• Energy Research

Equity considerations play an important role in international climate negotiations. While policy analysis has often focused on equity as it relates to mitigation costs, there are large regional differences in adaptation costs and the level of residual damage. This paper illustrates the relevance of including adaptation and residual damage in equity considerations by determining how the allocation of emission allowances would change to counteract regional differences in total climate costs, defined as the costs of mitigation, adaptation, and residual damage. We compare emission levels resulting from a global carbon tax with two allocations of emission allowances under a global cap-and-trade system: one equating mitigation costs and one equating total climate costs as share of GDP. To account for uncertainties in both mitigation and adaptation, we use a model-comparison approach employing two alternative modeling frameworks with different damage, adaptation cost, and mitigation cost estimates, and look at two different climate goals. Despite the identified model uncertainties, we derive unambiguous results on the change in emission allowance allocation that could lessen the unequal distribution of adaptation costs and residual damages through the financial transfers associated with emission trading.

This paper assesses the economic value associated with the development of various low-carbon technologies in the context of climate stabilization. We analyze the impact of restrictions on the development of specific mitigation technologies, comparing three integrated assessment models used in the RECIPE comparison exercise. Our results indicate that the diversification of the carbon mitigation portfolio is an important determinant of the feasibility of climate policy. Foregoing specific low carbon technologies raises the cost of achieving the climate policy, though at different rates. CCS and renewables are shown to have the highest value, given their flexibility and wide coverage. The costs associated with technology failure are shown to be related to the role that each technology plays in the stabilization scenario, but also to the expectations about their technological progress. In particular, the costs of restriction of mature technologies can be partly compensated by more innovation and technological advancement.

AbstractThis paper analyzes the optimal mix of adaptation and mitigation expenditures in a cost-effective setting, in which countries cooperate to achieve a long-term stabilization target (550 CO2-eq). It uses an Integrated Assessment Model (AD-WITCH) that describes the relationships between different adaptation modes (reactive and anticipatory), mitigation and capacity building to analyze the optimal portfolio of adaptation measures. Results show that the optimal intertemporal distribution of climate policy measures is characterized by early investments in mitigation followed by large adaptation expenditures a few decades later. Hence, the possibility of adapting does not justify postponing mitigation. Moreover, a climate change policy combining mitigation and adaptation is less costly than mitigation alone. In this sense mitigation and adaptation are shown to be strategic complements rather than mutually exclusive.

In this paper we argue that when a subgroup of countries cooperate on emission reduction, the optimal response of non-signatory countries reflects the interaction between three potentially opposing factors, the incentive to free-ride on the benefits of cooperation, the incentive to expand the demand of fossil fuels, and the incentive to adopt cleaner technologies introduced by the coalition. Using an Integrated Assessment Model with a game theoretic structure we find that cost-benefit considerations would lead OECD countries to undertake a moderate, but increasing abatement effort (in line with the pledges subscribed in Copenhagen). Even if emission reductions are moderate, OECD countries find it optimal to allocate part of their resources to energy R&D and investments in cleaner technologies. International spillovers of knowledge and technology diffusion then lead to the deployment of these technologies in non-signatory countries as well, reducing their emissions. When the OECD group follows more ambitious targets, such as 2050 emissions that are 50% below 2005 levels, the benefits of technology externalities do not compensate the incentives deriving from the lower fossil fuels prices. This suggests that, when choosing their unilateral climate objective, cooperating countries should take into account the possibility to induce a virtuous behaviour in non-signatory countries. By looking at a two-phase negotiation set-up, we find that free-riding incentives spurred by more ambitious targets can be mitigated by means of credible commitments for developing countries in the second phase, as they would reduce lock-in in carbon intensive technologies.

Adjustments in the final use of energy are a critical margin of adaptation for maintaining indoor thermal comfort. This paper explores how households have been adopting air conditioning and thermal insulation to cope with different climatic conditions, and how climatic factors interact with socio-economic, demographic, and household characteristics across eight OECD countries. Changes in the cumulative number of hot and cold days over the year, urbanization, demographics and household characteristics, including attitudes towards energy efficiency, strongly affect those two margins of adaptation, along with income. If the historically-observed adaptation behaviour is maintained also under future socio-economic pathways and climate scenarios, the impact of global warming and income on air conditioning adoption will be reinforced by urbanization trends, which on the contrary will make it more difficult to improve building thermal insulation.

The paper evaluates the macroeconomic and distributional implications for Italian households and regions of both climate change impacts and a carbon tax. We use a recursive-dynamic general equilibrium model to evaluate aggregate changes in prices, income and expenditure, and a sequential arithmetic micro-simulation module to downscale them to the household level. Climate change impacts are regressive, adding to the already regressive effects of a carbon tax. Wealthy households reduce expenditure on gas and petroleum fuels the most, whereas households in the lowest deciles increase electricity expenditure relatively more. Climate and policy impacts differ significantly also within income groups, reflecting regional variations in the size of climate shocks, the prevalent climate conditions, and the energy mix. We highlight a new emerging risk related to those households that will be exposed to higher temperatures and will not be able to sustain the electricity expenditure needed for adaptation, and we emphasize the importance of accounting for the distributional consequences of climate change impacts when designing climate policies.