Damage Functions and the Social Cost of Carbon: Addressing Uncertainty in Estimating the Economic Consequences of Mitigating Climate Change.

Mitigating the effects of human-induced climate change requires the reduction of greenhouse gases. Policymakers must balance the need for mitigation with the need to sustain and develop the economy. To make informed decisions regarding mitigation strategies, policymakers rely on estimates of the social cost of carbon (SCC), which represents the marginal damage from increased emissions; the SCC must be greater than the marginal abatement cost for mitigation to be economically desirable. To determine the SCC, damage functions translate projections of carbon and temperature into economic losses. We examine the impact that four damage functions commonly employed in the literature have on the SCC. Rather than using an economic growth model, we convert the CO2 pathways from the Representative Concentration Pathways (RCPs) into temperature projections using a three-layer, energy balance model and subsequently estimate damages under each RCP using the damage functions. We estimate marginal damages for 2020-2100, finding significant variability in SCC estimates between damage functions. Despite the uncertainty in choosing a specific damage function, comparing the SCC estimates to estimates of marginal abatement costs from the Shared Socioeconomic Pathways (SSPs) indicates that reducing emissions beyond RCP6.0 is economically beneficial under all scenarios. Reducing emissions beyond RCP4.5 is also likely to be economically desirable under certain damage functions and SSP scenarios. However, future work must resolve the uncertainty surrounding the form of damage function and the SSP estimates of marginal abatement costs to better estimate the economic impacts of climate change and the benefits of mitigating it.

COVID-19 impacts on U.S. lumber markets.

The Covid-19 pandemic led to an unprecedented increase in the U.S. price of softwood lumber by more than 300%. The reasons for this increase have been attributed to constraints on supply caused by pandemic-induced labor shortages, and increased demand for lumber caused by a Covid-19 related boom in domestic real estate and home improvements. In this paper, we examine the effect that these factors might have had on the increase in prices and the related changes in the welfare of U.S. lumber manufacturers and downstream users of lumber. We examine three cases where the demand function shifts outwards: (1) the lumber supply function remains unchanged; (2) the U.S. lumber supply function and that of its trading partners shifts inwards; and (3) U.S. lumber producers restrict output at its pre-Covid level. Overall, we find that U.S. producers gained between $0.7 and $8.0 billion per quarter as a result of the pandemic, while downstream processors gained $639 million. We argue, however, that the ultimate consumer of the downstream products that require lumber as an input (housing construction, furniture) might well be worse off as surplus lost as a result of reduced expenditures on commodities and services restricted by Covid-19 are not quite recovered when spending switches to lumber-related commodities.

Wood product carbon substitution benefits: a critical review of assumptions.

BACKGROUND: There are high estimates of the potential climate change mitigation opportunity of using wood products. A significant part of those estimates depends on long-lived wood products in the construction sector replacing concrete, steel, and other non-renewable goods. Often the climate change mitigation benefits of this substitution are presented and quantified in the form of displacement factors. A displacement factor is numerically quantified as the reduction in emissions achieved per unit of wood used, representing the efficiency of biomass in decreasing greenhouse gas emissions. The substitution benefit for a given wood use scenario is then represented as the estimated change in emissions from baseline in a study's modelling framework. The purpose of this review is to identify and assess the central economic and technical assumptions underlying forest carbon accounting and life cycle assessments that use displacement factors or similar simple methods. MAIN TEXT: Four assumptions in the way displacement factors are employed are analyzed: (1) changes in harvest or production rates will lead to a corresponding change in consumption of wood products, (2) wood building products are substitutable for concrete and steel, (3) the same mix of products could be produced from increased harvest rates, and (4) there are no market responses to increased wood use. CONCLUSIONS: After outlining these assumptions, we conclude suggesting that many studies assessing forest management or products for climate change mitigation depend on a suite of assumptions that the literature either does not support or only partially supports. Therefore, we encourage the research community to develop a more sophisticated model of the building sectors and their products. In the meantime, recognizing these assumptions has allowed us to identify some structural, production, and policy-based changes to the construction industry that could help realize the climate change mitigation potential of wood products.

Is There a Future for Nuclear Power? Wind and Emission Reduction Targets in Fossil-Fuel Alberta.

This paper explores the viability of relying on wind power to replace upwards of 60% of electricity generation in Alberta that would be lost if coal-fired generation is phased out. Using hourly wind data from 17 locations across Alberta, we are able to simulate the potential wind power output available to the Alberta grid when modern, 3.5 MW-capacity wind turbines are spread across the province. Using wind regimes for the years 2006 through 2015, we find that available wind power is less than 60% of installed capacity 98% of the time, and below 30% of capacity 74% of the time. There is only a small amount of correlation between wind speeds at different locations, but yet it remains necessary to rely on fossil fuel generation. Then, based on the results from a grid allocation model, we find that CO2 emissions can be reduced by about 30%, but only through a combination of investment in wind energy and reliance on purchases of hydropower from British Columbia. Only if nuclear energy is permitted into the generation mix would Alberta be able to meet its CO2-emissions reduction target in the electricity sector. With nuclear power, emissions can be reduced by upwards of 85%.