The Challenge of Climate Change Views from Sceptical ...bcc.ncc-cma.net/upload/userfiles/1) The challenge... · Source: BP Statistical Review of World Energy, 2012 ... Eyre, and growing

The Challenge of Climate ChangeViews from Sceptical Economics and Economics Scepticism

• Emission trends over recent decades • Remarks on Risks of continued climate change • … and why economists try but struggle to quantify these risks • Some observations on Chinese emissions • Emission projections and possibilities • Paris Agreement

Michael GrubbProfessor of Energy and Climate Change

University College London

Founding Editor, Climate Policy Journal

July 2018

Emission trends over recent decadesIPCC Fifth Assessment (AR5) Illustrated rapid rise of CO2 from Upper-Middle income countries (particularly China), partly due to ‘embodied’ trade

High-income regions generally net importers, footprint significant growth 1990-2010

Upper-middle and lower income regions in general growing “embodied” exports to high income countries

Energy trends by region and fuel, 1965-2012

1965 1975 1985 1995 2005 2012

Coal

Note: The Charts show for each fuel the total energy consumption by region, in Million Tonnes of Oil-Equivalent. Source: BP Statistical Review of World Energy, 2012

1965 1975 1985 1995 2005 2012

CO2

OECD, China, and Rest of World, 1960-2014

The China phenomenon – a view of per-capita emissions vs wealth

China biggest global emitter due to large population and per-emissions high for its stage of econ development – per capita territorial emissions now match EU, though around 20% is due to production of exported goods






July 2018

There are various different kinds of risks

Source: IPCC Synthesis Report, 2001

1 2 3 4 5

R i s k s t o u n i q u e &t h r e a t e n e d s y s t e m sR i s k s t o s o m e R i s k s t o m a n y

I n c r e a s e L a r g e i n c r e a s e R i s k o f e x t r e m ew e a t h e r e v e n t s

D i s t r i b u t i o no f i m p a c t s

N e g a t i v e f o rs o m e r e g i o n s

N e g a t i v e f o rm o s t r e g i o n s

A g g r e g a t e i m p a c t sN e t n e g a t i v e i n a l l m e t r i c sP o s i t i v e o r n e g a t i v e m o n e t a r y ;m a j o r i t y o f p e o p l e a d v e r s e l y a f f e c t e d

P a s t F u t u r e

0- 0 . 7

I n c r e a s e i n g l o b a l m e a n t e m p e r a t u r e a f t e r 1 9 9 0 ( ° C )

V e r y l o w H i g h e r R i s k s o f l a r g e s c a l es i n g u l a r i t i e s

450550

650

Climate change tends to hit poorer regions and people harder, amplified by changing demographics

Figure 2.2: Exposure to warming resulting from projections of 21st century climate and population change. (a) Map of changes in summertime temperatures (June-July-August for the Northern Hemisphere, and December-January-February for the Southern Hemisphere) for the RCP8.5 scenario, using the mean of the projections produced by the CMIP5 climate models; (b) change in the mean warming experienced by a person under RCP8.5 (red lines) and RCP2.6 (blue lines), calculated based on the usual global area-mean (dashed lines), and weighted by the population density to produce the mean exposure to warming that will be experienced by people (continuous lines). In order to span the range of possible exposures, we have paired the high-growth SSP3 population scenario with RCP8.5 and the low-growth SSP1 population scenario with RCP2.6.

Source: Climate Change and Health, Lancet Special Issue, forthcoming May 2015

Some effects continue to accumulate over centuries or longer …


• Emission trends over recent decades • Risks of continued climate change • … and why economists try but struggle to quantify these risks • Some observations on Chinese emissions • Emission projections and possibilities • Paris Agreement




July 2018

The simple theory of costing carbon

• Estimate the cost of specific impacts of / adaptation to climate change over time – eg. food prices, coastal defences, etc etc

• Translate cost to welfare (utility function) and aggregate over the world (maybe with some kind of equity weighting) based on an– ‘Inequality aversion’ parameter

• Aggregate over the future (with some kind of discounting) comprising– Pure rate of time preference – Assumed annual growth rate

• Get your answer (1992)!- Significant (Cline)- Trivial but rising over time (Nordhaus)- With subsequent variants across and beyond the range (Mendelsohn, Pearce, Eyre, and growing

bands of others)

The model used for the Stern Review was capable of producing a wide range even given constant ethical parameters –

S o c i a l c o s t o f c a r b o n b y d a t e o f e m i s s i o n

0

1 0 0

2 0 0

3 0 0

4 0 0

5 0 0

6 0 0

7 0 0

8 0 0

2 0 0 0 2 0 1 0 2 0 2 0 2 0 3 0 2 0 4 0 2 0 5 0 2 0 6 0

Y e a r

$ p e r t o n n e C

M e a n

5 %

9 5 %

Figure 3 Social cost of carbon over time for δ (PRTP) = 1.5%, and ν (inequality aversion) = 1Source: Hope and Newbery, ‘Calculating the Social Cost of Carbon’,

Ch.2 in Grubb, Pollitt and Jamasb (2007)

Note: IPCC range of ‘prices required over coming decades’, c. US$ 75-185 / tC

Weitzmans ‘Dismal Theorem’• Uncertainty is key• Traditional economic treatments, where they have considered uncertainty at all, have assumed

‘thin-tailed’ distributions (eg Normal) for mathematical convenience • But a rigorous statistical analysis clarifies that we are dealing with ‘probability distributions of

probability distributions’ , arising from the (inevitably) finite data available on extremes• => Actual impact is a ‘thick tailed’ distribution, in which the welfare damage of extreme impacts

rises faster than their probability declines• Weitzman (2007): the ‘Dismal Theorem’

– ‘No finite sample can assess probability of magnitudes of the most extreme disasters lurking in the distant tails of distributions – expected (impacts) will be driven to an arbitrarily large extent by this unavoidable limitation.. …

– ‘climate change generally and climate sensitivity specifically are prototype examples of this general principle, because we are trying to extrapolate inductive knowledge far outside the range of our limited experience’

– ‘the debate about discounting may be secondary to a debate about the open-ended catastrophic reach of climate disasters’

• In common parlance: Stern is right for the wrong reasons: rigorous economic treatment shows that scientific precaution should dominate

Which kind of impacts?

Market Non-market Multiple stresses and socially contingent

Wha

t kin

ds o

f clim

ate

chan

ges? Projection (trend) Coastal protection;

Dryland loss;Energy (heating and cooling)

Heat stress; Wetland loss;Ocean acidification;Ecosystem migration/ termination

Displacement from coastal zones;Regional systemic impacts

Climate variability & (bounded) extremes

Agriculture;Water;Storms

Loss of life;Biodiversity;Environmental services

Cascading social effects;Environmental migration

System changes & surprises

‘Tipping point’ effects on land, resources, coastal cities

Higher order effects of eg ocean current changes or forest loss;Irreversible losses

Regional collapse;Famine; War

Severity & Impact costs: increase with wider perspectives on scope, discounting & risk aversion (Weitzman’s Dismal Theorem)

Figure 1.8 The risk matrix: an assessment framework for evaluating the social cost of climate change Source: Developed by the author from Downing et al. (2007), Jones, R. and G. Yohe (2008), Downing and Dyszynski (2010).

Note: ‘Socially contingent’ costs may be understood as those that may be amplified by the inability of society to respond to impacts effectively, such as failures of governance , inability to act collectively, or the frictions associated with migration or deeper disturbances. See also Parker (2014) in American Historical Review 113:4

But Quarter of a Century on, we have not been doing very well at solutions ..

Limits to monetised aggregation

• Long term sustainability issues cascade uncertainties in:– Science x impacts x monetisation proxies x risk aversion x equity

weightings x social discount rate – Response system evolution x interactions x technical change x fossil fuel

prices x security weighting x ..• By definition does not explicitly address distributional or related

agency (‘omission / commission / risk imposition’) concerns• The changes are non-marginal and the goals are transformational

Risk awareness

• … see growing literature on the ‘psychological distance’ of climate change

• … and ‘why our brains are hard wired to ignore climate change’

Can we solve it?

• A mega-problem of risk management under deep uncertainty– Not the primary science but the consequences– .. And how to value them, act, and coordinate response

• “The biggest market failure in history” (Stern)• “The perfect moral storm”• A “Super-Wicked” problem

And we have not been doing very well globally ...• “Current emission trends are at the high end of levels that had been projected … growing on average at 2.2%/yr since

2000” [IPCC 2014]• Pattern of local to regional to global pollution displacement extending• Quarter of a century after IPCC warning, less than 10% of global emissions covered by any carbon price • Energy discourse about Trilemma of security, affordability and sustainability .. In that order

Laurence Tubiana’s Question

Three conceptions of risks and their application to climate change

Risk Conception Basic Belief Typical Strategy Societal process Time-scale of climate change

Indifferentor disempowered

Not proven, or “What you don’t know can’t

hurt you”

“Ignorance is bliss” Environmental group campaigns

vs .resistance lobbying

First few decades of climate change

Tangible and attributed costs

Weigh up costs and benefits

Act at costs up to “social cost of carbon”

Technocratic valuation and politics of pricing

As impacts rise above the noise – next few

decades

Disruption and securitization

Personal or collective security at risk,

climate change as a “threat multiplier”

“Containment and defence”

Mitigate as much as practical and adapt to

the rest

Ultimately, for all (systemic and global

risk)Most vulnerable,

sooner, with international spillover






July 2018

Structure of the meteoric rise in Chinese emissions, 2000-2013

… an economy unusually dependent on ‘heavy industrial production’… with industrial production unusually dependent on coal-based electricity… with its associated inefficiencies and local and global environmental problems

a) Total final energy consumption = 1.7 bn

toe

b) Total primary energy supply = 2.9 bn toe






July 2018

There is now a huge range of Chinese CO2 projections to 2030Hyh$$$

$

$$$$$$$$$$$hy$

BAU or Reference Enhanced Policy 450 or 500 ppm

This seems inconsistent with all international comparisons (and many macro projections), the 13th FYP focus on ‘new normal’, coal crisis and also FYP stance for ‘ecological civilisation’

Most Chinese energy/CO2 projections are for continued rapid economic growth with modest change of structure

Global GDP ($bn)

Tota

l glo

bal C

O2

emis

sion

s (M

tCO

2)

1980

1990

2010By mid-century, there is a huge range of possible emissions, all with similar level of global economic development

Figure 12‑ 1 Global trends: default and potential trajectories

1990

Efficiency and low carbon innovation

frontier in 2050

‘Business–as-usual’ frontier in 2050

Projected economic growth without climate damages(Frontiers not to scale)






July 2018

The Paris Agreement: Huge ambition

§ Global goal of keeping warming between 2° and 1.5° C (Art. 2)

§ Global peaking “as soon as possible” (Art. 4.1)§ Achieve balance of emissions and sinks by second

half of century (Art. 4.1)§ Global stocktake on progress towards these goals

every 5 years from 2023 (Art. 14.1 and 2)

Sandford et al . 2014Perspectives Climate Change - [email protected] - www.perspectives.cc

The Paris Agreement: Mitigation by everyone

§ All countries participate in mitigation through Nationally Determined Contributions (NDCs) (Art. 4.2)

§ NDCs are ratcheted upwards every 5 years (Art. 4.3, 4.9)

§ Industrialized countries should have absolute targets (Art. 4.4)

§ Developing countries should “move over time” towards “economy wide reduction or limitation targets (Art. 4.4)

Perspectives Climate Change - [email protected] - www.perspectives.cc

UNEP 2015

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The Challenge of Climate Change Views from Sceptical ...bcc.ncc-cma.net/upload/userfiles/1) The challenge... · Source: BP Statistical Review of World Energy, 2012 ... Eyre, and growing