global impacts with spike of

emissions

2. Find mean NPV of global impacts without spike of

emissions

3. Subtract (2) from (1)

4. Divide by size of spike (100 billion tonnes of CO2)

The PAGE09 integrated assessment model

• Excel 2010 workbook with @RISK6 add-in

• Explicit treatment of CO2, CH4, N2O, sulphates

• 8 regions

o Including EU, US, China

• 10 analysis years

o up to 2200

• 4 impact sectors

o Sea level, economic, non-economic, discontinuity

• 112 uncertain inputs

• 100000 runs to calculate distributions of outputs

Integrated Assessment Models for Climate Change Policy

Source: Parson and Fisher-Vanden, 1997

Source: 100000 PAGE09 runs

Climate sensitivity probability distribution

Climate change impacts and the social cost of CO2

• Business as usual scenario: A1B.

• Moderate adaptation.

• Currency unit: $2005, PPP exchange rates, EU mean GDP/cap.

0

10000

20000

30000

40000

50000

60000

70000

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Mtonnes

Year

Global emissions of CO2 by date, BAU scenario

Source: PAGE09; A1B scenario

Global mean temperature rise by date, BAU scenario.

0

1

2

3

4

5

6

2020 2030 2040 2050 2060 2070 2080 2090 2100

DegC

Year

95%

Mean

5%

Source: 10000 PAGE09 runs; A1B scenario

Global impacts by date, BAU scenario

-10

0

10

20

30

40

50

2000 2020 2040 2060 2080 2100 2120 2140 2160 2180 2200

$trillion 95%

Source: 10000 PAGE09 runs, A1B scenario, moderate adaptation

mean

5%

NPV of global impacts, BAU scenario

Source: 100000 PAGE09 runs; A1B scenario

Mean value is about $400 trillion

The social cost of CO2, BAU scenario

Source: 100000 PAGE09 runs, A1B scenario, 2010

Mean value is about $100 per tonne of CO2

The social cost of CO2, excluding top 1% of runs

Source: 100000 PAGE09 runs, A1B scenario, 2010

Source: 100000 PAGE09 runs, A1B scenario

95%

0

100

200

300

400

500

600

2010 2020 2030 2040 2050

$/tonne CO2

Year

SCCO2 by date, BAU scenario

mean

5%

Use of the SCCO2 from the PAGE model by policy makers

• Stern Review on the Economics of Climate Change (2007):

“Preliminary calculations adopting the approach to valuation taken in this Review suggest that the social cost of carbon today, if we remain on a BAU trajectory, is of the order of $85 per tonne of CO2”

http://webarchive.nationalarchives.gov.uk/+/http:/www.hm-treasury.gov.uk/media/4/3/Executive_Summary.pdf

• US EPA Inter-Agency Task Force (2010, 2013):

“EPA has used the SCC to analyze the carbon dioxide impacts of various rulemakings since the interagency group first published SCC estimates in 2010.”

http://www.epa.gov/climatechange/EPAactivities/economics/scc.html

References

• Hope C, 2013, Critical issues for the calculation of the social cost of CO2: why the estimates from PAGE09 are higher than those from PAGE2002, Climatic Change, 117, Issue 3 (2013), Page 531-543.

• Hope C, 2011,The social cost of CO2 from the PAGE09 model, Judge Business School working paper 05/2011, discussion paper in Economics ejournal.

• Hope C, 2011, How high should climate change taxes be?, Judge Business School working paper 09/2011, chapter in Fouquet R (ed), Handbook on Energy and Climate Change, Edward Elgar, 2013.

http://www.jbs.cam.ac.uk/research/working_papers/2011/index.html

Discussion points

• Should we set carbon price at SCCO2 under BAU or ‘optimal’ scenario?

• What other taxes should be reduced?

• What should be done in other regions?

• How should we improve the model?