The Unassuming Economist

From a new working paper by Justin Caron and Thibault Fally:

“This paper investigates the role of income-driven differences in consumption patterns in explaining and projecting energy demand and CO2 emissions. We develop and estimate a general-equilibrium model with non-homothetic preferences across a large set of countries and sectors, and trace embodied energy consumption through intermediate use and trade linkages. Consumption of energy goods is less than proportional to income in rich countries, and more income-elastic in low-income countries. While income effects are weaker for embodied energy, we nd a signicant negative relationship between income elasticity and CO2 intensity across all goods. These income-driven differences in consumption choices can partially explain the observed inverted-U relationship between income and emissions across countries, the so-called environmental Kuznet curve. Relative to standard models with homothetic preferences, simulations suggest that income growth leads to lower emissions in high-income countries and higher emissions in some low-income countries, with only modest reductions in world emissions on aggregate.”

From Federal Reserve Bank of Richmond:

“June 2018 was the third-warmest on average across the contiguous forty-eight states since record keeping began in 1895, according to the National Oceanic and Atmospheric Administration (NOAA). Only 1933 and 2016 saw hotter starts to the summer.

Climate scientists project that average global temperatures will rise over the coming decades, which could have a variety of environmental impacts. But what impact would higher temperatures have on the economy? To date, studies of this question have largely focused on developing countries, under the assumption that those countries are more exposed to the effects of higher temperatures. The economy in developing countries is often more reliant on agriculture or other outdoor activities, and those countries have fewer resources to devote to mitigating the effects of heat through technologies such as air conditioning. Indeed, researchers have found that higher temperatures have significant negative effects on the economic growth of developing nations.¹

In the case of developed countries, such as the United States, researchers have focused largely on measuring the impact of warming on outdoor economic activities, such as agriculture.² Since these sectors make up a relatively small share of the U.S. economy, it has generally been assumed that the economic effects of global warming for the United States would be relatively small. As Nobel prize winning economist Thomas Schelling observed in a 1992 article, “Today very little of our gross domestic product is produced outdoors, susceptible to climate.”³

However, research by three authors of this Economic Brief  (Colacito, Hoffmann, and Phan) finds that the consequences of higher temperatures on the U.S. economy may be more widespread than previously thought. By examining changes in temperature by season and across states, they find evidence that rising temperatures could reduce overall growth of U.S. economic output by as much as one-third by 2100.”⁴

 

 

Continue reading here.

From Conversable Economist:

“US emissions of carbon have been falling, while nations in the Asia-Pacific region have already become the main contributors to the rise in atmospheric carbon dioxide. These and other conclusions are apparent from the BP Statistical Review of World Energy (June 2018), a useful annual compilation of global trends in energy production, consumption, and prices.

Here’s a table from the report on carbon emissions (I clipped out columns showing annual data for the years from 2008-2016). The report is careful to note: “The carbon emissions above reflect only those through consumption of oil, gas and coal for combustion related activities … This does not allow for any carbon that is sequestered, for other sources of carbon emissions, or for emissions of other greenhouse gases. Our data is therefore not comparable to official national emissions data.” But the data does show some central plot-lines in the carbon emissions story.”

From VOXEU:

“When it comes to solving externalities like pollution, efficiency standards are more popular than taxes. The rationale behind this is that the burden of taxes would fall disproportionately on the poor. This column argues that standards are in fact more regressive than taxes. Given their lower cost, the results suggest that tax solutions should be favoured over efficiency standards.”

 

From Francis Diebold’s Blog:

“There is little doubt that climate change — tracking, assessment, and hopefully its eventual mitigation — is the burning issue of our times. Perhaps surprisingly, time-series econometric methods have much to offer for weather and climatological modeling (e.g., here), and several econometric groups in the UK, Denmark, and elsewhere have been pushing the agenda forward.

Now the NYU Volatility Institute is firmly on board. A couple months ago I was at their most recent annual conference, “A Financial Approach to Climate Risk”, but it somehow fell through the proverbial (blogging) cracks. The program is here, with links to many papers, slides, and videos. Two highlights, among many, were the presentations by Jim Stock (insights on the climate debate gleaned from econometric tools, slides here) and Bob Litterman (an asset-pricing perspective on the social cost of climate change, paper here). A fine initiative!”