Using InVEST to Calibrate Economic Models of Climate Change

Justin Andrew Johnson

jandrewjohnson@gmail.comJustinAndrewJohnson.com

April 23, 2012

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Research Question

•“How will climate change impact economic growth through changes in ecosystem services?”

•Three basic tasks▫Create a dynamic calculable general

equilibrium (DCGE) model that impresses economists

▫Identify accurate climate change damage functions with respect to ecosystem services

▫Calibrate the model to specific geographic locations and ecosystem services

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What is a normal DCGE?

•A model of economic growth that accounts for:▫Utility maximizing individuals▫Profit maximizing firms▫Changing prices▫Capital accumulation▫Market responses

•Lets us predict economic growth while accounting for dynamic, changing relationships

•Economists like them▫Lots of functions and proofs!

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What is a DCGE?Global GDP

Years past 2012

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DCGEs in Existing Climate Models•DICE/RICE Models from Nordhaus•PAGE Model from Stern•Many others (CRED, World Bank, ADB)

•Where my model is different:▫Include more detail in the economy (8

sectors)▫Account for impacts on ecosystem services▫Use more accurate damage function(s)

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Existing Damage Functions are Very Simplified

•A damage function is a relationship between Temperature Increase and Economic Damage

0.1 0.8 1.5 2.2 2.9 3.6 4.3 5 5.7 6.4 7.1 7.8 8.5 9.2 9.9 10.6 11.3 12 12.70%

20%

40%

60%

80%

100%

120%

Original DICE

Hanemann Recalculation

Weitzman Recalculation

Temperature Increase (Celcius) over 1900 Baseline

Perc

enta

ge o

f G

DP

rem

ain

ing a

fter

Cli

mate

D

am

ages

Subtr

acte

d

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My Approach to Damage Functions•Include multiple functions that describe

specific impacts on specific sectors, such as:▫Agriculture damage from increasing

precipitation volatility▫Capital loss from sea-level rise▫Crucially, ecosystem service value lost from

changing climate

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Comparison of Damage Functions

Climate Scenario

Temperature Increase

Single Damage Function

Reduction in Growth

Traditional Model

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Process for identifying climate impact on ES:

•Step 1:▫Run InVEST on

current landscape

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Process for identifying climate impact on ES:•Step 2:

▫Create future landscape scenarios by interacting climate predictions with land change modelers

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Process for identifying climate impact on ES:

•Step 3: Run InVEST on future landscapes

•Step 4: Calculate change in value for specific geographic locations

•Step 5: Use this information in the Ecosystem-Services sector in the DCGE to assess what the long-term growth impacts are.

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Preliminary Results•As a proof of concept, I have created a 3-

sector model with a simple damage function▫Calibrated to IPCC A1F1 Scenario▫Damages based on Weisman Formula

20 40 60 80 100 120Time

1

2

3

4

Celcius in Increase TemperatureTemperature Change over Time

20 40 60 80 100 120Time

0.90

0.92

0.94

0.96

0.98

1.00

Proportion of GDP LostSimplified Damage Function

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Preliminary Results

•Model predicts fast growth at first, but eventually climate damages offset growth in capital

20 40 60 80 100t

250 000

300 000

350 000

400 000

kK per effective normalized worker

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Validation – Replicates Past Data with Backcasting

1995 2000 2005t

0 .8

0 .9

1 .0

1 .1

rat ioGDP Blue: D ata, P urp le: M odel

1995 2000 2005t

0 .7

0 .8

0 .9

1 .0

1 .1rat io

M anufacturing Blue: D ata, P urp le: M odel

1995 2000 2005t

0 .7

0 .8

0 .9

1 .0

1 .1

1 .2

rat ioAgriculture Blue: D ata, P urp le: M odel

1995 2000 2005t

0 .8

0 .9

1 .0

1 .1

rat ioServices Blue: D ata, P urp le: M odel

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Where I Still Need Help

•Getting good at InVEST!•Data for InVEST inputs•Identifying the correct set of damage

functions

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Thank you

•Questions?

•Feel free to email any questions or to request more information and works cited to jandrewjohnson@gmail.com

•Additional information on this model and presentation included at justinandrewjohnson.com/climate