Drivers of Industrial and Non-Industrial Greenhouse Gas Emissions to be Published in Ecological Economics

My paper with my former master's student Luis Sanchez has been accepted by Ecological Economics. This is one of the papers in the series using growth rates estimators of the income-emissions relationship that came out of my work on the IPCC 5th Assessment Report. This is the second paper I have published based on work done in our course: IDEC8011 Master's Research Essay. The previous one was with Jack Gregory who is now a PhD student at University of California, Davis. BTW, we previously submitted this paper to Nature Climate Change, Global Environmental Change, and Climatic Change in that order, with the first submission on 5 January 2015.

Business as Usual Emissions Projection from Sanchez and Stern Econometric Model

I finished preparing my presentation for Thursday in Brisbane. The topic of my talk is "Drivers of Industrial and Non-Industrial Greenhouse Gas Emissions". It's mostly based on my paper with Luis Sanchez. I'm also adding some material from Chapter 5 of the IPCC AR5 report (WG3) to give context. This is because this "trends and drivers" research theme came out of my work on the IPCC chapter. Reyer Gerlagh produced our original "iconic image" (yes, we called them that in the IPCC process) of the long-run growth rates of emissions and income per capita and then I suggested to do an econometric analysis along those lines. I think it was Reyer also who suggested how to model the EKC in a growth rates model.

I've also "added some value" by doing a business as usual projection using our model. This is something we are thinking to do as part of the revise and resubmit for a related paper. The graph shows projections to 2030 for 3 developing and 3 developed countries and the world (well, our 129 country sample) as a whole:

Indonesia and India have similar income per capita, so an EKC model would project similar emissions growth in both countries. The graph shows the value added of our model, which suggests that emissions will grow slower in Indonesia, which is more emissions intensive. The global outcome is similar (a little bit higher) to RCP 8.5, which is the highest emissions growth scenario used in AR5. RCP 8.5 assumes slower economic growth than we are here but slower than historic progress in energy intensity.

To get the projection, I used our model parameters estimated for the 1991-2010 period and the UN median projection for population growth. I used USDA ERS projections for economic growth rates in each country. Other variables are at their values for 2010.

Carbon dioxide emissions in the short run: The rate and sources of economic growth matter

Another paper in our ""trends and drivers" series that emerged from my IPCC work. We already released a paper on total greenhouse gas emissions in the long run that I coauthored with Luis Sanchez and a more methodological paper with Reyer Gerlagh, Paul Burke, and Zeba Anjum on fossil fuel CO2 and SO2 emissions in the long run.

The new paper coauthored with Paul Burke and Md. Shahiduzzaman focuses on what happens to fossil fuel carbon dioxide emissions over the business cycle time frame. This topic has received a bit of attention recently. We looked at the issue of what happened after the 2008-9 "Great Recession" in a short 2012 paper in Nature Climate Change that followed up on a paper by Glen Peters and others. Emissions grew very strongly in the recovery in 2010. Our new research shows that 2010 was an unusual year and usually emissions do not rise strongly in the recovery from a recession. In another 2012 paper in Nature Climate Change,, Richard York reported that the response of emissions to expansions and recessions is asymmetric. When the economy is growing the elasticity of emissions with respect to GDP is greater than when it is declining. Our paper tests York’s results and finds that asymmetry is only statistically significant when expansions and recessions of several years in length are considered.

That Gross World Product and CO2 emissions growth rates are tightly linked can be easily seen in the following graph. But there are many details to the story. For example, using country-level data we find that lagged effects are important: around 40% of the effect of economic growth on emissions isn’t realized until a subsequent year.


Some of the paper’s results are summarized in the graph below. We find that the average same-year emissions-income elasticity is about 0.5, but that this elasticity varies depending on the source of economic growth. Agricultural growth has relatively small emissions effects, whereas industrial growth is relatively emissions intensive. External shocks from export markets have quite large domestic emissions implications, presumably because they mostly affect industrial output.



Full abstract: This paper investigates the short-run effects of economic growth on carbon dioxide emissions from the combustion of fossil fuels and the manufacture of cement for 189 countries over the period 1961–2010. Contrary to what has previously been reported, we conclude that there is no strong evidence that the emissions-income elasticity is larger during individual years of economic expansion as compared to recession. Significant evidence of asymmetry emerges when effects over longer periods are considered. We find that economic growth tends to increase emissions not only in the same year, but also in subsequent years. Delayed effects – especially noticeable in the road transport sector – mean that emissions tend to grow more quickly after booms and more slowly after recessions. Emissions are more sensitive to fluctuations in industrial value-added than agricultural value-added, with services being an intermediate case. On the expenditure side, growth in consumption and in investment have similar implications for national emissions. External shocks have a relatively large emissions impact, and the short-run emissions-income elasticity does not appear to decline as incomes increase. Economic growth and emissions have been more tightly linked in fossil-fuel rich countries.

P.S. 4 May 2015
The paper was accepted for publication in Global Environmental Change. Yeah, we posted the working paper when we resubmitted the paper to the journal. Still, overall that was a very fast publication experience with the first journal we submitted to (on 18 December 2014) accepting the paper. This isn't always the case :)

Reforming IPCC Communications

The IPCC is currently discussing whether to change its approach to publications and communications in future years. We (Frank Jotzo and I) were asked about our opinions as former lead authors by the people in the relevant government departments here. It seems to make sense to have more of a continuous reporting model given the capability of the web. Perhaps each chapter could be updated one at a time on an ongoing cycle or even a Wikipedia style format could be adopted. On the other hand, the large septennial assessment reports do generate a big media splash for a few days when they are released, which the continuous communication format would not. If assessment reports are continued, then maybe they should all be released simultaneously, or each Working Group release its report 2 years apart. The 5th assessment report cycle saw WG1 release its report in September 2013 and then WG2 and WG3 released their reports two weeks apart in April 2013, which was somewhat confusing. We also thought that the IPCC plenary should be less prescriptive about the contents of each chapter including sub-sections and what should be in each subsection.

COIN in the UK have released a short report with some more radical suggestions. In particular, they think the IPCC should do human interest stories that are more suitable for most media outlets and use social media more effectively.

Modeling the Emissions-Income Relationship Using Long-Run Growth Rates

We have a working paper out on a new way of modelling the relationship between emissions and GDP per capita, a literature that has been dominated for more than two decades by the environmental Kuznets curve (EKC) approach. I presented an early version of this paper at the AARES conference at Port Macquarie in February. I will also be presenting it at the 6th Atlantic Workshop in A Toxa, Spain in late June and then at the World Congress of Environmental and Resource Economics in Istanbul a few days later.

The paper emerged from our work on Chapter 5 of the recently released Working Group III volume of the IPCC 5th Assessment Report. Reyer Gerlagh, who was one of the coordinating lead authors on my chapter drew up a version of the following graph and asked me if it would be suitable for the section I was writing on economic growth and emissions:

 

I liked this graph so much that I said we should write a paper about it, which we have now completed. Rather than compare the levels of emissions and GDP per capita as is usually done in the EKC literature, the graph compares the average growth rates of these two variables over a 40 year period (1971-2010). We can see that faster economic growth is associated with faster carbon emissions growth but that there is also a lot of variation around this main trend in the data. The further "southeast" a bubble is, the faster emissions per dollar of GDP (emissions intensity) declined in that country. As you can see China (the big red circle) and the US the big blue circle both had rapid declines in emissions intensity. But emissions intensity also rose in many countries and it is not immediately obvious how it relates to development status.*

One of the nice things about using growth rates rather than levels of variables is that it avoids several econometric problems that have plagued this literature. First and foremost is the issue of unit roots and non-linear functions of unit roots raised by Martin Wagner. Differencing the variables removes that issue, but using long-run growth rates focuses attention on long-run behavior, whereas using first differences would focus on the short-run. Then there is the issue of time effects raised by Vollebergh et al. We think our approach does a good job there too. The constant in a regression of emissions growth rates on income growth rates represents the rate of emissions growth if there were no economic growth. We think this is a good definition of a time effect. The paper discusses further econometric issues.

The other nice thing about using growth rates is that we can test the three main leading approaches to modelling the emissions-income relationship in a single framework:

In this equation all variables are in logs and "hats" (or more elegantly circumflex accents) indicate growth rates. On the lefthand side is the emissions per capita growth rate. As mentioned above the constant, alpha, represents the time effect. G-hat is the growth rate of GDP capita. The estimate of beta(1), therefore, tests the IPAT theory that growth causes increases in impacts. The term beta(2)*G(i) tests the EKC theory. This is because if beta(2) is negative then beyond a certain income level (the "turning point") more growth reduces emissions rather than increases emissions. The other main approach to modelling emissions growth has been the convergence approach, including the Green Solow Model of Brock and Taylor. We test this with the fourth term in the regression, which is the level of emissions intensity in the first year of the sample. If delta is negative, then countries with high initial emissions intensities saw more rapid decline in emissions. We also test for any effect of the level of GDP (gamma*G(i)) and for various other exogenous variables including fossil fuel endowments, legal origin, and climate.

It turns out that for both carbon and sulfur dioxide the effect of growth is very significant and close to a one to one effect. For sulfur there is a significant time effect - emissions fell by about 1.2% a year for a typical country when there was no economic growth. The convergence effect is also highly significant and probably explains a lot of the reduction in emissions intensity in both China and the US. But there is no environmental Kuznets curve effect in the full sample estimates.** While there is a marginally significant coefficient for one dataset, all the turning points are far out of sample and insignificant.

The environmental Kuznets curve has become so iconic that it often appears in introductory environmental economics textbooks. It probably is valid as a stylized fact for urban air pollution concentrations but it's not a good model of emissions of either carbon dioxide or sulfur emissions. We're hoping that the figure of the growth effect above and this one of emissions convergence:

might replace it.

* The blue circles are the developed countries that were members of the OECD in 1990. Orange is "economies in transition"  - Eastern Europe and the former Soviet Union. The other colors are the developing regions in Asia, Latin America, and the Middle East and North Africa.

** When we split the sample into two periods we find a very significant coefficient for sulfur in the second period, but the turning point is at $38k and is not statistically significant.

Regional Kaya Identities

As well as the global Kaya identity, Chapter 5 of the WGIII IPCC report also includes regional Kaya identity graphs:

OECD-90 are the countries that were members of the OECD in 1990 and are considered to be the "developed countries" for the purpose of this study. Economies in Transition are the former Soviet Union and formerly centrally planned Eastern European economies. The remaining countries are the developing world and are split into three geographic regions.

We drew the graph for each region with the same y-axis scale so that the huge differences in growth rates between regions would be more apparent. GDP per capita grew by far more in (developing) Asia than anywhere else and grew least in the Middle East and North Africa. But emissions grew the second most in the latter region mainly because population grew fastest in that region but also because, unlike other regions, energy intensity rose over time. Emissions growth was also quite strong in Latin America because energy intensity did not decline much there. Both these regions had low energy intensity at the beginning of the period. The global pattern in changes in energy intensity reflects convergence across countries in energy intensity.

The Global Kaya Identity

Another post on our chapter in the recently released Working Group III IPCC report, Chapter 5. I previously posted on what got left out of the final edition of the Summary for Policymakers and on the key messages from the whole report.

A key feature of our chapter is that we organized it around the idea of the Kaya Identity, which is an extension of the famous IPAT identity to explain changes in carbon emissions:

or in terms of formulae:

Sections of our chapter deal with each of the terms in the identity. It's important to understand that the identity is not really a causal relationship. A 1% increase in GDP per capita might be associated with less than a 1% increase in carbon emissions if energy intensity for example declines as a result of the increase in income. This seems to be the case in fact as our upcoming research will show. Still, it is a useful accounting framework for understanding the factors driving change. If the other terms in the identity are held constant then a 1% increase in any of the right hand side factors increases emissions by 1%.

In the technical summary we use the Kaya identity to decompose the changes in global energy related carbon dioxide emissions for each of the last four decades:

 

The bars show that reductions in energy intensity have contributed to the slowing in growth in carbon emissions. However, this has been overwhelmed by the increase in population and income per capita. This exercise made me much more aware of how important population growth has been in driving emissions growth over the last 40 years. In the most recent decade, though, income per capita growth became the most important factor and emissions growth accelerated to a record level.

Summary by Policymakers

Robert Stavins comments on his blog that given the outcome of the IPCC SPM approval meeting in Berlin the report should be called the "Summary by Policymakers" rather than the "Summary for Policymakers". For more commentary on the process see my article in The Conversation and this commentary in Science.

New Article in The Conversation

Michael Hopkins, an editor at The Conversation, suggested I follow up my blogpost on the IPCC 'censorship' controversy with a piece in The Conversation. That article is out today. The censorship story has also been picked up on by Science magazine.

If you are wondering whether to contribute to sites like The Conversation, I think it is well worth it, though it is a bit more work than I usually put into a blogpost. My blogpost last Thursday on the censorship issue has received 210 hits so far according to Google. People who just navigated to my home page rather than selecting the article title aren't counted, but probably don't amount to a huge number of additional views. Our 13th April article in The Conversation has got 4720 hits so far and my previous two articles there have gotten 1681 and 1859 hits each. Three of my blogposts have exceeded those numbers (11-13000 hits) and they are all about PLoS ONE and impact factors. My next best blogpost is this one with 1666 hits. Typical numbers are in the low hundreds if I'm lucky. So, I can get much more reach on a site like The Conversation than a typical post on my blog about my own research achieves. Of course, not all stories are going to be suitable for sites like these, but it's worth thinking about what might be suitable.

Chapter 5 and the Summary for Policy Makers

Chapter 5 was one of the main chapters of the Working Group III 5th Assessment Report at the centre of the controversy this week on so-called censorship of the Summary for Policy Makers (SPM). The SPM is an executive summary of the report for the IPCC member governments. Those member governments get to dictate what points from the underlying report get included in this summary and how they are "spun". However, there is also a Technical Summary that is written entirely by the researchers responsible for the main report. The material from Chapter 5 that was in the draft SPM but eliminated in the plenary meeting in Berlin referred to emissions from specific groups of countries. This blogpost provides a quick overview of the deleted figures, some of which are still in  the Technical Summary.

The first graph breaks down emissions by broad global regions:

 

The developed countries are represented by the members of the OECD as it stood in 1990 (since then Mexico, Korea, Czech Republic etc. have joined). Eastern Europe and the former Soviet Union are designated "Economies in Transition" and the developing world is broken down into Asia (importantly including China and India), Latin America, and the Middle East and Africa. The left-hand panel shows emissions year by year since the Industrial Revolution and also breaks them down into energy and industrial and land use related emissions. The former continue to increase but the latter appear to have peaked. Since the 1970s, the majority of growth in energy and industrial emissions has come from developing countries and particularly Asia. In an attempt to better represent the historical responsibilities of each group of countries the right-hand panel shows the cumulative historical emissions of greenhouse gases by region.* China and particularly India have campaigned to get historical contributions to global warming better-acknowledged. But the results of our analysis show that less than half of the cumulative emissions now come from the developed countries as a whole (more when only energy and industrial emissions are considered). This, presumably, isn't the message that developing country delegates wanted to see.

The next controversial figure breaks down total and per capita greenhouse gas emissions by country income groups:

The leftmost panel shows total emissions which increased everywhere due to population growth. But they particularly increased in upper middle income countries (which includes China). The total emissions from this group are now almost equal to that from the high income countries. On a per capita basis, emissions were flat in the developed world and declining in the poorest countries (as emissions from land use declined). They rose in the middle income countries. The figure does, however, also show that in all developing country groups per capita emissions remain much below those in the developed countries.

The final deleted figure deals with emissions embodied in trade:

Looking at the emissions generated in producing imports and exports, the developed countries and economies in transition ("Annex B") import more "embodied" emissions than they export. The opposite is true of the developing countries ("Non Annex B"). Emissions that include the net emissions embodied in trade are termed "consumption emissions" in contrast to the "production emissions" that are the total emissions emitted within a country and are the usual way of calculating emissions.** These numbers are derived using input-output modelling. The results are often used to argue that developed countries have reduced their emissions by offshoring production to developing countries, which is a controversial question. But properly answering this question is more complicated than this. They are also used to claim that developed countries are responsible for their consumption emissions rather than their production emissions. But both importers and exporters gain from this trade. Because of these controversies I can understand the decision to drop the discussion and figure from the SPM.

* These do not directly correspond to the amounts of gases in the atmosphere. A large fraction of annual carbon dioxide emissions are absorbed by the ocean, vegetation etc. and methane only survives for an average of 11 years in the atmosphere before being oxidised to carbon dioxide and water. So, I am not very enthusiastic about treating cumulative emissions of carbon dioxide equivalent greenhouse gases as an indicator of historical responsibility.

** Economists would usually use the term "production emissions" to refer to emissions from production activities  and "consumption emissions" to refer to emissions by consumers. This initially caused some communication problems among researchers from different disciplines in our chapter team.

Full Working Group III 5th Assessment Report Now Available on the Web

Here it is. I really should also do a post on our chapter, Chapter 5.

774 ABC Melbourne

I was just interviewed on 774 ABC Melbourne radio. They wanted to know about the IPCC Report being "censored". So, I explained that the governments get to edit their own executive summary - the Summary for Policy Makers - from a draft provided by the scientists but they can't touch the underlying report or the Technical Summary, which is a second executive summary. Also the SPM has to be fully referenced to the underlying report so it is a question of picking and choosing what to emphasize rather than censoring. The main changes in the SPM are a downplaying of "international cooperation" in favour of an emphasis on "sustainability, justice, and equity" in the framing statements and the deletion of graphs and discussion of how emissions break down on a regional or development level basis in any way. This apparently reduces the onus on development countries to take actions equivalent to those of the developed world and focuses more on the distributional issues rather than contributions to the total problem. Though emissions per capita are much lower in developing countries they now emit the majority of total emissions and are catching up in terms of their contribution to the accumulated greenhouse gases in the atmosphere.

IPCC Media Update

I was on ABC News 24 at 12:10 today. Clip doesn't seem available yet. Went over to parliament house studio for the interview. Just me in the room with the cameraman and questions coming from the news team in Sydney. JJJ piece was cancelled in favour of another story after they recorded the interview with me. I may be Sky News or Radio National (7:05-7:15) tonight, details to come. Our story is now up on the Crawford website. There is also a story on an interview I did with the Guardian.

Key Messages from the IPCC Working Group III Report

Here are some of the emerging key messages from the IPCC WG III report. You can download the Summary for Policymakers. The full report should be available tomorrow.

• Emissions grew faster than ever since 2000.


• Most of the growth is coming from middle income countries like China and India. Per capita emissions are still low in most developing countries, meaning a lot more growth in emissions can be expected under business as usual.


• We need a broad portfolio of solutions to solve the problem including renewables, carbon capture and storage, carbon dioxide removal, and energy efficiency. There is no silver bullet.


• Already delay is meaning that it is getting harder to stay within the 2 degree limit.


• Estimated costs of meeting this goal are still relatively low GDP would be 2-6% by 2050 than it otherwise would be. Because GDP per capita would likely double globally by 2050 this means the doubling is delayed by 1-3 years or growth is 0.005% to 0.017% lower per year than it would otherwise be in the interim.


• On the other hand, the lower estimates of costs depend on untested technologies at realistic scales to capture carbon from burning fossil fuels or to remove it directly from the atmosphere.


• There is an increased recognition of the problems of integrating renewables into energy supply systems. Costs of energy storage or backup will be crucial.


• Countries such as China are focusing heavily on the co-benefits of reducing emissions, including reducing local air pollution and improving energy security.

IPCC WGIII AR5 Report Media

Working Group III's contribution to the IPCC 5th Assessment Report was released this evening. We have a story on the Crawford School website and an article in The Conversation. I will be interviewed tomorrow morning for TripleJ's Hack program. Live interview with Radio National that I mentioned in an earlier version of this post is now off - they found someone to report from Potsdam instead.

IPCC Working Group III 5th Assessment Report Launch

The IPCC Working Group III 5th Assessment Report will be launched with a press conference on Sunday 13 April at 11am Berlin time. This will already be Sunday evening in Australia, so Wednesday 14th April is the effective release date here. The governments are already meeting at the final plenary in Berlin starting today to approve the report. So, we are beginning to prepare our media release here at ANU and writing an article to appear on The Conversation. I imagine that there will be quite a bit of confusion about the difference between this report and the WG II report launched only a week ago, so maybe that's something we should explain. Also, I see the Sydney Morning Herald has a "sneak preview". Anyway, expect more blogging on this coming up!

The Economics of Global Climate Change: A Historical Literature Review

I have a new working paper coauthored with Frank Jotzo and Leo Dobes up on RePEc titled: The Economics of Global Climate Change: A Historical Literature Review. It is a by-product of a book of collected papers we edited for Edward Elgar to be titled Climate Change and the World Economy. The paper has three sections. The first is on trends and drivers of emissions, the second on mitigation and impacts, and the third on adaptation. I wrote the first section, Frank wrote the second and Leo wrote the third. I then edited all the sections together into a hopefully coherent whole. The paper is titled "A Historical Literature Review" because we focus to some degree on the evolution of the literature from some of the early classic papers to the latest contributions. Of course, there is no way we can write a review that is at all comprehensive. The IPCC reports struggle to do that. I think we do cover some of the key papers in the literature and it could be a useful reading guide for further research.

Econometric Approach to Detection and Attribution of Climate Change in IPCC AR5 Report

It seems odd to put the full Working Group 1 report on the open web but then say that it shouldn't be quoted or cited. But, anyway, it's nice to see that a fairly extensive discussion of the econometric approach to detecting and attributing climate change made it into the final draft of the report. The text of the final draft of the Working Group 3 report is just in the process of being submitted to the TSU. Last Friday was supposed to be the deadline. The government approval session will take place in April next year. So, some way to go to publication for us.

AR5 WG1 Summary for Policy Makers Released

The IPCC Working Group 1  5th Assessment Report Summary for Policymakers (WG1 AR5 SPM in IPCC jargon) was released yesterday. It is the overall summary of the first of three volumes of the 5th AR. The other two will be released next year. We are still working on the final draft of the Working Group 3 report (I notice some e-mails in my inbox about it this morning). The SPM will then go next year for approval by the governments.

This cartoon appeared on The Australian website:



I think it does nicely sum things up. The SPM is pretty similar to previous ones and pretty conservative on projected climate change. Not much different from previous reports. When reading it, I was thinking "Joe Romm won't like this" and also that it was pretty jargon-laden for a report to policymakers. It turns out that Climate Progress is pretty positive about the report, though Romm's own comments are a bit more negative.

One interesting statement (D.1) is:

"There is robust evidence that the downward trend in Arctic summer sea ice extent since 1979 is now reproduced by more models than at the time of the AR4, with about one-quarter of the models showing a trend as large as, or larger than, the trend in the observations. Most models simulate a small downward trend in Antarctic sea ice extent, albeit with large inter-model spread, in contrast to the small upward trend in observations."

This is in the context that it is often stated that Arctic sea ice is declining much faster than  models predict. Another change is that there is now much more information about ocean heat content trends. The words "ocean heat content" don't even appear in the the AR4 WG1 SPM. This time there is a separate section on the oceans (the whole summary is about 50% longer). Ocean warming is also the third point on the really brief headline summary. So this is a change of emphasis based on the better availability of data on the oceans.

Back from IPCC Meeting

I'm finally back in Australia after travelling for almost 4 weeks including a week spent at the IPCC meeting in Addis Ababa. In the meantime Australia changed prime minister and all bets seem to be off about what party will be in power in Australia after the next federal election which should take place later this year. I was also in Spain, Israel, and Kenya, which was especially fascinating. This is one of the best of the many pictures that Shuang took:


Lion, Maasai Mara National Reserve, Kenya

In Addis I confirmed that I am very sensitive to high altitudes (2400m) got altitude sickness and then when I had apparently covered really got ill and am still recovering. So, I only got to about half the meetings I was supposed to be at. This is the fourth and final meeting for regular authors on the Working Group III's contribution to the 5th Assessment Report. We were addressing the comments from government representatives as well as additional comments from academics, NGOs etc. There is also a continued effort to try to make the report an integrated and readable whole which is a real challenge with so many chapter teams working most of the time alone and so many authors in each chapter team. Using the time at the author meetings effectively is important and difficult. The IPCC is seeking comments from member governments on its future. Here are the responses of the UK and Dutch governments. Both suggest the obvious that the IPCC should use the web more effectively and perhaps update its products on more of a rolling basis. The UN structure that the IPCC is embedded in makes this difficult I think. Everything needs to be approved by member governments. The inflexibility of the table of contents of each chapter which was laid out at an IPCC plenary meeting has been quite frustrating for some of us authors but we have had to stick to what was laid down several years ago before the actual subject specialists entered the picture. It's hard to see the governments giving up these powers for a more flexible approach.