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Ramblings from an Ongoing and Never Ending Effort

Economic Vulnerability under Climate Change : With an Agricultural Emphasis. Bruce A. McCarl Distinguished Professor of Agricultural Economics Texas A&M University mccarl@tamu.edu http://agecon2.tamu.edu/people/faculty/mccarl-bruce/. Climate Change Adaptation. Energy.

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Ramblings from an Ongoing and Never Ending Effort

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  1. Economic Vulnerability under Climate Change : With an Agricultural Emphasis Bruce A. McCarl Distinguished Professor of Agricultural Economics Texas A&M University mccarl@tamu.edu http://agecon2.tamu.edu/people/faculty/mccarl-bruce/ ClimateChangeAdaptation Energy ClimateChangeEffects ClimateChangeMitigation Ramblings from an Ongoing and Never Ending Effort Presented at the Climate Change Class, March 2003

  2. Economic Issues in Climate Change • Assessment of Impact • Externality and Market Failure • Mitigation Policy • Cost Benefit Analysis

  3. Economic Issues – Assessment of Impact • Measuring Economic Value • Income Distribution • Inter-generational Equity

  4. Basic Setting D S P r i c e Quantity

  5. Basic Setting Sc D S P r i c e a CS0 =a+b+d+f PS0 =c+e+g TSW0 =a+b+c+d+e+g CSc=a PSc= b+c TSWc=a+b+c ∆CSc=-b-d-f PSc= b-e-g TSWc=-d-e-f-g b d f g e c Quantity

  6. Basic Setting between regions D Sregion1 Sregion2 P r i c e region1 region2 demand Quantity

  7. Basic Setting between regions D SCCregion1 Sregion1 Sregion2 P r i c e SCCregion2 region1 region2 demand Quantity

  8. Basic Setting between regions No Climate change Sregion2 Sregion1 D P r i c e ED region2 region1 Quantity

  9. Basic Setting between regions No Climate change Sregion2 Sregion1 D P r i c e ED P Qs1 Qs2 Qd region2 region1 Quantity

  10. Basic Setting between regions With Climate change SCCregion1 Sregion2 Sregion1 SCCregion2 D P r i c e ED Region 1 loses mkt share and produces less Region 2 gains mkt share and produces more Consumers gain All producers gain (I think) P PCC QCCs1 QCCs1 Qs1 Qd QCCd QCCs2 Qs2 region2 region1 Quantity

  11. Economic Issues – Cost/Benefit Analysis • Extent of Damages • Uncertainties in Impact Assessment • Assumptions on scope of impact • Economic approach to estimating welfare

  12. Would Climate Change Hurt/Benefit ?

  13. Assessment Methodology - Summary Steps • Identify sectors and physical effects • Determine spatial and time scales • Develop scenario regarding non-climatic factors • Obtain GCM projections • Chose analytical framework (econ theory foundation and models to be used) and adapt or estimate models • Assess physical impact of GCM projections • Make assumptions about unmodeled phenomena • Incorporate physical impact into economic models • Incorporate data on possible adaptations to climate change • Do analysis including sensitivity analysis

  14. Scope of Assessment • Identify sectors and physical effects • The question relates to the choice of sector of the economy for impact assessment – agriculture, water, etc. Can this really be treated independently? • Economic and geographic scale • Firm level or sector level assessment, regional or national or international • Time frame • Climate change is a long-term phenomenon that requires analysts to decide the time frame of analysis, which would determine impact assessment results • Dynamic Vs Static Analysis

  15. Scenario Development • Non-climaticScenarios • Climate change Scenarios • Time frame and uncertainty

  16. Non Climatic - Socio-Economic Scenarios • Population • Demand (Product/Input Markets) • Economic growth • Economic structure

  17. Non climate scenarios • Include at least two scenarios "baseline" or "reference" scenario and "mitigation scenario" • Assumptions e.g. economic growth, technology, etc. Figure TS.1: Qualitative directions of SRES scenarios for different indicators Source: CC 2001 mitigation p. 24 at http://www.grida.no/climate/ipcc_tar/wg3/015.htm#24

  18. Climate Change Scenarios • Synthetic scenarios • Assumed changes in temperature and precipitations • Kaiser et al.; Mendelsohn, Adams et al. • Global Circulation Models (GCMs) • Model based predictions of temperature and precipitations for certain geo-graphic resolution • US national assessment, Rosenzweig and Hillel

  19. Obtain GCMs Projections • Data Distribution Center of IPCC maintains GCM projections (http://ipcc-ddc.cru.uea.ac.uk/) • Decide GCM scenarios whose projections you would use (Ref. Guide to GCM Scenarios - DDC) • Visualization pages /Downloadable files • Chose GCMs that have better calibrated base climate for the assessment country/region • Compuate percentage changes in temp. and precipt for a grid and apply to weather stations • Choose more than one GCMs for sensitivity analysis

  20. Where we are GCM Projections climate change - What is projected Climate models predict increasing emissions will cause a temp increase Source : IPCC AR4t

  21. GCM Projections Precipitation Projections John Nielson –Gammon, TAMU

  22. GCM - Geographic Scale • Circa 2001 • HADCM: 3.75 x 2. 5 deg. (96X72 grids) • CGCM: 3.75 x 3.75 deg. (96*48 grids) • GDFL: 7.5 x 4.5 deg. (48*40 grids) • Texas was covered by 4 grids (Rosenzweig and Hillel)

  23. Time scale What is projected • Hotter

  24. Effects to Consider Temp Rainfall CO2 SeaLevelExtremeEvents Plants Crop and forage growth X X X X Crop /forage water need X X X X Soils Soil moisture supply X X X Irrigation demand X X X X Soil fertility X X X Animals Performance X X X Pasture/Range Carry cap X X X X Irrigation Water Supply Evaporation loss X X X Run-off/general supply X X X Non-AG competition X X X Other Water borne transport X X X Port facilities X X X Pest and diseases X X Insurance X X X

  25. Choose Analytical Framework • Spatial Analogue/current data • Structural Approach

  26. Analytical Framework - Spatial Analogue • Ricardian Land Rent Approach • Profit Function Approach • In both cases • EconValue = f(controls,climate)

  27. Analytical Framework - Structural App. • Modeling biophysical and physical sensitivity to climate change • Modeling demand/supply sensitivity to unmodeled climate sensitivity • Integrated Assessment Modeling

  28. Appraisal Approaches • Physical assessments that only consider changes in physical character (e.g. changes in yield) • Changes in cost as estimated in Chen and McCarl (Land rent, and Profit) • Welfare estimates (market and non-market)

  29. Physical Impacts to Economic Impacts • Estimate physical impacts using structural or spatial analogue • Make assumptions about unmodeled phenomenon • Incorporate physical impacts into economic/empirical models

  30. Analytical Framework Climate Scenarios – GCMs Crop Simulation – regional crop yields (dry and irrigated) regional irrigated crop water use Hydrologic simulation – irrigation water supply, Expert opinion – livestock performance, Range and hay simulation and calculation -- livestock pasture usage, animal unit month grazing supply Other studies – international supply and demand Regression – pesticide usage Economics – ASM sector model

  31. Adaptations to Climate Change • Sensitivity vs Vulnerability • Nature of Adaptations • Producers • Markets/Policy • Technology • Cost of Adaptations

  32. Analysis and Senstivity Analysis • Analysis • Assumptions and limitations • Policy relevance/Know your audience • Sensitivity Analysis • Identify factors of sensitivity • Analyze results within realistic bounds

  33. Selected Assessments Fischer et al. (1996) Mendelsohn, Morrison, and Andronova (2000) U.S. National Assessment (Adams et al.)

  34. Assessment - Fischer et al. (1996) • Scope: Global (112 sites from 18 countries) • Sector: Food production • Timeframe: 2030, 2060 • Socio-Econ Scenario: Pop. and Tech (Ag.) • GCMs: GISS, GFDL, and HADCM models • Assess. Meth.: Structural approach (Ag.) • Adaptations: Two levels of adaptation • No major global loss in global production of food • Marked regional differences in impacts

  35. Assessment - Mendelsohn, Morrison, and Andronova (2000) • Global (184 countries) • Agriculture, Forestry, and Coastal Areas • Timeframe: 2060 • Socio-Econ Scenario: Pop. and GDP growth • GCMs: Assumed 2 deg. temp. increase • Assess. Meth.: Spatial Analogue • Adaptations: Implicitly imbeded in model results • $0.278 bil. loss, with $215 bil. from ag. • OECD gains $69 bil., while rest of world loses $348 bil.

  36. U.S. National Assessment • Scope: National • Sectors: Agri., Forest, Water, Coastal Area, & Health • Timeframe: 2060 • Socio-Econ Scenario: Only climate changed (Ag.) • GCMs: HADCM and CGCM • Assess. Meth.: Structural approach • Adaptations: Planting schedule, tech., market • $0.5 bil. loss, with $12.5 bil. gain • Gains from trade

  37. Emerging or Untreated Issues in Assessment • Probability and severity of extreme events • Valuation of non-market impacts (loss of life and bio-diversity) • Distributional issues (weights) • Aggregation and extrapolation from limited geographic studies hides heterogeneity of responses to climate change • How can we alter policy/research innovation investment to achieve a more desirable mix of CC effects

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