A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies

By William D,Nordhaus and Zili Yang
@(economy)[evironmental economy | regional economy]

摘要| Abstract

创新点：RICE :

regional integrated model of climate and the economy

三个结论

[ ] 政策差异：

...cooperative policies show much higher levels of emissions reduction than do noncooperative strategies.

[ ] 区域差异：

...there are substantial differences in the levels of controls in both the cooperatice and the noncooperatice polocies among different countries

[ ] 贫富差异：

...high-income countries may be the major loser from cooperation

介绍 | Introduction

The stake of climate-change issue are so high.

...recent surveys indicate that over the next century the globally averaged surface temperature will rise around 3 degree celsius...
最近的研究表明一个世纪以后地球平均表面温度会提高3摄氏度左右

The cost of slowing climate change is huge.

.. for nations to divert 1 or 2 percent of their national incomes today to reduce conjectural risks that will not occur until well into the next millennium.
一个国家投入国民收入的百分之1到2去减少预测的风险，而这风险不会在下个千年之前发生。

The problem is complex involving many disciplines.
RICE can efficiently complement the present model.

模型 | Model

RISE model is a regional, dynamic , general-equilibrium model of the economy, wilch integrated the economic activity with the sources, emissions and climate change.
should -> would in practical

Economic choice faced by nations

a. to consume goods and services
b. to invest in productive capital
c. to slow climate change through reducing $CO_2$ emissions

Possibility of different strategies undertaken by nations

three distinct approaches

Market policies: no control
Cooperative policies: nations cooperate in globally efficient way
Noncooperative policies: nations undertake policies that are in their national self-interests and ignore the spillovers of their actions on other nations, inefficient and realistic.

Major features and innovations of the RICE model

Region

the number of region	region
1	the United States
2	Japan
3	China
4	the European Union
5	the former Soviet Union(FSU)
6	India
7	Brazil and Indonesia
8	11 large countries
9	38 medium-sized countries
10	137 small countries

The global economy is divided into 10 different regions

the number of region	region
1	the United States
2	Japan
3	China
4	the European Union
5	the former Soviet Union(FSU)
6	India
7	Brazil and Indonesia
8	11 large countries
9	38 medium-sized countries
10	137 small countries

(appendix b)
*6~10 is made up with different numbers of countries, treated as multiple decision maker and sometimes considered as the "rest of the world" or "ROW"

Grouping the countries roughly equalize the national benefits from slowing climate change.
mimic the free-riding temptations of global public goods by dividing the benefit function for each region by the number of the countries(that is, decision-making units) with the region: example of region 9 $N(E_9)=B(E_9)/38 - C(E_9) $

Data Estimation

Future polupation growth estimate : United Nations projections
economic projections assumption: partial sonvergence of per capita incomse (人均产出局部收敛)

Alt text

Climate-change policies
a. Control rate : Percentage reduciton in$CO_2$emission relative to a baseline or uncontrol path.
b. Carbon tax

Algorithm to Caculate General Equilibrium

Negishi solution

主体：T. Negishi (1960)

Negishi solution: Under certain conditions a competitive equilibrium can be found by maximatizing a social welfare function of N agents in which the welfare weight of each of the agents is adjusted to satisfy the agent's budget constraint. (A1)
Negishi solution: 在一定的条件下，一个竞争性的均衡可以通过最大化一个由N个代理人组成的社会福利公式来找到，其中每个代理人需要由福利权重调整使其能够满足代理人的预算约束。

Appropriate welfare weight

equation1

equation2

equation3

equation4

Finding the Noncooperative Equilibrium

We assume that each nation sets its own control rate over time
$$[\mu^i= {\mu^i (1) \mu^i (2) \mu^i (3),\ldots,\mu^i (t),\ldots,\mu^i (T) }; i = 1,\ldots,N] $$
so as to maximize its national objective function tacking the control rates of the other regions are given.
$$ {\mu^i,\ldots,\mu{i-1},\mu^{{i+1},\ldots,\mu}N}$$
We iterate through the different regions by optimizing for each region holding the control rates and resilting emissions,concentrations, and impacts in other regions, concentrations,and impacts in other regions from the previous iteration fixed.

The Economic and Environmental Impact of Alternative Strategies,

Alt text

结果| Result

Output, Emission, and Climate Change

figure1

RICE has Higher projected world out put and emissions

figure2

Model estimates (not shown) indicate that the share of $CO_2$ emission will rise sharply in China, region S1(India), S3(middle-sized developing countries), and S4(smaller developing countries), where projected are comprised three quarters emissions by 2100 from one third in 1990.

figure3

Concentrations of RICE rise more rapidly than in the DICE model.

figure4

long time lag -> market run is so small
nonlinear relationship -> the difference is small
high cost of control means that the economically efficient strategy is for only a small reduction in $CO_2$ emission

Policy variables

figure5

noncooperative policies produce significantly lower control rates and carbon taxes than does global cooperation.
China and the former Soviet United: high control with low marginal control cost
Japan and the European Union, low control with high marginal control cost but energy efficient.

The control rates in the noncooperative solution are markedly lower.

the aggregate global emissions control rate for the noncooperative equilibrium is in 2000 only 2.3 percent as compared with the average of 9.7 percent in the cooperative case.
the distribution of the control rate: largest efforts will be taken by the United States and the European Union.

figure7

cooperative RICE model looks quite similar to the older DICE model and significantly higher than the noncooperative policies.
For the noncooperative strategies , large countries tend to have significantly more stringent control compare to small countries
Outside the United Stated, Europe, and Japan (which would have carbon taxes above $2 per ton C) , the rational noncooperative strategy would be simply to ignore global warming would be simply to ignore global warming at present time.
*Countries which are hardly player today (India ,China and the smaller developing countries) dominate $CO_2$ emissions by the middle of the next century will have to behave cooperatively if the gains from cooperation are to be realized.

Welfare effect by Region

table4

cooperative RICE is similar with DICE, while the others show slim net.

figure8

The U.S.A actually loses in the cooperative solution relative to the noncooperative equilibrium.(relatively large emission)
major benefits in terms of damage avoided accrue to the developing countries in several decades.

figure9

discounted cumulative consumption: the number are the sum of the consumption differences between the cooperative strategy and the market strategy from the beginning of the period(1990) until the date shown on the horizon axis.
Basic dilemma: the long period between emission reductions and reduced climate damage means that countries must be extraordinarily farsighted.

Sensitivity Analysis

The results of DICE can apply to RICE
varied the parameter by changing it from the subjective 50th percentile to the subjective 90 percentile.

figure10

the ratio of the value of variable in the sensitivity run to the value of the variable in the vase case.
the results are extremely sensitive to the pure rate of social time preference.
how a uncertainty affects current policy: discount rate & the damages from climate change
both major uncertainties involve human preferences rather than pure questions of "fact" about the natural science.

结论| Conclusions

The model produces results for the baseline (market of uncontrolled) which differ significantly from other projections.
The efficient or cooperative policies in the regional model confirm estimates made in globally aggregated models, such as the DICE model.
The RICE model provides estimates of the efficient control rates in different regions as well.
A major contribution of this study is to estimate the difference between the efficient policy and the noncooperative policy.
These results indicate that the stake in controlling global warming are modest in the context of overall economic activity over the next century.
The pattern of gains and losses from different strategies is quite surprising.
The results indicate that there are major gains to taking an efficient cooperative approach to coping with global warming as oppose to the noncooperative approach.
In Sum: While climate change is a global externality, the decision makers are national and relatively small, which is a powerful hindrance to setting efficient climate-change policies.

GRE word and sentences

[ ] in light of
[ ] Given the many quire an unususally dire risk and uncommonly statesmanlike behavior for nations to divert 1 or 2 percent of their national incomes today to reduce conjectural risks that will not occur until well inth the cext millennium.
[ ] dire risk / grave risk
[ ] The RICE model takes a positive point of view by asking how nations would in practice choose climate-change polices in light of economic trade-pffs and national self-interests.
[ ] greenhouse gase (GHG)
[ ] be endowed with :
[ ] succinct description
[ ] with respect to : The elastisity of output\effort with respect to capital.
[ ] retention
[ ] cope with : cope with global warming
[ ] *logarithmic 对数的
[ ] depreciation 折旧
[ ] draw upon 总结
[ ] conventional model
[ ] trajectory
[ ] hindrance
[ ] make the front page
[ ] in a deep trinket

RICE_Model@8_jun_2015