Climatic Change

, Volume 75, Issue 1–2, pp 59–80

Exchange Rates and Climate Change: An Application of Fund

  • Richard S. J. Tol
Article

Abstract

As economic and emissions scenarios assume convergence of per capita incomes, they are sensitivity to the exchange rate used for international comparison. Particularly, developing countries are project to grow slower with a purchasing power exchange rate than with a market exchange rate.

Different exchange rates may lead to scenarios with very different per capita incomes. However, these scenarios also assume convergence of energy intensities, which at least partly offsets the income effect, so that scenarios with different exchange rates would differ less in greenhouse gas emissions. Differences become smaller still if atmospheric concentrations and global warming is considered. However, differences become larger again if one considers the costs of meeting a certain stabilisation target, as the gap between baseline and target is more sensitive to the exchange rate used than the baseline itself. Differences also grow larger if one looks at climate change impacts, which are determined not just by climate change but also by development. The sensitivity to the exchange rate is purely due to imperfect data, imperfect statistical analysis of data, a crude spatial resolution, and imperfect models.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Barro, R. J. and Sala-i-Martin, X.: 1995, Economic Growth. MIT Press, Cambridge.Google Scholar
  2. Batjes, J. J. and Goldewijk, C. G. M.: 1994, The IMAGE 2 Hundred Year (1890–1990) Database of the Global Environment (HYDE), RIVM, Bilthoven, 410100082.Google Scholar
  3. Bruce, J. P.: 1995, ‘Impact of climate change’, Nature 377, 472.CrossRefGoogle Scholar
  4. Bruce, J. P.: 1996, ‘Purpose and function of IPCC’, Nature 379, 108–109.CrossRefGoogle Scholar
  5. Castles, I.: 2004, ‘Climate work based on unsound economics’, Australian Financial Review (Feb 7{th}).Google Scholar
  6. Castles, I. and Henderson, D.: 2003a, ‘The IPCC emission scenarios: An economic-statistical critique’, Energy and Environment 14(2/3), 159–185.CrossRefGoogle Scholar
  7. Castles, I. and Henderson, D.: 2003a, ‘Economics, emission scenarios and the work of the IPCC’, Energy and Environment 14(4), 415–435.CrossRefGoogle Scholar
  8. Cline, W. R.: 1992, The Economics of Global Warming. Institute for International Economics, Washington, D.C.Google Scholar
  9. Courtney, R. S.: 1996, ‘Purpose and function of IPCC’, Nature 379, 109.CrossRefGoogle Scholar
  10. Dixon, P. B. and Rimmer, M. T.: 2004, The Convergence Hypothesis in the Context of Multi-Country Computable General Equilibrium Modelling, Report to the Department of Treasury and the Australian Greenhouse Office, Centre of Policy Studies, Monash University.Google Scholar
  11. Economist: 2003a, Hot Potato. The Intergovernmental Panel on Climate Change had better check its calculations (Feb 13{th}).Google Scholar
  12. Economist: 2003b, Hot Potato Revisited. A Lack-of-Progress Report on the Intergovernmental Panel on Climate Change (Nov 6{th}).Google Scholar
  13. Economist: 2004, Measuring Economies: Garbage In, Garbage Out (May 27{th}).Google Scholar
  14. Fankhauser, S. and Tol, R. S. J.: 1995, A Recalculation of the Social Costs of Climate Change – A Comment, The Ecologist, Newton.Google Scholar
  15. Fankhauser, S. and Tol, R. S. J.: 1996, ‘Climate change costs – recent advancements in the economic assessment’, Energy Policy 24(7), 665–673.CrossRefGoogle Scholar
  16. Fankhauser, S., Tol, R. S. J., and Pearce, D. W.: 1998, ‘Extensions and alternatives to climate change impact valuation: On the critique of IPCC working group III's impact estimates’, Environment and Development Economics 3, 59–81.Google Scholar
  17. Fankhauser, S.: 1994, ‘Protection vs. retreat – the economic costs of sea level rise’, Environment and Planning A 27, 299–319.CrossRefGoogle Scholar
  18. Fankhauser, S., Tol, R. S. J., and Pearce, D. W.: 1997, ‘The aggregation of climate change damages: A welfare theoretic approach’, Environmental and Resource Economics 10, 249–266.CrossRefGoogle Scholar
  19. Fankhauser, S. and Tol, R. S. J.: 1997, ‘The social costs of climate change: The IPCC second assessment report and beyond’, Mitigation and Adaptation Strategies for Global Change 1, 385–403.CrossRefGoogle Scholar
  20. Grubb, M. J.: 1996, ‘Purpose and function of IPCC’, Nature 379, 108.CrossRefGoogle Scholar
  21. Grübler, A., Nakicenovic, N., Alcamo, J., Davis, G., Fenhann, J., Hare, B., Mori, S., Pepper, B., Pitcher, H., Riahi, K., Rogner, H.-H., Lebre La Rovere, E., Sankovski, A., Schlesinger, M., Shukla, R. P., Swart, R., Victor, N., and Jung, Tae Young: 2004, ‘Emissions scenarios: A final response’, Energy and Environment 15(1), 11–24.CrossRefGoogle Scholar
  22. Hammitt, J. K., Lempert, R. J., and Schlesinger, M. E.: 1992, ‘A sequential-decision strategy for abating climate change,’ Nature 357, 315–318.CrossRefGoogle Scholar
  23. Heston, A., Summers, R., and Aten, B.: 2002, Penn World Table Version 6.1, Center for International Comparisons at the University of Pennsylvania (CICUP), October.Google Scholar
  24. Holtsmark, B. J. and Alfsen, K. H.: 2004a, On the Question of PPP Corrections to the SRES Scenarios, Policy Note 2004-01, CICERO, Oslo.Google Scholar
  25. Holtsmark, B. J. and Alfsen, K. H.: 2004b, ‘The use of PPP or MER in the construction of emission scenarios is more than a question of metrics,’ Climate Policy 4(2).Google Scholar
  26. Holtsmark, B. J. and Alfsen, K. H.: 2005, ‘PPP correction of the IPCC emission scenarios – does it matter?’, Climatic Change 68(1/2), 11–29 (also: Discussion Paper 366, Statistics Norway, Oslo).Google Scholar
  27. IPCC: 2003, IPCC Press Information on AR4 and Emissions Scenarios ({http://www.ipcc.ch/ press/pr08122003.htm}).Google Scholar
  28. Kattenberg, A., Giorgi, F., Grassl, H., Meehl, G. A., Mitchell, J. F. B., Stouffer, R. J., Tokioka, T., Weaver, A. J., and Wigley, T. M. L.: 1996, ‘Climate models – projections of future climate’, in Houghton, J. T. et al. (eds.), Climate Change 1995: The Science of Climate Change – Contribution of Working Group I to the Second Assessment Report of the Intergovernmental Panel on Climate Change, 1st ed., Cambridge University Press, Cambridge, pp. 285–357.Google Scholar
  29. Leggett, J., Pepper, W. J., and Swart, R. J.: 1992, “Emissions scenarios for the IPCC: An update,” in Houghton, J. T., Callander, B. A., and Varney, S. K. (eds.), Climate Change 1992 – The Supplementary Report to the IPCC Scientific Assessment, 1st ed., vol. 1 Cambridge University Press, Cambridge, pp. 71–95.Google Scholar
  30. Maier-Reimer, E. and Hasselmann, K.: 1987, ‘Transport and storage of carbon dioxide in the ocean: An inorganic ocean circulation carbon cycle model’, Climate Dynamics 2, 63–90.CrossRefGoogle Scholar
  31. Manne, A. S. and Richels, R. G.: 2003, Market Exchange Rates or Purchasing Power Parity: Does the Choice Make a Difference in the Climate Debate? AEI-Brooking Joint Center for Regulatory Studies Working Paper 03-11 ({http://www.aei-brookings.org/admin/authorpdfs/page.php?id = 290}).Google Scholar
  32. Manne, A. S., Richels, R. G., and Edmonds, J. A.: forthcoming, ‘Market exchange rates or purchasing power parity: Does the choice make a difference to the climate debate?’, Climatic Change.Google Scholar
  33. Masood, E.: 1995, ‘Developing countries dispute use of figures on climate change impact’, Nature 376, 374.Google Scholar
  34. Masood, E. and Ochert, A.: 1995, ‘UN climate change report turns up the heat’, Nature 378, 119.Google Scholar
  35. McKibbin, W. J., Pearce, D., and Stegman, A.: 2004, Long Run Projections for Climate Change Scenarios, Working Papers in International Economics {1.04}, Lowly Institute for International Policy, Sydney.Google Scholar
  36. Mendelsohn, R., Morrison, W., Schlesinger, M. E., and Andronova, N. G.: 2000, ‘Country-specific market impacts of climate change’, Climatic Change 45, 553–569.CrossRefGoogle Scholar
  37. Meyer, A. and Cooper, T.: 1995, A Recalculation of the Social Costs of Climate Change, The Ecologist, Newton.Google Scholar
  38. Meyer, A.: 1995, ‘Costing calamity’, New Scientist.Google Scholar
  39. Meyer, A.: 1995, ‘Economics of climate change’, Nature 378, 433.CrossRefGoogle Scholar
  40. Michaels, P. (ed.) 2003, ‘Bad math’, World Climate Report 13(10). http://www.co2andclimate.orgGoogle Scholar
  41. Miketa, A. and Mulder, P.: forthcoming, ‘Energy-productivity across developed and developing countries in 10 manufacturing sectors: Patterns of growth and convergence’, Energy Economics.Google Scholar
  42. Nakicenovic, N.: 2004, Presentation at the EMF Workshop on MER v PPP Exchange Rates and Climate Policy, Stanford, February 19–20.Google Scholar
  43. Nakicenovic N. and Swart, R. J.: 2000, Emissions Scenarios 2000 – Special Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge.Google Scholar
  44. Nakicenovic, N., Grübler, A., Gaffin, S., Jung, T. T., Kram,T., Morita, T., Pitcher, H., Riahi, K., Schlesinger, M., Shukla, P. R., Van Vuuren, D., Davis, G., Michaelis, L., Swart, R., and Victor, N.: 2003, ‘IPCC SRES revisited: A response’, Energy and Environment 14(2/3), 187–214.CrossRefGoogle Scholar
  45. Nature: 1995, ‘Global warming rows’, Nature 378, 322.Google Scholar
  46. O'Riordan, T.: 1997, ‘Review of climate change 1995 – economic and social dimension’, Environment 39(9), 34–39.Google Scholar
  47. Pant, H. M. and Fisher, B. S.: 2004, PPP versus MER: Comparison of Real Income Across Nations, Conference Paper 04.3, ABARE, Canberra.Google Scholar
  48. Pearce, D. W.: 18-12-1995, ‘Valuing Climate Change’, Chemistry {&} Industry 1024.Google Scholar
  49. Pearce, F.: 1995, ‘Global row over value of human life’, New Scientist August 19, 7.Google Scholar
  50. Pearce, F.: 1995, ‘Price of Life Sends Temperatures Soaring’, New Scientist April 1, 5.Google Scholar
  51. Romer, D.: 1996, Advanced Macroeconomics, McGraw-Hill, New York.Google Scholar
  52. Shine, K. P., Derwent, R. G., Wuebbles, D. J., and Morcrette, J.-J.: 1990, ‘Radiative forcing of climate’, in Houghton, J. T., Jenkins, G. J., and Ephraums, J. J. (eds.), Climate Change – The IPCC Scientific Assessment, 1 edn, vol. 1 Cambridge University Press, Cambridge, pp. 41–68.Google Scholar
  53. Sundaraman, N.: 1995, ‘Impact of climate change’, Nature 377, 472.CrossRefGoogle Scholar
  54. Tol, R. S. J.: 1995, ‘The damage costs of climate change toward more comprehensive calculations’, Environmental and Resource Economics 5, 353–374.CrossRefGoogle Scholar
  55. Tol, R. S. J.: 1996, ‘The damage costs of climate change towards a dynamic representation’, Ecological Economics 19, 67–90.CrossRefGoogle Scholar
  56. Tol, R. S. J.: 1997), ‘The social cost controversy: A personal appraisal’, in A. Sors et al. (eds.), Proceedings of the International Symposium Prospects for Integrated Environmental Assessment: Lessons Learnt from the Case of Climate Change, European Commission DG12, Brussels, pp. 35–42.Google Scholar
  57. Tol, R. S. J.: 1999, ‘Kyoto, efficiency, and cost-effectiveness: Applications of FUND’, Energy Journal Special Issue on the Costs of the Kyoto Protocol: A Multi-Model Evaluation, pp. 130–156.Google Scholar
  58. Tol, R. S. J.: 1999, ‘Safe policies in an uncertain climate: An application of FUND’, Global Environmental Change 9, 221–232.CrossRefGoogle Scholar
  59. Tol, R. S. J.: 1999, ‘Spatial and temporal efficiency in climate change: Applications of FUND’, Environmental and Resource Economics 14(1), 33–49.CrossRefGoogle Scholar
  60. Tol, R. S. J.: 1999, ‘The marginal costs of greenhouse gas emissions’, Energy Journal 20(1), 61–81.Google Scholar
  61. Tol, R. S. J.: 1999, ‘Time discounting and optimal control of climate change – an application of FUND’, Climatic Change 41(3/4), 351–362.CrossRefGoogle Scholar
  62. Tol, R. S. J.: 2001, ‘Equitable cost-benefit analysis of climate change’, Ecological Economics 36(1), 71–85.CrossRefGoogle Scholar
  63. Tol, R. S. J.: 2002, ‘Estimates of the damage costs of climate change – Part 1: Benchmark estimates’, Environmental and Resource Economics 21, 47–73.CrossRefGoogle Scholar
  64. Tol, R. S. J.: 2002, ‘Estimates of the damage costs of climate change – Part II: Dynamic estimates’, Environmental and Resource Economics 21, 135–160.CrossRefGoogle Scholar
  65. Tol, R. S. J.: 2002, ‘Welfare specifications and optimal control of climate change: An application of fund’, Energy Economics 24, 367–376.CrossRefGoogle Scholar
  66. Tol, R. S. J.: 2003, ‘Is the uncertainty about climate change too large for expected cost-benefit analysis?’, Climatic Change 56, 265–289.CrossRefGoogle Scholar
  67. Tol, R. S. J. and Dowlatabadi, H.: 2001, ‘Vector-borne diseases, development {&} climate change’, Integrated Assessment 2, 173–181.CrossRefGoogle Scholar
  68. Tol, R. S. J. and Fankhauser, S.: 1998, ‘On the representation of impact in integrated assessment models of climate change’, Environmental Modeling and Assessment 3, 63–74.CrossRefGoogle Scholar
  69. Tol, R. S. J., Heintz, R. J., and Lammers, P. E. M.: 2003, ‘Methane emission reduction: An application of FUND’, Climatic Change 57, 71–98.CrossRefGoogle Scholar
  70. Tol, R. S. J. and Verheyen, R.: 2004, ‘State responsibility and compensation for climate change damages – a legal and economic assessment’, Energy Policy 32, 1109–1130.CrossRefGoogle Scholar
  71. Van Vuuren, D.: 2004, Presentation at the EMF Workshop on MER v PPP Exchange Rates and Climate Policy, Stanford, February 19–20.Google Scholar
  72. WRI: 2000, World Resources 2000–2001 People and Ecosystems, World Resources Institute, Washington, D.C.Google Scholar

Copyright information

© Springer Science+Business Media, Inc. 2006

Authors and Affiliations

  • Richard S. J. Tol
    • 1
    • 2
    • 2
  1. 1.Research Unit Sustainability and Global ChangeHamburg University and Centre for Marine and Atmospheric ScienceHamburgGermany
  2. 2.Institute for Environmental StudiesVrije UniversiteitAmsterdamThe Netherlands
  3. 3.Center for Integrated Study of the Human Dimensions of Global ChangeCarnegie Mellon UniversityPittsburghUSA

Personalised recommendations