Climatic Change

, Volume 75, Issue 1, pp 59–80

Exchange Rates and Climate Change: An Application of Fund

  • Richard S. J. Tol

DOI: 10.1007/s10584-005-9003-4

Cite this article as:
Tol, R.S.J. Climatic Change (2006) 75: 59. doi:10.1007/s10584-005-9003-4


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.

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

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