Climate Cost-Benefit Analysis in an Unequal World. David Anthoff Energy and Resources Group University of California, Berkeley

Transcription

1 Climate Cost-Benefit Analysis in an Unequal World David Anthoff Energy and Resources Group University of California, Berkeley

2 Outline Use of cost-benefit analysis in climate policy Issues with standard cost-benefit analysis Equity weighting

3 UK history 2002 early phase Social Cost of Carbon: 70/tC or $29/tCO2 Multiple revisions (including Stern Review) Uses include RIA of fluorinated gases regulation, road transport infrastructure appraisal, building regulations, energy investment appraisal, water sector asset management programs 2008 Climate Change Act Long-term climate policy (60% reduction from 1990 levels) No cost-benefit analysis in setting the target Ex post check with PAGE model 2009 Major shift to marginal abatement cost estimates ETS covered sectors: $32/tCO2 Other sectors from in-house energy modeling: $77/tCO2 Watkiss and Hope (2011)

4 US 2007: Supreme Court ruling Massachusetts v. EPA 2009: EPA Endangerment Finding Executive Order : Interagency Report sets Social Cost of Carbon to $21/tCO2 2013: Social Cost of Carbon updated to $39/tCO2 Used three integrated assessment models One of them FUND, which I co-develop ( Greenstone et al. (2013)

5 Hahn and Ritz (forthcoming)

6 billion 2011$ Proposed rule for existing power plants - benefits and cost in 2020 Option 1 - state Option 1 - regional Option 2 - state Option 2 - regional Complience Cost Health benefits Climate benefits (5% dr) Climate benefits (3% dr) Climate benefits (2.5% dr) Source: US EPA (2014), Table ES-8

7 Outline Use of cost-benefit analysis in climate policy Issues with standard cost-benefit analysis Equity weighting

8 Standing or who s welfare? Gayer and Viscusi (2014) Pizer et al. (2014) Kopp and Mignone (2013) vs.

9 Social Cost of Carbon by Region RICE SCC 2015 high discounting Other developing 13% OHI 3% Latin America 5% US 7% EU 8% Japan Russia 2% Eurasia 1% 1% FUND SCC 2010 middle discounting WEU 21% ANZ CAM CAN 1% 1% 1% CHI 31% Africa 16% China 21% USA 13% Middle East 7% India 16% SSA 5% SIS 1% SEA 5% SAS 3% NAF 5% MDELAM JPK 3% 2% 0% FSU 8% EEU 1% Source: Nordhaus (2011) and Anthoff et al. (2011)

10 Global 1.3% Anthoff et al. (2009)

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12 Outline Use of cost-benefit analysis in climate policy Issues with standard cost-benefit analysis Equity weighting

13 welfare Δw r 10 rich 9 For same Δc: Δw p > Δw r Δw p 8 poor Δc consumption Δc

14 $/tc Anthoff (2011) Optimal taxes in Transfers No transfers SSA SAS SIS NAF FSU SEA MDE CAM CHI EEU LAM ANZ CAN WEU USA JPK FUND 3.4; η=1; ρ=1%; USD 1995

15 Equity Weights - Caveats Anthoff et al. (2009a) Anthoff et al. (2009b) Anthoff and Tol (2010) All costs and benefits need to be equity weighted consistently UK didn t do that Based on one very specific and strong ethical position You are trying to address world inequality via climate policy Difficult to agree on specifics (degree of inequality aversion)

16 Conclusion Pragmatic point of view Great success that carbon pricing is incorporated into federal regulatory analysis Pushing for equity weighting in the regulatory process probably too ambitious at this point Academic view A standard cost-benefit analysis really runs into major conceptual problems with climate change related to equity Talk about it ( ideas matter )

17 Thank you!

18 Literature Anthoff, D., J. Ketterer and J. Lippelt (2009). "Klimaschäden und Klimaverhandlungen." ifo Schnelldienst 62(22): Anthoff, D., C. Hepburn and R. S. J. Tol (2009a). "Equity weighting and the marginal damage costs of climate change." Ecological Economics 68(3): Anthoff, D., R. S. J. Tol and G. W. Yohe (2009). "Discounting for Climate Change." Economics: The Open-Access, Open-Assessment E-Journal 3( ). Anthoff (2011). Optimal Global Dynamic Carbon Abatement. Anthoff, D., S. Rose, R. S. J. Tol and S. Waldhoff (2011). Regional and Sectoral Estimates of the Social Cost of Carbon: An Application of FUND. ESRI Working Paper. Dublin, Ireland, Economic and Social Research Institute. Gayer and Viscusi (2014) Determining the Proper Scope of Climate Change Benefits. Greenstone, M., E. Kopits and A. Wolverton (2013). "Developing a Social Cost of Carbon for US Regulatory Analysis: A Methodology and Interpretation." Review of Environmental Economics and Policy 7(1): Kopp, R. and B. Mignone (2013). "Circumspection, reciprocity, and optimal carbon prices." Climatic Change: Nordhaus, W. (2011). Estimates of the Social Cost of Carbon: Background and Results from the RICE-2011 Model. Cowles Foundation Discussion Paper. Watkiss, P. and C. Hope (2011). "Using the social cost of carbon in regulatory deliberations." Wiley Interdisciplinary Reviews: Climate Change 2(6): Hahn and Ritz (forthcoming). Does the social cost of carbon matter? Evidence from US policy. Journal of Legal Studies Pizer, W., M. Adler, J. Aldy, D. Anthoff, M. Cropper, K. Gillingham, M. Greenstone, B. Murray, R. Newell, R. Richels, A. Rowell, S. Waldhoff and J. Wiener (2014). "Using and improving the social cost of carbon." Science 346(6214):