Evaluating Climate Change Impacts: an Integrated Approach

1. Evaluating Climate Change Impacts:an Integrated Approach Marco Lazzarin and Francesco Bosello Trieste, 09/07/03

2. Evaluating Climate Change Impacts: an Integrated Approach GCM output Temperature level Temperature change Envir. Impact Modules Inputs for + Vegetation Other (e.g. precip.) Water Interface(s) translating env. impacts in changes in key economic variables Sea Level  in stocks (K,L,La,NR) Agriculture  in productivity CGE Economic Valuation GHGs emissions

3. Evaluating Climate Change Impacts: an Integrated Approach Steps to conduct the exercise • Take an economic model sufficiently disaggregated. (Simplified but good enough representation of the economic system). • Build a baseline for the future “without climate change”. • Over-impose to the baseline shocks in key economic variables induced by climate change. • Comment results.

4. Evaluating Climate Change Impacts: an Integrated Approach Our CGE Economic Model • GTAP (Global Trade Analysis Project) is a database (66 regions, 57 sectors) but also a global comparative static applied general equilibrium model calibrated in 1997 • The GTAP system of equations is based on microeconomic foundations providing a detailed specification of household and firm behaviour within individual regions and trade linkages between regions. • Hertel, T.W., (1996) Global Trade Analysis: Modelling and applications, Cambridge University Press. • www.gtap.org

5. Evaluating Climate Change Impacts: an Integrated Approach Our CGE Economic Model • GTAP-E: extended by Burniaux and Truong (2001) in order to account for an environmental part (CO2 emissions); version 8  8. • GTAP-EX: our developed version of the model, by augmenting the industrial disaggregation, especially in the agricultural sector; version 8  17.

6. Evaluating Climate Change Impacts: an Integrated Approach Regional and sectoral mapping of GTAP-EX Regions: USA: United States EU: European Union EEFSU: Eastern Europe and Former Soviet Union JPN: Japan RoA1: Oth. Annex 1 countries Eex: Net Energy Exporters CHIND: China and India RoW: Rest of the World Sectors: Rice Wheat Cereal Crops Vegetable Fruits Animals Forestry Fishing Coal Oil Gas Oil Products Electricity Water Energy Intensive industries Other industries Market Services Non-Market Services

7. Evaluating Climate Change Impacts: an Integrated Approach The baseline construction process • Construction of baseline “without climate change” for the future selecting relevant years (2010, 2030, 2050) and “re-calibrating” the model using: • projected data from G-Cubed model (McKibbin, 1999) for stocks of capital, labour, population and related productivity • IMAGE (RIVM 2001) for land productivity. • McKibbin, W.J, Wilcoxen, P.J., (1998) The Theoretical and Empirical Structure of the GCubed Model, Economic Modelling, vol. 16(1) • IMAGE (2001), The IMAGE 2.2 Implementation of the SRES Scenarios, RIVM CDROM, Bilthoven, The Netherlands.

8. Evaluating Climate Change Impacts: an Integrated Approach Modelling the impacts • Tol (2002) reviews the available studies for impacts on human health, productivity in agriculture and forestry, losses of species and ecosystems, sea level rise, energy consumption and water resources. • He discusses methodological issues and provides a meta-analysis, obtaining “best guesses” for the valuation of the various impacts • Tol, R.S.J.,(2002) Estimates the Damage Costs of Climate Change: Benchmark and Dynamic Estimates, Part I and II, Environmental and Resources Economics, vol. 21.

9. Evaluating Climate Change Impacts: an Integrated Approach Implementing Climate-Change Impacts on Health in GTAP-EX

10. Evaluating Climate Change Impacts: an Integrated Approach • Climate change affects human health in several ways. Here we consider the influence of climate change on heat and cold stress related diseases (respiratory and cardiovascular), and on main Vector-borne diseases (malaria, dengue and schistosomiasis). • Cardiovascular and respiratory disorders are worsened by both extreme cold and extreme hot weather and are mainly an urban phenomenon that affect differently people above and below 65 years old. Vector-borne diseases may intensify and spread with warmer and more humid conditions. • At this preliminary stage the main economic effect of the changes in health status that we consider are changes in labour productivity. In particular the change in labour productivity per year is related via statistical model to the total number of life years diseased due to the change in the incidence of the above mentioned illness.

11. Evaluating Climate Change Impacts: an Integrated Approach Nature of inputs: Labour productivity loss due to 1°C or 2°C temperature increase respect to 2000 per country (all). Steps for implementation: (a) Compute emission pattern starting from data for 2010, 2030, 2050. (b) Compute temperature increase respect to 2000 according to that pattern in 2010, 2030, 2050. (c) Re-scaling labour productivity losses. (d) Aggregate losses according to GTAP-EX 8 world regions. (e) Shock the GTAP-EX system.

12. Evaluating Climate Change Impacts: an Integrated Approach CO2 Emissions (Giga Ton of C)

13. Evaluating Climate Change Impacts: an Integrated Approach Estimated Temperature Increase

14. Evaluating Climate Change Impacts: an Integrated Approach Labour productivity loss due to climate change • Percentage changes respect to 2010, 2030 and 2050 baselines. • Aggregated according to GTAP-EX macro-regions. • These are the shocks to labour productivity direct inputs for GTAP-EX

15. Evaluating Climate Change Impacts: an Integrated Approach Labour productivity loss due to climate change: some comments • We can note firstly that the changes in productivity are quite small, for example maximum shock is smaller than 0.1% • We can note that these impacts are both positive and negative. In particular they are positive (increased productivity) for developed regions (except JPN) whereas they are negative for the developing world. This is due to the fact that major labour productivity losses are induced by vector-borne diseases, that are in practice equal to zero in the developed countries. • interesting is the case of JPN where cardiovascular and respiratory diseases worsen decreasing labour productivity. This effect that is a counter tendency for developed regions is due to the high percentage and density of population living in urban areas.

16. Evaluating Climate Change Impacts: an Integrated Approach Climate change impacts on health: selected results

17. Evaluating Climate Change Impacts: an Integrated Approach Climate change impacts on health: comments • EV is a welfare indicator: “Equivalent variation is the compensating payment that in the absence of the economic change moves the consumer to the welfare level associated with the change. For example, if we have a price increase, the equivalent variation is the maximum amount the consumer would be willing to pay to avoid the price increase.” • It is possible to note that negative shocks on labour productivity translate in negative impacts on GDP and welfare and vice-versa. The same is true for emission: in general a lower GDP implies lower emission… • …Again is interesting the case of Japan: in 2030 the variation of GDP respect to the baseline is negative whereas variation of emissions from the baselines are positive. This is a typical effects that a CGE model can highlight:a substitution process between production factor. In this specific case labour is substituted with capital and, as a consequence, even though output declines the production mix is nevertheless more polluting.

18. Evaluating Climate Change Impacts: an Integrated Approach Implementing Climate-Change Impacts on Sea Level Rise in GTAP-EX

19. Evaluating Climate Change Impacts: an Integrated Approach Nature of inputs: Dry-land loss fraction without coastal protection due to 5, 15, 25 cm of sea level rise estimated for 2010, 2030 and 2050 respectively Steps for implementation: (a) Aggregate losses according to GTAP-EX 8 world regions. (b) Shock the GTAP-EX system.

20. Evaluating Climate Change Impacts: an Integrated Approach Re- scaled dryland loss due tosea-level rise • Percentage changes respect to 2010, 2030 and 2050 baselines. • Aggregation according to GTAP-EX macro-regions. • These are the shocks to stock of land direct inputs for GTAP-EX

21. Evaluating Climate Change Impacts: an Integrated Approach Impact of climate-change induced sea-level rise: selected results

22. Evaluating Climate Change Impacts: an Integrated Approach Impact of climate-change induced sea-level rise: selected results • In some cases GDP and equivalent variation do not move in the same direction, this is due the fact that EV doesn’t take into account capital depreciation, and consequently considers as a positive investment the investment necessary to maintain capital stock at its productive capacity. Moreover EV is related to utility and the functional form used to aggregate utility components transforms considerably these components. • As before the variation in CO2 emissions doesn’t have always the same sign of GDP variation. Consider, for instance, developed countries: GDP falls respect to the baseline but CO2 emissions increase. In this case what is highlighted is a substitution process between land and capital. Interestingly this substitution seems particularly strong in developed regions which are relatively capital abundant (USA-EU-Japan-RoA1). On the contrary in developing regions variations in GDP and emissions have the same sign highlighting a weaker substitution possibility between land and capital.

23. Evaluating Climate Change Impacts: an Integrated Approach Implementing Climate-Change Impacts on Health and Sea Level Rise in GTAP-EX

24. Evaluating Climate Change Impacts: an Integrated Approach Impact of climate change on sea-level rise and health: selected results

25. Evaluating Climate Change Impacts: an Integrated Approach Some Limitations • The choice of modelling the climate change as a one-time event. Climate change occurs progressively over time, and natural systems interact dynamically with human systems. • On the environmental side, the climate change has its own dynamics, due to the adaptation processes of natural and human systems to the changing environment. • On the economic side, the static CGE model does not take into account the inter-temporal agents decisions process.

26. Evaluating Climate Change Impacts: an Integrated Approach Future developments 1. To enlarge the spectrum of climate change effects in the comparative static analysis. 2. To develop the environmental block of equations. 3. To develop a “recursive dynamic” version of the GTAP-E model (GTAP-ER). 4. To have hard-link integration between modules.