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Providing Insight
Into Climate Change
Economics
22Articles

The Global Economic Impact of Climate Change on Energy Expenditures

A paper, Lang and Gregory 2019, showed that a 3 °C increase in the global mean surface temperature would reduce USA energy expenditures and increase economic wealth by +0.07% of gross domestic product (GDP), whereas the FUND economic model projects an wealth impact of -0.80% of GDP. This article extends the analysis to global impact and finds a 3 °C increase would reduce global energy costs and increase wealth by +0.05% of gross world product (GWP) using empirical data, while FUND projects a wealth impact of -1.59% of GWP. The total economic impact of a 3 °C increase of global mean temperatures would increase wealth by +0.20% while FUND project -0.68% loss of wealth, assuming an climate sensitivity of 3.0 °C for double CO2. At a realistic ECS of 1.0 °C, the impact of a 2 °C temperature increase (in 2147) using empirical energy data would be +1.07% of GWP. This positive impact of global wealth increased to 1.45% of GWP when including an updated estimate of CO2 fertilization. This study shows that CO2 emissions have a large social benefit, so policies to restrict CO2 emissions are harmful and misguided.



Climate Sensitivity, Agricultural Productivity and the Social Cost of Carbon in FUND

This paper by Dayaratna, McKtrick & Michaels evaluates the implications of recent empirical findings about CO2 fertilization and climate sensitivity on the social cost of carbon (SCC) in the FUND economic model. New satellite and experimental evidence suggests that the agricultural productivity gains due to CO2 fertilization are at least 30% greater than what is parameterized in the FUND economic model. The equilibrium climate sensitivity (ECS) probability distributions used are from the Lewis & Curry 2018 (L&C) and Christy & McNider 2017 (C&M) empirical studies, which gives ECS best estimates of 1.5 °C and 1.4 °C, respectively. Using a 5% discount rate, the 30% increase of CO2 fertilization and L&C ECS parameters, the FUND model calculates a best estimate SCC in 2020 of 2018US$-4.08/tCO2 and there is a 0.78 probability that SCC is negative.



Solar and Wind Power Cost about 9 times That of Electricity from Other Sources

Europe provides an example of what happens to electricity prices with increasing levels of wind and solar installed capacity per person. The plot below shows the average 2017 residential cost of electrical power against the installed capacity of solar and wind power per capita in each country. Germany, with 1144 W/capita of installed solar plus wind capacity in 2017, generated only 25.8% of its electricity from solar and wind. The best-fit line implies that the effective average solar and wind electricity costs in Europe are 9.2 times that of electricity from other sources, mainly fossil fuels. The resulting high electricity costs in countries with high installed solar and wind capacity is severely harming the economies of those countries. Industries that require large amounts of electric power are moving to less efficient countries which reduces wealth and increases global CO2 emissions.



Economic Impact of Energy Consumption Change Caused by Global Warming

This paper by Peter Land and Ken Gregory tests the validity of the FUND model’s energy impact functions. Empirical data of energy expenditure and average temperatures of the US states and census divisions are compared with projections using the energy impact functions with non-temperature drivers held constant at their 2010 values. The empirical data indicates that energy expenditure decreases as temperatures increase, suggesting that global warming may reduce US energy expenditure and thereby have a positive impact on US economic growth. If FUND projections for the non-energy impact sectors are valid, 3 °C of global warming from 2000 would increase global economic growth.



The Private Benefit of Carbon Dioxide and its Social Cost

Economist Dr. Richard Tol calculates that the global average private benefit of the use of fossil fuel at the margin (ie., the benefit of the last unit used) is about US2010$411/tCO2. It is the weighted average of the price of energy times the carbon dioxide emission coefficient. The private benefit is lowest for coal use in industry (US$47/tCO2) and highest for residential electricity (US$1,877/tCO2 from Results, or US$780/tCO2 from Table 1). Affordable and reliable energy is a great good, which is why we purchase it. The mean of published estimates of the social cost of CO2 is $12/tCO2 assuming a 3% pure rate of time preference and the IPCC distribution of climate sensitivity. The FUND model calculates a net social benefit of $3.30/tCO2 assuming a climate sensitivity distribution from Lewis & Curry 2915 and a 3% discount rate. The marginal private benefit of fossil fuels is at least 123 times the social cost.




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