Thursday, December 29, 2011

Integrated Economic and Climate Modeling

Abstract: This survey examines the history and current practice in integrated assessment models (IAMs) of the economics of climate change. It begins with a review of the emerging problem of climate change. The next section provides a brief sketch of the rise of IAMs in the 1970s and beyond. The subsequent section is an extended exposition of one IAM, the DICE/RICE family of models. The purpose of this description is to provide readers an example of how such a model is developed and what the major components are. The final section discusses major important open questions that continue to occupy IAM modelers. These involve issues such as the discount rate, uncertainty, the social cost of carbon, the potential for catastrophic climate change, algorithms, and fat-tailed distributions. These issues are ones that pose both deep intellectual challenges as well as important policy implications for climate change and climate-change policy.
A new feature of the DICE-2007 and RICE-2010 models is that they explicitly include a backstop technology, which is a technology that can replace all fossil fuels. The backstop technology could be one that removes carbon from the atmosphere or an all-purpose environmentally benign zero-carbon energy technology. It might be solar power, or carbon-eating trees or windmills, or some as-yet undiscovered source. The backstop price is assumed to be initially high and to decline over time with carbon-saving technological change. In the full regional model, the backstop technology replaces 100 percent of carbon emissions at a cost of between $230 and $540 per ton of CO2 depending upon the region in 2005 prices.
Carbon prices in the baseline scenario ... are essentially zero.... Prices under the optimal and temperature-limited scenarios at first rise to $38 and $79 per ton of carbon, respectively, by 2015. Prices under the optimal scenario then continue to rise sharply until they reach the projected backstop price.
Global average carbon prices under the two Copenhagen Accord scenarios are much lower than under the previous scenarios for the first 2 decades of the projections, reflecting the gradual introduction of policy interventions as well as incomplete participation. Note that the effective carbon price today (around $1 per ton carbon) is well below that required under either the optimal or the temperature-limited scenario.
The large stakes involved in climate-change policies as measured by aggregate costs and benefits. Using the model discount rates, the optimal scenario raises the present value of world income by $9.1 trillion, or 0.35% of discounted income. This is equivalent to an annuity of $454 billion per year at a 5% annual discount rate. Imposing the 2 °C temperature constraint has a significant economic penalty, reducing the net benefit by almost half, because of the difficulty of attaining that target with so much inertia in the climate system. The Copenhagen Accord with phased-in participation of developing countries has substantial net benefits, but lack of participation in the “rich only” case reduces these substantially.... Costs rise gradually over the coming decades and reach around 1% of national income for the high-income countries in the mid-21st century. ... The results of the RICE-2010 model highlight the spatial asymmetry between winners and losers among countries.... The regions designated to undertake the largest emissions reductions under the Copenhagen Accord are the United States, China, and the European Union; the price tag for these regions totals more than $1 trillion in discounted costs through 2055. Several other regions, particularly Russia, can expect net benefits in a trading regime because they have been allocated excess emissions permits under the Kyoto Protocol and are assumed to continue those allocations in its successor.
[The optimal price per ton of carbon for] 2015 is $38 per ton of carbon, whereas in the early vintages the optimal carbon price was in the range of $12 - 15 per ton of carbon, all in 2005 US dollars. The major factors accounting for the increase in the optimal carbon price are a major upward revision of global output, particularly those associated with adoption of PPP income measurement, a higher assumed temperature sensitivity, and a lower discount rate on goods.
There have been many estimates of the SCC in different models (See Tol 2005, 2009 for reviews). Tol has undertaken a systematic research synthesis ... and has calculated a (subjectively determined) quality-weighted mean of the results of the different estimates. The most recent estimate finds a SCC of $36 per ton carbon (for the median of the Fisher-Tippett kernel density for peer-reviewed estimates with a 3% pure rate of time preference, without equity weights, adjusted to 2005 and 2005$). Another study was undertaken by the US Working Group on the social cost of carbon (US Working Group 2010 and Greenstone et al 2011).
The standard DICE/RICE calibration ... leads to a social cost of carbon of $55 per ton carbon and a real interest rate of 5.3% per year. The Stern Review assumptions in the DICE model lead to a much higher SCC, but also a much lower interest rate.
The SCC ranges from $42 per ton of carbon ($/tC) in the standard case to $350 in the most unfavorable case. The impact on economic welfare is large but not catastrophic, with a decline of around 2 percent of welfare or consumption annuity in the worst case. (The consumption annuity is the constant level of per capita consumption that gives the same level of utility as the case in question.)
High damages plus no policy (with a tipping point of 3 °C) does lead to a very steep loss. However, the genuinely catastrophic results, in the sense used here, require all three conditions: high TSC, high convexity of the damage function, and no policy. When all three of these conditions are met, the consumption annuity declines 96 percent relative to the baseline. The catastrophic nature of the extreme values is signaled by an initial SCC that is more than $5,100 per ton of carbon (this being indicative but unreliable because of computational difficulties).
by William D. Nordhaus; Yale University; Cowles Foundation for Research in Economics; Box 208281, New Haven, CT 06520-8281 USA http://cowles.econ.yale.edu william.nordhaus@yale.edu
Working Paper Number 1839; December, 2011
via EconPapers http://econpapers.repec.org
Keywords: Climate change; Integrated assessment models; Environmental economics; Social cost of carbon; Large-scale mathematical models

Increased Recycling Would Create Nearly 1.5 Million Jobs, Reduce Pollution

Higher recycling rates hold the potential to produce millions of new jobs, would strengthen local economies, reduce pollution and improve public health, according to a new report released November 15, 2011.

At a National Recycling Day event at the U.S. Capitol, Sen. Tom Carper (D-DE), a representative from the office of U.S. Rep. Frank Pallone (D-NJ) and a panel of environmental, labor and other leaders discussed the report, "More Jobs, Less Pollution," which found that a 75 percent national recycling rate holds the potential to create millions of new jobs.

"More Jobs, Less Pollution"  is a report from the Tellus Institute prepared for the BlueGreen Alliance, SEIU, NRDC, Teamsters, Recycling Works!, and the Global Alliance for Incinerator Alternatives (GAIA) available free of charge at www.bluegreenalliance.org/morejobslesspollution.

A 75 percent national recycling rate would also reduce CO2 emissions by 276 million metric tons by 2030 - equivalent to eliminating emissions from 72 coal-fired power plants or taking 50 million cars off the road; reduce conventional and toxic emissions that impact human and ecosystem health; and generate a stronger economy by creating a broader employment base.

MSW is Municipal Solid Waste, C&D = Construction and Demolition Debris

The Massachusetts Department of Environmental Protection (MassDEP) has made available several case studies that demonstrate the waste diversion and economic benefits of the ban. Clarke Corporation, a wholesale distributer of kitchen appliances, renovated and expanded its distribution center in Milford, Mass. Ninety-eight percent of materials generated on site were recycled or reused, resulting in cost savings of $259,043. In another case, recycling during the commercial demolition of the Massachusetts Institute of Technology (MIT) Media Lab in Cambridge resulted in 96 percent waste reduction and cost savings of  $17,684. For more information and the C&D recycling case studies, see http://www.mass.gov/dep/recycle/reduce/managing.htm.

The Blue-Green Alliance www.bluegreenalliance.org
Press Release dated November 15, 2011

Wednesday, December 28, 2011

125 Maiden Lane gets free greening -Texas outfit will do the $1.4 million job and pocket the 24% cost savings over the first decade, with aid of some financial backing from the city

A downtown office building will get a free energy-saving retrofit worth $1.4 million. The gift comes from a company that assumes financial risk for such renovations and a New York City agency.

The retrofit project utilizes a structure for funding energy efficiency called a Managed Energy Services Agreement (MESA), offered to property owners by Transcend Equity and its joint venture partner, Mitsui & Co (USA), Inc (Mitsui USA). Under the MESA structure, project costs are repaid only through energy cost savings generated by the retrofits. The New York City Energy Efficiency Corporation's (NYCEEC) participation, backstopping the projected energy savings, helped enable Transcend Equity to close the funding necessary for the retrofit project. The retrofit measures will include installation of a state of the art direct digital controls backbone, an automated building management system, high efficiency motors with variable speeds, new steam valves and other upgrades. An energy audit, required as a condition of financing, indicated the project will save 24 percent in total energy usage at 125 Maiden Lane.

125 Maiden Lane is a 320,000 square foot commercial condominium office building. Most of the building’s energy systems date to the time of its construction in 1958. It is home to several local and international non-profits.  MESA does not place debt on a building and does not violate tenant leases, allowing a building’s occupants a greener, more efficient building at no additional cost to its owners. The 125 Maiden Lane retrofit is the first MESA transaction in a New York City building. NYCEEC expects to play a similar
enabling role in many other comprehensive retrofit projects in the future.

“We evaluated a variety of retrofit funding options before selecting MESA,” said Rick Recny, Director of Asset Management for Time Equities, Managing Agent for both the Condominium and the Sponsor. “It shifts the performance risk and funding responsibility away from the office condominium unit owners....

“NYCEEC played a critical role in this transaction and really showed it has the capacity to help bring the energy efficiency market to scale,” said Steve Gossett Jr, Vice President of Transcend Equity. “We are already preparing a series of additional, much larger transactions in New York City for which we’ll seek the same catalytic NYCEEC participation....

Transcend Equity will pay for the work, and then hope to make its money by pocketing the energy-cost savings the retrofit generates over a set period of time. The attraction for building owners is that they reap the cost savings after the contract with Transcend Equity expires. In the case of 125 Maiden Lane, the contract runs for ten years.

“We take on a huge amount of risk,” said Sean Patrick Neill, managing director of Transcend. “It's good for the owners, because we pay for things they were thinking about fixing any way.”

This is the eight-year-old company's first project in New York City. Most of Transcend Equity's projects range from $2 million to $10 million.
To help foster the project, the city's Energy Efficiency Corp. agreed to back up 20% of the loan—about $190,000 worth—that Transcend Equity is taking out to finance the renovations.  The lender, BB&T Bank, wanted the additional security, said Fred Lee, director of legal affairs and finance at the city's Energy Efficiency Corp. The city monies are coming from a $37.5 million federal grant designed to promote retrofitting and sustainability in the city.
Time Equities had long wanted to renovate the building, but the condo owners ... didn't want to spend the money.
New York City established the NYCEEC earlier this year in an effort to achieve the ambitious energy goals included in Mayor Bloomberg's long-term planning effort, PlaNYC.  NYCEEC, which was initially capitalized with $37.5 million in funding under the American Reinvestment and Recovery Act (ARRA), is scrambling to spark a modest revolution in the market for energy-efficiency retrofit financing for private building owners. In particular, NYCEEC aims to support a portfolio of energy-efficiency financing products to drive energy efficiency investment in the Big Apple.
Neill believes the MESA model will solve a problem that does not yet technically exist, but almost certainly will by the end of 2012. That problem is a consequence of the so-called accounting convergence in the works at the Financial Accounting Standards Board in Norwalk, Conn.  The convergence is likely to make it very difficult (but not impossible according to Neill) to secure off balance-sheet financing for investments in energy-efficiency building retrofits. 
http://sallan.org/pdf-docs/NYCEEC_125MaidenLane.pdf December 15, 2011
"125 Maiden Lane gets free greening -Texas outfit will do the $1.4 million job and pocket the 24% cost savings over the first decade, with aid of some financial backing from the city" By Theresa Agovino 

Crains New York www.crainsnewyork.com December 23, 2011http://www.crainsnewyork.com/article/20111223/REAL_ESTATE/111229922
Green-Energy Finance Guru: 'We've cracked the code.' By William Pentland; Forbes via Yahoo Finance http://news.yahoo.com, December 15, 2011 http://news.yahoo.com/green-energy-finance-guru-weve-cracked-code-021259132.html 

Tuesday, December 27, 2011

Airports, Air Pollution, and Contemporaneous Health

Abstract: Airports are some of the largest sources of air pollution in the United States. We demonstrate that daily airport runway congestion contributes significantly to local pollution levels and contemporaneous health of residents living nearby and downwind from airports. Our research design exploits the fact that network delays originating from large airports on the East Coast increase runway congestion in California, which in turn increases daily pollution levels around California airports. Using the component of California air pollution driven by airport congestion, we find that carbon monoxide (CO) leads to significant increases in hospitalization rates for asthma, respiratory, and heart related emergency room admissions that are an order of magnitude larger than conventional estimates: A one standard deviation increase in daily pollution levels leads to an additional $1 million in hospitalization costs for respiratory and heart related admissions for the 6 million individuals living within 10km (6.2 miles) of the 12 largest airports in California. While infants and the elderly are more sensitive to air pollution, we also find significant relationships for the adult population. The health impacts are driven by CO, not NO2 or O3, and occur at levels far below existing EPA mandates. Our results suggest there may be sizable morbidity benefits from lowering the existing CO standard.

by Wolfram Schlenker and W. Reed Walker
National Bureau of Economic Research (NBER) www.NBER.org
NBER Working Paper No. 17684; Issued in December 2011

Monday, December 26, 2011

Lecture - Cost-Benefit Analysis for Ecosystem Restoration Projects by Dr. Thomas Elmqvist on YouTube


A lecture entitled "Cost-Benefit Analysis for Ecosystem Restoration Projects" by Thomas Elmquist in November 2011 is available free of charge at  http://www.youtube.com/watch?v=ewEIErl8ntQ or http://environment.yale.edu/teeb/foundations/elmqvist/.
Other lectures and materials are available free of charge at http://environment.yale.edu/teeb including
  • Introduction to Valuing Nature
  • Biodiversity, Ecosystems and Ecosystem Services
  • Valuation Approaches & Paradigms: Part 1
  • Valuation Approaches & Paradigms: Part 2
  • Valuation Approaches & Paradigms: Part 3
  • The Ethics of Discounting
Thomas Elmqvist, PhD, is Professor in Natural Resource Management at Stockholm University. His research is focused on ecosystem services, land use change, natural disturbances and components of resilience including the role of social institutions. He is coordinating  a major interdisciplinary research theme as part of the Stockholm Resilience Centre (www.stockholmresilience.su.se) at Stockholm University, focussingon governance and management of ecosystem services in urban landscapes. Dr. Elmqvist participated in the Millennium Ecosystem Assessment and was principal investigator of several multidisciplinary projects in Africa and India. He serves as associate editor for the journals Ecology and Society, Conservation and Society, Ambio and Sustainability Science. He is currently a co-chair of the Science Committee BioSustainability at Diversitas and was one of the lead authors of The Economics of Ecosystems and Biodiversity – Ecological and Economic Foundations (www.teebweb.org).
The Economics of Ecosystems and Biodiversity: TEEB @ Yale - Ecological and Economic Foundations
November, 2011
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