W7

Question 1

What is considered in a cost benefit analysis of climate change?

Answer 1

costs of tackling cliamte change - mitigation and adaption

benefits of tackling climate change - avoided impacts

Question 2

What are some of the policy choices you could make?

Answer 2

carbon pricing

technological innovation support

incentivise behaviour change

international cooperation

Question 3

What is social cost-beneift analysis?

Answer 3

apply monetary values to all the postive and negative consequences - ie. benefits and costs of a policy
- benefits are anything that improves human wellbeing, costs are anything that reduced wellbeing

yes if social benefits>social costs

if several alternatives then say yes to highest net social benefit

cost benefit analysis allows for the identification of p. improvements in principle

nb. monetary values allow for ease of comparison but difficult to put monetary value on things like species extinction or the value of a human life

Question 4

What is cost-effective analysis?

Answer 4

identification of most cost-effective way to meet a chosen climate change taret?

Question 5

What are some examples of questions asked in cost-benefit analysis vs cost-effective analysis?

Answer 5

CBA
- what is the optimal level of global warming

CEA
- what is the least-cost way of limiting warming to 1.5oc

Question 6

What is an integrated assessment model?

Answer 6

integrates GDP and population growth as well as climate policies, economic, energy systems, and change and climate outcomes

used to do either cost benefit or cost efficiency analysis

attempts to combine a wide variety of technological options for mitigation - assess what happens under BAU and under other policies

Question 7

What is a simple IAM?

Answer 7

benefit-cost IAM

uses simplified equations to represent
- economic costs of reducing emissions
- economic damage of climate change

allows comparisons of costs and benefits of reducing emissions

more top-down assessment

Question 8

what is a complex IAM

Answer 8

process-based IAM

use complex energy, land and agricultural models to represent GHG emitting processes

use intermediate complexity climate models to relate GHG emissions to temperature changes

in general, do not allow a calculation of the economic damages that result from warming

secotral impact models

more bottom up

Question 9

What is the principle of monetising impacts from the bottom up?

Answer 9

price x quantitiy but this depends on what price is
- easier for market sectors where prices are observed
- much harder for non-market sectors where they are not observed

• economists solve the problem of agg, over type of impact by applying prices - prices indicate relative worth of different impacts

cant just take a number has a huge implication - very unsure how to price a polar bear vs a squirrel or a human life

Question 10

what is the principle of monetising impacts top down?

Answer 10

relationship between cliamte variables and economic outcomes eg. gdp vs temperature

what is the value that is being produced at the moment - but the relationship might not be linear

thinking about the causality of a relationship - linear or non-linear

used for the impacts or damages associated with climate change

Question 11

How do you calculte mitigation costs from the bottom up?

Answer 11

marginal abatement cost curve

Question 12

how do you think about mitigation costs top down?

Answer 12

• equations that link economic activity in present to emissions - using historical data

cost of mitigation then becomes avoided consumotionand or lower efficient/higher cost of clean cap

Question 13

What are some of the challenges associated with cost benefit analysis?

Answer 13

costs and benefits occur
- at different times
- at different places
- with different levels of uncertainty

ethical considerations
- how do we value the utility for future generations
- how do we value the utility for poorer people
- how do we account for risks and uncertainty

effects are heterogenous - future and present and between different geographical locations
ethical assumptions about the value of life today and in the future

Question 14

What did the stern review predict the impact of BAU would be for GDP?

Answer 14

as much as 20% with uncertainty for damages

but there is huge variation in mitigation costs

Question 15

the higher the interest rate the ….its worth

Answer 15

lower in the present relative to the future

Question 16

what are some of the problems associated with IAMs?

Answer 16

• struggle to incorporate the scale of risks eg. tipping points, calibrated on past weather events
• fail to capture or communicate uncertainty - fait tailed cateastrophies, expected utility, bad outcomes weigh heavily
• discount the future too heavily - underestimate benefits of mitigation - avoided climate damages = underestimate the ability to adapt to climate change - especially when deriving damage functions from extreme weather events
• omit co-benefits like air pollution (i.e. mitigation policies might generate greater energy efficiency and also reduce air pollution)
• underestimate innovation processes
• underestimate behaviour change

total = overestiamte the costs of mitigation for reduced warming

Question 17

what is standard real options theory?

Answer 17

if you deal with an irreversible investment project with uncertain outcome there is an increase value of waiting

Question 18

how does the standard real options theory impact ideas of cc action?

Answer 18

because there is uncertainty the theory holds that we might have a benefit in waiting for climate action

however, irreversibility happens if we cross over unknown tipping points

uncertainty means that we should favour strong action earlier to avoid limiting our options in the future

Question 19

what is the key takehome message?

Answer 19

the cost of action is much less than the consequences of inaction

Question 20

Complete the following…

Q today increases which leads to….

Answer 20

increase in Co2 today

leading to

increase in temperature

leadting to

more costly production in future

Question 21

What does the marginal social cost today =

Answer 21

pMarginal Losst surplus = pQtoday

this is the discount factor = conversion factor