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The integration of PESETA sectoral economic impacts into the GEM-E3 Europe model: methodology and results

Abstract

The PESETA project has estimated the physical effects of climate change in Europe for the following impact categories with a market valuation: agriculture, river floods, coastal systems and tourism. Four alternative scenarios of future climate change have been considered. The computable general equilibrium (CGE) GEM-E3 model for Europe has been used to integrate the PESETA damages under a consistent economic framework. The approach followed has been to assess the effects of future climate (as of 2080s) on today’s economy. This article details the way each sectoral impact has been integrated into the CGE model. The EU welfare loss is estimated to be in a range of 0.2% to 1%, depending on the climate future and the projected sea level rise. Results show that the Southern Europe region appears as the most vulnerable area to climate change. Impacts in coastal systems, agriculture and river floods determine the overall and regional pattern of impacts within Europe.

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Notes

  1. 1.

    The selection of climate scenarios and other methodological aspects of the project are explained in Christensen et al. (2011).

  2. 2.

    Please see Iglesias et al. (2011) for agriculture, Feyen et al. (2011) for river floods, Bosello et al. (2011) for coastal systems, and Amelung and Moreno (2011) for tourism.

  3. 3.

    The CGE model follows the Armington assumption (Armington 1969).

  4. 4.

    For the assessment for 2080 the dynamic path of the economy to the 2080s must be modelled, which requires modelling the growth of the economy and the structural changes (change in sector and input mix, for instance) until 2080. The scale factor can be somehow easily corrected, taking into account the projected economic growth, as in Bosello and Zhang (2005).

  5. 5.

    For the impact variables affected by the growth of the economy an adjustment has been made, scaling the climate impacts back from the 2080s to 2010.

  6. 6.

    See Christensen et al. (2011) for specific details.

  7. 7.

    The economic impact estimates of Table 3 are presented in the same units as in the respective impact-specific models (e.g. 1995 Euro for coastal impacts). They have been transformed into 2000 Euro when integrated into the GEM-E3 model.

  8. 8.

    The cost induced by farm level adaptation (e.g. fertilizer or irrigation cost) are not included.

  9. 9.

    Moreover, there can be additional welfare losses because of the negative impact on other consumption items through substitution effects.

  10. 10.

    Production losses are implemented in GEM-E3 through a negative productivity shock in the TFP parameter.

  11. 11.

    The land losses could have been proxied in various ways, such as a reduction in total factor productivity or a fall in capital stock. Anyhow, land loss is the smallest impact category of the three mentioned impact categories (land loss, migration and sea floods).

  12. 12.

    Bosello et al. (2011) study the impacts on coastal systems considering the effects of land losses on the whole economy with the GTAP CGE model.

  13. 13.

    The capital losses are sectorally proportional to the existing capital stock, as there is not better information yet available.

  14. 14.

    It is assumed that the ROW is constant and unchanged due to climate change. An extension of the analysis should consider how climate change affects the ROW countries.

  15. 15.

    This table reports the change in domestic production in volume, relative to the baseline scenario.

  16. 16.

    The GEM-E3 model has an extended linear expenditure system (ELES) specification in the household welfare function. Welfare is a function of saving, consumption and leisure, after accounting for obliged consumption. Therefore there is a relationship between consumption and welfare determined by the ELES equation.

  17. 17.

    The overall EU impact in the 3.9°C scenario is higher than under the 4.1°C scenario. It should be noted that the average European temperature change is not the only determinant of economic impacts. Other factors that play a role are the geographical pattern of warming, the evolution of other climate variables (such as precipitation), the climate models and the socioeconomic scenario. In particular, the 4.1°C temperature scenario corresponds to the low emission scenario (B2), while the 3.9°C scenarios C scenario comes from the higher emission scenario (A2).

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Acknowledgements

We thank Ana Iglesias and Sonia Quiroga for discussions on the agriculture application. We also thank Marc Mueller (IPTS) for providing us with the EEA data, and Bert Saveyn and Ignacio Pérez (both at IPTS) for reviewing the document.

We would like to thank Samuel Fankhauser, Hans-Martin Füssel, Ger Klaassen, and Leonidas Paroussos, and two anonymous referees for their comments.

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Correspondence to Juan-Carlos Ciscar.

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The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission.

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Ciscar, JC., Szabó, L., van Regemorter, D. et al. The integration of PESETA sectoral economic impacts into the GEM-E3 Europe model: methodology and results. Climatic Change 112, 127–142 (2012). https://doi.org/10.1007/s10584-011-0343-y

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Keywords

  • Total Factor Productivity
  • Impact Category
  • Welfare Loss
  • Coastal System
  • Computable General Equilibrium