December 18, 2014

Should we ban unconventional oil extraction to reduce global warming?

We all know that unconventional oil extraction is bad for the environment. It causes local environmental damage (check what is happening in North Dakota: here) and it generates a lot of extra carbon dioxide emissions compared to the extraction of conventional oil.

So, what about banning the extraction of non-conventional oil?

In a recent working paper  Samuel Carrara and I estimate the climate benefit of a global ban on unconventional oil using scenarios developed with the integrated assessment model WITCH.

Guess what? A global ban on the use of unconventional oil has non-negligible climate benefits but it is a very inefficient climate mitigation policy. Not using unconventional oil resources slows global warming by 0.3°C (from +4.1°C to +3.8°C in 2100 with respect to the pre-industrial level). Despite a rebound effect in conventional oil extraction, the global ban is effective because it substantially reduces oil demand, carbon dioxide emissions and the increase of temperature. However, the policy is terribly inefficient.

We find that an efficient, global uniform carbon pricing mechanism would achieve climate benefits almost four times larger, at the same cost. Analogously, an efficient pricing scheme would deliver the same climate benefit being fifteen times cheaper.

The EU has long considered a unilateral tax on oil coming from unconventional resources in Northern America.

Is this a good idea?

We check what would be the cost and the benefit (in terms of reduced carbon dioxide emissions) of a unilateral EU ban on unconventional oil. Unsurprisingly, we find that unilateral European ban of unconventional oil is both inefficient and ineffective. It will cost a lot and it will have no impact on global mean temperature. Oil would just flow to countries that do not ban its use.

The policy implications are intuitive. If the main goal is carbon mitigation, the European Union should avoid unilateral aggressive policies against unconventional oil. Diverting trade routes may be expensive for oil producers and a short-term victory is possible. However, in the long-run, with rising energy prices and technological progress in oil extraction and in oil transportation, it is likely that unconventional oil will flow where demand is and Europe alone will have a negligible impact on global patterns.

For example, starting a trade war with Canada to achieve virtually null climate benefits is not the best thing to do.

December 11, 2014

Using Degree Days to Value Farmland

A final draft of the working paper joint with Robert Mendelsohn and Shun Chonabayashi is available here.

In this paper we carefully review the use of degree days in the hedonic literature to value farmland and we are not able to confirm the hypothesis of Schlenker, Hanemann and Fisher (2006).


Here is the abstract:

Farmland values have traditionally been valued using seasonal temperature and precipitation. A new strand of the literature uses degree days over the growing season to predict farmland value. We find that degree days and daily temperature are interchangeable over the growing season. However, the way that degree days are used in these recent studies is problematic and leads to biased and inaccurate results. These new findings have serious implications for any study that copies this methodology.


The Appendix to the paper has a careful comparison of the weather data that we use (NARR) and data used by Schlenker and Roberts (2009). For those not familiar with the acronyms, NARR is the North American Regional Reanalysis generated by climatologists at the NOAA. It provides temperature and other climatic measurements over a 32x32 km grid at three hour time intervals from 1979 to present day.

Wolfram Schlenker took great care in examining previous drafts of our work (here, here and here). He has compared NARR data to his dataset and he has found that NARR data is inferior. But that comparison was not correct.

Instead of using NARR 2 meter air temperature, Schlenker used NARR  surface level temperature. This is like comparing pears and apples because Schlenker and Roberts (2009) - SR2009 - is based on weather stations. Weather stations record temperature at about 2 meters. All temperature data that is used in this literature is 2 meter air temperature and we never used surface temperature data. Surface temperature is the temperature of the “skin” of the planet. Surface temperature reflects different soil types. Daily maximum temperature can be very high in the NARR surface temperature dataset (try touching your concrete driveway on a summer afternoon). For this reason the NARR data seems inferior.

In short, both NARR and SR2009 data confirm that Schlenker, Hanemann and Fisher (2006) (SHF2006) greatly overestimate the number of degree days above 34°C. SR2009 and NARR data are quite similar (Wolfram Schlenker kindly gave us his weather data). In some tests NARR data performs better than SR2009 data, but I would not overstress this. The relevant fact is that with both NARR data and SR2009 data we reject the main hypothesis in Schlenker, Hanemann and Fisher (2006) - SHF2006. Why?

We find two problems with SHF2006. First, the weather data used in that paper is not as accurate as in the NARR and the SR2009 datasets and this may have misled the authors. Second, SHF2006 misinterprets agronomic research: farmers and agronomists do not use degree days to predict yields (and thus overall agricultural productivity). The argument in favor of degree days is based on a misreading of an agronomy result showing a linear function rising to 32°C and then abruptly falling (Figure 2-3 in Ritchie and NeSmith, 1991). However, the cited figure does not describe yield but rather the inverse of the time it takes a maize plant to develop a fifth leaf. The figure shows how degree days affect timing. A separate figure in the Ritchie and NeSmith paper reveals the traditional hill-shaped relationship between yield and temperature. In fact, farmers and agronomists use degree days to predict the duration of different stages of plants' growth, not to predict yields.

Finally, we also checked if using hourly temperatures instead of daily temperature to calculate degree days makes a difference and we are able to confirm our results, but this is technical stuff and all the details are in the Appendix.

July 24, 2014

Rethinking African solar power for Europe

Recent column with Elena Ricci on voxeu.org.

"Concentrated solar power generation in Northern African and Middle Eastern deserts could potentially supply up to 20% of European power demand. This column evaluates the technological, economic, and political feasibility of this idea. Although concentrated solar power is a proven technology that can work at scale, it is currently four or five times more expensive than fossil fuels. Concentrated solar power could play an important role in Europe’s energy mix after 2050, but only if geo-political challenges can be overcome."

Full column available here.


June 26, 2014

Revised Working Paper: A Ricardian Analysis of the Impact of Climate Change on European Agriculture

We recently revised our paper on climate change impacts on European Agriculture.

The new FEEM working paper is available here.


This new version is also circulated as CESIfo working paper here.


Abstract:

This research estimates the impact of climate on European agriculture using a continental scale Ricardian analysis. Climate, soil, geography and regional socio-economic variables are matched with farm level data from 37,612 farms across Western Europe. We demonstrate that a median quantile regression outperforms OLS given farm level data. The results suggest that European farms are slightly more sensitive to warming than American farms with losses from -8% to -44% by 2100 depending on the climate scenario. Farms in Southern Europe are predicted to be particularly sensitive, suffering losses of -9% to -13% per degree Celsius.

New Draft: Do Temperature Thresholds Threaten American Farmland?

New draft of the paper on agricultural thresholds presented at the 2014 ASSA meetings.


I will present this new draft at the World Congress of Environmental and Resource Economists in Istanbul on Monday June 30 at 14:00.


Robert Mendelsohn and I do not find evidence of "thresholds" after which land values collapse in the East of the United States. We find instead evidence of adaptation to different climatic conditions.



Abstract:

It is widely known that temperatures have a hill-shaped effect on agriculture.  Some researchers argue that there is also a threshold effect, a temperature above which land values crash and crops fail. This paper uses flexible functional forms to estimate the effect of growing season temperature on American farmland values and crop yields. The paper finds evidence of the hill-shaped response function for both farmland value and crop yields. But there is no evidence of temperature thresholds whether temperature is measured at 3 hour intervals, daily, or for multiple days.

June 20, 2014

Book: Climate Change Mitigation, Technological Innovation and Adaptation


Finally, the long-due book that summarizes work done with the integrated assessment model WITCH
Abstract and contributors below, more information and order form here.




Abstract

This book presents a rigorous yet accessible treatment of the main topics in climate change policy using a large body of research generated using WITCH (World Induced Technical Change Hybrid), an innovative and path-breaking integrated assessment model.

The authors give a particular emphasis to the analysis of technological change necessary to build low-carbon economies. The WITCH model can track all of the actions which impact the level of mitigation – such as R&D expenditures, investments in carbon-free technologies and adaptation, purchases of emission permits, or expenditures for carbon taxes – thus allowing for the evaluation of equilibrium responses stimulated by different climate policy tools. The chapters examine various questions to explore the future of climate change policy. Why is it so hard to achieve a global agreement that paves the way to widespread reductions of carbon dioxide and other greenhouse gas emissions? What are the technologies that would deliver clean energy without harming economic growth? And finally, how does uncertainty about future policies and future technologies affect choices in the present?

This innovative book will appeal to researchers, policy makers and academics interested in climate change policy.

Contributors: Valentina Bosetti, Carlo Carraro, Enrica De Cian, Thomas Longden, Emanuele Massetti, Lea Nicita, Fabio Sferra, Alessandra Sgobbi and Massimo Tavoni

June 18, 2014

Keynote at final meeting of Global-IQ Project

The keynote presentation that I gave at the final meeting of the EU FP7 project Global-IQ is available here.

The objective of the GLOBAL IQ project was three-fold:
  • to provide significant advances in the estimation of socio-economic impacts of global challenges – at Global, European and regional scale;
  • to identify optimal adaptation strategies;
  • to evaluate total costs and the optimal mix of adaptation and mitigation against global changes.

Led by Toulouse School of Economics, the Global IQ project involved eleven partners located in eight EU members states:

  • Toulouse School of Economics (TSE) France
  • Fondazione Eni Enrico Mattei (FEEM) Italy
  • Internationales Institut für Angewandte Systemanalyse (IIASA) Austria
  • Potsdam-Institut für Klimafolgenforschung (PIK) Germany
  • University of Gothenburg (UGOT) Sweden
  • Charles University in Prague (CUNI) Czech Republic
  • Istituto di Studi per l’Integrazione dei Sistemi (ISIS) Italy
  • London School of Economic (LSE) UK
  • Graduate Institute of International Studies in Geneva (HEID) Switzerland
  • Centre for Economic Policy Research (CEPR) UK




April 15, 2014

IPCC WGIII Fifth Assessment Report: Investments and Cross Cutting Issues

The Fifth Assessment Report of the IPCC was approved on Sunday April 13th.

The Summary for Policy Makers is available here.

Not major findings in my opinion. Maybe, the most important part is on the 2°C temperature limit.

In a nutshell: we can keep global mean temperature below 2°C if 1) ALL countries start 2) NOW using 3) ALL technologies available (including CCS and nuclear) and accept to loose 1.7% (1.0% – 3.7%) of consumption in 2030, 3.4% (2.1% – 6.2%) nel 2050 and 4.8% (2.9% – 11.4%) in 2100. If we start late, costs increase quickly and many models show that the 2°C is not feasible. If we do not use CCS, costs increase by 138%. Not really new findings, but good to see the IPCC endorsing results in the serious literature.

In practice (this is my opinion, not the IPCC opinion), the 2°C is not attainable with present technologies, if we do not (quickly) collectively embrace the life of Saint Francis of Assisi. A few years ago Carlo Carraro and I wrote a column for Vox-EU titled "The improbable 2°C target" on why we should prepare for 2.5 or 3°C.

The Chapter for which I was Lead Author is on Investments and Cross Cutting Issues (Ch 16). For the first time the report provides estimates of investments in key mitigation technologies (See the Figure below for change of investments in 2010-2029).

There are not many studies in the literature with investment estimates. Carlo CarraroAlice Favero and I co-authored one of the few studies in the literature that estimates investments in mitigation technologies. You find a copy here. Hopefully the authors of the next report will have more observations to build more robust estimates.



January 06, 2014

Do Temperature Thresholds Threaten American Farmland?

On January 4 I presented the paper titled "Do Temperature Thresholds Threaten American Farmland?" joint with Robert Mendelsohn at the ASSA meetings in Philadelphia.

The presentation is available here.

In short:

In this paper we use flexible functional forms to estimate the marginal effect of mean temperatures during 3-hour, daily and longer time intervals on land values. We use US Agricultural Census Data and detailed climate data obtained from the NARR model, a very large dataset that contains climatic data on 3-hour time intervals, at fine spatial resolution, from 1979 to present day. The paper finds no evidence of temperature threshold effects on land values and in the Eastern United States. The flexible functional forms suggest inverted-U shaped or almost constant marginal effects at different levels of temperature whether one is using average temperature over 3-hour, daily, continuous days or the growing season. We find instead evidence that land values in areas that are frequently affected by extreme heat waves reflect large expected productivity losses. Using annual yields and weather data we find evidence that both cold and high temperatures reduce corn, soybeans, and to a lesser extent, cotton yields. The downward sloping section of the relationship that relates temperature and yields is steeper than the upward sloping section but we do not find evidence of sudden discontinuities.

November 27, 2013

Presentation at COP 19 in Warsaw

On Thursday, November 21, I did a quick stop in Warsaw for the FEEM-CMCC-University of Venice side event at COP 19.

I gave a presentation for the general public on the benefits of adaptation, with a focus on the benefit for public finances. The presentation is available here.

The panel included:

Dr. Corrado Clini
General Director of Sustainable Development, Climate and Energy Directorate, Italian Ministry of Environment, Land and See

Prof. Carlo Carraro
President, Ca' Foscari University of Venice
Vice Chair, IPCC Working Group III
Director, Climate Change and Sustainable Development Programme, Fondazione Eni Enrico Mattei

Dr. Nancy Saich
Advisor on Climate & Environment, Projects Directorate, European Investment Bank

Dr. Serena Pontoglio
Research Programme Officer, Climate change and natural hazards unit, DG Research & Innovation, European Commission

Dr. Richard Klein
Senior Research Fellow, Theme Leader "Reducing Climate Risk", Stockholm Environment Institute