the impact of climate change and climate policy on the canadian economy jim davies jim macgee jacob...
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The Impact of Climate Change and Climate Policy on the Canadian Economy
Jim DaviesJim MacGeeJacob Wibe
Questions
What is the net economic impact of climate change and global climate change policy on the Canadian economy? Costs and benefits from different emissions
reduction targets Implications of migration and population growth
Canada is different:1. More energy intensive than OECD average2. High immigration3. Northern climate
Modeling Approach
Adopt Nordhaus’ DICE Model (2007)
Model Canada as a small open economy
Take as given World path of carbon emissions Climate Relative price of carbon energy
Main Findings
Benchmark calibration: Reducing CO2 emissions in Canada more costly than Nordhaus (2007) world average
Canadian immigration policy increases world output but raises Canadian abatement cost
Contribution: Dynamic model to compare alternate CO2 emission time paths
Static CGE models used to examine impacts of climate policy on Canada: Hamilton and Cameron (1994), Jaccard and Montgomery
(1996), ab Iorwerth et al. (2000), Dissou (2005), Wigle and Snoddon (2007), Boehringer and Rutherford (2008)
Sectoral models: Jaccard and Montgomery (1996), Jaccard et al. (2000), Loulou
et al. (2000) Jaccard and Rivers (2007)
Selected Literature: Canada
DICE-2007
Dynamic Integrated model of Climate and Economy
Neoclassical Growth Model – Maximize a Social Welfare Function for the World
Consumption constrained by economic and geophysical relationships
Decision variables: Savings rate for capital and emissions-control rate
Production
DICE functional forms assumed
Parameters differ for Canada:
1. Damage coefficient: Ωt
2. Abatement cost function: Λt
1]1[ tttttt LKAQ
Abatement Cost Function: Λt
Cost of controlling GHG emissions μ = % reduction in industrial emissions
Calibrate to two points: Nordhaus (2007) backstop price schedule NRTEE (2009):
3.3% GDP in 2020 to reduce emissions to 31% below BAU 4.8% GDP in 2050 to 78% below BAU
2,1
ttt
Canadian Abatement Costs
Alternative estimates of abatement costs:
Dissou (2005): $15.4 billion (1.15% of GDP) to reach Kyoto target in 2010
Jaccard et al (2003): $45 billion to reach Kyoto target in 2010 (cumulative costs 2000-2022)
Abatement Cost Function for Canada
Share of Controlled Emissions
0 0.050.10.150.20.250.30.350.40.450.50.550.60.650.70.750.80.850.90.95 10
0.02
0.04
0.06
0.08
0.1
0.12
0.14
Canada 2020DICE 2020
Share
of
Outp
ut
Damage coefficient: Ωt
Nordhaus (2007) models damages as quadratic in global mean temperature
Calibrate: Use regional damage estimates for U.S. from
Mendelsohn (2001) Fit quadratic using estimated damage at T=2.5°
and T=5 °
,1
1
tt D 2
,2,1 ttttt TTD
Matching Regions
CanadianRegion
U.S. Region(Mendelsohn)
Atlantic North-East
Quebec North-East
Ontario North-East,Mid-West
Prairies Northern Plains
B.C. Pacific North-West
Damage Function, Dt
Degrees C°
00.
30.
60.
91.
21.
51.
82.
12.
42.
7 33.
33.
63.
94.
24.
54.
85.
15.
45.
7 66.
36.
66.
97.
27.
5
-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
DICECanada
Share
of
Outp
ut
Benefits to Canada from Reduced Global Warming?
NPV 2005 - 2095, billions of dollars.
CanadianPolicy
Global Policy
BAU Nordhaus Fast&Deep
BAU AbatementDamagesTotal
5.9-56.8-50.9
5.9-59.1-53.2
5.9-56.6-50.7
Nordhaus AbatementDamagesTotal
351.1-56.8294.3
351.1-59.1292.0
350. 6-56.6294.0
Fast&Deep
AbatementDamagesTotal
1096.8-56.8
1040.0
1097.0-59.1
1037.9
1094.2-56.6
1037.6
Policy Question
Should immigrant receiving countries receive additional “emission credits” if they accept immigrants from countries worst hit by global warming?
Impacts on Canada from Immigration
Immigration Path
Change in .. Low Medium High
Gross Output 4862.6 5985.8 7345.8
Climate Damage - 6.3 -7.9 -9.7
Abatement Cost 42.3 52.4 64.8
NPV 2005 - 2095, billions of dollars.
Conclusions
Global climate change policy has a significant impact on Canadian Economy High abatement costs associated with
optimal global policy Global abatement effort is of little
benefit to Canada in economic terms
Conclusions
Canadian Immigration policy increases world output but raises Canadian abatement cost Immigration increases economic
burden on Canada in meeting emission targets
Abatement Cost Function: Λt
0 0.16 0.320000000000001 0.48 0.640000000000001 0.8 0.9600000000000010
0.01
0.02
0.03
0.04
0.05
0.06
Nordhaus Global Abatement Cost Function
20052055
Share
of
Worl
d O
utp
ut
Share of Controlled Emissions
Mendelsohn’s Regions