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15Articles

The Economics of the IPCC’s Special Report on Limiting Temperatures to 1.5 °C

The Intergovernmental Panel on Climate Change (IPCC) published a special report (SR15) on the impacts of global warming of 1.5 °C above pre-industrial levels on October 8, 2018. The report says the cost of mitigating CO2 emissions in 2030 to meet the 1.5 °C target is about 880 US$/tCO2. Using a climate sensitivity based on observations including effects of natural climate change, urban warming and the best available economic model, the mitigation proposal will prevent a benefit of 8 $/tCO2, for a total loss of 888 $/tCO2 mitigated.



Calculating the “Social Cost” of CO2 Emissions Using FUND

The social cost of carbon dioxide (CO2) emissions (SCCO2) is defined as the social worldwide costs (net of benefits) of emitting one tonne of CO2 into the atmosphere. The estimated SCCO2 is used for doing cost-benefit calculations for proposed government regulations. Integrated assessment models are used to estimate the SCCO2 considering demographic and economic variables in addition to the physical climate system. The temperature responses in IAM approximately match complex climate models. One of the IAMs, FUND, is freely available. This article presents plots and tables that give some idea of what FUND does. Using a 3% discount rate FUND calculates net damages of US$8.3/tCO2 if the climate sensitivity is 3.5 °C, and US$4.4/tCO2 of net benefits if the climate sensitivity is 1.0 °C for emissions in 2010, in constant US$2016.



Examining the Social Cost and Benefit of Carbon Dioxide; Dr. Michaels

Climate scientist Patrick Michaels provided testimony before the U.S. House of Representatives Committee on Science, Space and Technology on February 28, 2017 about the Social Cost and Benefit of Carbon Dioxide (SCC). His testimony shows that the US Interagency Working Group (IWG) used too high and outdated estimates of climate sensitivity despite at least 16 new studies that show much lower values. Using more current values from empirical studies, the SCC in the DICE model falls by 30-50% and in the FUND model it falls by over 80%. The climate models over-warm the bulk atmosphere by a factor of 2.5. Two of the models used by the IWG do not contain the any significant benefits of CO2 fertilization or benefits of warming. The SCC would likely be negative if the models used parameters from the current scientific literature.



Empirically Constrained Climate Sensitivity and the Social Cost of Carbon Dioxide

The authors applied the 2015 Lewis and Curry equilibrium climate sensitivity (ECS) distribution to the widely-used DICE and FUND Integrated Assessment Models. Previously the developers of these models (and others) have relied on model-simulated distribution of ECS values. using the empirical ECS distribution, the estimated SCC drops substantially in both the DICE and FUND models, and in the latter there is a large probability it is no longer even positive. The FUND model calculates that emissions in 2010 using a 5% discount rate have a SCC of -$0.65/tCO2, that is, emissions are beneficial. The ECS used however, is too high because it fails to account for urban contamination of the surface temperature record nor natural long-term climate change.



The Economic Impact on the Alberta Electricity Market of the Climate Plan

EDC Associates Ltd. published a multi-client study of the potential impact on Alberta’s electricity market of Alberta’s climate plan. Some key conclusions of the study are; 1. The cumulative cost of electricity from 2017 to 2030 is expected to increase by $3.3 to $5.9 billion depending on policy choices. 2. Replacing coal with natural gas generation reduces CO2 emission by 10 Mt/yr compare to the business as usual case. Incentive payments of $20.1 billion to subsidize 7200 MW of renewable energy along with new natural gas plants will reduce CO2 emissions by 16.5 Mt/yr. 3. The CO2 reduction from 7200 MW of renewable capacity will costs $325/tCO2 of renewable energy incentive payments. Including the increased cost of the electricity, the CO2 reduction costs could increase to $420/tCO2. This is 21 times the carbon price in 2017. If renewables achieve a capacity factor of 33%, 7200 MW of new renewable capacity will result in 26% of Alberta’s electricity being generated by renewables by 2030, which will be mainly wind power. 4. The cost of new electrical capacity with 7200 MW renewables is $30.7 billion.




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