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All or nothing
(2020)
This paper develops a new perspective on stranded assets in climate policy using a partial equilibrium model of the energy sector. Political-economy related aspects are considered in the government's objective function. Lobbying power of firms or fiscal considerations by the government lead to time inconsistency: The government will deviate from a previously announced carbon tax which creates stranded assets. Under rational expectations, we show that a time-consistent policy outcome exists with either a zero carbon tax or a prohibitive carbon tax that leads to zero fossil investments - an "all-or-nothing" policy. Although stranded assets are crucial to such a bipolar outcome, they disappear again under time-consistent policy. Which of the two outcomes (all or nothing) prevails depends on the lobbying power of owners of fixed factors (land and fossil resources) but not on fiscal revenue considerations or on the lobbying power of renewable or fossil energy firms.
Climate-related costs and benefits may not be evenly distributed across the population. We study distributional implications of seasonal weather and climate on within-country inequality in rural India. Utilizing a first difference approach, we find that the poor are more sensitive to weather variations than the non-poor. The poor respond more strongly to (seasonal) temperature changes: negatively in the (warm) spring season, more positively in the (cold) rabi season. Less precipitation is harmful to the poor in the monsoon kharif season and beneficial in the winter and spring seasons. We show that adverse weather aggravates inequality by reducing consumption of the poor farming households. Future global warming predicted under RCP8.5 is likely to exacerbate these effects, reducing consumption of poor farming households by one third until the year 2100. We also find inequality in consumption across seasons with higher consumption during the harvest and lower consumption during the sowing seasons.
How assets get stranded
(2020)
Internalizing external costs of carbon is a fundamental goal of climate policy. Since the seminal work of Arthur Pigou in 1920, economic theory has analyzed the efficiency gains arising from various instruments that internalize externalities and lead to Pareto-improvements. It is widely recognized in environmental economics that a carbon price would effectively reflect the scarcity of the atmospheric disposal space for carbon depending on the temperature target that is to be achieved. The question of how to organize the transition process, i.e. moving from inefficient to efficient allocations, and implementing the necessary policies, has gained increasing attention in recent years. Arguably, the transition process is tightly interwoven with political processes that include complex interactions between societal stakeholders, such as households and firms, on the one hand, and political decision makers, on the other. Accordingly, understanding political-economy aspects of the transition process, including distributional outcomes, is becoming increasingly relevant. While a growing literature discusses the distributional implications of climate policy on households, it is less well understood how asset owners might be affected by climate policy and how these potential impacts would interact with the transition process. This Special Section focuses on public policy challenges related to this transition problem, with special emphasis on asset owners. A core theme is the special role of stranded assets, i.e. a devaluation of capital stocks or financial assets either by introducing a stringent carbon price or by omitting a pre-announced policy of this kind.
We present a novel data set of subnational economic output, Gross Regional Product (GRP), for more than 1500 regions in 77 countries that allows us to empirically estimate historic climate impacts at different time scales. Employing annual panel models, long-difference regressions and cross-sectional regressions, we identify effects on productivity levels and productivity growth. We do not find evidence for permanent growth rate impacts but we find robust evidence that temperature affects productivity levels considerably. An increase in global mean surface temperature by about 3.5°C until the end of the century would reduce global output by 7–14% in 2100, with even higher damages in tropical and poor regions. Updating the DICE damage function with our estimates suggests that the social cost of carbon from temperature-induced productivity losses is on the order of 73–142$/tCO2 in 2020, rising to 92–181$/tCO2 in 2030. These numbers exclude non-market damages and damages from extreme weather events or sea-level rise.
Das Klimaschutzgesetz hat einen Paradigmenwechsel eingeleitet: den Einstieg in eine CO2-Bepreisung als künftiges Leitinstrument der Klimapolitik. Auf den ersten Blick ist der CO2-Preis unter einer Fülle von Fördermaßnahmen und ordnungsrechtlichen Regelungen verschüttet, deren Wirksamkeit und Kosten höchst unsicher sind. Der CO2-Preis ist aber so angelegt, dass er langfristig das dominante Instrument einer europäisch harmonisierten Klimapolitik werden kann. Der angedeutete Paradigmenwechsel der deutschen Klimapolitik öffnet damit die Tür, die europäische und internationale Kooperation zu stärken. Dazu ist es aber notwendig, neben der europäischen auch die globale Klimapolitik neu auszurichten. Auch dort sollten sich die Verhandlungen statt auf nationale Mengenziele auf CO2-Preise konzentrieren. Die erforderliche Kooperation wird möglich, wenn die Regierungen Transferzahlungen strategisch und reziprok nutzen. So könnte die Effektivität der Klimapolitik erhöht werden und es ließen sich die entstehenden Verteilungskonflikte entschärfen.
We analyze to what extent climate conditions affect the prevalence of sharecropping as a form of traditional land tenure. We investigate how sharecropping tenure is related to climate risk and how it interacts with fertilizer use and livestock ownership that both influence production risk. We first develop a stylized theoretical model to illustrate the role of climate for land tenure and production. Our empirical analysis is based on more than 9000 households with considerable heterogeneity in climate conditions across several African countries. We find that farmers in areas with low precipitation are more likely to be sharecroppers. We further find evidence for risk management interaction effects as sharecropping farmers are less likely to own livestock and more likely to use fertilizer. In economies where formal kinds of insurance are unavailable, sharecropping thus functions as a form of insurance and reduces the need for potentially costly risk management strategies.
Climate change entails an intensification of extreme weather events that can potentially trigger socioeconomic and energy system disruptions. As we approach 1 degrees C of global warming we should start learning from historical extremes and explicitly incorporate such events in integrated climate-economy and energy systems models.
In this paper, we move from the large strand of research that looks at evidence of climate migration to the questions: who are the climate migrants? and where do they go? These questions are crucial to design policies that mitigate welfare losses of migration choices due to climate change. We study the direct and heterogeneous associations between weather extremes and migration in rural India. We combine ERAS reanalysis data with the India Human Development Survey household panel and conduct regression analyses by applying linear probability and multinomial logit models. This enables us to establish a causal relationship between temperature and precipitation anomalies and overall migration as well as migration by destination. We show that adverse weather shocks decrease rural-rural and international migration and push people into cities in different, presumably more prosperous states. A series of positive weather shocks, however, facilitates international migration and migration to cities within the same state. Further, our results indicate that in contrast to other migrants, climate migrants are likely to be from the lower end of the skill distribution and from households strongly dependent on agricultural production. We estimate that approximately 8% of all rural-urban moves between 2005 and 2012 can be attributed to weather. This figure might increase as a consequence of climate change. Thus, a key policy recommendation is to take steps to facilitate integration of less educated migrants into the urban labor market.