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Why Previous Estimates of the Cost of Climate Mitigation are Likely Too Low

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  • Beckman, Jayson
  • Hertel, Thomas

Abstract

Computable general equilibrium (CGE) models have been heavily utilized in analyses of the costs of Greenhouse Gas mitigation policies. This is in large part due to their ability to simulate potential impacts of prospective economic policies taking into inter-sectoral and international interactions. Although CGE models have received heavy usage; they are often criticized as being insufficiently validated. Key parameters are often not econometrically estimated, and the performance of the model as a whole is rarely checked against historical outcomes. As a consequence, questions frequently arise as to how much faith one can put in CGE results. Our findings indicate that many earlier CGE-based studies may have understated the cost of meeting these targets by overstating the price elasticity of demand for energy. These results suggest that we must revisit the cost of climate policies in light of newly validated CGE models.

Suggested Citation

  • Beckman, Jayson & Hertel, Thomas, 2009. "Why Previous Estimates of the Cost of Climate Mitigation are Likely Too Low," GTAP Working Papers 2954, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    • Handle: RePEc:gta:workpp:2954
    Note: GTAP Working Paper No. 54
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    File URL: https://www.gtap.agecon.purdue.edu/resources/res_display.asp?RecordID=2954
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    Cited by:

    1. Yingying Lu & David I. Stern, 2016. "Substitutability and the Cost of Climate Mitigation Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(1), pages 81-107, May.
    2. Nalley, Lawton Lanier & Popp, Michael P. & Fortin, Corey, 2011. "The Impact of Reducing Greenhouse Gas Emissions in Crop Agriculture: A Spatial- and Production-Level Analysis," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 40(1), pages 1-18, April.
    3. Dissou, Yazid & Karnizova, Lilia, 2016. "Emissions cap or emissions tax? A multi-sector business cycle analysis," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 169-188.
    4. De Miguel, Carlos & Ludena, Carlos & Schuschny, Andres, 2009. "Climate Change and Reduction of CO2 Emissions: the role of Developing Countries in Carbon Trade Markets," Conference papers 331823, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. Dissou, Yazid & Karnizova, Lilia, 2012. "Emissions Cap or Emissions Tax?," Conference papers 332189, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Thomas Schinko & Judith Köberl & Franz Prettenthaler & Birgit Bednar-Friedl & Christoph Töglhofer & Georg Heinrich & Andreas Gobiet, 2013. "Climate Change and the Austrian Tourism Sector: Impacts, Adaptation and Macroeconomic Spillover Effects," EcoMod2013 5601, EcoMod.
    7. Nalley, Lanier & Popp, Michael & Niederman, Zara & Brye, Kristofor & Matlock, Marty, 2012. "How Potential Carbon Policies Could Affect Where and How Cotton Is Produced in the United States," Agricultural and Resource Economics Review, Cambridge University Press, vol. 41(2), pages 215-231, August.
    8. McFadden, Brandon R. & Nalley, L. Lanier & Popp, Michael P., 2013. "How Greenhouse Gas Emission Policy and Industry Pressure Could Affect Producer Selection of Rice Cultivars," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 42(2), pages 1-24, August.
    9. Chantret, Francois & Gohin, Alexandre, 2009. "The Long-Run Impact of Energy Prices on World Agricultural Markets: The Role of Macro-Economic Linkages," 2009 Conference, August 16-22, 2009, Beijing, China 51560, International Association of Agricultural Economists.
    10. Honkatukia, Juha & Kaitila, Ville & Kotilainen, Markku & Niemi, Janne, 2012. "Global trade and climate policy scenarios – Impact on Finland," Working Papers 37, VATT Institute for Economic Research.
    11. Yazid Dissou & Lilia Karnizova & Qian Sun, 2015. "Industry-level Econometric Estimates of Energy-Capital-Labor Substitution with a Nested CES Production Function," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(1), pages 107-121, March.
    12. Zha, Donglan & Zhou, Dequn, 2014. "The elasticity of substitution and the way of nesting CES production function with emphasis on energy input," Applied Energy, Elsevier, vol. 130(C), pages 793-798.
    13. Enrica De Cian & Ramiro Parrado, 2012. "Technology Spillovers Embodied in International Trade: Intertemporal, regional and sectoral effects in a global CGE," Working Papers 2012.27, Fondazione Eni Enrico Mattei.
    14. van der Mensbrugghe, Dominique, 2009. "Back to the Future: Dynamic Baselines in CGE Modeling," Conference papers 331825, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    15. Lyman, Nathaniel & Nalley, Lawton Lanier, 2013. "Incentivizing Net Greenhouse Gas Emissions Reductions in Rice Production: The Case of Arkansas Rice," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 45(1), pages 1-15, February.
    16. Li, Shantong & He, Jianwu, 2011. "Impact of China’s Domestic Carbon Emission Trading Scheme," Conference papers 332101, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    17. Leszek Kąsek & Olga Kiuila & Krzysztof Wójtowicz & Tomasz Żylicz, 2012. "Economic effects of differentiated climate action," Working Papers 2012-12, Faculty of Economic Sciences, University of Warsaw.
    18. Olga Kiuila, 2013. "Regional economic effects of differentiated climate action," ERSA conference papers ersa13p334, European Regional Science Association.
    19. Birgit Bednar-Friedl & Veronika Kulmer & Thomas Schinko, 2011. "ETCLIP – The Challenge of the European Carbon Market: Emission Trading, Carbon Leakage and Instruments to Stabilise the CO2 Price. Effects of Different EU Climate Policy Scenarios on International Tra," WIFO Studies, WIFO, number 43107, Juni.
    20. Parrado, Ramiro & De Cian, Enrica, 2014. "Technology spillovers embodied in international trade: Intertemporal, regional and sectoral effects in a global CGE framework," Energy Economics, Elsevier, vol. 41(C), pages 76-89.
    21. Gohin, A. & Chantret, F., 2010. "The long-run impact of energy prices on world agricultural markets: The role of macro-economic linkages," Energy Policy, Elsevier, vol. 38(1), pages 333-339, January.
    22. Olga Kiuila & Krzysztof Wójtowicz & Tomasz Żylicz & Leszek Kasek, 2016. "Economic and environmental effects of unilateral climate actions," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 21(2), pages 263-278, February.
    23. Kuik, Onno & Hofkes, Marjan, 2010. "Border adjustment for European emissions trading: Competitiveness and carbon leakage," Energy Policy, Elsevier, vol. 38(4), pages 1741-1748, April.
    24. Birgit BEDNAR-FRIEDL & Thomas SCHINKO & Karl STEININGER, 2010. "A CGE Analysis of Climate Policy Options after Copenhagen: Bottom-up Approaches, Border Tax Adjustments, and Carbon Leakage," EcoMod2010 259600022, EcoMod.
    25. Zha, Donglan & Ding, Ning, 2015. "Threshold characteristic of energy efficiency on substitution between energy and non-energy factors," Economic Modelling, Elsevier, vol. 46(C), pages 180-187.

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