Market Exchange Rates or Purchasing Power Parity: Does the Choice Make a Difference to the Climate Debate?

Abstract

Critics of the Intergovernmental Panel on Climate Change's Special Report on Emission Scenarios claim that the use of market exchange rates rather than purchasing power parity has led to a significant upward bias in projections of greenhouse gas emissions, and hence unrealistically high future temperature. Rather than revisit the debate on the choice of exchange rates, we address a much simpler question: does the choice make a difference when it comes to projecting future temperature change? Employing a computable general equilibrium model designed to examine a variety of issues in the climate debate, we find that the answer is yes, but the difference is only minor.

Keywords: exchange, rates, purchasing, greenhouse, emissions, equilibrium

JEL Classification: N5