Role of Integrated Assessment Modelling (IAM) in climate change policy analysis

1. Role of Integrated Assessment Modelling (IAM) in climate change policy analysis The Global Integrated Assessment Model (GIAM) An ABARE-CSIRO joint initiative Don Gunasekera and Melanie Ford

2. Outline • Scene setting / background • Modelling framework and assumptions • Preliminary results • Way forward

3. Climate change policy – the Government's agenda • Mitigation • Emissions trading scheme • Complementary programs (to ETS) • Renewable energy targets • Energy efficiency • Adaptation • International collaboration

4. Key climate change related issues • Impacts of climate change • By how much and at what speed should we reduce emissions? • How should we balance the net costs/benefits of mitigation and adaptation against climate change impacts? • Ability to refine/improve policy responses with improved information over time • The international context

5. Features of current modelling frameworks • Short term focus: climate change impacts can be long term (to 2100 and beyond) • Climate – economy feedbacks are lacking • Limited facility to incorporate climate change impacts • Market impacts • Non-market impacts • Catastrophic impacts

6. Integrated Assessment Modelling: an alternative approach • Integrates climate and economic models • Multiple equation computer simulated modelling framework • Allows feedbacks and interactions • Gives a better indication of physical and economic impacts

7. Policy questions that IAMs can address • Climate change damage costs • Benefits of avoided climate change • Net benefits of adaptation • Net benefits of mitigation • Optimal policy to balance mitigation, adaptation and damage costs • Least cost way to achieve a given emission limit

8. Climate change policyA benefit cost analysis (the fish diagram) Global economic activity Reference case without impacts Mitigation scenario benefits of policy Reference case with impacts costs of policy Shaded area is climate change damages associated with the reference case time

9. Challenges in IAM • Represent complex socio-economic, geophysical and climate systems and their interactions • Uncertainties remain in climate change cause and effect chain • Needs sensitivity analysis and model improvements as better information and improved parameter values become available

10. Global Integrated Assessment Model An ABARE-CSIRO initiative • Demand driven project – sought by climate change negotiators and policy makers • There are other IAMs available, but none represent Australia explicitly or appropriately • Joint work began in October 2007 • Current GIAM version is preliminary and illustrative only: • Consists of an economic and a climate module • Aim is to develop a ‘proof of concept’ GIAM

11. Economic module of GIAM • Long run version of GTEM • Multi country, multi commodity and economy wide framework • 9 regions • 28 commodities • 3 greenhouse gases • Captures production, consumption and trade between and within countries

12. Climate module of GIAM • Initial focus: temperature changes only • 5-Box carbon cycle model converts long run emissions from economic module to atmospheric concentrations • CSIRO’s Mk3L General Circulation Model • Estimates regional temperature changes using concentration levels

13. Converting temperature changes into economic impacts • Regional climate change related economic damages depend on: • regional change in temperature • vulnerability to climate change impacts • Uses a ‘damage function’ to estimate economic impacts • Based on MERGE model

14. Converting temperature changes into economic impacts – the damage function in GIAM • Assumes: • damagesgradually for small changes in temperature, • damages more rapidly for larger changes in temperature • Damages are implemented through losses in total factor productivity • Loss in TFP depends on: • Change in temperature relative to reference year • “vulnerability to climate change” – developing countries are more vulnerable to climate change than developed countries • “Catastrophic” change in temperature (relative to base year) at which economic activity falls to near zero

15. The functional form and parameterisation of the damage function drives the results

16. Developing a reference case with impacts

17. Key drivers of emissions – Global population

18. Key drivers of emissions – economic growth

19. Key drivers of emissions – Global primary energy consumption

20. Global greenhouse gas emissions

21. Atmospheric concentration

22. Increase in average surface temperature, relative to 2000 levels

23. Increase in average temperature,relative to 2000 levels

24. Economic growth pathway – world

25. Economic growth pathway – Australia

26. Way forward • Need in-depth work on damage function • Benefits in some regions at small temperature changes • Rainfall and sea level changes • Damages by key sector • Multidisciplinary research into damages • Social processes (demographic, urbanisation etc) • Need to develop: • Adaptation module • Policy response module • Need more resources over several years

27. Thanks to CSIRO and The ABARE Climate Change and Modelling Section