Climate Economics

Climate Economics at SEI-US
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Publications




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Climate policy and development: an economic analysis

E3 Network working paper

Author(s): Ackerman, F. ; Stanton, E.A. ; Bueno, R.
Date: September 2012

Research Area(s): Climate Economics

This article describes the use of the Climate and Regional Economics of Development (CRED) model to explore the interconnections between climate and development policy. CRED scenarios, based on high and low projections of climate damages, and high and low discount rates, are used to analyze the effects of varying levels of assistance to the poorest regions of the world. The authors find that climate and development choices are nearly independent of each other if the climate threat is seen as either very mild or very serious. The optimal climate policy is to do very little in the former case, and a lot in the latter case, regardless of development. In the latter case, however, assistance may be required for the poorest regions to respond to serious climate threats in the globally "optimal" manner. Under intermediate assumptions about the severity of climate risks, development policy plays a greater role. In one scenario, which falls within the range of current debate, a high level of development assistance makes the difference between success and failure in long-term stabilization of the global climate.
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CRED v.1.4 Technical Report

SEI Technical Report

Author(s): Ackerman, F. ; Stanton, E.A. ; Bueno, R.
Date: August 2012

Research Area(s): Climate Economics

Climate and Regional Economics of Development (CRED) is an integrated assessment model with a central focus on the global distribution of climate damages and climate policy costs. It is designed to estimate the best pace of investment in emissions mitigation and the best distribution of the necessary investment costs among regions of the world, aiming to inform global climate negotiations and help break the stalemate between developed and developing countries. Version 1.4 of the CRED model was completed in August 2012. This technical report describes the CRED v.1.4 methodology in detail.
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A Good Environment for Jobs

E3 Network paper

Author(s): Stanton, E.A. ; Taylor, M.
Date: August 2012

Research Area(s): Climate Economics

This paper examines recent U.S. studies that estimate jobs lost or gained due to energy and environmental policies and outlines a set of standards for scientifically robust methodologies to make such estimates. Job creation is a top priority for public officials, and in U.S. politics, the links between job creation, energy policy and environmental regulation have become very contentious issues. The authors survey studies that estimate jobs lost or gained due to energy and environmental policies, exploring the type of investments that are projected to foster jobs growth and just how much confidence should be placed in these economic predictions. They also offer a checklist of questions to evaluate employment-impact estimates.
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Reason, Empathy, and Fair Play: the Climate Policy Gap

SEI Discussion Brief

Author(s): Stanton, E.A. ; Ackerman, F. ; Bueno, R.
Date: May 2012

Research Area(s): Climate Economics

To achieve the greatest possible human welfare, SEI's Climate and Regional Economics of Development (CRED) model calls for a rapid reduction of greenhouse gas emissions, beginning in the next decade and keeping cumulative twenty-first century carbon dioxide (CO2) emissions below 2,000 Gt (gigatonnes, or thousand million tons). This brief addresses why CRED recommends such stringent reductions when some other climate-economics models say that very slow emission reductions are the best policy.
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Modeling Pessimism: Does Climate Stabilization Require a Failure of Development?

Environmental Development, in press, available online 31 May 2012

Author(s): Stanton, E.A.

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Date: May 2012

Research Area(s): Climate Economics ; Climate Equity

Climate-economics models often assume that middle-income countries' per capita incomes will catch up with those of today’s high income countries, while low-income countries will lag behind. This article reviews current practices in modeling income growth in integrated assessment models of climate and economy; provides an empirical illustration of the impact that more optimistic economic development expectations would have on emissions mitigation targets; discusses the kinds of policies necessary to adequately reduce emissions per dollar of economic output in a scenario of robust economic development for the poorest countries; and concludes with recommendations for integrated assessment modelers.
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Climate Protection and Development

United Nations Department of Economic and Social Affairs book

Author(s): Ackerman, F.

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Date: May 2012

Research Area(s): Climate Economics

This book, which updates and synthesizes UN/DESA's World Economic and Social Survey 2009: Promoting Development, Saving the Planet, spells out, in more detail than usual, what can and should be done to avert the real risks of disaster. It summons the world to an endeavour worthy of the resources and ingenuity of the twenty-first century – towards bold initiatives with big costs, and much bigger benefits. It explores the interconnected issues of climate and development, laying the groundwork for such a new deal. It presents a challenging agenda, and highlights the needs and perspectives of developing countries which may be unfamiliar or uncomfortable to readers in high-income countries. The unfortunate truth is that any large country, or group of mid-sized countries, can veto any global climate solution by refusing to participate, so a solution will only work if it works for everyone.
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Climate damages in the FUND model: A disaggregated analysis

Ecological Economics, in press; available online April 11, 2012

Author(s): Ackerman, F.

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; Munitz, C.
Date: April 2012

Research Area(s): Climate Economics

This article examines the treatment of climate damages in the FUND model. By inserting software switches to turn individual features on and off, the authors obtain FUND's estimates for 15 categories of damages, and for components of the agricultural category. FUND, as used by the U.S. government to estimate the social cost of carbon, projects a net benefit of climate change in agriculture, offset by a slightly larger estimate of all other damages. Use of estimates from such models is arguably inappropriate for setting public policy. But as long as such models are being used in the policy-making process, an update to reflect newer research and correct modeling errors is needed before FUND's damage estimates can be relied on.
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Reason, Empathy, and Fair Play: the Climate Policy Gap

SEI Working paper 2012-02

Author(s): Stanton, E.A. ; Ackerman, F. ; Bueno, R.
Date: April 2012

Research Area(s): Climate Economics

To achieve the greatest possible human welfare, SEI's Climate and Regional Economics of Development (CRED) model calls for a rapid reduction of greenhouse gas emissions, beginning in the next decade and keeping cumulative 21st century carbon dioxide emissions below 2,000 Gt. This report explains why CRED recommends such stringent reductions when some other climate-economics models say that very slow emission reductions are the best policy. The document includes a foreword by Jomo Kwame Sundaram, UN Assistant Secretary-General for Economic Development.
Note: A summary of this report has been published as a UN Department of Economic and Social Affairs (UN/DESA) policy brief. Download it here (external link to PDF, 293kb).
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The $1.75 trillion lie

Michigan Journal of Environmental & Administrative Law 1:1, 127-158

Author(s): Heinzerling, L. ; Ackerman, F.
Date: April 2012

Research Area(s): Climate Economics

This article identifies serious flaws in a 2010 study commissioned by the Office of Advocacy of the U.S. Small Business Administration (SBA) that found that federal regulations impose annual economic costs of $1.75 trillion. This estimate has been widely circulated, in everything from newspapers to Congressional testimony, but Heinzerling and Ackerman find it is not credible. They find it reflects a misunderstanding of the definition of the relevant data, fails an elementary question on the normal distribution, pads the analysis with several years of near-identical data, and fails to recognise the difference between correlation and causation, among other problems. The SBA should acknowledge the study's many failings, they argue, and publicly disavow it.
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The Tragedy of Maldistribution: Climate, Sustainability, and Equity

Sustainability 4:3, 394-411; Special Issue: Sustainable Policy on Climate Equity

Author(s): Stanton, E.A.

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Date: March 2012

Research Area(s): Climate Economics ; Sustainable Futures

This essay is an initial exploration of the dimensions of the equity/sustainability linkage from the perspective of public goods analysis. Sustainability requires an abundance of public goods. Where these commons lack governance, sustainability is at risk. Equity is a critical component of sustainability that can itself be viewed as a public good, subject to deterioration (maldistribution) when left ungoverned. As is the case for so many forms of environmental degradation, the private benefits of maldistribution tend to overshadow the larger social costs, and the result is a degradation of equity. This article sketches out the analogy of equity as a public good and addresses equity's critical role as a component of sustainability in the case of climate change, with implications for climate policy.
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Epstein-Zin utility in DICE: Is risk aversion irrelevant to climate policy?

E3 Network working paper

Author(s): Ackerman, F. ; Stanton, E.A. ; Bueno, R.
Date: March 2012

Research Area(s): Climate Economics

Climate change involves uncertain probabilities of catastrophic risks, and very long-term consequences of current actions. Climate economics, therefore, is centrally concerned with the treatment of risk and time. Yet conventional assumptions about utility and optimal economic growth create a perverse connection between risk aversion and time preference, such that more aversion to current risks implies less concern for future outcomes, and vice versa. This paper introduces an accessible implementation of Epstein-Zin utility into the DICE model of climate economics, creating a hybrid "EZ-DICE" model. Using Epstein-Zin parameters from the finance literature and climate uncertainty parameters from the science literature, the authors find that the optimal climate policy in EZ-DICE calls for rapid abatement of carbon emissions; it is similar to standard DICE results with the discount rate set to equal the risk-free rate of return.
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A Consumption-Based GHG Inventory for the U.S. State of Oregon

Environmental Science & Technology, Article ASAP

Author(s): Erickson, P. ; Lazarus, M. ; Stanton, E.A. ; Allaway, D.
Date: March 2012

Research Area(s): Climate Mitigation Policy ; Climate Economics

This article describes what may be the first comprehensive consumption-based emissions inventory conducted for a U.S. state. The authors find that consumption-based emissions for Oregon are 47 percent higher than those released in-state. This not only provides a different view of the state's carbon footprint, but also highlights the role of goods and services (and associated purchasing behaviors). Such a perspective could help states and their local government partners find new ways to reduce emissions, such as promoting low-carbon consumption by the public sector or households, that are well within their sphere of influence.
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Greenhouse Gas Emissions in King County

Report commissioned by King County, Wash.

Author(s): Erickson, P. ; Stanton, E.A. ; Chandler, C. ; Lazarus, M. ; Bueno, R. ; Munitz, C.; Cegan, J.; and Daudon, M., and Donegan, S. (Cascadia Consulting Group)
Date: February 2012

Research Area(s): Climate Mitigation Policy ; Climate Economics

This study, one of the first of its kind, quantifies greenhouse gas emissions for King County, Wash. – which includes Seattle – and gauges the community's contribution to global emissions from two very different, but complementary, perspectives: emissions produced locally, and consumption-based emissions. By the first measure, King County is responsible for 12 tons of GHG emissions per resident; by the second, for 29 tons per person. Most of the difference can be attributed to the fact that King County residents consume more emissions-intensive goods (such as vehicles and food) than they produce. The report also develops and pilots a framework for King County to track key sources of GHG emissions in years between more comprehensive GHG inventories, focusing on a "core" set of emissions that can be easily measured and over which local governments have relatively direct and unique policy influence: local building energy use, vehicle travel, and waste disposal.
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Estimating Regions' Relative Vulnerability to Climate Damages in the CRED Model

SEI Working Paper WP-US-1103

Author(s): Stanton, E.A. ; Cegan, J. ; Bueno, R. ; Ackerman, F.
Date: January 2012

Research Area(s): Climate Economics

This article introduces the CRED climate vulnerability index (VI-CRED), developed for use in the CRED integrated assessment model. VI-CRED is an index of vulnerability to climate change, with the advantage of simplicity and transparency as compared to more complicated indices with dozens of components. VI-CRED apportions economic damages from climate change among world regions on the basis of differences in vulnerable sectors' contribution to gross domestic product, share of population living at less than 5 meters above sea level, and access to freshwater resources. Its results are broadly similar to those of other indices, but it assigns a more prominent role to water scarcity and, for this reason, includes the Middle East among the most vulnerable regions.

Note: This is an updated version of a paper first published in February 2011.
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Development without Carbon as Climate Policy

E3 Network working paper

Author(s): Stanton, E.A.

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Date: January 2012

Research Area(s): Climate Economics ; Climate Equity

Climate-economics models' projections of slow economic growth in the developing world create the expectation that the poorest countries will use up a relatively small share of the global 21st century emissions budget, leaving more "emissions space" for high- and middle-income countries. Making poverty reduction a central goal of climate policy, however, would require considering scenarios in which incomes converged around the world. This article reviews recent literature connecting climate, poverty and energy; establishes equity's critical role in climate policy; demonstrates the importance of economic growth assumptions in climate modeling; and concludes with several policy recommendations for climate-economics modeling.

Note: This paper draws on material from the report Development Without Carbon: Climate and the Global Economy through the 21st Century.
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The Social Cost of Carbon

The Environmental Forum 28:6 (November/December 2011), 38-41

Author(s): Stanton, E.A.

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Date: November 2011

Research Area(s): Climate Economics

Buried deep in the back pages of a minor, and seemingly unrelated, environmental regulation, the Obama administration has laid out its climate agenda. But estimating the results of greenhouse warming turns on a set of nested assumptions, each of which can sway the ultimate answer.
Note: This article is based on the SEI report Climate Risks and Carbon Prices: Revising the Social Cost of Carbon, published by the E3 Network.
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Climate Economics: The State of the Art

SEI Report

Author(s): Ackerman, F. ; Stanton, E.A.
Date: November 2011

Research Area(s): Climate Economics

Economic analysis has become increasingly central to the climate policy debate, but the models and assumptions of climate economics often lag far behind the latest developments in this fast-moving field. This report offers an in-depth review of new developments in climate economics and science since the Stern Review (2006) and the Intergovernmental Panel on Climate Change's Fourth Assessment Report (2007), with more than 500 citations. Drawing on this review, the authors also make several recommendations for aligning climate economics with climate science.
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Development without Carbon: Climate and the Global Economy through the 21st Century

SEI Report

Author(s): Stanton, E.A.

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Date: November 2011

Research Area(s): Climate Economics ; Climate Equity

Economic development and the eradication of energy poverty are increasingly seen as key components in a comprehensive strategy to prevent dangerous climate change, along with emission reductions and adaptation measures. But most climate economics models used to guide policymakers assume very little economic growth in the poorest countries. This report reviews the literature regarding the connection between energy, poverty, and emissions mitigation; sets out principles for an equitable climate policy; and explores three scenarios for future economic growth and emissions. It also includes a case study showing the impact of these three scenarios on Latin America and the Caribbean.
This report is part of a package that also includes Energy-Water-Climate Planning for Development without Carbon in Latin America and the Caribbean.
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The CIEL Backgrounder: Understanding the Climate Impact Equity Lens

SEI technical report

Author(s): Stanton, E.A. ; Bueno, R.
Date: November 2011

Research Area(s): Climate Economics

To provide insight into the wide range of outcomes that climate change will have on individuals, the Climate Impact Equity Lens (CIEL) calculates net gains and losses from a global failure to cut greenhouse gas emissions, viewed not as global or national averages, but instead for individuals. The purpose of the tool is to illustrate both the severity and the diversity of expected impacts from climate change. This backgrounder gives a basic introduction to CIEL tool, written in plain language, and also includes a more technical methodology for the CIEL model.
Note: This report is part of a package that also includes Real People, Real Impacts: The Climate Impact Equity Lens and a policy brief of the same title.
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Real People, Real Impacts: The Climate Impact Equity Lens

SEI Report

Author(s): Stanton, E.A. ; Bueno, R. ; Davis, M.
Date: November 2011

Research Area(s): Climate Economics

The Climate Impact Equity Lens (CIEL) is a new tool for calculating net impacts from climate change in a way that highlights important differences in the distribution of costs and benefits. CIEL looks at climate impacts for real people instead of regional averages by comparing an individual's climate damages in a given year to her savings from not reducing emissions. Using CIEL can help us think about whether we are net winners (savings greater than costs) or net losers (costs greater than savings) today, and how that is likely to change over time. As policymakers negotiate the future of our climate, it is absolutely vital that they have in mind not just the potential impacts on a few "average" people, but the wide diversity of effects that will be felt by every person around the world. The policy report examines discusses this wide range of climate impacts, and includes a special case study on the Caribbean (also available in Spanish).

Note: This report is part of a package that also includes a
policy brief of the same title and The CIEL Backgrounder: Understanding the Climate Impact Equity Lens.
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Real People, Real Impacts: The Climate Impact Equity Lens (Policy Brief)

SEI Policy Brief

Author(s): Stanton, E.A. ; Bueno, R. ; Davis, M.
Date: November 2011

Research Area(s): Climate Economics

The Climate Impact Equity Lens (CIEL) is a new tool for calculating net impacts from climate change in a way that highlights important differences in the distribution of costs and benefits. CIEL looks at climate impacts for real people instead of regional averages by comparing an individual's climate damages in a given year to her savings from not reducing emissions. This policy brief, which summarizes our report of the same title, shows how CIEL helps us think about whether we are net winners (savings greater than costs) or net losers (costs greater than savings) today, and how that is likely to change over time. As policymakers negotiate the future of our climate, it is absolutely vital that they have in mind not just the potential impacts on a few "average" people, but the wide diversity of effects that will be felt by every person around the world.
Note: This report is part of a package that also includes a report of the same title and The CIEL Backgrounder: Understanding the Climate Impact Equity Lens.
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Employment effects of coal ash regulation

Policy white paper

Author(s): Ackerman, F.

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Date: October 2011

Research Area(s): Climate Economics

The U.S. Environmental Protection Agency is considering regulation to protect the public from the health hazards of coal ash disposal. In response, an industry group has claimed that strict regulation of ash disposal could lead to the loss of more than 300,000 jobs. This analysis shows fundamental flaws in that claim and provides a new calculation of job impacts, based on an industry estimate of the costs of regulation and using the well-known IMPLAN model of the U.S. economy. It finds the true employment impact would be a gain of 28,000 jobs.
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CRED v.1.3 Technical Report

SEI technical report

Author(s): Ackerman, F. ; Stanton, E.A. ; Bueno, R.
Date: October 2011

Research Area(s): Climate Economics

Climate and Regional Economics of Development (CRED) is an integrated assessment model, with a central focus on the global distribution of climate damages and climate policy costs. It is designed to estimate both the best pace of investment in mitigation, and the best distribution of the cost of that investment to regions of the world, with the goal of informing global climate negotiations and help break the stalemate between developed and developing countries. Version 1.3 of the CRED model was completed in June 2011. This technical report describes the CRED v.1.3 methodology in detail.
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Climate Risks and Carbon Prices: Revising the Social Cost of Carbon

Economics E-Journal Discussion Paper No. 2011-40

Author(s): Ackerman, F. ; Stanton, E.A.
Date: September 2011

Research Area(s): Climate Economics

This analysis of the social cost of carbon, as estimated by the U.S. government, explores the effects of uncertainty about climate sensitivity, the shape of the damage function, and the discount rate. The SCC – or marginal damage caused by an additional ton of carbon dioxide emissions – was estimated at $21 in 2010. That calculation, however, omits many of the biggest risks associated with climate change, and downplays the impact of our current emissions on future generations. This re-analysis shows the SCC is uncertain across a broad range, and could be as high as almost $900 in 2010.
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Regulation of Cooling Water Intake Structures at Existing Facilities

Testimony to the U.S. Environmental Protection Agency, Docket ID EPA-HQ-OW-2008-0667

Author(s): Ackerman, F. ; Stanton, E.A.
Date: August 2011

Research Area(s): Climate Economics

The U.S. Environmental Protection Agency has proposed requirements under the Clean Water Act for cooling water intake structures at existing power generation and manufacturing facilities that withdraw more than 2 million gallons per day of water. These comments review a cost-benefit analysis done by the EPA of four regulatory options and discuss the agency's use of the cost-benefit framework in the regulatory process. They offer more complete estimates of benefits, look more closely at projected electricity market and employment impacts, and identify problems with non-monetizable values that make cost-benefit analysis less useful in this context. In addition, they argue against the EPA's recommendation of site-specific decisions, which would shift the burden of cost-benefit analysis onto individual states.
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Consumption-based Greenhouse Gas Emissions Inventory for Oregon

Report commissioned by the Oregon Department of Environmental Quality

Author(s): Erickson, P. ; Lazarus, M. ; Stanton, E.A. ; Ackerman, F.
Date: August 2011

Research Area(s): Climate Mitigation Policy ; Climate Economics

Consumers and businesses contribute to greenhouse gas emissions in many ways. For many years, the State of Oregon has conducted an inventory of emissions, focusing on emissions produced within the state. But that focus only tells part of the story of how Oregon contributes to climate change: As a result of purchasing goods and services, Oregonians contribute to emissions around the world. Until now, the contribution of Oregonians to these out-of-state emissions has not been well understood. This study by SEI, the first application of our Consumption Based Emissions Inventory (CBEI) model, aims to complete the picture, estimating the emissions &ndash both in-state and elsewhere – associated with consumption by Oregon residents, businesses and governments. More than half of these consumption-based emissions, it finds, occur in other states or nations.
This report is part of a package that also includes a CBEI-Oregon Technical Report.
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Consumption-Based Greenhouse Gas Emissions Inventory for Oregon – 2005: Technical Report

Report commissioned by the Oregon Department of Environmental Quality

Author(s): Stanton, E.A. ; Bueno, R. ; Ackerman, F. ; Erickson, P. ; Cegan, J. ; Hammerschlag, R.
Date: August 2011

Research Area(s): Climate Economics ; Climate Mitigation Policy

Oregon's Consumption-Based Emissions Inventory estimates the greenhouse gas emissions resulting from the purchase of goods and services (including fuels and electricity) by Oregon consumers in 2005. CBEI follows the commodities (goods and services) purchased by Oregon consumers and assigns to these commodities their total life-cycle emissions, from cradle (the production phase) to grave (the post-consumer disposal phase). For example, the cookies consumed by an Oregon resident may be produced in California or in Canada, but – when considered on a consumption basis – Oregon has a responsibility for these emissions. A consumption-based inventory takes the purchase of a final good or service as the act that defines whether a commodity's life-cycle emissions should be in or out of the inventory; in CBEI the life-cycle emissions of anything consumed (or in economic terms, "demanded") in Oregon belong to Oregon.
This report is part of a package that also includes a CBEI-Oregon Summary Report.
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Climate Risks and Carbon Prices: Revising the Social Cost of Carbon

Report for the Economics for Equity and the Environment Network

Author(s): Ackerman, F. ; Stanton, E.A.
Date: July 2011

Research Area(s): Climate Economics

The "social cost of carbon" – a calculation of the damage caused by each ton of carbon dioxide (CO2) emitted into the atmosphere – is a key factor in U.S. environmental regulation, used to set the optimal stringency level for a wide range of policies. Since early 2010, the U.S. government has used an SCC estimate, developed by an interagency group, of $21 per ton of CO2. But that number, this peer-reviewed report shows, is based on fundamentally flawed methodologies and grossly understates the potential impact and uncertainty of climate change. Making small adjustment to the models to reflect these factors lead to values as high as $893 per ton in 2010 and $1550 in 2050. Since the projected cost of emissions abatement is significantly lower, the authors conclude, the U.S. government would do better to set an emission reduction target, find the least-cost ways to achieve it, and price carbon accordingly.
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CRED: A new model of climate and development

Ecological Economics, in press

Author(s): Ackerman, F. ; Stanton, E.A. ; Bueno, R.
Date: May 2011

Research Area(s): Climate Economics

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 unconstrained, optimal climate policy in CRED involves very large capital flows from high-income to developing countries, to an extent that might be considered politically unrealistic. Under more realistic constraints, climate outcomes are generally worse; climate stabilization requires either moderate capital flows to developing countries, or a very low discount rate. In CRED, 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.
Note: Earlier versions of this paper appeared as SEI Working Paper WP-US-1003 and as United Nations Department of Economic and Social Affairs (UN/DESA) Working Paper No. 96.
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New climate economics: Methodological choices and recommendations

Additional guidance supporting UNEP's MCA4climate initiative: A practical framework for planning pro-development climate policies

Author(s): Ackerman, F.

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; Chalabi, Z.; Mechler, R.; Scrieciu S.
Date: May 2011

Research Area(s): Climate Economics

Evaluating the future socio-economic impacts, benefits and costs of climate mitigation and adaptation policies typically involves the use of detailed empirical research and modeling. That inevitably involves a number of choices about the methodological approach and underlying assumptions, which have important consequences for the projections and, therefore, the ultimate selection of policies to be implemented. This document presents a series of critical issues for climate mitigation and adaptation policy analysis, involving overarching choices that affect multiple areas of expert analysis. They identify key issues for a comprehensive and realistic economic analysis of climate policies, present major options for answering those issues, and recommend a preferred course of action or option for analysts to consider (akin to what some refer to as "new economic thinking").
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Developing Baselines for Climate Policy Analysis

Additional guidance supporting UNEP's MCA4climate initiative: A practical framework for planning pro-development climate policies

Author(s): Stanton, E.A. ; Ackerman, F.
Date: May 2011

Research Area(s): Climate Economics

Sound climate policymaking must be based on robust projections about the future of greenhouse gas emissions and sinks, underpinned by climate and economic modeling. An important first step is the construction of a "baseline" or "business-as-usual" scenario that forecasts future economic and population growth, climate damages, and other macro-level developments of interest in the event that no serious new climate policy is adopted. Starting from this baseline, it is then possible to examine the likely effects of a proposed climate policy – at a global, regional, national or even local level. This document presents guidelines for developing baselines for use in national and regional climate policy analysis. The authors describe key issues in model design and data inputs, including critical macroeconomic variables to consider; the range of sectors to analyze; the role of the public sector and financial markets; environmental issues; and model boundaries.
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Accounting for Risk and Uncertainty in Climate Policy Assessment

Additional guidance supporting UNEP's MCA4climate initiative: A practical framework for planning pro-development climate policies

Author(s): Ackerman, F. ; Stanton, E.A. ; Chalabi, Z.; Mechler, R.; Scrieciu, S.; Cheung, W.; Belton, V.
Date: May 2011

Research Area(s): Climate Economics

Problems of risk and uncertainty arise throughout the assessment of climate change and the development of climate policy. Both the climate system and the economic system are characterized by long time lags and complex causal connections; over long periods of time, both climate and economic outcomes are necessarily uncertain. This paper clarifies the meaning of the terms "risk" and "uncertainty," looks at options for policymakers, and recommends approaches to the two issues in climate change mitigation and adaptation.
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The Economics of Climate Change in China: Towards a Low-Carbon Economy

London: Earthscan

Author(s): Fan, G. ; Ackerman, F. ; Stern, N.; Edenhofer, O.; Xu, S.; Eklund, K.; Li, L.; and Hallding, K. (eds.)
Date: April 2011

Research Area(s): Climate Economics ; Energy Modeling ; Climate Equity

Based on a groundbreaking economic study led by SEI and the Chinese Economists 50 Forum, this book explores the climate implications of China's rapid growth and how to steer the country toward a low-carbon future. The authors – leading Chinese and international thinkers in economics, climate change, and development – map out a deep carbon reduction scenario, analyze economic policies that shift carbon use, and show how China can take strong and decisive action to make deep reductions in carbon emission over the next 40 years while maintaining high economic growth. The authors make the compelling case that a transition to a low-carbon economy is an essential part of China's development and modernization, and they argue that such a transformation would also present opportunities for China to improve its energy security and move its economy higher up the international value chain.
Along with the editors, SEI-US authors include Charlie Heaps, Sivan Kartha, Michael Lazarus and Elizabeth A. Stanton. Click the link below to read more about the book on the SEI International website.
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Climate damages in the FUND model: A disaggregated analysis

SEI Working Paper WP-US-1105

Author(s): Ackerman, F.

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; Munitz, C.
Date: March 2011

Research Area(s): Climate Economics

The FUND model of climate economics, developed by Richard Tol and David Anthoff, is widely used in research and policy-making. It was one of three models used by the U.S. government's Interagency Working Group on the Social Cost of Carbon in 2009, which estimated the SCC – the cost of incremental damages from greenhouse gas emissions – at $21 per ton of CO2. The authors present a disaggregation of the damage estimates in FUND, followed by a more detailed examination of agricultural damages in particular.
Note: This paper was published simultaneously by SEI and the E3 Network, which sponsored the project.
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California Water Supply and Demand: Technical Report

Funded by a grant from the Kresge Foundation

Author(s): Stanton, E.A. ; Fitzgerald, E.
Date: February 2011

Research Area(s): Climate Economics

The California Water Supply and Demand Model (CWSD) examines the ways in which California's water supply and demand are likely to be affected by climate change; its purpose is to serve as a base for quantifying these impacts in economic terms. California's water future is modeled under conditions of no adaptation to climate change, and under several projected water use adaptation scenarios taken from the literature; climate change adaptation scenarios include water used for energy, the urban or residential sector, and agriculture.
This report is part of a package that also includes The Last Drop: Climate Change and the Southwest Water Crisis and The Water-Energy Nexus in the Western States: Projections to 2100.

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The Water-Energy Nexus in the Western States: Projections to 2100

Funded by a grant from the Kresge Foundation

Author(s): Fisher, J. ; Ackerman, F.
Date: February 2011

Research Area(s): Climate Economics

This study looks at the water-energy nexus in the U.S. West. The authors modeled long-run scenarios for the eleven-state Western Electric Coordinating Council, stretching from the Pacific coast through Montana, Wyoming, Colorado, and New Mexico. They project power plant construction and operation, focusing on costs, water use, and greenhouse gas emissions, from now through 2100. The model finds relatively small differences in water use and related costs between carbon and water scenarios.
This report is part of a package that also includes The Last Drop: Climate Change and the Southwest Water Crisis and California Water Supply and Demand: Technical Report.

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The Last Drop: Climate Change and the Southwest Water Crisis

Funded by a grant from the Kresge Foundation

Author(s): Ackerman, F. ; Stanton, E.A.
Date: February 2011

Research Area(s): Climate Economics ; Water Resources

Water is already a major concern in the Southwest, where homes, businesses and farms use far more water than is produced by rain and snowfall, and groundwater reserves are shrinking. This study quantifies the impact of climate change on the problem. It finds that without prompt action to reduce water usage, Arizona, California, Nevada, New Mexico, and Utah will face a combined shortfall of 1,815 million acre feet from population and income growth alone, plus 282 million to 439 million more from climate change – at a combined cost of as much as $5 trillion. The authors also evaluate potential ways to meet the shortfall, including water imports, desalination and additional groundwater extraction, and conclude that none can solve the problem. To avoid serious water crises, they recommend, the Southwestern states should promptly implement substantial conservation and efficiency measures for both urban and agricultural users, and also raise water prices. Two companion reports describe the water model developed for this project and an analysis of the water-energy nexus in the West.
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Comparing climate strategies: Economic optimization versus equitable burden-sharing

SEI Working Paper WP-US-1104

Author(s): Ackerman, F. ; Bueno, R. ; Kartha, S. ; Kemp-Benedict, E.
Date: February 2011

Research Area(s): Climate Economics ; Climate Equity

Climate policy addresses a global problem, with costs and benefits distributed unevenly around the world. Questions of efficiency and equity are central to the allocation of costs; they are typically handled either by modeling optimal policies based on economic efficiency, or by setting standards that embody principles of equity. This analysis employs the Climate and Regional Economics of Development (CRED) integrated assessment model to assess the optimal international allocation of effort. The authors compare CRED scenarios to the results of an equity-oriented burden-sharing framework, Greenhouse Development Rights (GDRs), which allocates effort to countries based on their responsibility (emissions) and capacity (income).
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Casting DICE for 350 ppm

SEI Working Paper WP-US-1101

Author(s): Bueno, R. ; Stanton, E.A.
Date: January 2011

Research Area(s): Climate Economics

The DICE model of climate economics, using its default assumptions and inputs, projects that the optimal climate policy is a gradual abatement of greenhouse gas emissions. In this paper, we explore alternative assumptions and inputs under which DICE might recommend beginning abatement more rapidly, and stabilizing atmospheric concentrations near 350 ppm carbon dioxide (CO2). We find that DICE's optimal policy recommendation changes markedly when inputs are varied within the range of likely values in the current literature. At the higher end of the current range of estimates for two key parameters, DICE calculates that human welfare is maximized by keeping peak temperature increases very low, and achieving a completely emission-free world economy within half a century.
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Use of McKinsey abatement cost curves for climate economics modeling

SEI Working Paper WP-US-1102

Author(s): Ackerman, F. ; Bueno, R.
Date: January 2011

Research Area(s): Climate Economics

Integrated assessment models (IAMs) of climate economics require projections of the future costs of greenhouse gas abatement. International consulting firm McKinsey & Company has developed global estimates of marginal abatement cost curves, based on data on the costs of numerous emission-reducing technologies. This article describes the use of the McKinsey data in an IAM, the Climate and Regional Economics of Development (CRED) model, including adjustments made to the McKinsey curves. The results are broadly comparable to abatement cost estimates from MIT's EPPA model, although lower than those from some other IAMs.
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Negishi welfare weights in integrated assessment models: The mathematics of global inequality

Climatic Change 107:3, 417-432

Author(s): Stanton, E.A.

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Date: December 2010

Research Area(s): Climate Economics

In the global climate policy debate, it is crucial to be transparent about the ethical assumptions used in climate economics models. Negishi weights, which are commonly used in integrated assessment models (IAMs), 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. This article describes the Negishi procedure and its origin in theoretical and applied welfare economics, and discusses the policy implications of its use and possible alternatives.
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CRED: A New Model of Climate and Development

SEI Working Paper WP-US-1003

Author(s): Ackerman, F. ; Stanton, E.A. ; Bueno, R.
Date: November 2010

Research Area(s): Climate Economics

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.
Note: This updates and replaces the paper published in April 2010. A previous version has been released by the United Nations Department of Economic and Social Affairs as UN/DESA Working Paper No. 96.
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Testimony on EPA's 'Coal Combustion Residuals: Proposed Rule'

Submitted as part of Earthjustice/EIP testimony on Docket ID EPA-HQ-RCRA-2009-6040

Author(s): Ackerman, F. ; Stanton, E.A.
Date: November 2010

Research Area(s): Climate Economics

The U.S. Environmental Protection Agency has set out to regulate the disposal of coal combustion residues, which U.S. power plants produce in large quantities – 133 million tons in 2008 alone. At the request of Earthjustice and the Environmental Integrity Project, SEI economists reviewed the proposed rule, focusing on the Regulatory Impact Analysis. What they found is a deeply flawed, skewed and incomplete analysis that exaggerates the costs of regulation, underestimates the benefits, and gives credence to claims from the coal industry that, if accepted by EPA, could set a dangerous precedent for all U.S. regulatory efforts.
Click here for a summary of the SEI review, here for the Earthjustice/EIP press release, and here for the EPA rule website.
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Damage Estimates and the Social Cost of Carbon: The Need for Change

Memo for EPA/DOE Workshop on IAMs and SCC Estimates, Nov. 18-19, 2010

Author(s): Ackerman, F.

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Date: November 2010

Research Area(s): Climate Economics

The social cost of carbon (SCC) is a measure of the damage caused by an incremental ton of CO2 emissions. It was estimated at $21 per ton of CO2 by an interagency working group in 2009. The working group relied on three models which assume quite low, or even negative, damages from the first several degrees of warming, biasing the SCC estimates downward. This memorandum outlines the problems with each of three models, showing that their depiction of climate damages is fundamentally at odds with the mainstream of recent climate science and policy discussion.
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The Economics of 350

Solutions 1:5 (Sept.-Oct. 2010), 49-56

Author(s): Ackerman, F. ; Stanton, E.A. ; S.J. DeCanio; E. Goodstein; R. Howarth; R.B. Norgaard; C.S. Norman; K.A. Sheeran
Date: September 2010

Research Area(s): Climate Economics

This article, based on a 2009 SEI and E3 Network report, examines the range of estimates for the cost of reducing atmospheric carbon levels to 350 parts per million of CO2, now widely considered to be the "safe" threshold to minimize the risk of catastrophic damages. We examine five different economic models and conclude that reaching 350ppm would cost only 1 to 3 percent of global GDP – similar to one year's worth of growth, or to many nations' military spending.
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Emission Reduction, Interstate Equity, and the Price of Carbon

Economics for Equity and the Environment (E3 Network) report

Author(s): Stanton, E.A. ; Ackerman, F.
Date: August 2010

Research Area(s): Climate Economics

Efforts to pass climate legislation failed in the U.S. Congress this year due, to a great extent, to economic concerns. However, this study 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, it shows that as long as enough of the revenue is returned to households, families can still come out ahead even with carbon prices much higher than those considered so far by Congress. In a companion white paper, the authors offer seven questions by which to judge proposed climate policies.
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No State Left Behind: A Better Approach to Climate Policy

Economics for Equity and the Environment (E3 Network) white paper

Author(s): Stanton, E.A. ; Ackerman, F.
Date: August 2010

Research Area(s): Climate Economics

In a white paper published together with a new report, Emission Reduction, Interstate Equity, and the Price of Carbon, 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.
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CRED: A New Model of Climate and Development

UN/DESA Working Paper No. 96

Author(s): Ackerman, F. ; Stanton, E.A. ; Bueno, R.
Date: July 2010

Research Area(s): Climate Economics

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.
An updated version of this paper is available as SEI Working Paper WP-US 1003.
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Understanding Interstate Differences in U.S. Greenhouse Gas Emissions

SEI Working Paper WP-US-1004

Author(s): Stanton, E.A. ; Ackerman, F. ; Sheeran, K.
Date: June 2010

Research Area(s): Climate Economics

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. It finds several factors can lead to higher emissions: Sparsely populated states with low gasoline prices and little public transportation use have high transportation emissions. States with cold climate where oil is a common heating fuel and the average income is high have high residential heating emissions. States with hot, humid climate that generate much of their power from coal and have low electricity prices have high residential electricity emissions. The key policy variables identified are the prices of gasoline and electricity, and public transportation use.
Note: A revised version of this paper was published by the E3 Network in December 2010 as Why Do State Emissions Differ So Widely? (PDF link)
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Fat Tails, Exponents, Extreme Uncertainty: Simulating Catastrophe in DICE

Ecological Economics, 69:9, 1657-1665

Author(s): Ackerman, F. ; Stanton, E.A. ; Bueno, R.
Date: June 2010

Research Area(s): Climate Economics

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.
Click the external link below to read the article online (subscription required) or email us for a copy. An earlier version of this article appeared as SEI Working Paper WP-US-0901.
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Costing Climate Impacts and Adaptation: A Canadian Study on Coastal Zones

Report commissioned by the National Round Table on the Environment and the Economy, Canada

Author(s): Stanton, E.A. ; Davis, M. ; Fencl, A.
Date: June 2010

Research Area(s): Climate Economics

Some of Canada's greatest vulnerabilities to climate change lie in its coastal zones, which are home to a concentrated population (38.3 percent of Canadians lived within 20 km of a coast as of 2001, on just 2.6 percent of the country's total area), economic centers, and valuable ecosystems. The two great threats to coastal zones are sea-level rise and larger and more-frequent storm surges, which can destroy property, erode coastal land, salinate aquifers, and permanently flood low-lying areas. This study, a background report for the National Round Table on the Environment and the Economy's comprehensive study Paying the Price: the Economic Impacts of Climate Change for Canada, published in September 2011, quantifies the potential economic impacts, combining a physical model of sea-level rise and storm-surge flooding with socioeconomic analysis and a review of existing research and policies related to climate impacts and adaptation.
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Cost-Benefit Analysis of Climate Change: Where It Goes Wrong

In: Economic Thought and U.S. Climate Change Policy, ed. David M. Driesen (Cambridge, MA: The MIT Press)

Author(s): Ackerman, F.

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Date: May 2010

Research Area(s): Climate Economics

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.
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The Need for a Fresh Approach to Climate Change Economics

Proceedings of Workshop on Assessing the Benefits of Avoided Climate Change March 16-17, 2009

Author(s): Ackerman, F.

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; DeCanio, S. ; Howarth, R. ; Sheeran, K.
Date: April 2010

Research Area(s): Climate Economics

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.
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The Social Cost of Carbon

Report for the Economics for Equity and the Environment Network

Author(s): Ackerman, F. ; Stanton, E.A.
Date: April 2010

Research Area(s): Climate Economics

This white paper, issued by America's largest network of independent climate economists, shows how in its first attempts to regulate carbon emissions, the U.S. government has hindered its own efforts by using flawed economic models that grossly underestimate the impact of carbon dioxide (CO2) on the climate and on our economic future. The authors analyze the assumptions underlying the economic models which the U.S. government used for defining the "social cost of carbon," highlight the significant shortcomings of the models, and point out how they lead to underestimating the risks and costs of climate change.
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Carbon Markets Are Not Enough

In Trade and Environment Review 2009/2010, 26-30

Author(s): Ackerman, F.

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Date: February 2010

Research Area(s): Climate Economics ; Emissions Trading & Offsets

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.
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Financing the Climate Mitigation and Adaptation Measures in Developing Countries

G-24 Discussion Paper No. 57

Author(s): Ackerman, F.

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Date: December 2009

Research Area(s): Climate Economics

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.
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Daydreams of Disaster: An evaluation of the Varshney-Tootelian critiques of AB 32 and other regulations

Report to the California Attorney General 2009

Author(s): Ackerman, F.

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Date: December 2009

Research Area(s): Climate Economics

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."
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Climate and development economics: Balancing science, politics and equity

Natural Resources Forum 33:4, pp. 262-273

Author(s): Stanton, E.A. ; Ackerman, F.
Date: December 2009

Research Area(s): Climate Economics ; Climate Equity

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. This article reviews the implications for climate policy of the climate economics and development literature, focusing on three areas: the treatment of climate science, risk, and uncertainty in climate-economics models; questions of abatement technologies and costs; and ethical issues in the distribution of costs of emission reductions and adaptation measures.
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Comments on EPA and NHTSA "Proposed Rulemaking to Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards"

Author(s): Ackerman, F.

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Date: November 2009

Research Area(s): Climate Economics

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.
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Going Clean: The Economics of China's Low-carbon Development

Joint report by SEI and the Chinese Economists 50 Forum

Author(s): Gang, F. ; Ackerman, F. ; Stern, N.; Edenhofer, O.; Xu, S.; Eklund, K.; Li, L.; Hallding, K.
Date: November 2009

Research Area(s): Climate Economics ; Climate Equity

This SEI report, authored jointly by Chinese, Swedish, German, British and American experts, identifies strategies that would allow China to cut carbon emissions deeply and minimize the adverse effects on its economy over the next 40 years. The suggested strategies include:
- Energy efficiency gains through improved building design, standards for electrical appliances and the use of less energy-intensive materials.
- A massive shift towards the use of renewable energy such as wind and solar energy, municipal solid waste and biomass, and small hydropower.
- Electric vehicles for road transport.
- Using carbon capture and sequestration technology in new coal-fired power plants.
- A better international cooperation mechanism that can channel more finance and technologies from developed countries.
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The Economics of 350: The Benefits and Costs of Climate Stabilization

Report commissioned by the E3 Network

Author(s): Ackerman, F. ; Stanton, E.A. ; DeCanio, S.J.; Goodstein, E.; Howarth, R.B.; Norgaard, R.B.; Norman, C.S; Sheeran, K.A.
Date: October 2009

Research Area(s): Climate Economics

This report, issued by America's largest network of independent climate economists, explores the costs and benefits of rapidly curbing world carbon emissions to meet the widely recommended target of 350 parts per million. The authors' analysis finds that reaching the 350ppm goal is affordable, with estimated costs between 1 and 3 percent of worldwide gross domestic product. Moreover, it could create new jobs, spur innovation, and protect businesses, governments and households from the damages caused by rapid global warming.
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Financing the Climate Mitigation and Adaptation Measures in Developing Countries

SEI US Working Paper, WP-US0910

Author(s): Ackerman, F.

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Date: October 2009

Research Area(s): Climate Economics ; Climate Mitigation Policy ; Adaptation & Vulnerability

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.
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Looming Global-Scale Failures and Missing Institutions

Science 325: 5946, 1345-46

Author(s): Walker, B. ; Ackerman, F. ; Barrett, S.; Polasky, S.; Galaz, V.; Folke, C.; Engstrom, G.; Arrow, K.; Carpenter, S.; Chopra, K.; Daily, G. ;Ehrlich, P.; Hughes, T.; Kautsky, N.; Levin, S.; Muler, K.-G.; Shogren, J.; Vincent, J.; Xepapadeas, T.;
Date: September 2009

Research Area(s): Climate Economics

A look at how the accelerating scale of human activity is spawning energy, food, and water crises, declining fisheries, emerging diseases and other serious, intertwined global-scale challenges, and at the obstacles to collaborative solutions.
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Limitations of Integrated Assessment Models of Climate Change

Climatic Change. 95:3-4, pp. 297-315

Author(s): Ackerman, F.

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; S.J. DeCanio; R.B. Howarth; Sheeran, K.
Date: August 2009

Research Area(s): Climate Economics

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.
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Climate and Development Economics: Balancing Science, Politics, and Equity

SEI US Working Paper, WP-US0908

Author(s): Stanton, E.A. ; Ackerman, F.
Date: August 2009

Research Area(s): Climate Economics

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.
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Did the Stern Review underestimate U.S. and global climate damages?

Energy Policy 37:7, 2717-2721

Author(s): Ackerman, F. ; Stanton, E.A. ; Hope, C.; Alberth, S.
Date: July 2009

Research Area(s): Climate Economics

The Stern Review received widespread attention for its innovative approach to the economics of climate change when it appeared in 2006, and generated controversies that have continued to this day. One key controversy concerns the magnitude of the expected impacts of climate change, based on results from the PAGE2002 model. This article offers revisions to the PAGE estimates that suggests the model runs used in the Stern Review may underestimate U.S. and global damages. Stern projected 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 suggest they 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.
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Greenhouse Gases and Human Well-Being: China in a Global Perspective

SEI US Working Paper, WP-US0907

Author(s): Stanton, E.A.

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Date: July 2009

Research Area(s): Climate Economics

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.
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Inside the integrated assessment models: Four issues in climate economics

Climate and Development 1:2, 166-184

Author(s): Stanton, E.A. ; Ackerman, F. ; Kartha, S.
Date: July 2009

Research Area(s): Climate Economics

A review of recent contributions to the climate-economics literature, assessing 30 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.
An earlier version of this article appeared as SEI Working Paper WP-US-0801.
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Carbon Embedded in China's Trade

SEI US Working Paper, WP-US0906

Author(s): Ackerman, F.

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Date: June 2009

Research Area(s): Climate Economics ; Climate Mitigation Policy

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.
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Fat Tails, Exponents, and Extreme Uncertainty: Simulating Catastrophe In DICE

SEI Working Paper WP-US-0901

Author(s): Ackerman, F. ; Stanton, E.A. ; Bueno, R.
Date: May 2009

Research Area(s): Climate Economics

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.
Another version of this paper was published in Ecological Economics in 2010.
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Greenhouse Gases and the American Lifestyle: Understanding Interstate Differences in Emissions

Report commissioned by Ecotrust and the E3 Network.

Author(s): Stanton, E.A. ; Ackerman, F. ; Sheeran, K.
Date: May 2009

Research Area(s): Climate Economics

The report explains why some US 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.
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Stern Advice For Copenhagen

Book review in Nature Online, 9 April 2009.

Author(s): Ackerman, F.

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Date: April 2009

Research Area(s): Climate Economics

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.
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Negishi Welfare Weights: The Mathematics of Global Inequality

SEI US Working Paper, WP-US-0902

Author(s): Stanton, E.A.

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Date: February 2009

Research Area(s): Climate Economics

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.
The article has been accepted for publication in Climatic Change.
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Can We Afford the Future? The Economics of a Warming World

Zed Books, 2009 (distributed in the U.S. by Palgrave Macmillan)

Author(s): Ackerman, F.

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Date: January 2009

Research Area(s): Climate Economics

Frank Ackerman 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. He also argues for a new approach focused on preventing catastrophic climate change, with investments in low-carbon technologies and conservation as a sort of insurance for the planet.
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The New Climate Economics: The Stern Review versus its Critics

In: Twenty-First Century Macroeconomics: Responding to the Climate Challenge, eds. Jonathan M. Harris and Neva R. Goodwin (Cheltenham, UK, and Northampton, MA: Edward Elgar Publishing)

Author(s): Ackerman, F.

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Date: 2009

Research Area(s): Climate Economics

The authors and editors of this volume challenge traditional assumptions about economic growth, and develop the elements of a reoriented macroeconomics that takes account both of environmental impacts and of social equity. Policies including carbon trading, revenue recycling, and reorientation of private and social investment are analyzed, providing insight into new paths for economic development with flat or negative carbon emissions. These issues will be crucial to macroeconomic and development policies in the twenty-first century.
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Climate Economics in Four Easy Pieces

Development 51:3, pp. 325-331

Author(s): Ackerman, F.

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Date: December 2008

Research Area(s): Climate Economics

Conventional economic analysis is replacing climate skeptics' arguments as the principal justification for inaction on climate change. This article offers an alternative economic approach, based on four broad principles: First, your grandchildren's lives are important; a low discount rate is needed to validate concern about far-future outcomes. Second, we need to buy insurance for the planet; climate policy should focus on preventing catastrophic worst-case risks, not on responding to average expected outcomes. Third, climate damages are too valuable to have prices; human life, endangered species and ecosystems cannot be adequately valued in cost-benefit analyses of climate policy. Fourth, some costs are better than others; active climate policies will create jobs, incomes, and new technologies, while failure to act will create much worse costs from climate-related damages.
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Carbon Markets and Beyond: The Limited Role of Prices and Taxes in Climate and Development Policy

G-24 Discussion Paper

Author(s): Ackerman, F.

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Date: December 2008

Research Area(s): Climate Economics

In the quest for climate solutions, market-oriented forces such as the IMF and the World Bank have focused almost exclusively on carbon markets, while others have emphasized the need for complementary, non-market climate initiatives to promote energy conservation and above all, to create and adopt new low-carbon technologies. This paper reviews the equity implications of a market-based approach, the economic forces at play, and the potential benefits of a broader strategy that includes substantial investment in developing countries.
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Did the Stern Review underestimate U.S. and global climate damages?

SEI Working Paper WP-US-0802

Author(s): Ackerman, F. ; Stanton, E.A. ; Hope, C.; Alberth, S.
Date: October 2008

Research Area(s): Climate Economics

The Stern Review received widespread attention for its innovative approach to the economics of climate change when it appeared in 2006, and generated controversies that have continued to this day. One key controversy concerns the magnitude of the expected impacts of climate change, based on results from the PAGE2002 model. This article offers revisions to the PAGE estimates that suggests the model runs used in the Stern Review may underestimate U.S. and global damages. Stern projected 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 suggest they could reach 2.6 percent of GDP for the United States and 10.8 percent for the world.
Another version of this article appeared in Energy Policy.
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Hot, It's Not: Reflections on Cool It! by Bjorn Lomborg

Climatic Change 89:3-4, 435-446

Author(s): Ackerman, F.

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Date: August 2008

Research Area(s): Climate Economics

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."
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Generated User Benefits and the Heathrow Expansion: Understanding Consumer Surplus

Commissioned by Friends of the Earth England, Wales and Northern Ireland.

Author(s): Stanton, E.A. ; Ackerman, F.
Date: July 2008

Research Area(s): Climate Economics

This report responds to the decision of the UK Department for Transportation (DfT) to expand Heathrow Airport, a decision that was based on DfT's forecasts of the costs and benefits of the expansion. The use of the technical concept of consumer surplus threatens to conceal the underlying reality: DfT minimizes concerns about carbon emissions and other environmental impacts, and forecasts that a bigger airport must be better, simply because so many people will enjoy flying more. DfT also did not consider alternatives such as improved ground transportation, which will look much better if oil prices remain high.
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Out of the Shadows: What's Behind DEFRA's New Approach to the Price of Carbon?

Commissioned by Friends of the Earth England, Wales and Northern Ireland.

Author(s): Stanton, E.A. ; Ackerman, F.
Date: July 2008

Research Area(s): Climate Economics

In 2007, the UK's Department for Environment Food and Rural Affairs (DEFRA) established a shadow price for carbon emissions for internal decision making; the shaky foundations of that shadow price are the subject of this critique. This report addresses logical, technical, and ethical issues to show that the DEFRA methodology is fundamentally flawed. The conclusion sets out policy recommendations, including a brief description of a different methodology that could be used to develop an ethical and efficient UK carbon price.
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The Caribbean and Climate Change: The Costs of Inaction

Report commissioned by the Environmental Defense Fund

Author(s): Bueno, R. ; Stanton, E.A. ; Ackerman, F. ; Herzfeld, C.
Date: May 2008

Research Area(s): Climate Economics

This report is the first detailed analysis of the potential economic effects of continued climate change for the entire Caribbean region. The report, similar in methodology to the recent study on the cost of climate change in Florida, compares two possibilities: an optimistic rapid stabilization case and a pessimistic business-as-usual case, and focuses on three categories of effects: hurricane damages, loss of tourism revenue, and infrastructure damage due to sea-level rise.
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The Cost of Climate Change: What We'll Pay If Global Warming Continues Unchecked

Report commissioned by the Natural Resources Defense Council

Author(s): Ackerman, F. ; Stanton, E.A.
Date: May 2008

Research Area(s): Climate Economics

This study of the costs of inaction for the U.S. economy presents a detailed analysis of four major categories of climate costs and comprehensive modeling of climate impacts on the economy as a whole, which it estimates at up to 3.6 percent of U.S. GDP by 2100. The report concludes with three policy recommendations: Impose caps on emissions; promote investment in energy efficiency; and accelerate the development of clean energy technologies.
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Climate Change and the U.S. Economy: The Costs of Inaction

Background paper for report to the Natural Resources Defense Council

Author(s): Ackerman, F. ; Stanton, E.A. ; Hope, C.; Alberth, S.; Fisher, J.; Biewald, B.
Date: May 2008

Research Area(s): Climate Economics

This background paper formed the basis for the Natural Resources Defense Council's report The Cost of Climate Change: What We'll Pay If Global Warming Continues Unchecked. In addition, a technical report, U.S. climate change impacts from the PAGE2002 integrated assessment model used in the Stern report, was produced for this project; a PDF can be downloaded here. Click the link below to download the main background paper.
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Critique of Cost-Benefit Analysis, and Alternative Approaches to Decision-Making

Report commissioned by Friends of the Earth - UK

Author(s): Ackerman, F.

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Date: January 2008

Research Area(s): Climate Economics

This report argues that cost-benefit analysis should not be central to public policy decisions on climate change or other issues. In practice, cost-benefit analysis exhibits numerous problems, ranging from deep ethical and logical contradictions to a persistent tendency toward forecasting errors and partisan abuse. Some of these flaws could in theory be corrected; others are inherent in the methodology, and underscore the need for alternatives. Other, equally logical approaches to decision-making are available; these alternative approaches have the added advantage of acknowledging the multidimensional complexity of environmental issues and the inescapable role of uncertainty.
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Inside the Integrated Assessment Models: Four Issues in Climate Economics

SEI Working Paper WP-US-0801

Author(s): Stanton, E.A. ; Ackerman, F. ; Kartha, S.
Date: January 2008

Research Area(s): Climate Economics ; Climate Equity

A review of recent contributions to the climate-economics literature, assessing 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.
A version of this article appeared in Climate & Development in 2009.
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Florida and Climate Change: The Costs of Inaction

Report commissioned by the Environmental Defense Fund

Author(s): Stanton, E.A. ; Ackerman, F.
Date: November 2007

Research Area(s): Climate Economics

The report is the first detailed analysis on the potential consequences of continued climate change for the state's economy. The report concludes that if left unchecked, climate change will significantly harm Florida's economy in the next several decades, and that impacts on just three sectors: tourism, electric utilities, and real estate together with effects of hurricanes would shrink Florida's gross state product by 5 percent by the end of this century.
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Debating Climate Economics: The Stern Review vs. Its Critics

Report to Friends of the Earth, London

Author(s): Ackerman, F.

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Date: July 2007

Research Area(s): Climate Economics

This report reviews and explains the differences between Stern and his academic critics. While the Stern Review is not a perfect document, it rests on much sounder ground than the economists who have attacked it. The Stern Review illustrates important ways in which economic analysis can be made to reflect the urgency of the climate problem. And it raises crucial questions about the economic aspects of climate change – even though it ultimately fails to find successful solutions to some of the important problems.
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The Carbon Content of Japan-U.S. Trade

Energy Policy 35:9, pp. 4455-4462

Author(s): Ackerman, F.

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; Ishikawa, M.; Suga, M.
Date: January 2007

Research Area(s): Climate Economics

This paper analyzes the greenhouse gas emissions embodied in trade between Japan and the United States, extending the Japanese government's linked Japan-U.S. input-output model to include carbon emission coefficients for each sector. It estimates that in 1995, Japan-U.S. trade reduced U.S. industrial emissions by 14.6 million tons of CO2-equivalent, and increased emissions in Japan by 6.7 million tons, for a global savings of 7.9 million tons.
This research was done, in part, at the Global Development and Environment Institute at Tufts University.
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The Flawed Foundations of General Equilibrium: Critical Essays on Economic Theory

Routledge book

Author(s): Ackerman, F.

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; Nadal, A.
Date: June 2004

Research Area(s): Climate Economics

Does economic theory rest on solid logical foundations? The influence and prestige afforded to orthodox economics – both as a theory and a source of policy advice – suggests the answer is a resounding "yes." This book, however, presents a fundamental challenge to that received wisdom, demonstrating that neither the abstractions of general equilibrium nor their real-world consequences stand up to logical scrutiny.
This research was done at the Global Development and Environment Institute at Tufts University.
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Priceless: On Knowing the Price of Everything and the Value of Nothing

New York: The New Press

Author(s): Ackerman, F.

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; Heinzerling, L.
Date: November 2003

Research Area(s): Climate Economics

A critique of cost-benefit analysis in health and environmental policy-making and regulation, examining how economists put a dollar value on intangible risks and rewards – even human life itself. In policy circles, these calculations are widely viewed as the most reasonable way to make decisions about proposed laws, regulations, and tax policies. Yet the resulting numbers often make no sense, and they are often manipulated and distorted for political gain. The truth, the authors argue, is that these ill-advised economic algorithms and illogical assumptions are part of an anti-regulatory agenda, and they should not be used to distinguish right from wrong in public policy.
This research was done, in part, at the Global Development and Environment Institute at Tufts University.
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Greenhouse Emissions From Waste Management: A Survey of Data Reported to the UN Framework Convention on Climate Change by Annex I Countries

Report to the U.N. Framework Convention on Climate Change

Author(s): Ackerman, F.

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; Taylor, R.; Moomaw, W.
Date: May 2003

Research Area(s): Climate Economics

This report examines reported greenhouse gas emissions related to waste management submitted by Annex I countries under the reporting requirements of the U.N. Framework Convention on Climate Change. The information evaluated includes data submitted by 27 countries according to the Common Reporting Format (CRF) and information provided by 14 countries in National Inventory Reports (NIR).
This was a project of the Global Development and Environment Institute at Tufts University.
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