This paper finds that it is optimal to start a long-term emission-reduction strategy with significant short-term abatement investment, even if the optimal carbon price starts low and grows progressively over time.
... See More + Moreover, optimal marginal abatement investment costs differ across sectors of the economy. It may be preferable to spend 25 dollars to avoid the marginal ton of carbon in a sector where abatement capital is expensive, such as public transportation, or in a sector with large abatement potential, such as the power sector, than 15 dollars for the marginal ton in a sector with lower cost or lower abatement potential. The reason, distinct from learning spillovers, is that reducing greenhouse gas emissions requires investment in long-lived abatement capital such as clean power plants or public transport infrastructure. The value of abatement investment comes from avoided emissions, but also from the value of abatement capital in the future. The optimal levelized cost of conserved carbon can thus be higher than the optimal carbon price. It is higher in sectors with higher investment needs : those where abatement capital is more expensive or sectors with larger abatement potential. We compare our approach to the traditional abatement-cost-curve model and discuss implications for policy design.
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Economic losses from natural disasters totaled 92 billion dollars in 2015. Such statements, all too commonplace, assess the severity of disasters by no other measure than the damage inflicted on buildings, infrastructure, and agricultural production.
... See More + But 1 dollars in losses does not mean the same thing to a rich person that it does to a poor person; the gravity of a $92 billion loss depends on who experiences it. By focusing on aggregate losses—the traditional approach todisaster risk—we restrict our consideration to how disasters affect those wealthy enough to have assets to lose in the first place, and largely ignore the plight of poor people.This report moves beyond asset and production losses and shifts its attention to how natural disasters affect people’s well-being. Disasters are far greater threats to well-being than traditional estimates suggest. This approach provides a more nuanced view of natural disasters than usual reporting, and a perspective that takes fuller account of poor people’s vulnerabilities. Poor people suffer only a fraction of economic losses caused by disasters, but they bear the brunt of their consequences. Understanding the disproportionate vulnerability of poor people also makes the case for setting new intervention priorities to lessen the impact of natural disasters on the world’s poor, such as expanding financial inclusion, disaster risk and health insurance, social protection and adaptive safety nets, contingent finance and reserve funds, and universal access to early warning systems.Efforts to reduce disaster risk and poverty go hand in hand. Because disasters impoverish so many, disaster risk management is inseparable from poverty reduction policy, and vice versa. As climate change magnifies natural hazards, and because protection infrastructure alone cannot eliminate risk, a more resilient population has never been more critical to breaking the cycle of disaster-induced poverty.
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This paper presents a model to assess the socioeconomic resilience to natural disasters of an economy, defined as its capacity to mitigate the impact of disaster-related asset losses on welfare.
... See More + The paper proposes a tool to help decision makers identify the most promising policy options to reduce welfare losses from natural disasters. Applied to riverine and storm surge floods, earthquakes, windstorms, and tsunamis in 117 countries, the model provides estimates of country-level socioeconomic resilience. Because hazards disproportionally affect poor people, each $1 of global natural disaster-related asset loss is equivalent to a $1.6 reduction in the affected country’s national income, on average. The model also assesses policy levers to reduce welfare losses in each country. It shows that considering asset losses is insufficient to assess disaster risk management policies. The same reduction in asset losses results in different welfare gains depending on who (especially poor or nonpoor households) benefits. And some policies, such as adaptive social protection, do not reduce asset losses, but still reduce welfare losses. Post-disaster transfers bring an estimated benefit of at least $1.30 per dollar disbursed in the 117 countries studied, and their efficiency is not very sensitive to targeting errors.
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Policy Research Working Paper WPS7886 NOV 14, 2016
The welfare impact of a natural disaster depends on its effect on consumption, not only on the direct asset losses and human losses that are usually estimated and reported after disasters.
... See More + This paper proposes a framework to assess disaster-related consumption losses, starting from an estimate of the asset losses, and leading to the following findings. First, output losses after a disaster destroys part of the capital stock are better estimated by using the average—not the marginal—productivity of capital. A model that describes capital in the economy as a single homogeneous stock would systematically underestimate disaster output losses, compared with a model that tracks capital in different sectors with limited reallocation options. Second, the net present value of disaster-caused consumption losses decreases when reconstruction is accelerated. With standard parameters, discounted consumption losses are only 10 percent larger than asset losses if reconstruction is completed in one year, compared with 80 percent if reconstruction takes 10 years. Third, for disasters of similar magnitude, consumption losses are expected to be lower where the productivity of capital is higher, such as in capital-scarce developing countries. This mechanism may partly compensate for the many other factors that make poor countries and poor people more vulnerable to disasters.
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Policy Research Working Paper WPS7885 NOV 14, 2016
This paper presents a model to assess the socioeconomic resilience to natural disasters of an economy, defined as its capacity to mitigate the impact of disaster-related asset losses on welfare, and a tool to help decision makers identify the most promising policy options to reduce welfare losses due to floods.
... See More + Calibrated with household surveys, the model suggests that welfare losses from the July 2005 floods in Mumbai were almost double the asset losses, because losses were concentrated on poor and vulnerable populations. Applied to river floods in 90 countries, the model provides estimates of country-level socioeconomic resilience. Because floods disproportionally affect poor people, each $1 of global flood asset loss is equivalent to a $1.6 reduction in the affected country's national income, on average. The model also assesses and ranks policy levers to reduce flood losses in each country. It shows that considering asset losses is insufficient to assess disaster risk management policies. The same reduction in asset losses results in different welfare gains depending on who benefits. And some policies, such as adaptive social protection, do not reduce asset losses, but still reduce welfare losses. Asset and welfare losses can even move in opposite directions: increasing by one percentage point the share of income of the bottom 20 percent in the 90 countries would increase asset losses by 0.6 percent, since more wealth would be at risk. But it would also reduce the impact of income losses on wellbeing, and ultimately reduce welfare losses by 3.4 percent.
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Policy Research Working Paper WPS7663 MAY 09, 2016
Climate change will increase the frequency and severity of certain shocks, including crop failures and spikes in food prices, natural disasters such as storms and floods, and climate-sensitive diseases such as malaria and diarrhea.
... See More + In principle, households can use a range of private instruments to cope with the consequences of these shocks. They can draw on their savings, borrow from a bank or cooperative, rely on formal or informal community-based insurance, benefit from domestic or international remittances, and sometimes buy private insurance. This policy note details options for governments to design responsive social protection programs. It also discusses mechanisms to ensure that liquidity constraints do not prevent the quick delivery of post disaster support to the population.
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This policy note (and the report it is based on) brings together these two objectives, ending poverty and stabilizing climate change, and explores how they can more easily be achieved if considered together.
... See More + It examines the potential impact of climate change and climate policies on poverty reduction. It also provides guidance on how to create a ‘win-win’ situation, so that climate change policies contribute to poverty reduction and poverty-reduction policies contribute to climate change mitigation and resilience building.
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This policy note focuses on potential actions that can be taken in three sectors where climate-related impacts on poverty are especially important, agriculture and ecosystems, disaster risk management, and health.
... See More + Each country can identify its own package of measures, based on its policy priorities and how it expects to be impacted by climate change. For instance, where urban planning is a policy priority, an obvious action would be to factor natural hazards and climate change into its design.
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Climate change threatens the objective of eradicating poverty. Poor people and poor countries are already vulnerable to all types of climate-related shocks—natural disasters that destroy assets and livelihoods; water borne diseases and pests that becomemore prevalent during heat waves, floods, or droughts; crop failure from reduced rainfall; andspikes in food prices that follow extreme weather events.
... See More + Such shocks can erase decades ofhard work and leave people with irreversible human and physical losses. Changes in climateconditions caused by increasing concentrations of greenhouse gases in the atmosphere will worsen these shocks and slow down poverty reduction. The good news is that, at least until 2030, “good development” can prevent most of these impacts. By “good development,” we mean development that is rapid, inclusive, and climate informed; includes strong social safety nets and universal health coverage; and iscomplemented with targeted adaptation interventions such as heat-tolerant crops and early warning systems. Absent such good development, many people will still be living in or closeto extreme poverty in 2030, with few resources to cope with climate shocks and adapt to longterm trends, and climate change could increase extreme poverty by more than 100 million people by 2030. In the longer run, beyond 2030, our ability to adapt to unabated climate change is limited. To keep the longer-term impacts on poverty in check, immediate emissions-reduction policiesare needed that bring emissions to zero by the end of the 21st century. These policies neednot threaten short-term progress on poverty reduction—provided they are well designed andinternational support is available for poor countries.Ending poverty and stabilizing climate change will be unprecedented global achievements.But neither can be attained without the other: they need to be designed and implementedas an integrated strategy. Shock Waves: Managing the Impacts of Climate Change on Poverty brings together those two objectives and explores how they can more easily be achieved if considered together. The book provides guidance on how to design climate policies so they contribute to poverty reduction, and on how to design poverty reduction policies so they contribute to climate change mitigation and resilience building.
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Stabilizing climate change entails reducing net emissions of carbon dioxide (CO2) to zero. This report outlines three principles to guide countries in their efforts to create a zero-carbon future: (a) planning ahead with an eye on the end goal; (b) going beyond carbon pricing with a policy package that triggers changes in investment patterns, technology, and behaviors; and (c) protecting poor people and avoiding concentrated losses.
... See More + Although countries at different levels of income and with different endowments will adopt different strategies, all have a role to play. The aim of this report is to take this lofty goal of zero emissions by 2100 and examine what it means in terms of today’s policy making for development. It does not discuss whether or why to stabilize climate change, or at which level we should do so. Our starting point is the 2 degree C goal set by the international community. The authors begin by examining how planning can help lay the foundation for both a stable climate and a good development path. Next, the authors explore how countries can create the right enabling environment so that the needed technology, infrastructure, and financing are available. Finally, the authors discuss how countries can carefully manage the transition, given the vital role that the political economy will play.
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Stabilizing climate change entails reducing net emissions of carbon dioxide (CO2) to zero. This report outlines three principles to guide countries in their efforts to create a zero-carbon future: (a) planning ahead with an eye on the end goal; (b) going beyond carbon pricing with a policy package that triggers changes in investment patterns, technology, and behaviors; and (c) protecting poor people and avoiding concentrated losses.
... See More + Although countries at different levels of income and with different endowments will adopt different strategies, all have a role to play. The aim of this report is to take this lofty goal of zero emissions by 2100 and examine what it means in terms of today’s policy making for development. It does not discuss whether or why to stabilize climate change, or at which level we should do so. Our starting point is the 2 degree C goal set by the international community. The authors begin by examining how planning can help lay the foundation for both a stable climate and a good development path. Next, the authors explore how countries can create the right enabling environment so that the needed technology, infrastructure, and financing are available. Finally, the authors discuss how countries can carefully manage the transition, given the vital role that the political economy will play.
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Climate change and climate policies will affect poverty reduction efforts through direct and immediate impacts on the poor and by affecting factors that condition poverty reduction, such as economic growth.
... See More + This paper explores this relation between climate change and policies and poverty outcomes by examining three questions: the (static) impact on poor people's livelihood and well-being; the impact on the risk for non-poor individuals to fall into poverty; and the impact on the ability of poor people to escape poverty. The paper proposes four channels that determine household consumption and through which households may escape or fall into poverty (prices, assets, productivity, and opportunities). It then discusses whether and how these channels are affected by climate change and climate policies, focusing on the exposure, vulnerability, and ability to adapt of the poor (and those vulnerable to poverty). It reviews the existing literature and offers three major conclusions. First, climate change is likely to represent a major obstacle to a sustained eradication of poverty. Second, climate policies are compatible with poverty reduction provided that (i) poverty concerns are carefully taken into account in their design and (ii) they are accompanied by the appropriate set of social policies. Third, climate change does not modify how poverty policies should be designed, but it creates greater needs and more urgency. The scale issue is explained by the fact that climate will cause more frequent and more severe shocks; the urgency, by the need to exploit the window of opportunity given to us before climate impacts are likely to substantially increase.
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Policy Research Working Paper WPS7126 NOV 01, 2014
This paper covers three policy-relevant aspects of the carbon content of electricity that are well established among integrated assessment models but under-discussed in the policy debate.
... See More + First, climate stabilization at any level from 2 to 3°C requires electricity to be almost carbon-free by the end of the century. As such, the question for policy makers is not whether to decarbonize electricity but when to do it. Second, decarbonization of electricity is still possible and required if some of the key zero-carbon technologies -- such as nuclear power or carbon capture and storage -- turn out to be unavailable. Third, progressive decarbonization of electricity is part of every country's cost-effective means of contributing to climate stabilization. In addition, this paper provides cost-effective pathways of the carbon content of electricity -- computed from the results of AMPERE, a recent integrated assessment model comparison study. These pathways may be used to benchmark existing decarbonization targets, such as those set by the European Energy Roadmap or the Clean Power Plan in the United States, or inform new policies in other countries. The pathways can also be used to assess the desirable uptake rates of electrification technologies, such as electric and plug-in hybrid vehicles, electric stoves and heat pumps, or industrial electric furnaces.
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Policy Research Working Paper WPS7075 OCT 01, 2014
This paper studies the optimal transition from existing coal power plants to gas and renewable power under a carbon budget. It solves a model of polluting, exhaustible resources with capacity constraints and adjustment costs (to build coal, gas, and renewable power plants).
... See More + It finds that optimal investment in renewable energy may start before coal power has been phased out and even before investment in gas has started, because doing so allows for smoothing investment over time and reduces adjustment costs. Gas plants may be used to reduce short-term investment in renewable power and associated costs, but must eventually be phased out to allow room for carbon-free power. One risk for myopic agents comparing gas and renewable investment is thus to overestimate the lifetime of gas plants -- e.g., when computing the levelized cost of electricity -- and be biased against renewable power. These analytical results are quantified with numerical simulations of the European Commission's 2050 energy roadmap.
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Policy Research Working Paper WPS6985 JUL 01, 2014
This paper uses a Ramsey model with two types of capital to analyze the optimal transition to clean capital when polluting investment is irreversible.
... See More + The cost of climate mitigation decomposes as a technical cost of using clean instead of polluting capital and a transition cost from the irreversibility of pre-existing polluting capital. With a carbon price, the transition cost can be limited by underutilizing polluting capital, at the expense of a loss in the value of polluting assets (stranded assets) and a drop in income. In contrast, policy instruments that focus on redirecting investments -- such as feebates or environmental standards -- prevent underutilization of existing capital, avoid stranded assets, and reduce short-term losses; but they reduce emissions more slowly and increase the intertemporal cost of the transition. The paper investigates inter- and intra-generational distributional impacts and the political acceptability of climate change mitigation policy instruments.
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Policy Research Working Paper WPS6859 MAY 01, 2014
Decision makers facing abatement targets need to decide which abatement measures to implement, and in which order. This paper investigates the ability of marginal abatement cost (MAC) curves to inform this decision, reanalysing a MAC curve developed by the World Bank on Brazil.
... See More + Misinterpreting MAC curves and focusing on short-term targets (e.g., for 2020) would lead to under-invest in expensive, long-to-implement and large-potential options, such as clean transportation infrastructure. Meeting short-term targets with marginal energy-efficiency improvements would lead to carbon-intensive lock-ins that make longer-term targets (e.g., for 2030 and beyond) impossible or too expensive to reach. Improvements to existing MAC curves are proposed, based on (1) enhanced data collection and reporting; (2) a simple optimization tool that accounts for constraints on implementation speeds; and (3) new graphical representations of MAC curves. Designing climate mitigation policies can be done through a pragmatic combination of two approaches. The synergy approach is based on MAC curves to identify the cheapest mitigation options and maximize co-benefits. The urgency approach considers the long-term objective (e.g., halving emissions by 2050) and works backward to identify actions that need to be implemented early, such as public support to clean infrastructure and zero-carbon technologies.
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Policy Research Working Paper WPS6808 MAR 01, 2014
Vogt-Schilb, Adrien; Hallegatte, Stephane; de Gouvello ChristopheDisclosed
Decision makers facing abatement targets need to decide which abatement measures to implement, and in which order. Measure-explicit marginal abatement cost curves depict the cost and abating potential of available mitigation options.
... See More + Using a simple intertemporal optimization model, the author demonstrates why this information is not sufficient to design emission reduction strategies. Because the measures required achieving ambitious emission reductions cannot be implemented overnight, the optimal strategy to reach a short-term target depends on longer-term targets. For instance, the best strategy to achieve European's -20 percent by 2020 target may be to implement some expensive, high-potential, and long-to-implement options required to meet the -75 percent by 2050 target. Using just the cheapest abatement options to reach the 2020 target can create a carbon intensive lock-in and make the 2050 target too expensive to reach. Designing mitigation policies requires information on the speed at which various measures to curb greenhouse gas emissions can be implemented, in addition to the information on the costs and potential of such measures provided by marginal abatement cost curves.
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Green industrial policies can be defined as industrial policies with an environmental goal -- or more precisely, as sector-targeted policies that affect the economic production structure with the aim of generating environmental benefits.
... See More + This paper provides a framework to assess their desirability depending on the effectiveness and political acceptability of price instruments. The main messages are the following. (i) Greening growth processes to the extent and with the speed needed cannot be done without industrial policies, even if prices can be adjusted to reflect environmental objectives. (ii) "Sunrise" green industrial policies are needed because they support the development of critical new technologies and sectors, bring down costs, and allow for reduced emissions in the short term even in the absence of carbon pricing. (iii) "Sunset" green industrial policies and trade policies may be needed in conjunction with safety nets to make carbon pricing politically or socially acceptable. They can help mitigate the impact of a carbon price on competitiveness and unemployment and smooth the transition by helping industries adjust to the new conditions. (iv) Green or not, industrial policy requires carefully navigating the twin dangers of market and governance failure. The viability of supported technologies and sectors is difficult to assess through a market-test given their dependence on continued environmental policies or pricing -- such as a carbon price. Particular attention must be paid to avoid potential unintended negative effects, such as rebound effects (especially if prices are inappropriate), misallocation of capital, or capture and rent-seeking behaviors.
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Policy Research Working Paper WPS6677 OCT 01, 2013
This paper compares the temporal profile of efforts to curb greenhouse gas emissions induced by two mitigation strategies: a regulation of all emissions with a carbon price and a regulation of emissions embedded in new capital only, using capital-based instruments such as investment regulation, differentiation of capital costs, or a carbon tax with temporary subsidies on brown capital.
... See More + A Ramsey model is built with two types of capital: brown capital that produces a negative externality and green capital that does not. Abatement is obtained through structural change (green capital accumulation) and possibly through under-utilization of brown capital. Capital-based instruments and the carbon price lead to the same long-term balanced growth path, but they differ during the transition phase. The carbon price maximizes social welfare but may cause temporary under-utilization of brown capital, hurting the owners of brown capital and the workers who depend on it. Capital-based instruments cause larger intertemporal welfare loss, but they maintain the full utilization of brown capital, smooth efforts over time, and cause lower immediate utility loss. Green industrial policies including such capital-based instruments may thus be used to increase the political acceptability of a carbon price. More generally, the carbon price informs on the policy effect on intertemporal welfare but is not a good indicator to estimate the impact of the policy on instantaneous output, consumption, and utility.
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Policy Research Working Paper WPS6609 SEP 01, 2013
