The Unassuming Economist

From a new working paper by Frederick van der Ploeg and Armon Rezai:

“A simple integrated assessment framework that gives rules for the optimal carbon price, transition to the carbon-free era and stranded carbon assets is presented, which highlights the
ethical, economic, geophysical and political drivers of optimal climate policy. For the ethics we discuss the role of intergenerational inequality aversion and the discount rate, where we show the importance of lower discount rates for appraisal of longer run benefit and of policy makers using lower discount rates than private agents. The economics depends on the costs and rates of technical progress in production of fossil fuel, its substitute renewable energies and sequestration. The geophysics depends on the permanent and transient components of
atmospheric carbon and the relatively fast temperature response, and we allow for positive feedbacks. The politics stems from international free-rider problems in absence of a global
climate deal. We show how results change if different assumptions are made about each of the drivers of climate policy. Our main objective is to offer an easy back-on-the-envelope analysis, which can be used for teaching and communication with policy makers.”

From the latest issue of the Journal of Economic Perspectives by Solomon Hsiang and Robert E. Kopp:

“Humans have engaged in large-scale transformation of natural systems for millennia. Stone Age hunting technologies led to extinctions of large mammals; agricultural revolutions transformed forests into farmlands; pursuit of minerals has carved the earth’s surface; dams and reservoirs now manipulate the flow of almost all rivers; and synthetic fertilizers now flood the nitrogen cycle. But among these transformations, the restructuring of the global carbon cycle and the accompanying alteration of the climate stands apart in its sheer scale, complexity, and economic significance. Essentially all humans that have ever lived contributed, in their own small ways, to reshaping this planetary-scale system. Thousands of years of forest clearance may have added hundreds of billions of tons of carbon to the atmosphere. In the industrial era, every home lit by a coal or natural gas-fired power plant and every petroleum-powered train, plane, and motor vehicle has contributed to the net accumulation of carbon dioxide in the atmosphere. The average human contributes about 5 tonnes of carbon dioxide (CO2) every year (Le Quéré et al. 2018), about a quarter of which will remain in the atmosphere for well over a millennium (Archer et al. 2009).

(…)

The goal of this article is to provide a brief introduction to the physical science of climate change, aimed towards economists. We begin by describing the physics that controls global climate, how scientists measure and model the climate system, and the magnitude of human-caused emissions of carbon dioxide. We then summarize many of the climatic changes of interest to economists that have been documented and that are projected in the future. We conclude by highlighting some key areas in which economists are in a unique position to help
climate science advance. An important message from this final section, which we believe is deeply underappreciated among economists and thus highlight here, is that all climate change forecasts rely heavily and directly on economic forecasts for the world. On timescales of a half-century or longer, the largest source of uncertainty in climate science is not physics, but economics (Hawkins and Sutton 2009).”

From ECB’s Research Bulletin:

“Looking at the co-movement in a broad group of commodity prices is key to identifying the nature of commodity price fluctuations. In conclusion, this Research Bulletin article highlights a very simple strategy that central bankers can use to understand the drivers behind commodity price fluctuations. If commodity prices in all markets tend to move in the same direction and by a similar magnitude, then the global demand for commodities is largely responsible for those movements. If commodity price variations are instead localised to a few markets and/or there are important changes in relative prices, then other specific factors related to supply and demand in individual markets are likely to be at play.”

From VOXEU:

“The environmental Kuznets hypothesis predicts that pollution will increase at early stages of development but then decline once a country surpasses a certain income level. This column examines how banks and stock markets affect the mechanisms behind this hypothesis. Industries which pollute relatively more for technological reasons generate relatively more carbon dioxide in countries with expanding credit markets, whereas stock markets have the exact opposite effect. For middle-income countries in particular, where carbon dioxide emissions may have increased linearly during the development process, stock markets could play an important role in making future growth greener.”

From a new IMF working paper by  Ian Parry, Dirk Heine, Kelley Kizzier, and Tristan Smith:

“The International Maritime Organization (IMO) announced in April 2018 a target of cutting greenhouse gas (GHG) emissions from the sector by 50 percent below 2008 levels by 2050
and subsequent meetings of the IMO will develop a strategy for making headway on this commitment. This paper seeks to inform dialogue about the possibility of a carbon tax as a
key element of GHG mitigation policy for international maritime transport. The paper discusses the case for the tax over alternative mitigation instruments, options for the practical
design issues, and then presents estimates of the impacts of carbon taxation and other instruments from an analytical model of the maritime sector.”