E cological and E nvironmental E conomics Programme Integrated assessment models (IAMs) Research Group

1. Ecological and EnvironmentalEconomics ProgrammeIntegrated assessment models (IAMs)Research Group

2. Core aim - To develop mathematical models to understand the interactions between physical, environmental and economic systems. - To provide an economic assessment of environmental problems and to design polices to address them. - To organise training activities for researchers from developing countries.

3. Areas of interest • - Dynamic ecological models • Indicators of sustainable development • - Integrated assessment models (IAMs) Research group based at ICTP

4. IAMs Research Group Activities focuses on the integration between global climate models, regional models of climate impacts and economic models to assess the economic consequences of climate impacts in a coherent framework. Research addresses the socio-economic dimension of climate change, mitigation and adaptation policies. Focus on the economic (welfare) assessment of impacts of climate change.

5. Researchers • Roberto Roson – Scientific Co-ordinator • Rossella Bargiacchi • Maria Berrittella • Andrea Bigano • Francesco Bosello • Alvaro Calzadilla • Marco Lazzarin • Hugo Loza • Francesco Pauli • Prakash Raj Sapkota • Jian Zhang

6. Overall Approach INTEGRATED ASSESSMENT characterised by: • Modularity: comprehensive analysis of climate change impacts through a consistent and multidisciplinary integration of different modelling tools. • General Equilibrium: All the main economic linkages and propagation mechanismscan be highlighted. Direct and indirect consequences are taken into account. Multiple regions and sectors.

7. IAM (Integrated Assessment Model) as a PUZZLE OF: • Different interlinked models • Different interlinked economic regions and sectors The world is not divided into cells of a grid, but into economic areas and each areas into economic sectors. All these “cells” communicate through economic and environmental mechanisms.

8. A simple IAM Environmental system Economic system Changes in Water, Land, Air, Capital, Labour stock and productivity Envir. Pressures Climate change and variability Sea level rise Change in Production and consumption patterns Extreme events Econ. impacts Vulnerability Envir. impacts Air, Water, Land quality and availability Econ. Pressures Policies Mitigation Adaptation Changes in emissions and land cover

9. Limitations of Currently Available IAMs • Many IAMs areone-way: from given socio-economic scenarios to climate implications; • Some dynamic two-way models suffer fromserious limitations, both in the climate and in the economic modules. In particular, on the economic side: • Trade linkages (goods and capital flows) are disregarded or poorly modeled. • The multi-dimensional nature of climate impacts is missing.

10. Research Strategy Focus on economic implications.Development and updating of an existing data base and modelling structure (GTAP). Flexible, “umbrella” project:incorporation and economic evaluation of different climate change impacts structured as parallel researches. Co-operation with other research institutesto improve the quality of climatic information and of physical impacts of climate change (Hamburg, ABARE, PIK, … ) and with Weather and Climate group above all.

11. Research in Practice (1) Defining the Benchmark.“Pseudo-calibration” process in order to get a reference case “without climate change”. (2) Impact assessment: Climate change impacts translated in terms of “shocks” on key economic variables are used to perturb the benchmark equilibrium. (3) Dynamic analysis: Climate change impacts on paths of economic growth.

12. The Pseudo-Calibration • This refers to obtaining a picture of the future worldeconomy. In practice long-run estimates of primary inputs (land, labour, capital and natural resources) stocks and productivity (G-cubed, IMAGE, etc.) are used to: • Shock the model 1997 calibration to obtain future benchmark equilibria (2010, 2030, 2050).

13. Impact Assessment Climate Change Physical Impacts Economic Shocks (perturbation of benchmark equilibria) Economic and Welfare Assessment

14. How the model works

15. Impact Analysis #1: Sea Level Rise • No protection = loss of land resources • Full protection = extra investment needed (displaces current consumption)

16. Impact Analysis #2: Human Health • Variations in labour productivity/human resources • Exogenous change in the pattern of expenditure for the public sector

17. Impact Analysis #3: Tourism • Changes in demand structure within the Market Services sector • International income transfers

18. Impact Analysis #4: Extreme Events • Estimates of the increased likelihood of extreme events • Simulations of specific extreme events = losses of productive resources • Exogenous increase of demand for insurance services

19. Impact Analysis #6: Energy Demand • Exogenous variation of energy demand for production and consumption

20. Impact Analysis #7: Agriculture and Land Use • Variations in crop yields = land productivity • Relative prices drive optimal land use patterns • Land patterns determine land endowments for different sub-industries in agriculture

21. Impact Analysis #8: Water • Water as a non-marketed “hidden” factor -> overall industrial productivity • The functioning of an industry for “effective water” production

22. The dynamic version • Endogenous dynamics of capital and debt accumulation • Exogenous dynamics of technology, productivity, etc, AND environmental shocks • Myopic (recursive), rational, and quasi-rational expectations

23. EEE Programme The Abdus Salam ICTP Adriatico Guesthouse - 7th floor e-mail: eee@ictp.trieste.it http://www.ictp.trieste.it/~eee/