An integrated assessment model of economy-energy-climate - the model wiagem: a comment

Economic assessments of the impacts of climate change are rare. Even rarer are papers on the higher order economic impacts. The paper by Claudia Kemfert (2002) is therefore welcome. Most economic impact studies use direct costs as an approximation of welfare losses. According to the direct cost method, a welfare loss is approximated by price times quantity, where the quantity is the physical impact of climate change (see Pearce et al., 1996, and Smith et al., 2001, for an overview). The direct cost method ignores that the impact may change the price (the partial equilibrium effect), that changes in one market may have effects on other markets (the general equilibrium effect), and that climate change may alter investments (the growth effect). Using a dynamic computable general equilibrium model, Kemfert is able to look at all economic effects of climate change impacts on nature, human health, forestry, water resources, and energy consumption.

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