Non-CO2 greenhouse gases, uncertainty and land-use competition

Licentiate thesis, 2005

Over the past 250 years the concentrations of greenhouse gases in the atmosphere have increased drastically. It is close to scientific consensus that these changes have increased the temperature of the earth. If the concentrations continue to increase as expected, it is likely that the temperature could increase by several degrees Celsius over the present century. The thesis consists of three papers. In the first paper we discuss the use of Global Warming Potentials (GWPs) that facilitate the trade off between the different greenhouse gases included in the Kyoto protocol. The matric has received ample critique from many scientists and economists. The question we focus upon is: what are the economic losses of using GWP instead of making a cost effective trade off between the gases when the long term goal is to stabilize the temperature at 2 degrees C above the pre-industrial level? To answer the question we have developed an integrated assessment model, MIMIC, that takes into account the costs of reducing emissions and that includes links between emissions, contentrations, radiative forcing and the temperature. The results show that the economic loss of using GWP as it is used in the Kyoto protocol amounts to few percent. In the second paper, we study the importance of the uncertainties in emission inventories that are used to determine compliance with the emission target. Especially, we study a mechanism where the targets should be met with a predefined degree of certainty higher than 50% (as it is today) an how this would affect the cost compliance, the permit price and the optimal domestic taxes on emissions with different uncertainties. The study is performed assuming that countries aim to comply with the emission target at the lowest possible cost. The results show that both the cost of compliance and the permit price would increase significantly if such approach is adopted. The level of the optimal domestic taxes on expected emissions as compared to the permit price are amiguous, the optimal tax can be both higher and lower than the international permit price depending a range of factors. In the third paper, we study how stringent climate policies would affect the demand for bioenergy crops and how this subsequently would affect the agricultural sector. The study is performed in an energy-agricultural-economy model, LUCEA. One of the central conclusions is that the link between the energy sector and agricultural sectors could become substantial and that food prices could significantly increase due to increases in the scarcity rent for land.