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Tutorial 1- Notes

Economics of Climate Change (Universiteit van Amsterdam)

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Tutorial 1 – Introduction to Economics of Climate Change

Current focus: How much should we invest to reduce the risk of rare climate disasters
(especially flood events)? It turns out that the answer is related to many of the core
issues in environmental/climate change economics
 How much do we know about the evolution of the climate?
 What about technological uncertainty?
 How much should we invest as a society to reduce risks of rare rants?
 How much should we Invest to make future generations better off
 All of this enters the optimal discount rate for adaptation investment returns
 For questions, comments about this course: [email protected]

Multiple choice questions:

1. What does the Keeling curve describe?
1. The relationship between economic growth and carbon dioxide emissions
2. The level of carbon dioxide in the atmosphere over time
3. The relationship between temperature and the concentration of carbon
dioxide in the atmosphere
4. The expected path of atmospheric temperature if no climate policy is
implemented
The Keeling Curve is a graph that
shows the concentration of
carbon dioxide (CO₂) in Earth's
atmosphere over time, based on
measurements taken since 1958 at
the Mauna Loa Observatory in
Hawaii by Charles David Keeling. It
is one of the most iconic visuals in
climate science and demonstrates
the steady rise in atmospheric CO₂
due to human activities,
particularly the burning of fossil
fuels. The curve also shows
seasonal fluctuations, as plants
absorb more CO₂ during the
growing season and release it when
they decompose in the fall and
winter. It provides clear evidence of
the increasing CO₂ levels, which are
closely linked to global warming.

 Charles David Keeling did repeated measures of CO2 levels in the atmosphere, to
track the evolution of CO2 over time

2. Which of the following elements is not considered a greenhouse gas?

1. Particulate matter
2. Methane
3. Carbon dioxide
4. Water vapor
 Particulate matter (PM) is mixture of solid particles and liquid droplets found in
the air. It is considered to be an air pollutant, very damaging for the health, but
does not remain for long in the atmosphere

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 The level of PM can still affect the climate in the very short run by
whitening/darkening the earth's color
 Example: black carbons have a warming effect, particulate sulfates a cooling
effect

3. How did the share of the world population living in extreme poverty evolved
between 1820 and 2015?
1. It increased
2. It remained stable
3. It decreased
4. It decreased and then increased
Note that poverty may still have increaed during some periods in some regions of the
world. Still, the pattern is one of significant reduction of extreme poverty
The pandemic plus the war may have reverted this pattern over the last years. Future
trends are very uncertain.

Extreme poverty:

4. How many carbon reservoirs are there in the DICE model?

1. 2
2. 3
3. 4
4. 5
The DICE model (Dynamic Integrated model of Climate and the Economy), developed
by economist William Nordhaus, simplifies the carbon cycle into three carbon
resevoirs to model the flow of carbon and its impact on climate change.

The three carbon reservoirs are:

 Atmosphere : this is where carbon dioxide (CO2) emissions from human
activities are initially released. The atmospheric concentration of CO2 is a
critical factor influencing the Earths temperature through the greenhouse effect
 Upper ocean and biosphere- this reservoir represents the surface ocean waters
and the terestrial biosphere (plants and soil). Carbon moves relatively quickly
between the atmosphere and this reservoir through processes like
photosynthesis, repiration, and ocean-atmosphere gas exchange
 Deep Ocean- this reservoir includes the deep ocean waters, where carbon is
transferred more slowly from the upper ocean. The deep ocean acts as a
longterm sink for carbon, sequestering it over extended periods

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 These three reseviors communicate with each other, i.e. carbon can move from one
to another
Carbon concentration in the atmosphere affects radiative forcing, which affects
climate warming.

The DICE model uses these three reservoirs to simulate the transfer of carbon
between them over time. By modeling how carbon moves through these reservoirs,
the DICE model can assess the impact of economic activities on atmospheric CO₂
levels and, consequently, on global temperatures. This simplified representation
captures the essential dynamics of the carbon cycle needed for integrated
assessment modeling without the complexity of more detailed Earth system models.

Carbon emissions are higher during the winter compared to the summer due to:
 Reduced photosynthesis: in the winter, many plants in temperate regions
become dormant, and deciduous trees lose their leaves. As a result, there is less
photosynthesis happening, meaning that less CO2 is being absorbed from the
atmosphere. In contrast, in the summer, plants absorb more CO2 during
photosynthesis
 ??? Increased energy demand for heating: during the winter, there is higher
demand for heating in many parts of the worlds, especially in colder regions.
This leads to an increase in the use of fossil fuels like natural gas, coal, and oil
for electricity and heating. As a result, more carbon dioxide (CO2) is released
into the atmosphere.
o Due to this, there is an increased industrial activity: some industries,
especially those related to energy and heating, may ramp up production
in the winter to meet demand, resulting in higher emissions from
industrial processes.

Sum: Carbon emissions are generally higher in winter due to greater energy
demand for heating, reduced plant absorption of CO₂, and a reliance on fossil fuels,
while emissions tend to be lower in summer due to increased photosynthesis and less
heating-related energy use.

5. In the Ramsey formula for time-discounting (rt ≈ ρ + ηgt−1), what does ρ

represent?
1. The social discount rate
2. The aversion to inter-temporal inequalities
3. The growth rate of the economy
4. The pure rate of time preference

r= the social discount rate

g = growth rate of the economy
η= the aversion to inter-temporal inequalities
=pure rate of time preference
 If the preference for the present is higher (higher ), the social discount rate is
higher

Document analysis:
This exercise is based on the following document:
IPCC, 2021: Summary for Policymakers. In: Climate Change 2021: The Physical
Science Basis. Contribution of Working Group I to the Sixth Assessment Report of the
Intergovernmental Panel on Climate Change (available here and on Canvas).
1. Explain what the IPCC is (what it stands for, what its goal is, and how it works).

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1. The IPCC stands for the "Intergovernmental Panel on Climate Change"

2. Created in 1988, it is "the United Nations body for assessing the science
related to climate change" (source: IPCC website)
3. Its goal is the following: "The IPCC was created to provide policymakers
with regular scientific assessments on climate change, its implications and
potential future risks, as well as to put forward adaptation and mitigation
options." (source: IPCC website)
1. Does not prescribe policies, but serves as an Input to policy makers
4. It works as follows: "Through its assessments, the IPCC determines the
state of knowledge on climate change. It identifies where there is
agreement in the scientific community on topics related to climate
change, and where further research is needed" (source: IPCC website).
1. The IPCC reports inform us (researchers, policymakers, citizens)
about the current state of knowledge about climate change. The
reports are drafted and reviewed on a voluntary basis by a large
number of top researchers specialized in climate change.
5. The IPCC has so far produced 6 assessment reports, and regularly
produces special reports on specific climate related issues.

2. The IPCC summary for policymakers depicts the current state of the climate.
What are the main takeaways?
1. A.1: It is unequivocal that human influence has warmed the atmosphere,
ocean and land. Widespread and rapid changes in the atmosphere, ocean,
cryosphere and biosphere have occurred
2. A.2: The scale of recent changes across the climate system as a whole –
and the present state of many aspects of the climate system – are
unprecedented over many centuries to many thousands of years.
3. A.3: Human-induced climate change is already affecting many weather
and climate extremes in every region across the globe. Evidence of
observed changes in extremes such as heatwaves, heavy precipitation,
droughts,and tropical cyclones, and, in particular, their attribution to
human influence, has strengthened since AR5.
4. A.4: Improved knowledge of climate processes, paleoclimate evidence and
the response of the climate system to increasing radiative forcing gives a
best estimate of equilibrium climate sensitivity of 3°C, with a narrower
range compared to AR5.
Tutorial answer:
 Human activity has caused changes in the climate. In particular, it has warmed
the atmosphere and oceans (see A.1).
 Looking back over many thousands of years, the changes we observe in the
climate system are unprecedented (see A.2).
 The weather and extreme climate events are already affected in many regions
of the world. For instance, we witness changes in heatwaves and extreme
events such as cyclones. Scientists attribute more and more these events to
human influence (see A.3).
 New scientific advancements suggest that the "equilibrium climate sensitivity"
would be 3°C. This technical term means that if the atmospheric concentration
of GhG doubles, the atmospheric temperature will rise by 3°C (see A.4).

3. This report also discusses possible climate futures. What are the main
takeaways?
1. B.1:Global surface temperature will continue to increase until at least mid-
century under all emissions scenarios considered. Global warming of 1.5°C

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and 2°C will be exceeded during the 21st century unless deep reductions
in CO2 and other greenhouse gas emissions occur in the coming decades.
2. B.2: Many changes in the climate system become larger in direct relation
to increasing global warming. They include increases in the frequency and
intensity of hot extremes, marine heatwaves, heavy precipitation, and, in
some regions, agricultural and ecological droughts; an increase in the
proportion of intense tropical cyclones; and reductions in Arctic sea ice,
snow cover and permafrost.
3. B.3: Continued global warming is projected to further intensify the global
water cycle, including its variability,global monsoon precipitation and the
severity of wet and dry events.
4. B.4: Under scenarios with increasing CO2 emissions, the ocean and land
carbon sinks are projected to be less effective at slowing the accumulation
of CO2 in the atmosphere.
5. B.5: Many changes due to past and future greenhouse gas emissions are
irreversible for centuries to millennia, especially changes in the ocean, ice
sheets and global sea level.

Answer tutorial:
 The world is going to keep warming until at least mid-century, even in the most
optimistic scenario. The average global temperature increase will remain below
1.5 or 2°C during the XXIst century only if deep reductions in GhG are
undertaken very rapidly (see B.1).
 A lot of climate anomalies are going to increase with the global average
temperature (such as heatwaves, heavy precipitations, droughts, tropical
cyclones, etc.) (see B.2).
 The global water cycle will be further affected by global warming, with more
severe wet and dry events (see B.3).
 If CO2 emissions keep increasing, the oceans and lands will become less
effective at stocking carbon and mitigating the increasing levels in the
atmosphere (see B.4).
 Many changes caused by global warming are irreversible, such as those
involving the oceans (see level, ice sheets, etc.) (see B.5).

4. Explain what are the “Shared Socioeconomic Pathways” (SSPs) used in the sixth
IPCC report.
1. The SSPs are scenarios used by researchers studying climate change.
2. They "describe plausible major global developments that together would
lead in the future to different challenges for mitigation and adaptation to
climate change (Riahi et al, 2017)
3. There are 5 main scenarios each describing a particular set of socio-
economic developments.
1. Sustainability - Taking the Green Road (Low challenges to mitigation
and adaptation)
2. Middle of the Road (Medium challenges to mitigation and
adaptation)
3. Regional Rivalry - A Rocky Road (High challenges to mitigation and
adaptation)
4. Inequality - A Road Divided (Low challenges to mitigation, high
challenges to adaptation)
5. Fossil-fueled Development - Taking the Highway (High challenges to
mitigation, low challenges to adaptation)

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→ Each scenario is associated to a set of narratives about future socio-

economic development. From these narratives, researchers can
simulate the future climate and socio-economic trajectories.

SSP narratives
SSP Sustainability – Taking the Green Road (Low challenges to mitigation and
1 adaptation)
The world shifts gradually, but pervasively, toward a more sustainable path,
emphasizing more inclusive development that respects perceived environmental
boundaries. Management of the global commons slowly improves, educational and
health investments accelerate the demographic transition, and the emphasis on
economic growth shifts toward a broader emphasis on human well-being. Driven
by an increasing commitment to achieving development goals, inequality is
reduced both across and within countries. Consumption is oriented toward low
material growth and lower resource and energy intensity.
SSP Middle of the Road (Medium challenges to mitigation and adaptation)
2 The world follows a path in which social, economic, and technological trends do not
shift markedly from historical patterns. Development and income growth proceeds
unevenly, with some countries making relatively good progress while others fall
short of expectations. Global and national institutions work toward but make slow
progress in achieving sustainable development goals. Environmental systems
experience degradation, although there are some improvements and overall the
intensity of resource and energy use declines. Global population growth is
moderate and levels off in the second half of the century. Income inequality
persists or improves only slowly and challenges to reducing vulnerability to
societal and environmental changes remain.
SSP Regional Rivalry – A Rocky Road (High challenges to mitigation and
3 adaptation)
A resurgent nationalism, concerns about competitiveness and security, and
regional conflicts push countries to increasingly focus on domestic or, at most,
regional issues. Policies shift over time to become increasingly oriented toward
national and regional security issues. Countries focus on achieving energy and
food security goals within their own regions at the expense of broader-based
development. Investments in education and technological development decline.
Economic development is slow, consumption is material-intensive, and inequalities
persist or worsen over time. Population growth is low in industrialized and high in
developing countries. A low international priority for addressing environmental
concerns leads to strong environmental degradation in some regions.
SSP Inequality – A Road Divided (Low challenges to mitigation, high
4 challenges to adaptation)
Highly unequal investments in human capital, combined with increasing disparities
in economic opportunity and political power, lead to increasing inequalities and
stratification both across and within countries. Over time, a gap widens between
an internationally-connected society that contributes to knowledge- and capital-
intensive sectors of the global economy, and a fragmented collection of lower-
income, poorly educated societies that work in a labor intensive, low-tech
economy. Social cohesion degrades and conflict and unrest become increasingly
common. Technology development is high in the high-tech economy and sectors.
The globally connected energy sector diversifies, with investments in both carbon-
intensive fuels like coal and unconventional oil, but also low-carbon energy
sources. Environmental policies focus on local issues around middle and high
income areas.
SSP Fossil-fueled Development – Taking the Highway (High challenges to
5 mitigation, low challenges to adaptation)

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This world places increasing faith in competitive markets, innovation and

participatory societies to produce rapid technological progress and development of
human capital as the path to sustainable development. Global markets are
increasingly integrated. There are also strong investments in health, education,
and institutions to enhance human and social capital. At the same time, the push
for economic and social development is coupled with the exploitation of abundant
fossil fuel resources and the adoption of resource and energy intensive lifestyles
around the world. All these factors lead to rapid growth of the global economy,
while global population peaks and declines in the 21st century. Local
environmental problems like air pollution are successfully managed. There is faith
in the ability to effectively manage social and ecological systems, including by
geo-engineering if necessary.

5. Use Figure SPM.4 (panels a and

b) to explain how SSPs project
such varying climate outcomes.
What do you believe
policymakers should take away
from this Figure?

Part a:
 The figures depict the expected
evolution over time of several
GhG (carbon dioxide, methane,
nitrous oxide, and sulphur
dioxide).
 For each pollutant, several
scenarios are presented: they
correspond to different SSPs.
 The most optimistic scenarios
(SSP1-1.9 and SSP1-2.6) lead to
rapid decrease in emissions,
especially for carbon dioxide
(CO2) whose emissions
eventually become negative.
 More pessimistic scenarios
(SSP3-7.0 and SSP5-8.5) forecast
rapid increases in emissions
during the coming century,
especially for CO2.
 The medium scenario (SSP2-4.5)
leads to a rapid stabilization of
emissions, followed by a decline
starting mid-century.

Part b:
 The figures depict the expected global average temperature increase under
different scenarios (SSPs).
 For each scenario, the expected warming is divided into the warming that is
already observed (darker color) and the additional warming expected by the end
of the century (lighter color).
 For each scenario, the expected warming is further divided into the warming
caused by CO2 and non-CO2 emissions.

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 In all scenarios, CO2 emissions are the main source of global warming.
 In the most optimistic scenarios (SSP1-1.9 and SSP1-2.6)), the expected
warming is between 1.5 and 2°C. In the most pessimistic scenarios (SSP3-7.0
and SSP5-8.5), warming goes up to around 4°C.
 All scenarios include confidence intervals:
 in the most optimistic scenario, there is a certain chance that
temperatures increases do not exceed 1°C;
 in the most pessimistic scenario, , there is a certain chance that
temperatures increases exceed 5.5°C.

Takeaways:
There is a tight link between the path of GhG emissions and the expected
temperature increases.
• There are different possible futures:
 Without specific action and coordination between countries, major changes in
the climate system are to be expected, with major consequences.
 With strong and rapid action, changes in the climate system may remain
moderate.
 Changes in the climate system have already started to happen, and cannot be
reverted in the near future even with strong and rapid actions.
 Despite what we know, significant uncertainties remain about the exact impact
of emissions on climate change: it is clear that GhG concentration warms the
planner, but uncertain by exactly how much.

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6. Briefly explain the main takeaway

from Figure SPM.8. How does Figure
SPM.8 relate to Figure SPM.10 of the
report?

Describe Figure 8:
 Figure SPM.8 includes multiple
figures, that each investigate a
different indicator related to climate
change.
 More specifically, for each indicator
it depicts its evolution over time, for
5 different scenarios (SSPs).
 The indicators include:
a) global surface temperature
change relative to 1850-1900
(i.e. pre-industrial levels);
b) September Arctic sea ice area;
c) global ocean surface pH;
d) global mean sea level change
relative to 1900 in the
medium run;
e) global mean sea level change
relative to 1900 in the long
run;
 All figures point to more severe
changes for scenarios involving less
climate action. In particular, relative
to SSP1-1.9 and SSP1-2.6, SSP5-8.5
and SSP3-7.0 involve:
o much higher future temperatures;
o smaller ice-sheet surface in the Arctic;
o more acid oceans;
o higher sea-levels, especially in the distant future.

The Netherlands:

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Describe Figure SPM.10:

 The top figure plots the
relationship between the
global surface temperature
increase and cumulative CO2
emissions since the industrial
revolution.
 In grey, the historical
relationship is plotted. In
colors, the expected
relationship is plotted for
different scenarios (SSPs).
 For the most optimistic
scenarios (SSP1-1.9 and SSP1-
2.6), the plot stops earlier, as
cumulative emissions are not
expected to exceed a certain
threshold. For the most
pessimistic scenarios (SSP5-
8.5 and SSP3-7.0), total
cumulative emissions are
expected to go further up,
hence the plot stops later.
 The total amount of cumulative emissions for each scenario is further illustrated
in the bottom figure, which also includes the expected date when these
cumulative emissions reach a certain level.
 As indicated in the title, the relationship seems near-linear: each additional unit
of CO2 has about the same contribution to global warming.

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