The Marginal Impacts of Co2, Ch4 and Sf6 Emissions
Judge Institute of Management Working Paper No. 10/2003
21 Pages Posted: 10 Sep 2003
Date Written: March 2003
A new version of the PAGE model, PAGE2002, has been developed and used to calculate the marginal impacts of CO2, CH4 and SF6 emissions. The main structural changes in PAGE2002 are the introduction of a third greenhouse gas and the incorporation of possible future large-scale discontinuities.
The PAGE2002 model uses relatively simple equations to capture complex climatic and economic phenomena. This is justified because the results approximate those of the most complex climate simulations, and because all aspects of climate change are subject to profound uncertainty. To express the model results in terms of a single 'best guess' could be dangerously misleading. Instead, a range of possible outcomes should inform policy. PAGE2002 builds up probability distributions of results by representing 31 key inputs to the marginal impact calculations by probability distributions.
In this investigation, PAGE2002 is run with global emissions of greenhouse gases from Scenario A2 of the IPCC. This scenario represents a heterogeneous world, with an underlying theme of self-reliance and preservation of local identities. As with all the IPCC illustrative scenarios, it assumes no active intervention to control emissions.
The PAGE2002 mean results track the IPCC climate results very well. The range of results from the PAGE2002 model is larger than the range reported in the IPCC TAR. This is to be expected, as the IPCC results are simply the highest and lowest best guess results from the seven General Circulation Models considered by the IPCC, and not a true probability distribution.
PAGE2002 gives the mean climate change impacts of scenario A2 over the next two centuries from 2000 to 2200 as US$26.3 trillion in year 2000 dollars, discounted back to 2000 at a pure time preference rate of 3% per year. The 5% and 95% points on the distribution are US$6.3 trillion and US$66.9 trillion.
The marginal impact of each of the three gases, CO2, CH4 and SF6 is calculated by reducing the emissions of the gas by a small amount in the first analysis year, 2001, and finding the difference in impacts that this creates. The structure of the PAGE2002 model allows a probability distribution for the difference in impacts to be calculated.
Market prices are about US$160 per tonne for methane and about US$25 000 per tonne for SF6. The climate change impacts of methane are a significant proportion of its market price. So a pipeline replacement to decrease losses could be justified if the Net Present Cost were less than about US$265 per tonne saved in 2000 US dollars - made up of not just US$160 from having the gas available to sell, but also US$105 from the reduction in climate change impacts.
For SF6 the climate change impacts are much larger than the market price. The economics of schemes to reduce the leakage of SF6 are transformed once the climate change impacts are properly counted.
Note: Abstract has been abbreviated and several tables removed to accommodate space restrictions. See full text for all details.
Keywords: Climate change, PAGE2002, greenhouse gases
JEL Classification: Q25
Suggested Citation: Suggested Citation