A review of research on economic impacts of climate change

Abstract

This report reviews prior research on several topics associated with anthropogenic climate change resulting from concentration of CO2 and other gases in the atmosphere. It represents the first step in a project whose aim is to translate this prior research into scenarios that can be modelled with the Lincoln Trade and Environment Model. The report does not attempt to provide a full discussion of the many issues surrounding climate change. Instead, the intent is to summarise prior findings to provide specific parameter values that can be used as model inputs and to link those parameter values to the larger body of research on climate change. The IPCC and others have considered the impact of population growth and other trends on production of greenhouse gases and the implications for climate change. The associated changes in temperature, rainfall, and concentration of CO2 are expected to have impacts on agricultural and forestry production. The impacts vary by country and commodity, and vary according to the timeframe considered. In addition, there is uncertainty in the results, indicated by the ranges of values presented in some cases. There are also technologies and strategies available for mitigating the effects of production on the environment. Some of these technologies reduce the creation of gasses from agriculture, by reducing emissions from soils and animals. Other technologies attempt to capture the gasses that are produced. Still other technologies and processes work to remove carbon from the atmosphere and sequester it for extended periods. The literature on consumer behaviour clearly indicates the willingness on the part of some consumers to support environmental values by paying more for goods and services. Consumers are clearly heterogeneous in this willingness to pay, however, and there are confounding impacts from labelling, information, social norms, uncertainty, and more. As a result, although there is a clear willingness to pay for green products, the size of the premium and the products to which it applies are unclear. In addition, gatekeeper effects may increase or decrease the impact of consumer preferences on producer behaviour. The research reviewed in this report provides the necessary data for analysing the economic impacts of climate change using a model of international trade in agricultural commodities. Research is currently underway to build such a model on the platform of the Lincoln Trade and Environment Model (LTEM), with a country and commodity mix specific to the issue of climate change. The prior research reviewed in this report can be considered partial: it tends to consider climate change without prices and their consequences for production and consumption. By subjecting the trade model to a combination of supply and demand shocks, the aim of this research is to build a better picture of economic impacts of climate change on New Zealand.