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Impacts of Climate Change Adaptation Policies at City Scale

Impacts of Climate Change Adaptation Policies at City Scale. CHRISTINA B. WILKE STEFAN TSCHARAKTSCHIEW (HWWI HAMBURG) (TU DRESDEN) European Meeting of the International Microsimulation Association, Dublin, May 17-19 2012 Farm Workshop, Session 6: Environment. Outline.

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Impacts of Climate Change Adaptation Policies at City Scale

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  1. Impacts of Climate Change Adaptation Policies at City Scale CHRISTINA B. WILKE STEFAN TSCHARAKTSCHIEW (HWWI HAMBURG) (TU DRESDEN) European Meeting of the International Microsimulation Association, Dublin, May 17-19 2012 Farm Workshop, Session 6: Environment

  2. Outline • Motivation • The Model • Introducing Climate Change Induced Shocks • Possible Model Extensions • Some Thoughts On Modelling Climate Change Adaptation Policies • Outlook Hamburg Institute of International Economics (HWWI)

  3. 1. Motivation a) Climate Change Occurrence of extreme weather events (heavy rainfalls, storms, heat waves) will increase b) Cities About 50% of world population lives in cities (2050 69%) Number of megacities will increase from 2 in 1950 to 29 in 2025 Most cities are coastal cities, vulnerable to storm surges, flooding and tsunamis c) Urban General Equilibrium Model Simultaneous, spatial analysis of all relevant markets (Labour, Goods and Land market) Hamburg Institute of International Economics (HWWI) Page 3

  4. Outline • Motivation • The Model • Introducing Climate Change Induced Shocks • Possible Model Extensions • Some Thoughts On Modelling Climate Change Adaptation Policies • Outlook Page 4 Hamburg Institute of International Economics (HWWI)

  5. 2. The Model Urban Computable General Equilibrium Model based on Anas and Xu (1999) Representative type of household (number is exogenous) Representative type of firm (number / aggregate output endogenous) Area is given (number of zones exogenous) Simultaneous decisions on output production, location of households and firms, prices on labour, goods and land market are determined Seite 5 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  6. 2. The Model - Firms Seite 6 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  7. 2. The Model - Firms C-D production function: Index i = zones Xi = aggregate output B = technology factor (in base simulation 0.25) Mi = aggregate labor input Qi = aggregate land input Seite 7 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  8. 2. The Model - Households Seite 8 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  9. 2. The Model - Households N consumers, each consumer maximizes utility via the utility function: Uij = utility Zijk= number of shopping trips the consumer makes to zone k qij = lot size Lij = leisure hours uij = idiosyncratic taste constants shopping living leisure Seite 9 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  10. 2. The Model - Households Budget restriction: Zijk= number of shopping trips the consumer makes to zone k pk = commodity price tij = money costs of one-way travel from zone i to j ri = rent qij = lot size v = number of working days per year wj = wage H = hours per year Tij = total annual travel time of the consumer (commuting and shopping trips) Lij = leisure D = rent dividend paid to each consumer reflecting his share of land labour income costs for rent expenditure for shopping costs for commuting to work Seite 10 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  11. Increase in Demand Increase in Supply Price Supply Supply p1 p0 p0 p1 Demand Demand x0 x1 x0 x1 Quantity 2. The Model – Goods, Labour and Land Market Hamburgisches WeltWirtschaftsInstitut (HWWI)

  12. 2. The Model – Spatial Effects City Zone 1 Zone 2 Zone 3 Seite 12 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  13. 2. The Model - Firms City Zone 1 Zone 2 Zone 3 Seite 13 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  14. 2. The Model - Households City Zone 1 Zone 2 Zone 3 Seite 14 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  15. 2. The Model – Spatial Distribution of Firms and Households City Zone 1 Zone 2 Zone 3 Seite 15 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  16. 2. The Model - Equilibrium As a result households and firms are dispersed over the city Residental and employment density are highest in the center and decreasing in outer zones Seite 16 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  17. 2. The Model - Equilibrium land is immobile, labour is mobile between zones Rents are highest, wages are lowest in the center Reason: Substitution between land and labor inputs in the center (wage increases), but labour supply in the center is very high (wage decreases) Seite 17 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  18. Outline • Motivation • The Model • Introducing Climate Change Induced Shocks • Possible Model Extensions • Some Thoughts On Modelling Climate Change Adaptation Policies • Outlook Page 18 Hamburg Institute of International Economics (HWWI)

  19. 3. Introducing Climate Change Induced Shocks - Land Climate change (more or more severe floods) reduces the amount of available resources (land): Due to floods a certain amount of land is no longer available (completely flooded) Available land is more valuable Substitution of land and labour, effects on distribution of firms Page 19 Hamburg Institute of International Economics (HWWI)

  20. Floods destroy infrastructure, thereby increasing transport costs: Due to floods a parts of the transport infrastructure are destroyed or no longer usable Transport costs between zones increase Effects on the production of firms Feedback effects on goods and labour markets … 3. Introducing Climate Change Induced Shocks - Transport Page 20 Hamburg Institute of International Economics (HWWI)

  21. 3. Introducing Climate Change Induced Shocks - Spatial Effects City Zone 1 Zone 3 Zone 2 +415% -25% -25% -64% -15% -15% Seite 21 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  22. 3. Introducing Climate Change Induced Shocks - Spatial Effects City Zone 1 Zone 3 Zone 2 +6% +3,1% +3,1% Seite 22 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  23. Outline • Motivation • The Model • Introducing Climate Change Induced Shocks • Possible Model Extensions • Some Thoughts On Modelling Climate Change Adaptation Policies • Outlook Page 23 Hamburg Institute of International Economics (HWWI)

  24. 4. Possible Model Extensions - Housing Sector (Firms) C-D production function with CES-subfunction (for i zones) pih = price of the housing good Xih = aggregate housing quality output Bh = technology factor Intjih = intermediate goods input from zone j in zone i Cjiint = total costs of intermediate goods (goods price and transport costs) Page 24 Hamburg Institute of International Economics (HWWI)

  25. 4. Possible Model Extensions - Housing Sector (Firms) Climate change lowers the productivity of the housing sector that produces housing quality: Inputs are less productive due to climate change effects (partly flooded land) No direct effects of climate change on housing quality, but maintaining certain level is more costly (needs more resources) Supply of housing quality decreases Page 25 Hamburg Institute of International Economics (HWWI)

  26. 4. Possible Model Extensions - Housing Sector (Firms) Xih = aggregate housing quality output Bh = technology factor Mih = aggregate labor input Qih = aggregate land input Intjih = intermediate goods input from zone j in zone i Dih = damage factor between zero and one ^ Page 26 Hamburg Institute of International Economics (HWWI)

  27. 4. Possible Model Extensions - Demand For Housing Quality (Households) Uij = utility for living-work pair i,j Zijk= number of shopping trips the consumer makes to zone k qij = lot size qhij= housing quality Lij = leisure hours uij = idiosyncratic taste constants Page 27 Hamburg Institute of International Economics (HWWI)

  28. 4. Possible Model Extensions - Demand For Housing Quality (Households) Climate change increases the demand of housing quality: In a costal city climate change increases the probability of floods Housing quality (flood protection) becomes more important compared to other utility factors Demand of housing quality increases Page 28 Hamburg Institute of International Economics (HWWI)

  29. 4. Possible Model Extensions - Demand For Housing Quality (Households) Uij = utility for living-work pair i,j Zijk= number of shopping trips the consumer makes to zone k qij = lot size qhij= housing quality Lij = leisure hours uij = idiosyncratic taste constants D0 = whole city damage; if damages occur, D0>1 Di = zone specific damages in zone i; if damages occur, Di>1 Page 29 Hamburg Institute of International Economics (HWWI)

  30. Outline • Motivation • The Model • Introducing Climate Change Induced Shocks • Possible Model Extensions • Some Thoughts On Modelling Climate Change Adaptation Policies • Outlook Page 30 Hamburg Institute of International Economics (HWWI)

  31. 5. Some Thoughts On Modelling Climate Change Adaptation Policies Possible adaptation policies Dikes (public goods character) Retention Areas Private Insurance (incentives) How can they be introduced into the model? Additional costs: Investment into policy measure Additional benefit: less damage in the case of the occurence of an extreme event (uncertainty…) Seite 31 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  32. Outline • Motivation • The Model • Introducing Climate Change Induced Shocks • Possible Model Extensions • Some Thoughts On Modelling Climate Change Adaptation Policies • Outlook Page 32 Hamburg Institute of International Economics (HWWI)

  33. 6. Outlook Further possible extensions: Intermediate goods sector Two household types (rich – poor) Uncertainty and risk (with certain probability particular zones are flooded) Scenario analysis: Uncertainty of occurence of extreme events Economic scenarios Seite 33 Hamburgisches WeltWirtschaftsInstitut (HWWI)

  34. Thank you for your attention! Comments? Seite 34 Hamburgisches WeltWirtschaftsInstitut (HWWI)

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