Impacts and adaptation to climate change in European economies

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ImpactsandadaptationtoclimatechangeinEuropeaneconomiesAsbjørnAaheima,*,HeleneAmundsena,ThereseDokkenb,TaoyuanWeiaaCICERO,CenterforInternationalClimateandEnvironmentalResearch,Oslo,Norway

bUMBSchoolofEconomicsandBusiness,Norway

1.IntroductionTheConferenceofthePartiesoftotheUnitedNations’FrameworkConventiononClimateChange(UNFCCC)agreedinCopenhagenin2009tokeeptheincreaseinglobalmeantemperaturebelow+28C,andagreedinCancu´nin2010toconsiderafurtherrestrictionto+1.58C.Economicstudiesundertakenyearsago(Nordhaus,1991;Fankhauser,1995;Tol,1995),hasshownthattheeconomicbenefitsofimplementingthepoliciesneededtoreachsuchatargetarefarfromsufficienttocoverthecorrespondingcostsofcuttingemissions.AnexemptionisStern(2006),whoconcludedthatimmediateandradicalcutsinemissionsareurgent.Thedifferentconclusionsamongeconomistsdonotmainlyarisebecauseofdifferentassumptionsaboutthecostsofabatementorimpactsofclimatechange.Thedisagreementisaboutthechoiceofdiscountrate,whichisakeytotheevaluationofcostsandbenefitsintheapproachtaken.Thefocusonthechoiceofdiscountratemayexplainwhytherehavebeenrelativelyfewstudiesoneconomicimpactsofclimatechangeinlateryears.Traditionalcost-benefitanalysesarehamperedwithsevereweaknesseswhenappliedtoevaluationsofactivitieswithaninfinitetimehorizon,suchasemissionofgreenhousegases.Aaheim(2010)showsthatinsteadofcomparingdiscountedcostsandbenefits,climatepolicyshouldratherbeevaluatedwithreferencetooptimalstabilizationlevels.Asitturnsout,theoptimalstabilizationlevelissubject,firstandforemost,tothecostsof

emissionscontrolandtheimpactsofclimatechange,whilethediscountrateislessimportant.Hence,assessmentsofimpactsofclimatechangeareessentialalsoineconomicanalyses,regardlessofwhatonemightthinkaboutthediscountrate.

Macroeconomicmodellingstudiesundertakentoassesstheeconomicconsequencesofclimatechangecanbebroadlycategorizedintwotraditions.Oneistoestimatethetotalcostofdamagewithorwithoutadaptation,andsubtractthesefromthe

economicvaluesgeneratedwithoutclimatechange(NordhausandBoyer,2000;Tol,2002).Theother,morerecent,traditionappliesgeneralequilibriummodels,wheretheimpactsofclimatechangeareattachedtospecificsectorsoftheeconomy.Theimpactsmay

berepresentedbydamagefunctionsbrokendowntosectors(Jorgensenetal.,2004;Ebolietal.,2010),oronemayintegratemicro-basedmodelsorresultsfrombottom-upstudies(Ciscaretal.,2011b)todistinguishconsequencesinvarioussectorsofthe

economy.Climatechangetheninitiatessectorsubstitutionduetovariationsinimpactsbetweensectors.Thisadaptationisnotcapturedbymodelsthatapplyaggregateddamagefunctions.

TheobjectiveofthisstudyistoassessthemacroeconomicimpactsofclimatechangeinEuropeunderaglobalwarmingof+28Cand+48C.Webuildonthesecondtraditionofmodelling,buttakethespecificationofimpactsofclimatechangetwosteps

further.First,insteadofapplyingdamagefunctionstosectors,we

GlobalEnvironmentalChange22(2012)959–968ARTICLEINFOArticlehistory:Received8November2011Receivedinrevisedform19June2012Accepted21June2012Availableonline1August2012Keywords:MacroeconomicanalysisImpactsofclimatechangeAdaptationABSTRACTThispaperevaluatestheimpactsofclimatechangetoEuropeaneconomiesunderanincreaseinglobalmeantemperatureat+28Cand+48C.Itisbasedonasummaryofconclusionsfromavailablestudiesofhowclimatechangemayaffectvarioussectorsoftheeconomiesindifferentcountries.Weapplyamacroeconomicgeneralequilibriummodel,whichintegratesimpactsofclimatechangeondifferentactivitiesoftheeconomies.Agentsadaptbyrespondingtothechangesinmarketconditionsfollowingtheclimaticchanges,thusbringingconsistencybetweeneconomicbehaviourandadaptationtoclimatechange.Europeisdividedinto85sub-regionsinordertocaptureclimatevariabilityandvariationsinvulnerabilitieswithincountries.Wefindthattheimpactsinthe+28CaremoderatethroughoutEurope,withpositiveimpactsonGDPinsomesub-regionsandnegativeimpactsdownto0.1percentperyearinothers.At+48C,GDPisnegativelyaffectedthroughoutEurope,andmostsubstantiallyinthesouthernparts,whereitfallsbyupto0.7percentperyearinsomesub-regions.WealsofindthatclimatechangecausesdifferentiationsinwagesacrossEurope,whichmaycausemigrationfromsouthernpartsofEuropetonorthernparts,especiallytotheNordiccountries.ß2012ElsevierLtd.Allrightsreserved.

*Correspondingauthor.Tel.:+4722858761;fax:+4722858751.E-mailaddress:asbjorn.aaheim@cicero.uio.no(A.Aaheim).

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journalhomepage:www.elsevier.com/locate/gloenvcha

0959-3780/$–seefrontmatterß2012ElsevierLtd.Allrightsreserved.http://dx.doi.org/10.1016/j.gloenvcha.2012.06.005