Climate Economics Publications
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Emission Reduction, Interstate Equity, and the Price of Carbon
August 17, 2010
Elizabeth A. Stanton and Frank Ackerman
Efforts to pass climate legislation failed in the U.S. Congress this year due, to a great extent, to economic concerns. However, a new study by SEI economists released by Economics for Equity and the Environment (the E3 Network) shows that a simple approach that puts a price on carbon, then returns most of the revenue to households, could effectively reduce greenhouse gas emissions without hurting most Americans' incomes. Just as important, the study found, as long as enough of the revenue is returned to households, the actual price put on carbon (via permits, a fee, or a tax) doesn't change the outcome: The average family of four in every state still comes out ahead even at $75 per ton of CO2. In a companion white paper, the authors offer seven questions by which to judge the effectiveness of proposed climate policies.
Read more and download the report and white paper.
No State Left Behind: A Better Approach to Climate Policy
August 17, 2010
Elizabeth A. Stanton and Frank Ackerman
In a white paper published together with a new report, Emission Reduction, Interstate Equity, and the Price of Carbon (see above), the authors propose a way for the public and policymakers to judge the effectiveness of a potential climate policy approach at reducing emissions while minimizing economic impacts. They offer seven questions, ranging from how low the emissions targets are, to whether a large share of revenues will be rebated to households, to how green investment will be allocated.
Read more and download the white paper and the related report.
Understanding Interstate Differences in U.S. Greenhouse Gas Emissions
June 4, 2010
Elizabeth A. Stanton, Frank Ackerman, and Kristen Sheeran, SEI Working Paper WP-US-1004
Per capita carbon dioxide emissions vary dramatically among U.S. states, from a high of 76.5 mT CO2 in Alaska to a low of 12.2 in Vermont. This article seeks to identify the underlying causes and possible policy interventions. Using data on energy-related CO2 emissions and correcting for interstate electricity sales, we find several factors can lead to higher emissions: Sparsely populated states with low gasoline prices and little public transportation use have high transportation emissions. States where oil is a common heating fuel, the average income is high, and the climate is cold have high emissions from residential heating. States that generate much of their power from coal and have a hot, humid climate and low electricity prices have high residential electricity emissions. The key policy variables we identify are the prices of gasoline and electricity, and public transportation use.
Download the working paper.
Fat Tails, Exponents, Extreme Uncertainty: Simulating Catastrophe in DICE
June 2010
Frank Ackerman, Elizabeth A. Stanton, and Ramón Bueno, Ecological Economics, 69:9, pp. 1657-1665
The problem of low-probability, catastrophic risk is increasingly central to discussion of climate science and policy, but integrated assessment models (IAMs) in climate economics rarely incorporate this possibility. What modifications are needed to analyze catastrophic economic risks in an IAM? We explore the question using DICE, a well-known IAM, examining the implications of a fat-tailed probability distribution for the climate sensitivity parameter, a focus of recent work by Martin Weitzman, and the shape of the damage function, one of the issues raised by the Stern Review.
An earlier version of this article appeared as SEI Working Paper WP-US-0901, February/May 2009.
Read the article online (journal subscription, library access or payment required) or email us for a copy.
Cost-Benefit Analysis of Climate Change: Where It Goes Wrong
May 2010
Frank Ackerman, in Economic Thought and U.S. Climate Change Policy, ed. David M. Driesen (Cambridge, MA: The MIT Press)
A succinct explanation of the major problems with cost-benefit analysis when applied to climate policy, including an evaluation of William Nordhaus' DICE model, the best-known of the conventional cost-benefit analyses of climate change; a comparison with the economic analysis of the British Stern Review; and suggestions for how to construct a better approach to climate economics. Ackerman explains the importance of discount rates, the need to consider the possibility of catastrophic scenarios, and the role of new, lower-carbon technologies in economic development, which could help offset climate mitigation costs.
Read more about the book on The MIT Press website.
CRED: A New Model of Climate and Development
April 28, 2010
Frank Ackerman, Elizabeth A. Stanton, and Ramón Bueno, SEI Working Paper WP-US-1003
This paper describes a new model, Climate and Regional Economics of Development (CRED), which is designed to analyze the economics of climate and development choices. Its principal innovations are the treatment of global equity, calculation of the optimum interregional flows of resources, and use of McKinsey marginal abatement cost curves to project the cost of mitigation. The model shows more equitable scenarios have better climate outcomes; the challenge of climate policy is to persuade high-income countries to accept the need for both international equity and climate protection.
Download the working paper.
The Social Cost of Carbon
April 1, 2010
Frank Ackerman and Elizabeth A. Stanton
In a new Economics for Equity and the Environment (E3 Network) white paper, Ackerman and Stanton analyze the assumptions underlying the economic models which the U.S. government used for defining the "social cost of carbon." They highlight the significant shortcomings of the models and point out how they lead to underestimating the risks and costs of climate change.
Download the white paper.
The Need for a Fresh Approach to Climate Change Economics
April 2010
Frank Ackerman, Stephen J. DeCanio, Richard B. Howarth and Kristen Sheeran, Proceedings of Workshop on Assessing the Benefits of Avoided Climate Change, March 16–17, 2009
A look at the limitations of integrated assessment models (IAMs) used by economists to analyze the expected costs and benefits of climate policies, which frequently suggest that the "optimal" policy is to do relatively little in the near term to reduce greenhouse gas emissions – in sharp contrast to the emerging scientific consensus about the irreversibility of climate change and the risks of catastrophic impacts. Adapted from "Limitations of integrated assessment models of climate change" (see below), Climatic Change 95:3-4, August 2009.
Download the paper.
Carbon Markets Are Not Enough
February 2010
Frank Ackerman
Writing in the United Nations Conference on Trade and Development's Trade and Environment Review 2009/2010, Ackerman argues that setting a price for carbon emissions is only the beginning of climate policy – not the end. While carbon prices will change energy costs, energy consumption and carbon emissions, relying on carbon markets alone would be ineffective and inequitable, so other policies are needed to offset the equity impacts of higher fuel costs and spur the development of new low-carbon technologies.
Download the article.
Financing the Climate Mitigation and Adaptation Measures in Developing Countries
December 2009
Frank Ackerman
In a new United Nations Conference on Trade and Development G-24 Discussion Paper, Ackerman examines the challenges of financing a transition to low-carbon technologies and growth in developing countries. Adaptation alone will cost these countries tens of billions of U.S. dollars per year, he writes, but total funding is now less than $15 billion, with a large share as carbon offset sales. Streamlined and improved alternatives are needed, he concludes, suggesting the Montreal Protocol for reduction of ozone-depleting substances as a possible model.
Download the discussion paper.
Daydreams of Disaster; Report to the California Attorney General 2009
December 2009
Frank Ackerman
In this report, Ackerman evaluates the Varshney-Tootelian critique of California's greenhouse gas law, AB 32, and their estimates of the cost of state regulation on businesses. Their studies predict that AB 32 will result in losses as large as 10 percent of California's output, and that the losses from state regulation overall are responsible for a loss of one-third of California's output. Ackerman finds both studies are unsound and unreliable economic analysis. The losses they project would be serious economic impacts – if they were real. They are, however, entirely unreal; they should be viewed merely as "daydreams of disaster."
Download the report.
Comments on EPA and NHTSA "Proposed Rulemaking to Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards"
November 27, 2009
Frank Ackerman
In comments filed with the U.S. Environmental Protection Agency, Ackerman analyzes the economic models used by the government to determine an interim "social cost of carbon" (SCC) estimate are flawed and underestimate the potential damages from each ton of CO2 released into the atmosphere. He argues that the agencies are relying on an overly narrow and incomplete reading of the economic literature on climate change, questions the use of discount rates as high as 5 percent, notes the lack of consideration of possible catastrophic outcomes, and suggests a different approach altogether, based on the lowest-cost measures needed to avoid catastrophic outcomes.
Download the comments.
Yale Environment 360: The Economic Case for Slashing Carbon Emissions
October 20, 2009
Frank Ackerman
In this article, written for lay audiences, Ackerman summarizes the findings of The Economics of 350, explaining why aggressively reducing CO2 emissions to meet a 350ppm target is both necessary and economically feasible.
Read the article.
The Economics of 350: The Benefits and Costs of Climate Stabilization
October 6, 2009
America's largest network of independent climate economists has issued a major new report showing that the more aggressive world leaders are in curbing world carbon emissions, the greater the economic benefits will be. The two lead authors, SEI researchers Frank Ackerman and Elizabeth A. Stanton, co-authored the report with researchers from universities and think-tanks across the country. The report argues that a worldwide effort to lower atmospheric carbon concentrations to 350 parts per million is affordable; it can create more new jobs, spur more innovation and protect businesses, governments and households from the damages caused by the rapid heating of the earth. The report concludes that the estimated cost of reaching a target of 350 parts per million is roughly equivalent to one to three percent of world gross domestic product.
Read more and download the report.
Inside the integrated assessment models: Four issues in climate economics
Fall 2009
Elizabeth A. Stanton, Frank Ackerman, and Sivan Kartha, Climate & Development 1:2, pp. 166-184
Good climate policy requires the best possible understanding of how climatic change will affect human lives and livelihoods around the world. This article reviews 30 existing integrated assessment models in four key areas: the connection between model structure and the type of results produced; uncertainty in climate outcomes and projection of future damages; equity across time and space; and abatement costs and the endogeneity of technological change. It finds substantial differences among the models and best practices to emulate, but no model that incorporates most or all of those practices.
Download a PDF version of the article.
Financing the Climate Mitigation and Adaptation Measures in Developing Countries
September 2009
Frank Ackerman, SEI Working Paper WP-US-0910
A look at the challenges of financing a transition to low-carbon technologies and growth in developing countries, given their scarce resources and the inadequate international funding mechanisms now in place. This paper has since been updated and adapted for publication as a G-24 Discussion Paper.
Download the working paper.
Limitations of integrated assessment models of climate change
August 2009
Frank Ackerman, Stephen J. DeCanio, Richard B. Howarth and Kristen Sheeran, Climatic Change 95:3-4, pp. 297–315
The integrated assessment models (IAMs) used by economists to evaluate climate policies often suggest that slow, modest reductions in greenhouse gas emissions are "optimal." This article explores why, identifying several contestable assumptions and limitations in IAMs, such as their use of high discount rates and their downplaying of scientific uncertainty. It also suggests that IAMs may exaggerate mitigation costs, and it proposes a different approach to climate policy: reframing the problem as buying insurance against catastrophic, low-probability events.
Download a PDF version of the article.
Did the Stern Review underestimate U.S. and global climate damages?
July 2009
Frank Ackerman, Elizabeth A. Stanton, Chris Hope, Stephane Alberth, Energy Policy 37:7, pp. 2717-2721
This article describes our revisions to the PAGE estimates, and explains our conclusion that the model runs used in the Stern Review may well underestimate U.S. and global damages. Stern's estimates from PAGE2002 implied that mean business-as-usual damages in 2100 would represent just 0.4 percent of GDP for the United States and 2.2 percent of GDP for the world. Our revisions and reinterpretation of the PAGE model imply that climate damages in 2100 could reach 2.6 percent of GDP for the United States and 10.8 percent for the world.
An earlier version of this article appeared as SEI Working Paper WP-US-0802, October 2008.
Read the article online (journal subscription, library access or payment required) or email us for a copy.
Climate and Development Economics: Balancing Science, Politics, and Equity
June 19, 2009
Elizabeth A. Stanton, Frank Ackerman, SEI Working Paper WP-US-0908
The interaction of climate and development threatens to create a paradox: economic development could accelerate climate change, which in turn could block further development, locking the world into existing patterns of inequality as the natural environment deteriorates. The solution to this paradox is far from obvious. What analytical tools are needed to chart a path that leads toward sustainable, low-carbon economic development? This article reviews the implications for climate policy of the climate economics and development literature, focusing on three key areas of judgments and assumptions that are built into a number of leading climate-economics models: 1) the treatment of climate science, risk, and uncertainty in climate-economics models; 2) questions of abatement technologies and costs, including a focus on the “cost effectiveness” method of economic analysis; and 3) ethical issues surrounding the distribution of the costs of emission reductions and adaptation measures.
Download the working paper
Carbon Embedded in China's Trade
June 16, 2009
Frank Ackerman, SEI Working Paper WP-US-0906
A large fraction of China's greenhouse gas emissions are incurred in order to satisfy final demand of consumers in other countries; in effect, carbon emissions are embedded in China's exports. This paper explores the economic context and policy implications of carbon embedded in China's trade. China is a net exporter of embedded carbon because its entire economy is carbon-intensive; if China had its current trade patterns but U.S. carbon intensities in every sector, its net export of embedded carbon would disappear. China's success in trade is based on labor costs, not carbon emissions; there is literally no correlation between carbon intensity and revealed comparative advantage within the Chinese economy today.
In terms of policy, developed countries have discussed border tax adjustments on imports from countries with lower carbon prices. However, since China's comparative advantage is not based on carbon intensity, a border tax adjustment on carbon-intensive goods would do little harm to China, and would have little benefit for developed countries. A globally harmonized carbon price, often assumed to be crucial to successful climate policies, is not strictly necessary in theory, and may not be introduced for some time in practice. When and if it occurs, a harmonized carbon price will raise costs for China's carbon-intensive industries, but will also create an opportunity for China to “leapfrog” beyond the technologies developed in high-income countries and take the lead in creating the technological basis for a sustainable future.
Download the report
Negishi Welfare Weights: The Mathematics of Global Inequality
May 2009
Elizabeth A. Stanton, SEI Working Paper WP-US-0902
In a global climate policy debate fraught with differing understandings of right and wrong, the importance of making transparent the ethical assumptions used in climate-economics models cannot be overestimated. Negishi weighting is a key ethical assumption at work in climate-economics models, but one that is virtually unknown to most model users. Negishi weights freeze the current distribution of income between world regions; without this constraint, IAMs that maximize global welfare would recommend an equalization of income across regions as part of their policy advice. With Negishi weights in place, these models instead recommend a course of action that would be optimal only in a world in which global income redistribution cannot and will not take place. This article describes the Negishi procedure and its origin in theoretical and applied welfare economics, and discusses the policy implications of the presentation and use of Negishi-weighted model results, as well as some alternatives to Negishi weighting in climate-economics models.
Download the working paper
Greenhouse Gases and the American Lifestyle: Understanding Interstate Differences in Emissions
May 2009
Elizabeth A. Stanton and Frank Ackerman are co-authors, along with Kristen Sheeran, director of Economics for Equity and the Environment (E3 Network), of a report on interstate differences in per capita greenhouse gas emissions, broken down by categories to distinguish between transportation, home heating and cooling, and other emissions sources. The report explains why some states have much lower emissions than others and helps clarify the potential regional impacts of proposed policies, such as cap-and-trade, that would impose a price on carbon dioxide emissions.
Read more and download the report
Stern advice for Copenhagen
April 9, 2009
Frank Ackerman, Nature Reports: Climate Change
A review of Nicholas Stern's book Blueprint for a Safer Planet (The Bodley Head: 2009), which offers a sweeping proposal for a global climate deal and argues that saying, "We cannot afford it" is not very different from "we are not sufficiently bothered to deal seriously with climate change." Ackerman notes the urgency of Stern's tone and praises the book for proposing what could be an affordable, effective global deal.
Read the article
Greenhouse Gases and Human Well-Being: China in a Global Perspective
March 31, 2009
Elizabeth A. Stanton, SEI Working Paper WP-US-0907
Most pollution is an unequivocal social bad – a negative externality – but the relationship between greenhouse gas emissions and human well-being is unusually complex. In the long-run, there is a strong scientific consensus that greenhouse gas emissions will result in higher temperatures and sea levels, and a disruption of historical weather patterns. In the short-run, greenhouse gas emissions, and the activities that produce these emissions, result in a mixed set of consequences. Industrialized countries have higher emissions, but also more revenue from the sale of industrial products. China and a few other rapidly industrializing countries stand in the middle. On one side are poorer, less industrialized countries with little responsibility for the emissions that cause climate change and few resources with which to combat its effects. On the other side are richer, more industrialized countries with enormous culpability – both past and present – for the problem of climate change and ample funds for adaptation measures to protect human well-being. This paper takes China as a case study to examine the relationship between greenhouse gas emissions and human well-being.
Download the working paper.
Fat Tails, Exponents, and Extreme Uncertainty: Simulating Catastrophe in DICE
February 2009; updated May 2009
Frank Ackerman, Elizabeth A. Stanton, and Ramón Bueno, SEI Working Paper WP-US-0901
The problem of low-probability, catastrophic risk is increasingly central to discussion of climate science and policy. But the integrated assessment models (IAMs) of climate economics rarely incorporate this possibility. What modifications are needed to analyze catastrophic economic risks in an IAM? We explore this question using DICE, a well-known IAM. We examine the implications of a fat-tailed probability distribution for the climate sensitivity parameter, a focus of recent work by Martin Weitzman, and the shape of the damage function, one of the issues raised by the Stern Review. Forecasts of disastrous economic outcomes in DICE are easily produced by the interaction of these two innovations, but not by either one alone.
An updated version of this paper was published in Ecological Economics in June 2010.
Download the working paper.
Can We Afford the Future? The Economics of a Warming World
January 2009
Frank Ackerman's new book offers a refreshing look at the economics of climate change, explaining how the arbitrary assumptions of conventional theories get in the way of understanding this urgent problem. The benefits of climate protection are vital but priceless, and hence often devalued in cost-benefit calculations. Preparation for the most predictable outcomes of global warming is less important than protection against the growing risk of catastrophic change; massive investment in new, low carbon technologies and industries should be thought of as life insurance for the planet.
Learn more about the book.
Climate Economics in Four Easy Pieces
December 2008
Frank Ackerman, Development 51:3, pp. 325-331
Conventional economic analysis is rapidly replacing the arguments of the climate skeptics as the principal justification for inaction on climate change. In this article, Ackerman presents four broad principles that are fundamental to a better analysis of climate economics: First, your grandchildren’s lives are important. Second, we need to insure the planet against catastrophe; we must focus on preventing worst-case risks, not just respond to average expected outcomes. Third, some climate damages, such as lost lives and ecosystems, are too valuable to have prices. Fourth, some costs are better than others; the 'cost' of reducing emissions will create jobs, incomes, and new technologies.
Read the article online or email Anja Kollmuss for a copy.
Out of the Shadows: What's Behind DEFRA's New Approach to the Price of Carbon
July 2008
Elizabeth A. Stanton and Frank Ackerman
More information and download report
Generated User Benefits and the Heathrow Expansion: Understanding Consumer Surplus
July 2008
Elizabeth A. Stanton and Frank Ackerman
More information and download report
The Caribbean and Climate Change: The Costs of Inaction
May 2008
Ramón Bueno, Cornelia Herzfeld, Elizabeth A. Stanton, and Frank Ackerman
More information and download report
The Cost of Climate Change: What We’ll Pay if Global Warming Continues Unchecked
May 2008
Frank Ackerman and Elizabeth A. Stanton
More information and download report
Inside the Integrated Assessment Models: Four Issues in Climate Economics
2008
Elizabeth A. Stanton, Frank Ackerman,Sivan Kartha, SEI Working Paper WP-US-0801
Good climate policy requires the best possible understanding of how climatic change will impact on human lives and livelihoods in both industrialized and developing counties. Our review of recent contributions to the climate-economics literature assesses 30 existing integrated assessment models in terms of four key aspects of the nexus of climate and the economy: the connection between the model structure and the type of results produced; uncertainty in climate outcomes and the projection of future damages; equity across time and space; and abatement costs and the endogeneity of technological change. Differences in treatment of these issues are substantial, and directly affect model results and their implied policy prescriptions. Much can be learned about climate economics and modeling technique from the best practices in these areas; there is unfortunately no existing model that incorporates the best practices on all or most of the questions we examine.
Download the working paper
Florida and Climate Change: The Costs of Inaction
November 2007
Elizabeth A. Stanton and Frank Ackerman; report commissioned by Environmental Defense.
Read more and download the report
Hot, It's Not: Reflections on Cool It!, by Bjørn Lomborg
August 2008
Frank Ackerman, Climatic Change, 89:3-4, 435-446
A review of Lomborg's 2007 book, which argues that most climate mitigation policies being proposed would cost far too much, are often based on emotional rather than scientific assumptions, and might have little impact. Ackerman counters that Lomborg's analysis is riddled with errors and oversimplifications, citing several examples, and offers an alternate perspective, economics "that takes the climate crisis seriously."
Read the article online or download a copy here
Debating Climate Economics: The Stern Review vs. Its Critics
July 2007
Frank Ackerman, report to Friends of the Earth-England, Wales and Northern Ireland
Download the report
Publications available through GDAE at Tufts University (prior work of the SEI Climate Economics researchers)
"Law and Economics for a Warming World," by Lisa Heinzerling and Frank Ackerman; Harvard Law and Policy Review volume 1, no. 2, pp.331-362.
"The Carbon Content of Japan-US Trade," by Frank Ackerman, Masanobu Ishikawa, and Mikio Suga; Energy Policy, volume 35 no. 9, September 2007, pp.4455-4462.
"The Economics of Inaction on Climate Change: A Sensitivity Analysis," by Frank Ackerman and Ian Finlayson; Climate Policy, volume 6 no. 5 (2006), pp.509-526. An earlier version of this article appeared as GDAE Working Paper 06-07. October, 2006.
"Climate Change - The Costs of Inaction," by Frank Ackerman and Elizabeth Stanton; report released with Friends of the Earth England, Wales and Northern Ireland, October 2006.
"Can Climate Change Save Lives? A comment on ‘Economy-wide estimates of the implications of climate change: Human health’,” by Frank Ackerman and Elizabeth A. Stanton; Ecological Economics, volume 66 (2008), pp. 8-13. An earlier version of this article appeared as GDAE Working Paper 06-05. September 2006.
“Greenhouse Emissions from Waste Management. A survey of data reported to UNFCCC by Annex I countries,” by Frank Ackerman, William Moomaw, and Robin Taylor, May 20, 2003.