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Using InVEST to Calibrate Economic Models of Climate Change
Justin Andrew Johnson
April 23, 2012
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Research Question•“How will climate change impact economic
growth through changes in ecosystem services?”
•Three basic tasks▫Create a dynamic calculable general
equilibrium (DCGE) model that impresses economists
▫Identify accurate climate change damage functions with respect to ecosystem services
▫Calibrate the model to specific geographic locations and ecosystem services
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What is a normal DCGE?•A model of economic growth that accounts for:
▫Utility maximizing individuals▫Profit maximizing firms▫Changing prices▫Capital accumulation▫Market responses
•Lets us predict economic growth while accounting for dynamic, changing relationships
•Economists like them▫Lots of functions and proofs!
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What is a DCGE?Global GDP
Years past 2012
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DCGEs in Existing Climate Models•DICE/RICE Models from Nordhaus•PAGE Model from Stern•Many others (CRED, World Bank, ADB)
•Where my model is different:▫Include more detail in the economy (8
sectors)▫Account for impacts on ecosystem services▫Use more accurate damage function(s)
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Existing Damage Functions are Very Simplified
•A damage function is a relationship between Temperature Increase and Economic Damage
0.1 0.8 1.5 2.2 2.9 3.6 4.3 5 5.7 6.4 7.1 7.8 8.5 9.2 9.9 10.6 11.3 12 12.70%
20%
40%
60%
80%
100%
120%
Original DICEHanemann RecalculationWeitzman Recalculation
Temperature Increase (Celcius) over 1900 Baseline
Perc
enta
ge o
f G
DP
rem
aini
ng a
fter
Clim
ate
Dam
ages
Sub
trac
ted
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My Approach to Damage Functions•Include multiple functions that describe
specific impacts on specific sectors, such as:▫Agriculture damage from increasing
precipitation volatility▫Capital loss from sea-level rise▫Crucially, ecosystem service value lost from
changing climate
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Comparison of Damage Functions
Climate Scenario
Temperature Increase
Single Damage Function
Reduction in Growth
Traditional Model
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Process for identifying climate impact on ES:
•Step 1:▫Run InVEST on
current landscape
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Process for identifying climate impact on ES:•Step 2:
▫Create future landscape scenarios by interacting climate predictions with land change modelers
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Process for identifying climate impact on ES:
•Step 3: Run InVEST on future landscapes
•Step 4: Calculate change in value for specific geographic locations
•Step 5: Use this information in the Ecosystem-Services sector in the DCGE to assess what the long-term growth impacts are.
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Preliminary Results•As a proof of concept, I have created a 3-
sector model with a simple damage function▫Calibrated to IPCC A1F1 Scenario▫Damages based on Weisman Formula
20 40 60 80 100 120Time
1
2
3
4
Celc ius in Increase Tempera tureTemperature Change over Time
20 40 60 80 100 120Tim e
0.90
0.92
0.94
0.96
0.98
1.00
Proportion of GDP LostSimplified Damage Function
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Preliminary Results
•Model predicts fast growth at first, but eventually climate damages offset growth in capital
20 40 60 80 100t
250 000
300 000
350 000
400 000
kK per effective normalized worker
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Validation – Replicates Past Data with Backcasting
1995 2000 2005t
0.8
0 .9
1 .0
1 .1
rat ioGDP Blue: D ata, Purp le: M odel
1995 2000 2005t
0 .7
0 .8
0 .9
1 .0
1 .1rat io
M anufacturing Blue: D ata, P urp le: M odel
1995 2000 2005t
0 .7
0 .8
0 .9
1 .0
1 .1
1 .2
rat ioAgricult ure Blue: D ata, Purp le: M odel
1995 2000 2005t
0 .8
0 .9
1 .0
1 .1
ratioServices B lue: D ata, Purp le: M odel
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Where I Still Need Help•Getting good at InVEST!•Data for InVEST inputs•Identifying the correct set of damage
functions
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Thank you
•Questions?
•Feel free to email any questions or to request more information and works cited to [email protected]
•Additional information on this model and presentation included at justinandrewjohnson.com/climate