CalculatingtheBenefitsofClimatePolicy:Examining

theAssumptionsofIntegratedAssessmentModels

MichaelD.Mastrandrea
WoodsInstitutefortheEnvironment,StanfordUniversity

Abstract

PolicyrelevantresultsofIntegratedAssessmentModels(IAMs)aresensitive

toanumberofuncertainassumptionsthatgovernmodelsimulationoftheclimate,

society,andthepolicyresponsetoclimatechange.Uncertaintiesremainin

understandingoftherateandmagnitudeofclimatechange,thenatureandseverityof

climateimpacts,andtheabilitytocopewiththoseimpacts.Methodsforquantifying

andcomparingclimatedamagesacrossdifferentregionsanddifferenttimeperiods

arefiercelydebated.Thispaperexaminesassumptionsthatarecentraltomodel

estimatesofthebenefitsofclimatepolicyinthreewellknownIAMs,anddiscusses

theirconsistencywithcurrentnaturalandsocialscientificresearch.DifferentIAMs

takedifferentapproachestodealingwiththeseuncertainties,andunderstanding

theirassumptionsiscriticaltointerpretingtheirresults,sincethoseresultscan

changedramaticallywhenassumptionsarevaried.

1 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

Introduction

IntegratedAssessmentModels(IAMs)employsimplifiedrepresentationsof

society,theclimatesystem,andkeyinteractionsbetweenthem:climatechange,its

impactsonsocialandnaturalsystems,andthecostsofpolicymeasurestoreduce

thoseimpacts.Theirprimarypurposeistoinformpolicydecisionsregardingclimate

mitigation(greenhousegasemissionsreduction).IAMsthatattempttotranslate

climateimpactsintomonetarydamagesareusedforsocialcostofcarbon(SCC)

calculations(monetaryestimatesofthecosttosocietyofemittingonetonofcarbon

today)andcostbenefitanalyses(CBAs)todetermineoptimalpolicy.Thebenefitsof

climatepolicy,inthiscontext,representavoidedclimateimpactsthatwould

otherwisecausedamagestosocietyinthefuture.

InMarch2009,thePewCenteronGlobalClimateChangeheldaworkshop

involving75oftheworldsleadingexpertsonmodelingthebenefitsofclimatepolicy.

AprominentfocusoftheworkshopwasthesensitivityofIAMsandtheirpolicy

relevantresultstoassumptionsaboutkeyuncertainparameters.Differentmodels

makedifferentassumptionsabouthowtorepresentremaininguncertaintiesin

scientificunderstandingoftheclimatesystemanditsresponsetoincreasing

greenhousegases.Theyalsomakedifferentassumptionsabouthowtovalueclimate

impactsacrosstimeandspace.Itiscriticaltounderstandtheseunderlying

assumptionswheninterpretingmodelresults,becauseresultscanvarydramatically

2 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

whentheseassumptionsarechanged.Forexample,Tol(2007a)surveyed211

estimatesoftheSCCthatrangedfromsmallnegativevalues(meaningadditionaltons

ofcarbonemittedarebeneficial)uptopositivevaluesofseveralhundreddollarsper

tonormore.

Thepurposeofthispaperistoexaminethekeyassumptionsgoverning

quantificationofthebenefitsofclimatepolicyinthreecommonlyusedIAMs,andto

comparetheconsistencyofmodelassumptionswithcurrentnaturalandsocial

scientificresearch.Themainsectionsthatfollowexaminemodelassumptionsabout

thesensitivityoftheclimateresponsetoemissionsandtherepresentationofclimate

impacts.Additionalsectionsmorebrieflydiscussthetreatmentofadaptationand

discountinginthecontextofthevaluationofbenefits.Table1presentsasummaryof

themodelcomponentsandkeyassumptionscoveredinthesesections.The

concludingsectiondiscussestheimplicationsofthisanalysisandrecommendations

forfuturework.

Table1.

ModelComponent Keyuncertainties/assumptions

ClimateResponse Climatesensitivity,transientclimate
response,carbonsinks
Impacts Damagefunctionshapeandmagnitude,
treatmentofnonmarketand
catastrophicimpacts
Adaptation Adaptationpotentialandeffectiveness
Discounting Discountrate,equityweighting,time
horizon

3 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

TheModels

ThethreemodelsexaminedherearetheDynamicIntegratedModelofthe

ClimateandEconomy(DICE)(NordhausandBoyer,2000;Nordhaus,2008),the

PolicyAnalysisfortheGreenhouseEffectModel(PAGE)(Hope,2006;Hope,2008),

andtheClimateFrameworkforUncertainty,NegotiationandDistribution(FUND)

(Tol,2002a;Tol,2005).Thesemodelshavebeenappliedintwomainapproachesfor

providingpolicyrelevantinformation:policyevaluationandpolicyoptimization.

Policyevaluationexperimentscalculatetheconsequencesofspecificclimatepolicy

strategies(e.g.,representedbydifferentemissionsscenarios)intermsofasuiteof

environmental,economic,andsocialperformancemeasures.Policyoptimization

experimentscalculatethebesttrajectoryforfutureemissionreductionsbasedona

specificperformancemeasure,suchasminimizingthesumofdiscountedmitigation

costsandmonetizeddamagesfromclimateimpacts. 1 Fundamentalaspectsofthe

policyoptimizationframeworkanditsapplicabilitytoclimatepolicyhavebeen

heavilycritiqued,suchasintergenerationaldiscounting,economicvaluationofnon

marketclimatechangedamages,andthefactthatoptimalsolutionsbasedonahost

ofuncertainparameterscanchangesignificantlywhenkeyparametervaluesare

varied,asisdiscussedinthispaper.Thedebateovertheapplicabilityofthismodeling

1Inthiscase,increasinginvestmentinmitigationreducesfutureclimatechangeandrelateddamages,

andthemodelcalculatesanoptimalbalancebetweenthetwo.

4 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

frameworkisoutsidethescopeofthispaper,butisdiscussedindetailelsewhere

(e.g.,Ackermanetal.,2009a).

Asmentionedabove,modelresultsarehighlysensitivetouncertaintiesin

modelrepresentationsofclimateandsocialsystemsandtheirinteractions,and

differentIAMstakedifferentapproachestoincorporatinguncertainty.Deterministic

analysesemploybestguess(orexpected)valuesforallmodelparameters.The

effectofalternativeparameterchoicesonmodeloutputsandtheimportanceof

uncertaintyinspecificparameterscanbedeterminedthroughsensitivityanalyses:

examiningdifferencesinmodeloutputsacrossrunswhichvaryaspecificparameter,

inordertoquantifythesensitivityofmodelresultstochangesinthatparameter(e.g.,

Nordhaus,2008).Probabilisticanalysesspecifyprobabilitydistributionsforsomeor

alluncertainmodelparameters,resultinginprobabilitydistributionsformodel

outputs(e.g.,Hope,2006;Warrenetal.,2008).DICEandFUNDhavebeenmost

commonlyrunasdeterministicmodels(generallypresentingsensitivityanalysesto

exploreuncertainty),whilePAGEhasonlybeenrunasaprobabilisticmodel.Both

DICE(e.g.,MastrandreaandSchneider,2004;Nordhaus,2008)andFUND(e.g.,

Anthoffetal.,2009),however,havealsobeenusedinprobabilisticapplications,and

thenewestversionofFUNDisprobabilisticinsomeaspects.Variationofmodel

parametersacrossreasonablevaluescansignificantlychangemodelresults,and

treatmentofuncertaintyisitselfacriticalassumptioninIAMs.Aswillbediscussedin

5 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

theconcludingsection,accountingforuncertaintygenerallyincreasespolicy

stringencyinanoptimizationframework.

IAMdevelopers,ofcourse,updatetheirmodelsovertimeinanattemptto

reflectthelatestresearch.Ingeneral,thismodelevolutionsuggeststhatresultsfrom

newerversionsofeachmodelshouldtakeprecedenceoverresultsfromprevious

versions,andthatcomparisonsormetaanalysesofresultsforthepurposeof

informingpolicydecisionsshouldrelyonresultsfromthemostrecentversionsof

models,ratherthanincludingresultsfrompreviousmodelversions.Thisapproach

wasrecentlyadoptedbyDOEinestimatingthebenefitsofavoidedCO2emissionsofa

proposedefficiencyruleforcommercialbeveragevendingmachines(Departmentof

Energy,2009).Thus,thispaperfocusesonthemostrecentversionsofthesemodels:

DICE2007(Nordhaus,2008),PAGE2002(Hope,2006a;Hope,2008),andFUND3.5

(Anthoffetal.,2009;Tol,2009).Thesamemodelversionsareoftenrunwithdifferent

setsofassumptionsindifferentmodelingstudies.Ingeneral,thispaperfocuseson

thedefaultmodelassumptions,introducingalternativeswhentheresultsare

illustrativeofmodelbehavior.

ClimateResponse

Akeydeterminantofthebenefitsofclimatepolicyisthemodeledresponseof

theclimatesystemtogreenhousegasemissions.Projectedclimatechanges(e.g.,

temperatureincrease)drivemodeledclimateimpacts,andthedifferenceinprojected

6 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

climatechangebetweenabusinessasusualscenarioandagivenpolicyscenario

determinesthebenefits(avoideddamages)associatedwiththatscenario.Theclimate

responsecanbethoughtofinthreecomponents:(1)thelongtermtemperature

increaseassociatedwithanincreaseingreenhousegasconcentrationsinthe

atmosphere,(2)therateatwhichtemperatureincreaseapproachesthislevel,and(3)

feedbacksbetweenclimatechangeandthecarboncycle,whichcanaffecttheremoval

ofcarbondioxidebynaturalprocessesandthusaffectthefractionofemissionsfrom

humanactivitiesthatremainintheatmosphere,andtherateofincreaseof

greenhousegasconcentrations.

EquilibriumTemperatureResponse

Thelongtermtemperatureresponseisgenerallyexpressedastheclimate

sensitivity,definedasthelongtermtemperatureincreaseassociatedwitha

sustaineddoublingofcarbondioxideconcentrationsintheatmosphere.Thehigher

theclimatesensitivity,thegreaterthetemperatureincreaseinducedbyagivenlevel

ofgreenhousegasemissions,andthegreaterthedamages.Therefore,ahigher

climatesensitivitywillincreasecalculatedbenefitsofclimatepolicy,allelsebeing

equal.

Climatesensitivityissubjecttoconsiderableuncertainty.Themostrecent

(2007)reportoftheIntergovernmentalPanelonClimateChange(IPCC)presenteda

7 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

likelyrange 2 fortheclimatesensitivityof24.5C,withabestestimateof3C

(Solomonetal.,2007).InDICE,onevalueforclimatesensitivityisspecifiedunder

standardassumptions(3CinDICE2007,increasedfrom2.91Cinprevious

versions).InFUND,agammadistributionisspecifiedwithamostlikelyvalueof2.5C

andastandarddeviationof1C,yieldingameanof2.85C(previousversionsofFUND

usedasinglevalueforclimatesensitivityof2.5C).InPAGE,atriangularprobability

distributionisspecifiedwithaminimumvalueof1.5C,amostlikelyvalueof2.5C,

andamaximumvalueof5C,yieldingameanof3C.Thus,modelvaluesfallwithin

theIPCCrange,withbothDICEandPAGE(mean)consistentwiththeIPCCbest

estimate,andFUND(mean)slightlylower.However,whiletheclimatesensitivity

valueinDICEisconsistentwithcurrentscientificunderstanding,themodeldoesnot

captureexistinguncertainty.ThisuncertaintyisbettercapturedbythePAGEand

FUNDdistributions.

TransientTemperatureResponse

Therateatwhichtemperaturechangesovertime,thetransientclimate

response,canbejustasimportantastheclimatesensitivity.Thefastertemperature

increasesinresponsetoincreasinggreenhousegasconcentrations,thesooner

impactswillmaterialize(animportantconsiderationinIAMsinvolvingsomeformof

discounting,asdothethreediscussedinthispaper).Inaddition,morerapidchanges

2InIPCCterminology,likelycorrespondstobetweenatwothirdsandninetenthschancethatthe

truevalueiswithintherangeprovided.

8 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

aregenerallymoredifficultand/ormorecostlytocopewith.Transienttemperature

responseisinfluencedbyequilibriumclimatesensitivity,butalsobyotherfactors,

anddifferentmodelstakedifferentapproaches.FUNDandPAGEemployahalflife

termthatgovernstherateoftemperatureincreasetowardsitsequilibriumlevel.In

PAGEandFUND,themostlikelyvalueis50yearsandminimumvalueis25years,

whilethemaximumvalueinPAGEis75yearsandinFUNDis100years(implyinga

greaterpotentialforslowertemperatureresponseinFUND).DICEemploysasimple

representationofheatuptakebytheoceanthataffectstherateofatmospheric

temperatureincrease.

Themoststraightforwardwaytocomparemodelbehaviorisbyrunningthe

samescenarioineachmodelandcomparingmodelresponses.Suchmodel

intercomparisonprojectsarecommonlyrunforclimatemodels(e.g.,Meehletal.,

2007a)andmorecomplexenergyeconomymodels(e.g.,DeLaChesnayeandWeyant,

2006).vanVuurenetal.(2009)andWarrenetal.(2009)presentcomparisonsofthe

climateresponseofDICE,FUND,andPAGE(aswellasotherIAMs),witheachother

andwiththebehaviorofcomplexclimatemodels.Ingeneral,comparedtotheother

twomodels,temperatureincreaseisslowerandsmallerinFUNDforagiven

emissionsscenario,leadingtolowerandmorediscountedclimateimpactsandlower

calculatedbenefitsofclimatepolicy(allelsebeingequal).Thisslowerresponsetime

9 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

alsoimpliesthatthedifferenceintemperatureincreasebetweendifferentemissions

pathwayswillalsobesmaller,decreasingthecalculatedbenefitsofclimatepolicy.

OneexperimentrunbyvanVuurenetal.(2009)comparesthetemperature

responseacrossmodelstoaninstantaneousincreaseingreenhousegas

concentrationsequivalenttoadoublingofcarbondioxideintheatmosphere.Under

suchanexperiment,temperaturesapproachequilibriumtemperatureincrease

equivalenttotheirclimatesensitivity(whichisdefinedintermsofadoublingof

carbondioxide).Thisprocesstakeshundredsofyears,withmuchoftheincrease

occurringinthefirst50100years.Ofthethreemodelsconsideredhere,DICE

displaysthemostrapidinitialrateofincrease.TemperaturesinPAGE(assuming

meanvaluesforuncertainparameters)initiallyincreasemoreslowlythaninDICE,

butleveloffmoreslowly,suchthattemperatureincreaseisgreaterinPAGEafter

roughly~75years.TemperaturesinFUNDincreasemoreslowly,andapproacha

lowerlevel,giventhattheclimatesensitivityinFUNDislowerthaninDICEandPAGE

(mean).AsecondexperimentcomparedtheIAMstransientresponsetothatof

complexclimatemodels.Ingeneral,theinitial(50to100year)responseofDICEand

PAGEfellinthemiddleoftherangeofclimatemodelresponse,whileFUNDexhibited

aslowerresponsethanthesuiteofclimatemodelsexamined.

10 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

CarbonCycleFeedbacks

Finally,thedrivingforcebehindthetemperatureresponseishumaninduced

increasesingreenhousegasconcentrations.Currently,aroundhalfofcarbondioxide

emissionsfromhumanactivitiesarerapidlyremovedfromtheatmospherebythe

worldsoceansandterrestrialecosystems.Modelingstudieshaveprojecteda

weakeningofthesenaturalcarbonsinksovertimeinresponsetoclimatechange,but

thestrengthofthisfeedbackisuncertain(e.g.,Friedlingsteinetal.,2006).This

feedbackisquitepolicyrelevant,asweakeningsinkswillmakeitmoredifficultto

meetagivenpolicytargetdesigned,e.g.,toreachacertaintemperatureor

concentrationtarget,andwillincreasecalculatedbenefitsofclimatepolicy.

InDICE,majorreservoirsofcarbon(ocean,atmosphere,andbiosphere)are

represented,withfixedratesofcarbonflowbetweenthem.DICEdoesnotinclude

feedbacksthataffectthecarboncycle.InFUND,majorreservoirsarerepresented

separately,eachreceivingafractionofemissionsandwithanexponentialremoval

rate.UntilthemostrecentversionofFUND,themodeldidnotincludecarboncycle

feedbacks.Aterrestrialbiospherefeedbackhasbeenaddedinversion3.5(Tol,2009),

thatincreasesnetemissionsasafunctionoftemperature.PAGEexplicitlyrepresents

onlyatmosphericcarbon,withaconstantfractionofemissionsremovedimmediately,

andanexponentialremovalratesimilartothatusedinFUND.PAGEalso,however,

11 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

includesanaturalemissionstermthatincreasesasafunctionoftemperature,

meanttorepresentallcarboncyclefeedbacks.

vanVuurenetal.(2009)alsoexaminedthecarboncyclebehaviorofthese

models(althoughtheyuseanearlierversionofFUNDthatdoesnotincludecarbon

cyclefeedbacks).Underapotentialbaselinescenario(theIPCCSpecialReporton

EmissionsScenariosA2scenario),allthreemodelsexhibitbehaviorconsistentwith

eachotherandwiththerangeofclimatemodels.Theirbehaviordiffers,however,

whenconsideringascenariowithloweremissions.Astylizedexperimentexamined

thefractionofcarbondioxideremainingintheatmosphereovertimefroman

instantaneousdoublingofconcentrationsovertheirpreindustriallevel.Insuchan

experiment,concentrationsdeclineovertimeascarbonistakenoutofthe

atmospherebynaturalremovalprocesses.Forthefirst50years,allmodelsfallwithin

therangeofthebehaviorofclimatemodels.Beyondthat,however,differences

emerge.FUNDremainswithinthisrange,whileDICEexhibitsfasterlongterm

removalofcarbondioxide(beyond~150years).PAGE,ontheotherhand,displays

significantlydifferentbehavior,withthefractionofcarbondioxideremaininginthe

atmospherereversingitsdeclineafter50years,andincreasingsignificantly.This

reversalisduetothenaturalemissionstermmentionedabove,whichimpliesa

strongtemperaturedependentcarboncyclefeedback.vanVuurenetal.(2009)

concludethatthePAGEcarboncyclefeedbackisconsistentwithclimatemodels

12 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

underthe(higher)A2scenario,butisstrongerthanthatinclimatemodelsunder

loweremissions.Thissuggeststhatunderloweremissionsscenarios,atmospheric

concentrationsinPAGEwillremainhigherthaninothermodels,perhapseven

continuingtoincreasewhenconcentrationswoulddeclineinothermodels(thus

suggestinggreatertemperatureincreaseandassociatedimpacts).

MovingForward

SystematiccomparisonsofIAMsandcomparisonsoftheirbehaviorwith

complexclimatemodelsprovideimportantinformationwhichcanbeusedtoensure

theconsistencyofIAMclimatecomponentswithadvancesinclimatemodeling,and

helpbenchmarkIAMsbehavioragainsttherangeofuncertaintyinscientific

understandingoftheclimateresponse.Suchanalysessuggestupdatesthatwould

improveIAMrepresentationsoftheclimatesystem,revealingasimulatedtransient

temperatureresponseinFUNDthatisslowerthaninclimatemodels,andamodeled

carboncyclefeedbackinPAGEthatisstrongerthanmostclimatemodels.Also

relevantisthelackofanycarboncyclefeedbackinDICE,whichprecludes

considerationofthisimportantuncertainty.

ClimateImpacts

ThemodeledclimateresponseinIAMsisgenerallytranslatedintoimpactson

societythroughoneormoreclimatedamagefunctionsforeachmodelregion.These

damagefunctionsprovidemonetaryestimatesofclimateimpactsasafunctionof

13 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

averagetemperatureincrease,oftenexpressedintermsofpercentagelossofGDP.

Functionsareeitherspecifiedforindividualmarketandnonmarketsectorsorfor

aggregatedamagesacrosssectors.Ingeneral,damagesareassumedtorise

nonlinearlywithincreasingtemperatureeachadditionaldegreeoftemperaturerise

leadstoagreaterincreaseindamages.Differentmodelsassumedifferentcurvature

andsteepnessoftherisingdamagefunction.Thelargerthedamagesforagivenlevel

oftemperatureincreaseandthefasterdamagesincreaseastemperatureincreases,

thegreaterthecalculatedbenefitsofclimatepolicy.

Ofthethreemodels,FUNDsrepresentationofimpactsisthemost

disaggregated.FUNDincludessectorandregionspecificimpactfunctionsfor

agriculture,forestry,waterresources,energyconsumption,sealevelrise,ecosystems,

health(splitintofunctionsfordiarrhea,vectorbornediseases,andcardiovascular

andrespiratoryillnessesaffectedbyheatandcold),anddamagesfromtropicaland

extratropicalstorms.ThesefunctionsaredescribedinFUNDstechnicaldescription

(AnthoffandTol,2008),andaredependentonboththemagnitudeandinsomecases

(e.g.,agriculture,ecosystems)therateoftemperatureincrease.Thevulnerabilityof

differentimpactsectorstoclimatechangeisassumedtobeaffectedbysocioeconomic

development.Waterresources(withpopulationgrowth),heatrelatedhealth(with

urbanization),andecosystemsandhealth(withpercapitaincomegrowth)become

morevulnerable.Energyconsumption(withtechnologicaladvancement),agriculture

14 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

(witheconomicgrowth),andvectorandwaterbornediseases(withimproved

healthcare)becomelessvulnerable.Thus,impactsinthesesectorsaredependenton

theassumedbaselinescenarioforsocioeconomicdevelopment.Theparametersthat

specifythesesensitivitiesareestimatedeitherbycalibrationtopublishedliterature,

orexpertjudgment(Tol,2002b;AnthoffandTol,2008).

DICEusesasingleglobalaggregatedamagefunctiondependentonthe

magnitudeoftemperatureincrease.DamagesinDICEarebasedonimpactestimates

foralistofsectorssimilartothoseinFUND:agriculture,othermarketsectors(e.g.,

energy,water,forestry),coastalvulnerability,health,nonmarketimpacts(e.g.,

outdoorrecreation),humansettlements,andecosystems.DICEalsoincludesdamages

frompotentialabruptclimatechangessuchasshutdownofoceancurrents,large

scalemeltingoficesheets,orreleaseofmethanefrompermafrost.Thesedamage

estimatesarederivedfromaclimateimpactanalysismostcompletelydescribedby

NordhausandBoyer(2000),Chapter4,inwhichdamagesfromthelistedcategories

areestimatedfortwobenchmarklevelsoftemperatureincrease(2.5Cand6C)in

termsofpercentagelossofGDP.Theseestimatesarethenaggregated,andusedto

specifyaglobaldamagefunctionthatintersectsthesetwopoints(andzerodamages

atzerotemperatureincrease).Thus,thecontributionofimpactsindifferentsectors

tooveralldamagesisnotexplicitlyrepresentedinthemodel.

15 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

 PAGE2002simulatesregionspecificaggregateeconomicandnoneconomic

damages,aswellasdamagesfromabruptclimatechanges(discontinuities).PAGEis

moredisaggregatedthatDICE,specifyingthreedamagefunctions(economic,non

economic,anddiscontinuities)foreachmodelregionthataredependentonthe

magnitudeoftemperatureincreaseasinDICE.AlsoasinDICE,thecontributionof

impactsindifferentsectorstooveralldamagesisnotexplicitlyrepresented.Total

economicandnoneconomicdamagesintermsofpercentagelossofGDPare

calibratedtobeconsistentwithimpactestimatessummarizedintheIPCCThird

AssessmentReport,includingestimatesbyTol(1999)andNordhausandBoyer

(2000)thatinformthedamageestimatesinDICEandFUND.ImpactsinPAGE2002

aredescribedinHope(2006a).AmongoptimizingIAMs,PAGEandnowFUND

explicitlyincorporateuncertaintyinimpactestimatesthroughprobability

distributionsfortheparametersoftheirclimatedamagefunctions.Nordhaus(2008)

alsoincludesaMonteCarloanalysisinwhichonedamagefunctionparameter(the

coefficientonthefunction)isvariedalongwithothermodelparameters.

ImplementationofaprobabilisticdamagefunctionhasalsobeenexploredinDICE

(MastrandreaandSchneider,2004),ashavetheimplicationsofuncertaintyin

sectoralclimatedamages(Tol,2005;Anthoffetal.,2009)inFUND.

Damageestimatesinthesemodelsareoftenbasedonstudiesfromone

countryorregion,sincesimilarstudiesdonotexistforotherregionsoftheworld.

16 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

MarketandnonmarketdamagesinDICEarebasedonstudiesofimpactsonthe

UnitedStatesthatarethenscaledupordownforapplicationtootherregions.Many

oftheestimatestowhichmarketdamagesinPAGEarecalibratedarealsobasedon

anextrapolationofstudiesoftheUnitedStates.OnlyFUNDusesregionalandsector

specificestimates.However,insomesectorstheseestimatesalsooriginateinone

country,ormaybedominatedbyestimatesfromoneregion.Forexample,inthe

energysector,thesectorwhichaccountsformostoftheeconomicdamagesinFUND,

estimatesfortheUKarescaledacrosstheworld.

Thetreatmentofotheraspectsofclimateimpactsalsovariesamongmodels.

Forexample,onlyFUNDsdamagefunctionstakeintoaccounttherateoftemperature

changeaswellasitsmagnitude,butonlyfortheagriculturalandecosystemsectors.

OnlyFUNDsdamagefunctionsdirectlyincludesensitivitytoalternative

socioeconomicdevelopmentpathways,forthesectorsoutlinedabove.Modelsalso

havevariouswaysofsimulatingdamageduetoabruptclimatechanges,butallare

necessarilysimplistic.DICEincludesthesedamagesinitsaggregatefunction,while

PAGErepresentsthemasaseparate(uncertain)sourceofdamagesthatincreasein

likelihoodaftertemperaturecrossesanuncertainthreshold.FUNDdoesnotinclude

impactsfromabruptclimatechangesinitsdefaultdamageestimates,althoughithas

beenemployedtoexamineestimatesofdamagesfromspecificabruptclimate

17 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

changes,suchasshutdownoftheNorthAtlanticthermohalinecirculation(Linkand

Tol,2006).

GlobalDamageFunctions

Figure1displaysglobaldamageestimatesfromDICE,FUND,andPAGE.Panel

acomparesdamagesintermsofpercentagelossofglobalGDP(withlossesas

positivevalues)asafunctionofglobaltemperatureincreaseabovepreindustrial

levels,forDICEandPAGE(assumingmeanvaluesforPAGEasreportedinHofetal.

(2008)).InPanelb,theprobabilisticstructureofPAGEgeneratesarangeof

relationshipsbetweentemperatureanddamages,whicharedisplayedseparatelyfor

economic,noneconomic,anddiscontinuitydamages.Panelc,fromFUND2.9, 3

representslossesasnegativevalues(theoppositeoftheothertwoPanels),asa

functionoftemperatureincreaseabove1990levels(~0.6Chigherthanthe

preindustriallevel).Notethatdamageestimatesexpressedintermsofpercentlossof

GDParedependentonthechosenGDPgrowthscenario,whichvariesamongmodels.

Panelcdisplaysdamagefunctionsbasedonseveralgrowthscenariosconsistentwith

fourIPCCSpecialReportonEmissionsScenarios(SRES)storylines.Forcomparison,

GDPgrowthratesinPAGEarethoseoftheSRESA2scenario,andGDPgrowthis

determinedendogenouslyintheDICE2007model.

3FUND2.9doesnotincludeupdatedecosystemimpactsandstormdamagesanduncertaintyinimpacts

functionsincludedinFUND3.4.Seebelowforfurtherdiscussion.

18 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

a)DICEandPAGE(mean)

GlobalDamages(%lossGDP)
12
10
%lossGDP

8
6
4
DICE

2 PAGE(mean)

0
0 2 4 6 8

Temperatureincrease(oC)

b)PAGE(range)

19 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

c)FUND

Figure1.Globaldamageestimatesintermsofpercentagelossofglobalgrossdomesticproduct(percent
GDP)asafunctionofglobalaveragetemperatureincrease(C),forDICE(a),PAGE(a,b),andFUND(c).
PanelsbandcareadaptedfromWarrenetal.(2007).

Althoughthedifferencesinformulationacrossmodelsdonotallowaperfectly

parallelcomparison,itisclearthattherelationshipbetweentemperatureincrease

andclimatedamagesvariessignificantlyamongIAMs.InFUND,aggregatedamages

areanetpositive(i.e.economicallybeneficial)forthefirst11.5Coftemperature

increaseabove1990levels.Initialpositiveimpactsprimarilyarisefromthehealth

20 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

sector,wherereducedcoldrelateddeathsandillnessesoutweighnegativehealth

impactsthrough~3Cofwarming,andtheenergysector,whereimpactsareinitially

positiveforthefirst1Cofwarmingduetoreducedheatingneeds,butthensharply

decreaseandbecomethelargestcontributiontonegativeimpactsathigherlevelsof

warming,duetoincreasedairconditioningneeds.Thedisplayeddamagefunctions

fromFUND2.9donotincludeupdatedecosystemimpacts,stormdamages,and

uncertaintyinimpactparametersthatareincludedinFUND3.4,butthesechangesdo

notfundamentallychangetheshapeofthedamagefunctions.DamagesinFUNDfrom

stormsaredescribedinNaritaetal.(2009a;2009b),andamountto0.0074percent

GDPlossfromtropicalstormdamagein2100forthescenariorun(underawarming

of3.2C),and0.0007percentGDPlossfromextratropicalstormdamage.

InDICEandPAGE,impactsarealwaysnegative,increasingnonlinearlyas

temperatureincreases,andestimatesarehigherthanforFUND.TheDICE2007

damagefunctionhasbeenincreased(higherdamagesatagivenleveloftemperature

increase)comparedtopreviousversionsofthemodel.Theprimarydifferencesarea

recalibrationofthecostsofcatastrophicdamages,refiningestimatesforregionswith

largetemperatureincrease,andrevisionupwardofoveralldamagesatlowlevelsof

temperatureincrease,thatpreviouslywereassumedtoprovideasmallbutpositive

netbenefit(Nordhaus,2008).PAGEsmeanresults(panela)indicatethatdamages

aresimilartothoseinDICE,fallingslightlylowerathigherlevelsoftemperature

21 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

increase.ButPAGEsprobabilisticresults(panelb)indicatethepossibilityofmuch

higherdamages,particularlyfornonmarketimpacts(thoseestimatesspreading

abovethemainclustering).

CurrentDamageEstimates

Estimatesofclimateimpactsineconomictermsnecessarilylagbehindthe

scientificimpactsresearchonwhichtheyarebased.Thecoreimpactestimatesof

theseIAMsarebasedonliteraturefrom2000andearlier.IAMdevelopers,ofcourse,

updatetheirmodelsovertimeinanattempttoreflectthelatestscience.Recent

updatestoDICEandFUNDaredescribedabove.TheprobabilisticstructureofPAGE

generatesarangeofrelationshipsbetweentemperatureanddamages,andthis

distributioncanbeadjustedasnewinformationemerges.Butmodelersarealso

reliantonarelativelylimitednumberofeconomicassessmentsoffuturedamages

fromclimatechange(e.g.,NordhausandBoyer,2000;Nordhaus,2006;Tol,2002b,c;

Mendelsohnetal.,2000;Stern,2007;Ackermanetal.,2008a;2008b).Moreover,such

assessmentsarerecognizedtoprovideonlyanincompletepictureofthefullimpacts

ofclimatechange(see,e.g.,HallandBehl,2006;YoheandTirpak,2008),andwhile

therecertainlymaybeunassessedpositiveimpactsfromclimatechange,such

summariessuggestthattheyarelikelytobeoutweighedbyunassessednegative

impacts(e.g.,YoheandTirpak,2008;Tol,2008).

22 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

 Scientificunderstandingofclimateimpactscontinuestoadvance,andhasled

to,ingeneral,theassociationofgreaterriskswithlowerlevelsoftemperature

increase(see,e.g.,Smithetal.,2009).Forexample,thereisnowhigherconfidencein

projectionsofincreasesinextremeevents(e.g.,droughts,heatwaves,wildfires,and

floods)aswellastheiradverseimpacts(CoreWritingTeametal.,2007).Morerecent

studieshavealsoestimatedpotentialeconomicdamagesfromincreasedextreme

weatherevents(e.g.,Rosenzweigetal.,2002;ClimateRiskManagementLimited,

2005;Nichollsetal.,2008),whichifincludedareverylikelytoincreaseaggregate

estimatesofclimatedamages.Asdiscussedabove,stormdamageshavebeenadded

toFUND,butestimateddamagesdonotconstitutealargefractionofGDP(Naritaet

al.,2009a;2009b). 4 Seebelowforanalternativeestimate.

Thereisalsonowincreasedattentionpaidtoabruptclimatechangeand

instabilitiesthatcouldinducelargescalechangesintheclimatesystem(e.g.,Halland

Behl,2006;Lentonetal.,2008).Aprimaryexampleistheriskofsignificantsealevel

risefrommeltingoftheGreenlandandWestAntarcticicesheets,whichmaybemore

rapidthanpreviouslythoughtandmayoccurwithsmallerincreasesintemperature,

potentiallyincreasingthemagnitudeofsealevelriseandassociateddamagesfora

givenamountoftemperatureincreaseandforagivenpointintime(CoreWriting

4DamagesofincreasedhurricaneintensityintheUnitedStates,forexample,areestimatedtobe0.012

percentofnationalGDPinFUNDfora3.2Cincrease.Ackermanetal.(2008a;2008b),discussed
below,estimatedamagesthatare~20timeshigher(0.24percentofGDPforatemperatureincreaseof
3.6C).

23 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

Teametal.,2007;Mote,2007;Pfefferetal.,2008,Rahmstorfetal.2007).Estimates

thatattempttoincorporatethisbehaviorprojectsealevelrisegreaterthanonemeter

bytheendofthecenturyunderstrongerwarmingscenarios.Forexample,Rahmstorf

etal.(2007)projectsealevelriseof8to16in(~0.2to0.4m)bymidcentury,and20

to55in(0.5to1.4m)bytheendofthecenturyacrosstherangeof(lowerand

higher)IPCCSRESemissionsscenarios.

Climateimpactsfromchangesinwaterresourcesarealsoanincreasingsource

ofconcernincertainregions,andsuchimpactsarenotgenerallyalargecomponent

inimpactestimatesincorporatedintoIAMs(e.g.,waterresourceimpactsinDICEare

viewedasnegligible).Forexample,semiaridclimatesaroundtheworld(including

areassuchasCaliforniaandotherpartsoftheNorthAmericanWest)areprojectedto

becomedryer(Meehletal.,2007b),andtoseelargechangesinpatternsofwater

demandandsupply,aswarmerconditionscausemoreprecipitationtofallasrain

insteadofsnow,reducingsnowpackbuildupandtheavailabilityofwaterfromthis

importantsourceduringdrysummermonths,aswellasincreasingurbanand

particularlyagriculturalwaterdemand(e.g.,Hayhoeetal.,2004;CoreWritingTeam

etal.,2007).

Newcategoriesofimpactsarealsoemergingforwhichmarketandnon

marketdamagesareasyetunclear,butmaybesignificant.Oneexampleisocean

acidification,whichmaycreatesignificantadverseimpactsoncoralreefs,fisheries,

24 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

andotheraspectsofmarineecosystems(e.g.,Orretal.,2005;Branderetal.,2009),as

wellasrelatedindustries(e.g.,fishing,tourism).Arelated,moregeneralexampleis

theconceptofecosystemservices,providingeconomicvaluationoffunctions

providedbynaturalecosystemssuchasforestspreservingwatershedsbypreventing

soilerosion,marshesfilteringtoxinsandbufferingagainststormsurges,andspecies

pollinatingcropsandprovidingsourcesfornewmedicines(e.g.,Dailyetal.,2000).

Increasingly,ecosystemservicesarebecomingrecognizedasvaluablenaturalassets

thatmaybeexpensiveorimpossibletoreplaceifdegradedorlost,butthe

incorporationofecosystemservicesintoeconomicaccountingisstillinitsinfancy

(DailyandMatson,2008;Mleretal.,2008).

Modelsandtheimpactestimatesonwhichtheyarebasedgenerallyalsotreat

impactsindifferentsectorsseparately,anddonottakeintoaccountinteractions

betweensectors.Inreality,impactscanconcurrentlyaffectmultiplesectorsinthe

sameregion,potentiallyleadingtofurtherdamagesthanifeachimpactoccurredin

isolation.Forexample,morefrequentorintenseheatwavescansimultaneously

causeincreasedpublichealtheffects(heatrelatedmortalityandhospitalizations,lost

productivityduetoillness,aggravationofrespiratoryillnessfromdegradedair

quality,etc.)anddisruptionofelectricitygenerationand/ortransmission,whichcan

leadtofurtherheatexposureifairconditioningfails.

25 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

 Aspecificexamplecanprovidefurtherinsightintothepotentialmagnitudeof

climatedamagesintheUnitedStates.Ackermanetal.(2008a;2008b)present

damageestimatesfortheUnitedStates,basedonsectoralassessmentsandtheU.S.

componentoftheversionofthePAGEmodelusedintheSternReview. 5 Theypresent

estimatesofmarketdamagesfromfourmajorclimateimpacts,andgeneralestimates

ofadditional(marketandnonmarket)damagesfromotherchanges,including

abruptclimatechanges.Table2displaystheirestimatesformarketdamagesinthe

UnitedStatesfromincreasedhurricaneintensity,sealevelrise,impactsonwater

resourcesandsupply,andincreaseenergydemandforcooling,for2050and2100,

underascenariowith2.4Cglobalaveragewarmingabovepreindustriallevelsin

2050,and4.8Cglobalaveragewarmingin2100.Estimateddamagesinthesefour

sectorssumto1.47percentofGDPin2050,and1.84percentofGDPin2100.Total

USdamagesin2100,includingthesesectoralestimates,nonmarketimpacts,and

impactsfrompotentialabruptclimatechanges,areestimatedtoamounttoa3.6

percentlossofGDPin2100(fora4.8Ctemperatureincrease). 6

5Asdiscussedinthesectionondiscounting,theversionofPAGEusedfortheSternReviewuseda

lowerdiscountrateandusedpurchasingpowerparityexchangerates.
6ThisestimatecombinesthesectoralestimatesinTable2with83rdpercentileresultsfromthePAGE

modelfornonmarketimpactsandimpactsfromabruptclimatechanges,ratherthanmeanresults.
UsingmeanresultsfromPAGE,thetotalwouldbe2.34percentratherthan3.6percent.SeeAckerman
etal.,(2008b)forfurtherdetails.

26 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

Table2.

2050(2.4Cincrease) 2100(4.8Cincrease)

HurricaneDamages 0.12% 0.41%

SeaLevelRise 0.23% 0.35%

WaterResources 0.14% 0.14%

EnergyCosts 0.98% 0.93%

Subtotal(fortheseimpacts) 1.47% 1.84%

Theseestimatesareconsiderablyhigherthanthedamagesestimatedforthe

UnitedStatesunderstandardPAGEassumptions,whereallmarketdamagesare

estimatedtorepresenta0.6percentlossofGDPin2100underthesamescenario

(Ackermanetal.,2009b).Theyarealsomuchhigherthandamagesestimatedfor

NorthAmericainFUND,wherewarmingisassumedtobebeneficialforthefirst2.5

3Cofwarming(drivenlargelybybenefitsinthehealthsector)(Warrenetal.,2007).

DICEincludesonlyaglobaldamagefunction,andthusadirectcomparisoncannotbe

made.

Insummary,existinganalysesoftheeconomicdamagesofclimatechange

focusprimarilyonmarketimpacts.Researchersnotethesensitivityofthecoping

27 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

capacityofdifferentsystemsandsectorstothepathwayoffuturesocioeconomic

development,andthusthesitespecificityoftheseverityofclimateimpacts(Yohe

andTirpak,2008).Somestudies(andIAMs)attempttoincludecategoriesofnon

marketimpactsandimpactsfromabruptclimatechanges,andsuchimpacts

contributesignificantlytodamagesinDICEandPAGE.Evenso,suchdamagesare

bothhighlyuncertainanddifficulttoquantify,andnoIAMfullyaccountsforallof

thesefactors.Basedonexamplessuchasthosediscussedabove,therefore,IAMsare

likelytounderestimatethemagnitudeofdamagesfromclimatechangeand

calculatedbenefitsofclimatepolicy.Thus,whenemployedforCBA,theyarelikelyto

underestimateoptimalemissionsreductions.

MovingForward

Expandingandupdatingeconomicassessmentsofclimatedamagescan

certainlyprovideanimprovedbasisforupdatingIAMdamagefunctions.Climate

impactsresearchisincreasinglyprovidingmoredetailedinformationaboutthe

regionalandsectoralimpactsofclimatechangeinmanyregionsoftheworld,which

canbeusedforthispurpose.Forexample,GlobalClimateChangeImpactsinthe

UnitedStates(Karletal.,2009),releasedbytheU.S.GlobalChangeResearch

Program,providesasummaryofclimateimpactsondifferentsectorsandregionsof

theUnitedStates.

28 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

 Butnotallproblematicelementscanbeaddressedinthisway.Nomatterhow

detailedestimatesbecome,uncertaintywillalwaysremainregardingfutureclimate

impactsandtheirdamages.Moreover,importantimpactsofclimatechangeinareas

suchashumanhealth(lossoflifeandwellbeing),naturalecosystems(species

extinctionandlossofbiodiversity),andsocialconflict(forcedmigrationand

impactedsecurity)cannoteasily,andarguablyshouldnotbequantifiedinmonetary

terms.Analternativeapproachistheexplicitconsiderationofmultiplemetricsby

whichtomeasureclimaterisks(e.g.,YoheandTirpak,2008;Smithetal.,2009).Such

anapproachmovesawayfromatraditionaloptimizationframeworktowarda

broaderexaminationofthebenefitsofclimatepolicybeyondthosethatare

quantifiableinmonetaryterms.

AsimplecaseofconsideringnonmonetarymetricstowhichIAMs,including

DICE(Nordhaus,2008),havebeenapplied,iscalculatingpathwaysthatavoid(or

avoidwithacertainlikelihood)aspecificthresholdoftemperatureincrease,for

instanceonethatischosentoavoidunacceptableclimateimpactsassociatedwith

temperatureincreaseabovethatlevel.Inthisapproach,thechoiceofpolicytargetis

specifiedoutsideoftheIAMframework,ratherthanemergingasaproductofthe

modelcalculations.Inthiscontext,theroleofIAMsshiftsfromcostbenefitanalysis

tocosteffectivenessanalysis,examiningpathwaystoavoidthresholdsfor

29 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

unacceptablerisktosocietyidentifiedthroughexaminationofclimateimpactsacross

arangeofmetrics.

Adaptation

Evenwithaggressiveglobaleffortstoreduceemissions,theclimatewill

continuetochangesignificantlyformanydecadesbecauseofthemagnitudeofpast

emissionsandtheinertiaofsocialandphysicalsystems.Alongsidemitigation,then,

policiesfocusedonadaptationarealsoanecessaryresponsetoclimatechange.There

isgrowingrecognitionthatthetwostrategiesmustbecomplementaryand

concurrent.Mitigationcankeepwarmingonalowertrajectory,anddelaysin

mitigationwilllockinfurtherwarming,makingadaptationthatmuchharder.

Adaptation,incontrast,isaresponsetowarming,notameansofslowingit.Itisa

responsedesignedtoreducethedamagesfromclimateimpactsassociatedwiththe

climatechangethatdoesoccurinthefuture.Thepotentialforadaptationtoreduce

damagestohumansocietyisgenerallymuchhigherthanthepotentialforreducing

thebiophysicalimpactsofclimatechange.Insomecases,thedistinctionbetween

impactsandadaptationisnotcompletelyclear,suchrelocationormigrationdueto

sealevelrise,whichcanbecharacterizedeitherasanimpactoranadaptation.

Twotypesofadaptationaregenerallyconsidered:autonomousandplanned.

Autonomousadaptationisnotguidedbypolicy;itisareactiveresponsepromptedby

theinitialimpactsofclimatechange.Forexample,peoplewhonowliveinwarmer

30 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

areashaveacclimatizedtothoseconditions,becominglessvulnerableto

temperaturesthatwouldcausesignificantheatrelatedillnessesforpeoplelivingin

moretemperateareas.Evenso,therearelimitstosuchadaptation,particularlyif

warmertemperaturesspurincreaseduseofairconditioning(aplannedadaptation),

andthereforelessacclimatization.

Plannedadaptationcanalsobereactive.Forexample,afterthe2003European

heatwave,Europeancountriesinstitutedmorecoordinatedplanstodealwith

periodsofextremeheat.Buyingadditionalwaterrightstooffsetdecliningwater

supplyorpurchasingcropinsurancewhereavailablearealsoreactiveresponses.

Anotherkindofplannedadaptationanticipatoryorproactivehasgreaterpolicy

potential.Anticipatoryadaptationmightincludeimprovingorexpandingirrigation

foragriculture,engineeringcropvarietiesthatarebetterabletocopewithchanging

climateconditions,buildingseawallstoprotectcoastalinfrastructure,and

constructingreservoirsorimplementingwaterrecyclingstrategiestoimprovewater

management.Suchactionsmaybesimilarinsubstancetoreactiveadaptation,but

theyanticipatefuturechangesratherthanrespondingtopastshifts.Some

anticipatoryactionsmaybeimplementedwithoutspecificpolicyintervention,such

asprotectionoflonglivedcoastalinfrastructurevulnerabletosealevelrise,before

inundationoccurs.Otherpotentiallyanticipatoryactionsmayonlybeimplemented

reactivelyunlesspolicyincentivesareestablished.Aniconicexampleofafailureto

31 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

implementpotentialadaptation(regardlessofitslinkagetoclimatechange)is

HurricaneKatrina,whereresourcescouldhavebeenusedtostrengthenleveesand

undertakeotherprotectionsthatwouldlikelyhavemadethedamagesfromKatrina

farlesssevere,buttheseactionswerenottaken,inspiteofwarningsthatastrong

hurricanewouldlikelyoverwhelmtheexistingdefenses(e.g.,Stoneetal.1997).

IAMs,ingeneral,focusonthetradeoffbetweenmitigationcostsandclimate

changedamages,anddonotexplicitlyconsideradaptation.Adaptationiseither

omitted,orconsideredaspartofthecalibrationofthedamagefunction(e.g.,for

agriculturalimpacts),whereanyassumedadaptationlowersthedamagesassociated

withagivenleveloftemperatureincrease,andanyassumedadaptationcostsare

addedtoestimateddamages.DICEconsidersadaptationimplicitly,inthatsomeofthe

originalpapersonwhichitsdamageestimatesarebasedmakeassumptionsabout

adaptationthatlowerestimateddamages.Forexample,itsagriculturalimpact

estimatesassumethatfarmerscanmakechangestolanduseinresponsetochanging

climateconditions,anditshealthimpactestimatesassumeimprovementsin

healthcare(NordhausandBoyer,2000;Warrenetal.,2007).Inaddition,impactson

forestry,watersystems,construction,fisheries,andoutdoorrecreationareassumed

tobenegligible,implying,veryoptimistically,costlessandunlimitedadaptationin

thesesectors(NordhausandBoyer,2000;Warrenetal.,2007).Costsofresettlement

duetoinundationofcoastalareasfromsealevelriseareincorporatedintodamage

32 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

estimates,buttheirmagnitudeisnotclearlyreported.Ingeneral,DICEassumesvery

effectiveadaptation,andlargelyignoresadaptationcosts.

InFUND,asinDICE,adaptationisincludedimplicitlyinthedamageestimates

onwhichitsdamagefunctionsarebased,reducingdamageswhereconsidered

feasible.UnlikeDICE,adaptationanditscostsarealsoincludedasanexplicit

componentofdamagefunctionsforagricultureandimpactsfromsealevelrise,but

notforothersectors.Adaptationisincludedinthecontextoflandusetransitionsfor

agriculturalland,andprotectionforcoastalland.Inaddition,thereduced

vulnerabilityofimpactsinsomesectorsdependentonsocioeconomicdevelopment

describedaboveforenergyconsumption(withtechnologicaladvancement),

agriculture(witheconomicgrowth),andvectorandwaterbornediseases(with

improvedhealthcare)reflectembeddedassumptionsaboutadaptation.Ingeneral,

adaptationisassumedtobeveryeffectiveinFUND,andadaptationcostsare

consideredonlypartially.Inthecaseofagriculture,damagesarenegative(benefits)

foratleastthefirst3CofwarminginallregionsexceptAustralasia,dueinparttothe

incorporationofadaptation.

PAGE,ontheotherhand,explicitlyincludesadaptationasadecisionvariable

inthemodelthatcanbesetbytheuser(butisnotincludedinoptimization

calculations,insteadbeingtreatedasanotherassumptiononcespecified).InPAGE,

adaptationisassumedtobelowcost,andveryeffective.InOECDcountries,all

33 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

marketdamagesfromwarminglessthan2C,and90percentofmarketdamages

fromwarminggreaterthan2C,canbeavoidedviaadaptation.50percentofmarket

damagescanbeavoidedindevelopingcountries.Adaptationcanalsoavoid25

percentofnonmarketdamagesinallcountries.Adaptationdoesnotaffectdamages

fromabruptclimatechange.Theseassumptionshavebeendescribedasunrealisticor

optimisticbysomeresearchers(deBruinetal.,2009;Ackermanetal.,2009b).

Adetaileddiscussionofthecostsofadaptationisoutsidethescopeofthis

paper,butestimatesvarywidely(see,e.g.,Parryetal.,1998a,b;Fankhauser,1998;

Mendelsohn,2000;Parryetal.,2009a,b;deBruinetal.,2009).Estimatesofthe

effectivenessandlimitstoadaptation,however,areacriticalcomponentof

calculationsofthebenefitsofclimatemitigationpolicy,giventhatIAMsassume,

eitherimplicitlyorexplicitly,thatadaptationleadstoareductionofdamages

associatedwithagivenleveloftemperatureincreaseasspecifiedbythedamage

function,loweringcalculatedbenefitsofmitigationpolicy.

Whileconsiderablepotentialexistsforplannedadaptationtoreducedamages

fromfuturewarming,thereisincreasingrecognitionofthecomplexities,barriers,

andlimitsinherentinactualimplementationofadaptationstrategies(e.g.,Adgeret

al.,2009).Inshort,thereisacrucialdifferencebetweenpotentialadaptation,and

implementedadaptation(see,e.g.,AdgerandBarnett,2009).EventssuchasKatrina

34 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

andthe2003heatwaveinEuropehighlightthevulnerabilityofspecificpopulations

andregions,evenwithinhighlydevelopednations,toclimateevents.

Theuncertaintyinherentinprojectionsoffutureclimatechange,inadditionto

thepotentialforunprecedentedchangesoutsidetherangeofhistoricalexperience,

complicateeffortstoimproveadaptationplanningandimplementation.Forexample,

buildingcodesandfloodriskmapsusedforinsurancepurposesarebasedon

estimatedhistoricalfloodfrequencies,andareonlyveryslowlymovingto

incorporatefuturerisksfromprojectedsealevelriseandchangesinstormfrequency

andintensity.Thepotentialformaladaptation,actionsthatreduceratherthan

enhancesocietysabilitytocopewithfuturechanges,shouldnotbeunderestimated.

Forexample,thehighdegreeofnaturalvariabilityofweathermaymaskclear

identificationofemergingclimatictrends.Imagineasequenceofweatheranomalies:

say,aseriesofverywetyears,whicharepreciselytheoppositeofthetruelong

termclimatictrendtowarddryerconditions.Suchasequencecouldeasilybe

mistakenforanewclimaticregimeandactuallyleadtomaladaptivepractices,such

asinvestinginadditionalfloodprotectionthatbecomesunnecessary,insteadof

investinginadditionalwaterstorage.

MovingForward

Despitethesechallenges,thebenefitsofmitigationwilltaketimeto

materialize,andthereforeadaptationisessentialinrespondingtoneartermclimate

35 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

changesalreadyinthepipeline.Theneedforbothstrategiesraisesthepossibilityof

whetheradaptationandmitigationshouldbeconsideredastradeoffs.Thistreatment

isadoptedinTol(2007b),inanapplicationofFUNDthatfocusesoncoastal

protectionandsealevelrisedamages.Thepaperconcludesthatadaptationthrough

investmentinprotectionisanimportantoptiontoreducedamagesfromsealevel

rise,andthatadaptationandmitigationmustbeconsideredtogether,ashigherlevels

ofmitigationmeanlessadaptationisnecessary,butcouldalsolimitresources

availableforadaptation.

Adaptationandmitigationdecisionswillcertainlyaffecteachother,andcan

havebothpositiveandnegativesynergies.Forexample,certainadaptationstrategies

canentailincreasedenergyuse(e.g.,desalinationplantsbuilttorespondtoprojected

decreasesinwatersupply)comparedtootherstrategies(e.g.,demandmanagement

throughincreasedefficiencyofwateruse),andthushavesignificantimplicationsfor

meetingmitigationtargets.Insummary,giventheimportanceofadaptationasa

responsestrategytoclimateimpacts,itstreatmentinIAMsisnecessary.Current

treatmentofadaptationmayoverestimatethecapacityofadaptationtooffset

damages(overoptimisticassumptions)andunderestimateadaptationcosts(either

againthroughoptimisticassumptions,orthroughincompleteincorporation).The

inclusionofadaptationasadecisionvariableasinPAGEisanapproachthatallows

explicitconsiderationofarangeoflevelsofadaptation,ratherthananapproachthat

36 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

embedsspecificassumptionswithinthedamagefunctionasinDICEandFUND.

Regardlessofitstreatment,giventhesignificantuncertaintiesthatexistregarding

boththelimitstoandefficacyofadaptation,aswellasitscosts,theassumptionsthat

governtherelationshiptoestimateddamagesandothermodelcomponentsshould

betransparent.

Discounting

Afinalcriticalinfluenceonthecalculatedbenefitsofclimatepolicyishow

damagesarevaluedandcomparedastheyevolveovertimeandaffectdifferent

regionsoftheworld.Thisvaluationisgovernedbythediscountrate,and

assumptionsmadeaboutitscomponentsprofoundlyaffectIAMresults,determining

towhatextentbenefits(orcosts)thatoccurfurtherinthefuturearegivenlessweight

thanthosethatoccursooner.Inmodelswithdifferentdiscountrates,identical

scenariosoffutureclimatechangeandclimatedamagescanbevaluedvery

differently,andthuswillresultindifferentcalculationsofthebenefitsofclimate

policy.

AsoriginallypresentedbyRamsey(1928),thediscountratercanbe

expressedas:

r=+g

37 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

whereisthepurerateoftimepreference(therateofpreferenceforpresentversus

futureconsumption),isthenegativeoftheelasticityofthemarginalutility 7 of

consumption(therateatwhichadditionalconsumptionprovidessmallerincreasesin

welfareasconsumptionincreases),andgisthegrowthrateofpercapita

consumption.InIAMs,thegrowthrateofpercapitaconsumptionisdeterminedby

theassumedorcalculatedpathwayforsocioeconomicgrowth.Theothertwoterms,

however,arespecified,andthereisnoonecorrectsetofvaluestheirproper

specificationinIAMscontinuestobeasourceofconsiderabledebateoneconomic

andethicalgrounds.Thereisalsoakeydifferencebetweenthemodelsinthe

influenceofchangestotheseterms.InFUNDandPAGE,economicgrowthisdefined

exogenouslyandisnotaffectedbychangingtheseterms.DICE,however,usesa

growthframeworkinwhichchangingeithertermchangestheoptimalsavingsrate,

andthereforetheprojectionofeconomicgrowthaswell.

Alargerpurerateoftimepreferencegivesgreaterweighttothepresent,

undertheassumptionthatpeopleputmoreweightonthepresentthanthefuture

(areimpatient),andthereforethefutureshouldbediscounted.Underdefault

assumptions,theDICEmodelassumesarateof1.5percent(Nordhaus,2008).In

earlierversions,FUNDassumedarateof1percent(Tol,1997),butmostrecent

applicationsofFUNDhavereportedresultsforratesof0percent,1percent,and3

7Utilityusedhereintheeconomicsense,thesatisfactiongeneratedbyconsumptionofgoodsand

services.

38 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

percent(e.g.,Anthoffetal.,2009).DICEhasalsobeenrunwitharangeofhigherand

lowervalues(e.g.,Nordhaus,2007).InPAGE,thepurerateoftimepreferenceis

representedbyatriangularprobabilitydistributionwithaminimumvalueof1

percent,amostlikelyvalueof2percent,andamaximumvalueof3percent,although

morerecentapplications(suchasinStern)haveemployedlowerrates.Onceagain,

thereisnoonerightanswer.Arecentiterationofthisdebateoverthepurerateof

timepreferencefocusedontheSternReview(Stern,2007),whichemployeda

modifiedversionofthePAGEmodelthatassumedalowpurerateoftimepreference

of0.1percent,whichgivesgreaterweighttofuturedamages.Criticsofthereview

favoredahigherrate(e.g.,Nordhaus,2008;TolandYohe,2006),whiletheauthors

defendedtheirassumption(Dietzetal.,2007).Adetaileddiscussionofthedebateis

outsidethescopeofthispaper.SeeAckermanetal.(2009a)andAnthoffetal.(2009)

forfurtherdiscussion.Ingeneral,ahigherpurerateoftimepreferencewilllower

calculationsofthebenefitsofclimatepolicy,becausefutureclimatedamageswillbe

discountedmoreheavily.

Whilemuchdebatehasfocusedonpurerateoftimepreference,theelasticity

ofthemarginalutilityofconsumptionisalsoacriticalparameterthathasreceived

lessattention.ThistermcanservemultipleimportantrolesinIAMcalculations.Most

generally,itrepresentstherateatwhicheachadditionaldollarofconsumption

provideslessutilityasconsumptionincreases(andthereforerepresentsthe

39 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

assumptionthatfuturedollarsshouldbediscountedbecausefuturegenerationsthat

arericherthanthepresentonewillderivelessutilityfromthesamenumberof

dollars).Allthreemodelsexaminedhereemploythisparameterinthiscontext.Butit

canalsobethoughtofasplayingaroleinhowconsumption(orlossofconsumption

fromclimatedamages)isweightedacrossregionswithdifferentlevelsofincome.

Thesesocalledequityweightsareemployedtoreflectthefactthatadollarofdamage

inapoorerregionwillhavemoreofanimpactthaninaricherregion,andtherefore

theyshouldnotbetreatedasequivalent.Finally,thisparametercanalsobe

interpretedasameasureofriskaversion(e.g.,thedegreetowhichsocietyshould

hedgeagainstuncertainbuthighlynegativeoutcomes).SeeAnthoffetal.(2009a;

2009b)andNewboldandDaigneault(2009)forfurtherdiscussion.

InDICE,thisparameterissetto2,andisnotrelatedtoequityweighting,since

impactsareonlyconsideredatagloballevel.Therefore,itreflectsthesmallerutility

ofadollarsworthofconsumptioninaricherfuture.InPAGE,thisparameteris

specifiedasatriangulardistributionwithminimumvalue0.5,medianvalue1,and

maximumvalue1.5,withregionalequityweightsdefinedindependentlyofthis

parameter.InFUND,itissetto1,anditisdirectlyrelatedtoequityweighting.Avalue

of1,inthiscontext,meansthata$1losstosomeonewithanincomeof$10,000is

equivalenttoa$10losstosomeonewithanincomeof$100,000.FUNDhasbeenused

inapplicationswherethisparameterhasbeenvaried(Anthoffetal.,2009),and

40 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

whereequityweightshavebeenvariedwhiletheelasticityofthemarginalutilityof

consumptionhasnot(Tol,2002a).Onceagain,thereisnorightanswer,butakey

pointtonoteisthatwherethenegativeoftheelasticityofthemarginalutilityof

consumptionisemployedasbothacomponentofthediscountrateandthe

calculationofequityweights,increasingtheequityweighting(givingmoreweightto

impactsinpoorerregions)alsoincreasesthediscountrate.Ingeneral,poorerregions

aremorevulnerabletoclimateimpacts,andthereforeincreasingweightingof

impactsintheseregionswillincreasecalculatedbenefitsofclimatepolicy.But

increasingthediscountratedecreasestheweightingoffutureimpactsingeneral,

decreasingcalculatedbenefitsofclimatepolicy.Whichoftheseinfluencesisstronger

isunclear,andismodeldependent. 8 InPAGE(seeFigure2below),theinfluenceon

thediscountrateappearstobestronger,butinFUND,therelationshipismore

complex.Usingthedefaultvalueforthepurerateoftimepreference,increasingthe

negativeoftheelasticityofthemarginalutilityofconsumptionfromitsdefaultvalue

of1initiallydecreasescalculatedbenefitsofclimatepolicy,butthisdecreasereverses

asthevalueisincreasedfurther.Thisbehaviorisalsodifferentfordifferentvaluesof

thepurerateoftimepreference,wheretheinfluenceofincreasingthenegativeofthe

elasticityofthemarginalutilityofconsumptionalwaysdecreasescalculatedbenefits

8Theroleofthenegativeoftheelasticityofthemarginalutilityofconsumptionasameasureofrisk

aversionisanotherreasonthatitseffectonbenefitsestimatesmaybeambiguousatleastinthe
contextofaprobabilisticassessmentestimatingwillingnesstopayinanexpectedutilityframework.
SeeWeitzman(2009)andNewboldandDaigneault(2009)forfurtherdiscussion.

41 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

ofclimatepolicyacrossthesamerange.SeeAnthoffetal.(2009)foradetailed

discussion.

AfinalrelatedassumptioninIAMsisthetimehorizonoverwhichthemodelis

run.Amodelthatisrununtil2100,forexample,willnotconsiderdamagesthatoccur

beyond2100.Ingeneral,increasingthetimehorizonincreasescalculatedbenefitsof

climatepolicy,asdamagesoccurringfurtherinthefutureareaccountedfor.This

assumptionbecomeslessimportant,however,thelargerthediscountrateassumed.

PAGEhastheshortesttimehorizon,runningoutto2200(whichmayaffect

calculationsofthebenefitsofclimatepolicywhenalowdiscountrateisused).DICE

runsoutto2600,andFUNDoutto3000,likelyfarenoughthatanyvariationwillhave

littleeffectonpolicycalculations.

SummaryandSynthesis

Table3summarizeshowvariousIAMassumptionsinfluencethecalculatedbenefits

ofclimatepolicyasdiscussedintheprecedingsections.Assumptionsmadeaboutall

oftheseparametersinfluencemodelresults,butthesensitivityofresultsto

variationsindifferentparametersdifferssignificantly.Therelativeimportanceof

differentassumptionshasbeenstudiedtoacertainextentinallthreemodels,but

mostextensivelyinPAGE.Figure2,fromHope(2008),showstherelativestrengthof

majorinfluencesonthecalculationofSCCinPAGE.Climatesensitivityhasthelargest

influenceonSCC,followedbythepurerateoftimepreference.ConsistentwithTable

42 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

3,largerclimatesensitivityhasapositiveeffectonSCC,andlargerpurerateoftime

preferencehasanegativeeffect.Nextisaparameterrelatedtothemagnitudeofnon

marketimpacts(positive),followedbythenegativeofthemarginalutilityofincome,

whichinthePAGEmodelhasanegativeeffectonSCC,asnotedabove.Thefinalthree

parametersinFigure2arethehalflifeofglobalwarming(thespeedoftransient

temperaturechange),aparameterrelatedtothemagnitudeofmarketimpacts,anda

parameterrelatedtothestrengthofcarbonsinks.

Table3.

Assumption BenefitsofMitigationPolicy

ClimateSensitivity

TransientResponse

CarbonSinkStrength

ClimateDamages

AdaptationEffectiveness

PureRateofTimePreference

MarginalUtilityofConsumption/
EquityWeighting
TimeHorizon

43 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

 Elasticity ofthemarginal
utilityofincome

Figure2.RelativeinfluenceofuncertainparametersonSCCestimates.

Notethattherelativestrengthofeachoftheseinfluencesisnotonlyrelatedto

thesensitivityofresultstoagivenparameter,butalsotherangeoverwhichthat

parameterisvariedinthemodel(theprobabilitydistributionsfortheseparameters

assumedinPAGE).Inotherwords,aparametertowhichresultsarelesssensitive,but

whichisvariedoveralargerrange,canhavethesameinfluenceonresultsinsuchan

analysisasasecondparametertowhichresultsaremoresensitive,butwhichis

variedoverasmallerrange.Climatesensitivity,forexample,isvariedoveralarger

rangethanthepurerateoftimepreference.Thus,thespecificorderinginFigure2is

modeldependent,buttheparametersincludedareillustrativeofthosetowhich

resultsaremostsensitive.

44 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

 AsensitivityanalysisofSCCcalculationsincludingsomeofthecorresponding

parametersintheDICEmodelwasconductedbyNordhaus(2008)usingtheDICE

baselinescenario.Climatesensitivity,thecoefficientontheDICEglobaldamage

function,andacarbonsinkparameterwereincluded,buttheanalysisdidnotinclude

discountratecomponentsoraparameterrelatedtothetransientclimateresponse.In

DICE,SCCcalculationsweremoresensitivetovariationinthedamagefunction

coefficientthantovariationinclimatesensitivity,eventhoughclimatesensitivitywas

variedoveralargerrange.Resultswererelativelyinsensitivetochangesinthe

carboncycleparameter.

Thesensitivityofmodelresultstovariationineachoftheseparametersisnot

independent.Thehigherthediscountrate,thelowerthesensitivityofmodelresults

tovariationindamagefunctionandclimateresponseparameters,sincefuture

damagesarediscountedtoagreaterextent.Thus,atlowdiscountratesresultswill

likelybemostsensitivetoparameterssuchastheclimatesensitivity,andthose

governingthemagnitudeandshapeofthedamagefunction.Athigherdiscountrates,

thissensitivitywilldecreasesignificantly,highlightingtheimportanceofassumptions

aboutdiscountratecomponents.Inaddition,resultswillbemoresensitivetoequity

weightinginmodelswheredamagesareconcentratedmoreheavilyinpoorer

regions.

45 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

AssumptionsCombined:ModelResults

Thispaperhasrefrainedfrompresentingspecificnumericalmodelresults,

suchascalculatedSCC,duringtheexaminationofmodelassumptions.Armedwith

thisexamination,however,itisthehopeoftheauthorthatsuchresultscanmore

easilybeviewedinthecontextoftheirsensitivitytounderlyingassumptionsandhow

theymightchangeifthoseassumptionswerealtered.Theseresultsalso,ofcourse,

representthecombinedeffectofallmodelassumptions.Withthatinmind,itisuseful

toexaminespecificmodelresultsforeachofthemodelsdiscussedhere,whichalso

highlightotherimportantaspectsofIAMbehavior.

First,Hope(2008)presentedSCCresultscalculatedbyPAGEconsistentwith

thesensitivityanalysispresentedintheprevioussectionandthestandard

assumptionspresentedinthispaper.MeanSCCin2000iscalculatedtobe$12per

tonofcarbon($3.3pertonofCO2),witha595thpercentilerangeof$235pertonof

carbon($0.59.5pertonofCO2).Hope(2009)presentedSCCresultscalculatedby

PAGEunderadifferentsetofdiscountingassumptions(purerateoftimepreference

setto0.1percent,thenegativeoftheelasticityofthemarginalutilityofconsumption

setto1,amuchlowerdiscountrate).Asexpected,meanSCCiscalculatedtobemuch

higher$63pertonofcarbon($17.2pertonofCO2)witha595thpercentilerange

of$13189pertonofcarbon($3.551.5pertonofCO2).Thesevaluesarelowerthan

themeanSCCof~$300pertonofcarbon(~$82pertonofCO2)reportedintheStern

46 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

ReviewusingPAGEwithsimilarlowdiscountrates(Stern,2007),mainlybecausethe

versionofPAGEinHope(2009)usedmarketexchangerates,whereastheStern

Reviewusedpurchasingpowerparityratestoaggregatedamagesacrossdifferent

regions.Ingeneral,usingpurchasingpowerparityratesgivesgreaterweighttothe

impactsinpoorercountries,wherethemajorityofclimatechangeimpactswilloccur

(Stern,2007),producinganeffectsimilartoequityweighting.

Nordhaus(2007)reportsresultsfortheDICEmodelrununderthree

combinationsofpurerateoftimepreferenceandthenegativeoftheelasticityofthe

marginalutilityofconsumption:defaultDICEassumptions(1.5percentand2,

respectively),Sterndiscounting(0.1percent,and1),andarecalibrated

combination(0.1percentand3)wherethepurerateoftimepreferenceiskeptlow,

butthenegativeoftheelasticityofthemarginalutilityofconsumptionismodifiedto

behigher,increasingtherealdiscountrate(seeNordhaus,2007forfurther

explanation).Fordefaultdiscounting,SCCin2015is$35pertonofcarbon($9.5per

tonofCO2),forSterndiscounting,SCCis$360pertonofcarbon($98.2pertonofCO2)

andissimilarinmagnitudetotheresultsfromPAGE,andfortherecalibrated

combination,SCCis$36pertonofcarbon($9.8pertonofCO2).Theseresults

demonstratethatcalculationsofSCCareverysensitivetotherealdiscountrate,

whichisdeterminedbyboththepurerateoftimepreferenceandthenegativeofthe

elasticityofthemarginalutilityofconsumption.Usingalowpurerateoftime

47 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

preferencedoesnotnecessarilyimplyalowrealdiscountrate,becauseahighreal

discountratecanalsobeproducedbyahighnegativeoftheelasticityofthemarginal

utilityofconsumption,asNordhaususedinthethirdexamplehere.NotethatDICE

doesnotincludeequityweighting,andthusincreasingthenegativeoftheelasticityof

themarginalutilityofconsumptiondoesnotincreaseweightingofimpactsinpoorer

regions;asdiscussedabove,equityweightingwouldincreasecalculatedSCC,working

intheoppositedirectiontotheincreaseindiscountrate.

Asmentionedintheintroduction,thetreatmentofuncertaintyitselfisan

importantmodelassumption.NotethatintheSCCdistributionspresentedforPAGE

above,therighthandtailismuchlarger,implyingagreaterpotentialforSCChigher

thanthemeanthanlowerthanthemean.Similarly,Dietzetal.(2007),usingtheStern

versionofPAGE,comparedmeanresults(calculatedasthemeanofmodelruns

incorporatinguncertaintyinmodelparameters)withresultscalculatedusingthe

mostlikelyvaluesofallparameters,andfoundthatmeanPAGEresultsfordamages

arehigherby7.6percent.Akeyreasonforsuchresultsisthenonlinearitiesinherent

intheclimatesystemandprojectionsofclimateimpactsthatareembodiedbythe

damagefunction.Asdiscussedabove,climatedamagesincreasenonlinearlywith

temperature,andthereforetheincorporationofuncertaintyintheclimatesensitivity,

whichopensupthepossibilityofreachinghigherlevelsoftemperatureincreasefor

anygivenemissionspathway,alsoincreasestheprobabilityofreachinghigherlevels

48 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

ofclimatedamages.ThishastheeffectofincreasingcalculatedSCC,andlargervalues

forSCCarethereforemorelikely.Incorporationofuncertaintyintheparametersof

thedamagefunctionalsogenerallyhasasimilareffect,openingthepossibilityof

higherlevelsofclimatedamageforagivenleveloftemperatureincrease.

Theexplicitincorporationofuncertaintygenerallyincreasesthecalculated

benefitsofclimatepolicy.ThisisdemonstratedbyAnthoffetal.(2009),which

presentsresultsforFUND3.4(withoutcarboncyclefeedback)withandwithout

uncertaintyinclimateresponseanddamagefunctionparameters(althoughonly

meanresultsarepresented). 9 Withoutuncertainty,SCCin2005iscalculatedas$8.96

pertonofcarbon($2.44pertonofCO2),whilewithuncertaintySCCin2005is$44.35

pertonofcarbon($12.1pertonofCO2).Demonstratingtheimportanceofequity

weighting,thepaperalsopresentsresultswithoutequityweighting.Without

uncertainty,SCCin2005iscalculatedtobe$1.88pertonofcarbon($0.5pertonof

CO2),whilewithuncertaintySCCin2005is$0.35pertonofcarbon($0.1pertonof

CO2).Inotherwords,withoutequityweighting,FUNDcalculatesaslightpositive

benefitfromanadditiontonofcarbonemittedin2005,inthisanalysis.Thisis

consistentwiththeFUNDglobaldamagefunctiondescribedabove,whichestimates

benefitsforthefirst11.5Cofwarming.Regionaldamagesvarywidely,however,

9Notethattheseresultsaggregateoverarangeofcombinationsforthepurerateoftimepreference

andthenegativeoftheelasticityofthemarginalutilityofconsumption.SeeAnthoffetal.(2009)for
furtherdetails.Notefurtherthatthispaperemploysautilityfunctionthatincorporatesriskaversion.
Giventhis,theseestimatesincludeariskpremiumoverthesimplemeanofdamageestimates.

49 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

withnegativeimpactsatalllevelsofwarminginsome(includingpoorer)regions.

Equityweighting,therefore,givesmoreemphasistothesenegativeimpacts.

Tol(2009)presentsasetofdeterministic(i.e.,notaccountingforuncertainty)

resultsemployingFUND3.5,theversionincludingcarboncyclefeedbacks.Table3

displaystheseresultsfordifferentvaluesofthepurerateoftimepreference(the

negativeoftheelasticityofthemarginalutilityofconsumptionisnotreported)and

theclimatesensitivity,anddifferentstrengthsforthecarboncyclefeedbacks,

includingnofeedback.Evenwithoutcarboncyclefeedback,negativevaluesforSCC

(i.e.netpositivebenefitsofclimatechange)appearonlyifthepurerateoftime

preferenceishighandtheclimatesensitivityislow.Increasingthestrengthofthe

carboncyclefeedbackincreasesthecalculatedSCC,withalargereffectatlower

valuesofthepurerateoftimepreference,sincethefeedbackbecomesmore

importantfurtherinthefuture.

Table3.

Purerateoftime Climate Climatefeedback

preference Sensitivity terrestrialbiosphere

% C None Low Mid High
3 2.5 1.93 2.03 2.30 2.87
1 2.5 16.44 17.32 19.49 22.52
0 2.5 56.86 60.73 68.28 74.55
3 1.5 3.69 3.71 3.79 4.02
3 4.5 20.34 21.14 23.15 25.47

50 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

 Finally,thereisacriticaldistinctionbetweentwodifferenttypesofSCC

comparisons.Thesensitivityanalysesdiscussedhereandintheprevioussection(e.g.,

theconfidenceintervalsforPAGEresultspresentedaboveandtheFUNDresultsin

Table2)representthevariationofSCCcalculationsunderonepathwayfor

socioeconomic(e.g.,economicandpopulation)growthasparametervaluesare

changed.TheDICEresultspresentedabovereflectSCCcalculationsunderdifferent

economicandemissionscenarios(whereanewoptimalsolutionforemissions

reductionsandaneweconomicgrowthscenarioiscalculatedundereachassumption

set).Asdiscussedabove,socioeconomicgrowthisprescribedexternallyinFUNDand

PAGE,butitiscalculatedinternallyinDICE.Therefore,differentlevelsofemissionsin

DICEimplydifferentlevelsofeconomicgrowth.UnlikeDICE,PAGEandFUNDcan

examinedifferentlevelsofemissionsunderthesamescenarioforeconomicgrowth.

PAGEcalculatesverysimilarvaluesforSCCacrossawiderangeofpossible

futureemissions,andHope(2006b;2009)suggestsanexplanation.Undereachcase,

atonofcarbonhasadifferentinfluenceontemperatureincreaseandonclimate

damages,differencesthatappeartoroughlyoffset.Ascarbondioxideconcentrations

increase,eachadditionaltonofcarbonemittedhasasmallerinfluenceon

temperatureincrease,becauseofthephysicsoftheclimatesystem.Atthesametime,

becauseofthenonlinearityofthedamagefunction,smallerandsmallerincreasesin

temperatureareequivalenttothesameincreaseindamages.Therefore,undera

51 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

loweremissionsscenario,eachtonofcarbonhasalargerinfluenceontemperature,

butasmallerinfluenceondamages,comparedtoahigheremissionsscenario.Thisis

notthecase,however,whensocioeconomicassumptions(e.g.,economicgrowthor

discounting)arevaried,asdemonstratedbythedifferingPAGEresultsdescribed

above.Varyingtheseassumptionschangesthevaluationofclimatedamagesover

timeand/oracrossregionsandthussignificantlyaffectsthemagnitudeofSCC.

ConclusionsandRecommendations

ThispaperhasexaminedanumberofassumptionsinIAMsthataffectthe

benefitsofclimatepolicy,SCCestimates,andoptimalemissionspathwayscalculated

bysuchmodels,anddiscussedtheirconsistencywithcurrentresearch.Several

recommendationsemerge:

1. Uncertaintyinkeyassumptionscansignificantlyaffectmodelresults,and

thissensitivityshouldbecommunicatedwhenresultsarepresented.Critical

uncertaintiestowhichresultsaresensitive,inscientificunderstandingof

theclimatesystem,intheimpactsofclimatechange,andinourabilityto

copewiththoseimpacts,willnotbeeliminatedinthenearfuture,andmay

neverbefullyremoved.Differentchoicesaboutdiscountingandequity

weightingreflectcontinuingethicalandeconomicdebates.Transparent

presentationofmodelassumptionsandthecontributionofdifferent

sourcesofuncertaintytomodelresultsisanimportantfeaturethatshould

52 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

 beincludedinIAMs,andprovidesanimprovedbasisfromwhichto

interpretspecificfindings.

2. Systematicmodelcomparisonsareaneffectivetoolforexaminingspreadof

modelresultsandtheconsistencyofmodelbehaviorwithmorecomplex

representationsofclimateandsocioeconomicsystems.Comparisonssuchas

thosedescribedintheClimateResponsesectionabovecanreveal

importantdifferencesbetweenIAMs,andprovideanevaluationofthe

consistencyoftheirbehaviorwithprojectionsofmorecomplexmodels.

Moreover,theycanbeusedtoevaluatewhetherexistinguncertaintyis

sufficientlycaptured.

3. Expandingandupdatingeconomicassessmentsofclimateimpactscan

improvedamageestimatesincorporatedintoIAMs,butitisverydifficultto

fullyrepresenttheimpactsofclimatechangesolelyinmonetaryterms.No

IAMcurrentlyaccountsforallidentifiedclimateimpactsandalltherefore

arelikelytounderestimatethemagnitudeofdamagesfromclimatechange.

Explicitincorporationof(i)abroadersetofclimateimpacts(e.g.,non

marketimpacts),(ii)newadvancesinscientificunderstandingofclimate

impacts(e.g.,impactsfromextremeweathereventsandocean

acidification),and(iii)existinguncertaintyintheseverityofclimate

impacts(e.g.,aprobabilisticrepresentationratherthanadeterministic

53 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

 representation),willgenerallyincreaseclimatedamagesinIAMs.An

alternativeapproachistheexplicitconsiderationofmultiplemetricsby

whichtomeasureclimaterisks.

4. Giventheneedforconcurrentadaptationandmitigationpolicy,

incorporationofadaptationisanareawhereIAMscanimprove

considerably.Adaptationandmitigationdecisionswillaffecteachother,

andcanhavebothpositiveandnegativesynergies.Significant

uncertaintiesexistregardingthelimitstoandefficacyofadaptation,as

wellasitscosts,andcurrenttreatmentofadaptationmayoverestimatethe

capacityofadaptationtooffsetdamagesandunderestimateadaptation

costs.Newinformationisemergingasadaptationstrategiesbegintobe

implementedaroundtheworldinresponsetoclimatechangethatis

alreadyoccurring,whichcanprovideabasisforimprovingtreatment.

AdaptationhasoftenbeentreatedinIAMsasanimplicitorexplicit

influenceonthedamagefunction,althoughitalsohasbeenconsideredasa

decisionvariable.Regardlessofthemechanism,inclusionofadaptationin

IAMsisimportant,anditsinfluenceondamagesandothermodelaspects

shouldbeclearlypresented.

54 EXAMININGASSUMPTIONSOFINTEGRATEDASSESSMENTMODELS

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