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Innovation forRemaking the PlanetSome Economics ofGeoengineering R&D

Timo Goeschl

Dept. of Economics

Heidelberg University

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Carbon cycle

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Projected global mean temperatures

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Cost-Benefit Comparison

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CLIMATE ENGINEERING

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A definition

“Geoengineering is the intentional large-scalemanipulation of the global environment. The term hasusually been applied to proposals to manipulate theclimate with the primary intention of reducing undesired

climatic change caused by human influences.” D. Keith (1998)

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P. Crutzen

Climatic Change, 2006

Old ideas – new interest and legitimacy

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Is there a quick fix?

March 24, 2008

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Two types of Climate Engineering

Carbon dioxide removal (CDR)

• Biomass + CCS 

• Direct capture of CO2 from air  

• Adding Fe to oceans 

• Adding macro-nutrients to oceans

• Adding alkalinity (Mg) to oceans 

• Bio-char

• Adding alkalinity to soils 

Slow and expensive,

but gets the carbon out

Solar radiation management (SRM)

• Sulfates in the stratosphere 

• Sea salt aerosols in low clouds 

• Altering plant albedo 

• Engineered particles in mesosphere 

Fast, cheap, imperfect and uncertain;

and it does very little to manage the

carbon in the air

Solar radiation management  Carbon cycle engineering

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Science Policy: Weighing the options

   R  o  y  a   l    S  o  c   i  e   t  y   2   0   0   8

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THE ECONOMICS OF CLIMATEENGINEERING

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Definitional stuff

What are the “economics of geoengineering”? The economics of geoengineering is

1. the welfare-oriented study of normative and positive aspects of the development and use of geoengineeringtechnologies

 – Goes, Tuana and Keller 2011, Bickel and Agrawal 2013; Moreno-Cruz and Keith 2012; Emmerling and Tavoni 2013;…

 – Barrett 2008; Moreno-Cruz, Ricke, and Keith 2012; Nemet andBrandt 2012; Goeschl, Heyen, and Moreno-Cruz 2013; Barrett2014;

2. the policy-oriented study of instruments and institutions drawing on economics in order to help govern thesetechnologies so as to further society’s welfare.

 – Weitzman 2013

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GE Economics vs Economics of ClimateChange

What are the key differences?

1. Technology: ‘Single large affordable project’ 

 – Direct costs appear trivial compared to GHG mitigation

 – Indirect costs of large scale application are barelyunderstood => high returns to research?

 – Deployment will not require financial cooperation, butR&D probably will

 – Deployment likely requires coordination due to

heterogeneity of impacts2. Nature of intergenerational transfer

 – Not just money or in-kind benefits

 – Transfer of a technological capability

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Synopsis

• Current literature reviewKlepper, G. and W. Rickels (2012): The real economics of climate

engineering. Economics Research International  2012.doi:10.1155/2012/316564

• First paper: William Nordhaus (1991): ‘The Cost ofSlowing Climage Change’ Energy Journal 12(1)

 – “promising new approach” 

 – “much more cost effective than [mitigation]” 

 – “may be a panacea for global warming”

 – “cost of $0.10 to 10 per ton of CO2e” 

• Most cited paper:

Scott Barrett (2008): The Incredible Economics of Geoengineering.Environmental and Resource Economics 39(1), 45-54. 

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Normative vs. positive perspectives ongeoengineering R&D

Normative:

What ought to be done?

• “Optimal” R&D levels 

 – When?

 – Where?

 – How?

 – Why?

• Cost-benefit analysis

adjusted for – Risk

 – Uncertainty

Positive:

What will be done?

• Understanding R&Dincentives that CE providesto different agents – Within a generation, across

countries and agents

 –  Across generations

• At different stages of CE• Under different regulatory

systems governing – GHG mitigation (Paris Accord) – Deployment (liability) – R&D (public vs. private)

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Milestone stages and agents

Stage/Agent Global Nation Firm

Research

Development

Deployment

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Current patenting activity

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2009 2010 2011 2012 2013 2014 2015

SRM

CDR

Chart: Number of patent applications filed in the

areas of Carbon Dioxide Reduction (CDR) and

Solar Radiation Management (SRM) with the U.S.

PTO, 2009-2015

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Illustrations

• Intergenerationaltechnology transfer(Goeschl et al. 2013)

• Legal regimes andinnovation (Goeschland Pfrommer 2015)

• Positive economics ofCE R&D (Nemet and

Brandt 2012)• Strategic incentives(Heyen 2015)

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INTERGENERATIONAL CETECH TRANSFER

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Research question

How should an altruistic current generation behave towardsthe future generation?

• Premise: Current generation is concerned about well-being of generations in 2060

• Concern about

 – Damages from current generation’s GHG emissions 

 – Impacts of geoengineering, if (i) available and (ii) used

•  Avoided temperature damages

• Damages from geoengineering

• => Two dimensions of behavior towards future generation

 –  Abatement

 – Remediation technology transfer  

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Concerns

Concern 1: Myopic deployment decision

“Geoengineering technologies, once developed, may enable short-sighted and unwise deployment decisions, with

 potentially serious unforeseen consequences.” 

 American Meteorological Society Statement on Geoenginering 2010

Concern 2: Political economy of R&D

“Vested interests [...] might make significant amounts of money

through a choice to modify climate”

Jane Long, Lawrence Livermore National Laboratory

Implication: Current and future generations disagree

about damages in predictable ways.

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Timing of the intergenerational game

Source: Goeschl, Heyen and Moreno-Cruz 2013

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Strategic equilibria in -K  -space

Source: Goeschl, Heyen and Moreno-Cruz 2013

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Institutional answers

• Most of the strategic solutions are only second-best.

 – “No testament” constraint

• What could be the nature and shape of institutions couldresolve the intergenerational conflict?

 – Bovenberg (1995): Intergenerational bonds

 – Gerlagh and Liski (2012): Exploit irreversibilities ascommitment devices in climate policies

 – … 

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LIABILITY REGIMES ANDGEOENGINEERING R&D

Goeschl and Pfrommer 2015

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Motivation

• Some international regime is a prerequisite for large-scaleexperiments or deployment of CE measures

• Key issue: Risk sharing between countries

• Classic solution: Regime of international liability

• Prerequisites

 – Experiential risk assessment

 – Causal attributability.

• Instead: Model predictions… 

RELIABILITY LIABILITY

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1. Are predictions

convergent across

models?

2. Are all models wrong in

the same way?

Two reliability issues

(Schmidt et al.

ESD, 2013)

(Shindell et al.,

JGR, 2004)

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Research questions

• What are the implications for R&D of basing a liabilitysystem on non-experiential risk assessments?

 – Incentives

 – Solutions (L’Aquila Earthquake case) 

• How well can a liability system perform in terms of riskallocation

 –  Across extant parties?

 –  Across time?

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Interdisciplinary Interaction

Model Reliability

Model intercomparison

Real analogues and

models (volcanos)

Reliability and

Responsibility

Epistemology of model

based liability

Ethical implications

(Re-)Liability and

Incentives

Efficient risk-sharing

Optimal vs. research

Regime Design

and Reliability

ReDesign of int’l liability 

Incentive compatibility

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POSITIVE ECONOMICS OFGEOENGINEERING R&D

Nemet and Bandt (2012)

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Positive economics of geoengineering R&D

• Nemet and Brandt (2012): Whom would you expect to bedeveloping a backstop such as direct CO2 air capture?

 – Unilateral R&D of DAC technologies

• Answer: Maybe someone like liquid fuel producers

 – Intuition: Preventing regulation maintains resourcerents

• Compare: Rents under no carbon price, carbon price,and carbon price plus DAS

• Extensive margin: Demand for fuel

• Intensive margin: Composition of fuel mix (oil; tar sands,bio-grain,…) 

 – Hint: Johannson et al (2009): OPEC gains fromcarbon taxes

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Schematic model

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CO2 permit price and DAC cost

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Carbon price effect

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DAC effect

Insufficient to support R&Dprogram

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R&D CONFLICTS

(Heyen 2015)

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What is a “Climate Game”? 

• The climate system connects people and countries.

 – For everybody, climate is a function of whateverybody does.

 – If one agent draws more on the resource, theneverybody is affected.

• Different actions:

 – Mitigation: How much GHG to emit?

 – CDR: How much GHG to remove from theatmosphere?

 – SRM: Whether to inject particles to inject into thestratosphere and – if so – how many?

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What is a ‘Climate Game’? 

• Lack of international jurisdiction => Countries’ activitiescannot be mandated.

• Possibly, institutions could be developed to enablemanagement of the climate system for the global good

• What are the strategic incentives for players that theseinstitutions would have to overcome?

 – Idiosyncratic components: Heterogeneities

 – Common components: Strategic behavior

• These incentives depend on the ‘game’. 

=> Let’s look at Mickey Mouse versions of these. 

Mitigation – A Common Property

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Mitigation   A Common PropertyResource Game with 8 identicalcountries entering to gain by emitting

Country No. Global net

benefit

Average benefit

for emitting

country

1 100 100

2 150 75

3 175 59

4 180 45

5 175 356 125 21

7 70 10

8 8 1

Strategic incentive for every

country: Emit rather than not

If benefits at n=4 were shared equally, then every country gets 22.5.

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CDR – A Prisoners’ Dilemma 

Rest of the World

Remove Don’t 

NeverneverlandRemove 1,10 -11, -90

Don’t  2, 8 --10, -100

• For every country individually, notremoving is the dominant strategy.

• This is despite the fact that globally,everyone should remove carbon.

Strategic incentive for every country:

No removal rather than removal

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SRM – A Coordination Game

• Three equilibria

• But: How do coordinate on which one will be played?

Country B

Deploy Don’t 

Country ADeploy -15, -15 0, -10

Don’t  -5, 0 -50, -30

Strategic incentive for every country:

Deploy unless the other does.(the ‘freerider ’ always will) 

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R&D in a free-driving world

• At CE deployment stage, country with the highestpreference for technology deployment, the free-driver,‘oversupplies’ CE (Weitzman 2012).

• Heyen (2015) develops a simple deterministic two-stage

model for analyzing how free-driving shapes R&Dincentives of two asymmetric countries.

• Finding: Future deployment conflicts spill backwards intothe R&D stage in complex ways.

 – Prospect of free-riding unambiguously weakensinnovation incentives

 – Prospect of free-driving more complex, including thepossibility of excessive R&D and incentives for

counter-R&D.

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R&D in a free-driving world

• Country 1’s WTP for R&D is lower for lowdeployment costs!

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CONCLUSION

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Conclusion

• Geoengineering is already part of thehypothetical technology portfolio

 – Even though technologies do not yetexist

• Geoengineering R&D, esp, for SRM,conceptually very different from energyefficiency or emissions reduction R&D

• Raises numerous normative and positive

issues of technology policy – International dimensions

 – Intergenerational dimensions