RICE-MED, an integrated assessment model for the Mediterranean basin: assessing the climate-economy-agriculture nexus

77 Pages Posted: 5 Sep 2023

See all articles by Chiara Castelli

Chiara Castelli

Vienna Institute for International Economic Studies

Marta Castellini

University of Padua - Department of Economics and Management; Fondazione Eni Enrico Mattei (FEEM), Milan

Camilla Gusperti

Fondazione Eni Enrico Mattei (FEEM)

Veronica Lupi

Institute for Environmental Studies (IVM))

Sergio Vergalli

University of Brescia - Department of Economics; Fondazione Eni Enrico Mattei (FEEM), Milan

Date Written: September 4, 2023

Abstract

In this work we update the regionalization and the calibration of the Regional dynamic Integrated model of Climate and the Economy (RICE) in its 1999 version developed by Nordhaus and Boyer (2000), with a focus on the Mediterranean countries. Our aim is to assess the impact of climate change damages on their main macroeconomic variables in a context where all economies are fossil fuel based. In addition, we extend the model by introducing the uncertainty associated with a possible future catastrophic event, triggered by the temperature increase and variation over time, following the approach of Castelnuovo et al. (2003). We then develop an empirical exercise to asses the impact of climate change on the agricultural sector at country level. In this framework, we implement the traditional IAMs scenarios, namely the Business As Usual, the Social Optimum and the Temperature Limit, where population dynamics is calibrated according to the IIASA SSP2 projections. Among our findings, we show that, in the absence of renewable energy sources and break-through technologies, meeting the limit of a temperature increase of less than 2°C requires a carbon tax of more than 700 USD/tC by 2050, doubling by the end of this century. When uncertainty is introduced, the higher the probability of a possible catastrophic event and the greater the associated utility loss, the more society is willing to pay for a rising cost of carbon. The upward trend of the carbon tax relative to the no-uncertainty model is reduced by the end of the century in the temperature-limit scenario, due to the benefits associated with this policy and the inclusion in the model of societal awareness of the potential risks of climate change. In both versions of the model, the agricultural sector in the Southern Mediterranean countries is severely affected, and stringent policies can partially mitigate these impacts and reduce damages by 2100.

Keywords: IAMs, climate change, carbon tax, carbon price, emissions, temperature, energy, Mediterranean region, Mediterranean countries

JEL Classification: Q54, H23, R13

Suggested Citation

Castelli, Chiara and Castellini, Marta and Gusperti, Camilla and Lupi, Veronica and Vergalli, Sergio, RICE-MED, an integrated assessment model for the Mediterranean basin: assessing the climate-economy-agriculture nexus (September 4, 2023). FEEM Working Paper No. 15, Available at SSRN: https://ssrn.com/abstract=4561755 or http://dx.doi.org/10.2139/ssrn.4561755

Chiara Castelli

Vienna Institute for International Economic Studies ( email )

Oppolzergasse 6
A-1010 Vienna
Austria

Marta Castellini (Contact Author)

University of Padua - Department of Economics and Management ( email )

Via del Santo, 33
Padova, 35123
Italy

HOME PAGE: http://https://linktr.ee/martacastellini

Fondazione Eni Enrico Mattei (FEEM), Milan ( email )

Corso Magenta 63
20123 Milan
Italy

HOME PAGE: http://https://linktr.ee/martacastellini

Camilla Gusperti

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

Veronica Lupi

Institute for Environmental Studies (IVM)) ( email )

De Boelelaan 1087
Amsterdam, 1081HV
Netherlands

Sergio Vergalli

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122
Italy

Fondazione Eni Enrico Mattei (FEEM), Milan ( email )

Corso Magenta 63
20123 Milan
Italy

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