CIP extra Flashcards
Interpretation of Time * treatment * SIA
The (positive) flood impacts on firms’ capital growth, labor growth, and value added increase with the shares of intangible assets. So firms with a higher intangible assets experience stronger positive impacts of flooding compared to firms with a lower share of intangible assets.
Three interactions/dynamics within our economy that you can capture with macroeconomic modelling frameworks
- Model the effects of the supply chain disruptions on the economy, through reductions in trade flows within the economy.
- Model the impacts of infrastructure disruptions on the economy, through reductions in trade flows within the economy.
- Model the impact of post-disaster migration through reductions in household demand in the model.
When to use IO (instead of CGE)?
Due to its linearity, short-term effects are often analysed with input-output based approaches. For an I0 model to be suitable, a disturbance must be long enough to take effect but also short enough to avoid excessive substitutions. I0 models are often praised for their simplicity and ability to explicitly reflect the economic interdependencies between sectors and regions for deriving higher-order effects. They are fairly easy to interpret, and work especially well when relative few data is available (and where the creation of a CGE model is not possible/worth it) or when only a quick assessment of the potential impacts is required.
When to use CGE (instead of IO)?
CGE models are more complicated, as they include supply side effects and allow for more flexibility due to their nonlinearity regarding inter-sectorial deliveries, substitution effects and relative price changes. In a complex (multiregional) economy, or when one wants to assess, for example, price effects, a CGE model is the most favourable approach. CGE models are also suitable to assess long-term effects, due to the possibility of price changes and substitution.
Applications of IAMs (&output)?
- Estimate the Social Cost of Carbon
- IAMS have been applied to estimate the total welfare costs of climate change, which capture market and non-market effects of climate change that are all monetized.
The output of this analysis is the total impacts of climate change that are commonly expressed as a % of equivalent GDP loss for the world or for particular regions. - Another application of IAMS is to derive economically optimal pathways of global greenhouse gas emission reductions to inform international climate policy negotiations.
The relevant model output is a time series of how much greenhouse gas emissions should be emitted (or reduced) at a particular point in time.
Limitations IAMs
- Excluded impact categories: IAMS exclude various difficult to value impact categories of climate change, such as large scale ecosystem losses, climate migration, potential conflicts caused by climate change etc. Some of these may be positive impacts of climate change, but most are negative impacts of climate change on the economy. This implies that their exclusion from IAMS overall causes an underestimation of the costs of climate change.
- Limited representation of climate risks: IAMS focus on expected or most likely impacts of climate change, which means that they often exclude low-probability/high-impact climate catastrophes, such as tipping points in the climate or socio-economic systems. The exclusion of these climate change risks results in an underestimation of the costs of climate change.
- Perfect substitutability of natural and economic capital: IAMS assume that climate impacts on nature, such as biodiversity losses, can be substituted with economic capital (i.e. all monetized impacts are aggregated in the model). This may be incorrect if nature losses are very large (i.e. speciec extinctions) and if society places a higher value on inreasingly scarce nature over time. Not giving additional wight to these nature losses in that case implies an underestimation of the costs of climate change.
What is the relation between discount rate and SCC?
The discount rate is used to translate future climate change costs in present values by giving a lower weight to costs that occur further away in the future. A higher discount rate implies that a lower weight is given to future costs. The social cost of carbon is the marginal cost of emitting a unit of C02 today. Since most of these costs occur far in the future due to inertia in the climate system, weighting these future costs less with a higher discount implies that the social cost of carbon value declines.
Argument for lower discount rate:
Based on the prescriptive approach to discounting and can be defended on the basis of intergenerational equity, which is based on the principle that future generations should be treated equally to the current generation and implies low discounting. Moreover, this principle is consistent with sustainability since it implies that negative climate impacts on ecosystems should not be discounted too heavily, also because ecosystems and biodiversity become scarce and experience low or negative growth.
Why is Carbon tax economically efficient?
Carbon pricing can deal with the large heterogeneity in polluters in a way that relatively more greenhouse gas emissions are reduced by polluters for which it is relatively cheap to reduce emissions, while polluters for which it is relatively expensive to reduce pollution the emission reduction will be relatively lower. With a carbon price all polluters choose that level of emissions abatement for which the associated marginal cost equals the carbon price. Hence, with a carbon price signal, the marginal abatement costs would become equal among all polluters, implying that a given level of abatement is met at lower cost.
Why does a carbon taxt limit rebound?
Carbon pricing can limit rebound effects. Rebound denotes that energy conservation, including through adoption of more energy-efficient technologies, can indirectly create additional energy uses and associated emissions. Hence, the net conservation effect will be lower than the initial energy savings. Technological advances and improvements in energy efficiency tend to lead to a direct reduction in energy consumption. However, given the improved efficiency, the energy services—for instance, traveling by car—become cheaper, which stimulates more intensive use of these services. Moreover, money saved due to more energy efficiency will increase spending on other goods and services, and hence associated energy use and emissions. Rebound effects are limited if carbon pricing is in place, because it is a systems approach that reduces rebound consistently across all carbon intensive goods and technologies. Such pricing would discourage money savings due to energy conservation to be spent on energy-intensive goods and services, as the latter will have a higher price due to carbon pricing.
How does the Bjerknes feedback work (second version from test exam)?
- Interaction between ocean and atmosphere over the Pacific (1 point)
- If atmospheric circulation (Walker cell) weakens this leads to reduced wind-driven ocean circulation and therefore less upwelling of cold water in the east/Peruvian coast (2 points)
- This warms the east and reduces the temperature gradient between east-and-west Pacific and therefore further weakens the Walker circulation (2 points)
Reasons for pricing carbon:
- Can deal with heterogeneous polluters, equalizes marginal abatement costs among polluters => cost-effective
- Permanent incentive for both technology adoption & innovation (environmental innovation trajectories misguided if prices wrong)
- Limits energy/carbon rebound, and emission leakage between countries if many countries adopt it
- Subtle, complete control: carbon pricing alters relative prices of goods/services proportional with pollution generated over life-cycle. Contributes to effectiveness.
- Consumers are more sensitive to prices than environmental concerns, bounded rationality hampers eco-consumption
- Pricing means “decentralization” of regulation => low information needs since no separate life-cycle analysis is needed
