Publications

Decarbonization in state-owned power companies: Lessons from a comparative analysis

Published in Journal of Cleaner Production, 2022

A rapid decarbonization of the electricity system is urgently required for the Paris Agreement objectives to stand a reasonable chance of being met. While state-owned power companies (SPCs) are the dominant firm type in the global electricity sector, representing nearly two thirds of global electric power generation capacity, most climate policy literature focuses on private sector companies when analyzing decarbonization interventions. SPCs’ distinct corporate governance structures, objectives, relationships with government, and sources of finance, however, can be markedly different from those of private companies. Here, we develop a framework for analyzing the extent to which common and divergent features of SPCs, and the markets in which they operate, affect their relationship to government interventions on decarbonization. We also consider the implications of these relationships for the effective implementation of sector-wide decarbonization strategies. We then apply this framework using a comparative case study analysis of six major SPCs, and highlight how differences in their agency, motivation, capacity, and market exposure may result in different potential responsiveness to government regulatory, policy and market interventions on decarbonization. We generalize these findings by developing four SPC archetypes and illustrate how they might respond differently to government interventions targeting decarbonization. Our analysis posits that SPCs can, under the guidance of governments pursuing ambitious climate policy, be more effective vehicles for decarbonization relative to private sector companies, particularly when they operate with a high degree of operational independence, are insulated from competitive pressures, and have the financial and technical capacity to invest in the decarbonization of their asset base. Similarly, market-wide policy interventions, such as carbon pricing mechanisms, could in practice be less effective interventions with respect to SPCs than their private counterparts when the SPC is ill-equipped to translate these incentives into decarbonization action because it is mandated to pursue supplementary objectives other than profit maximization alone. Ultimately, governments will need to step up their climate action to achieve carbon neutrality. SPCs can, and where they are major market players, must be key actors in driving decarbonization when the appropriate interventions are utilized and therefore deserve significantly more attention in the climate policy debate.

Recommended citation: Philippe Benoit, Alex Clark, Moritz Schwarz, and Arjuna Dibley.(2022).Decarbonization in state-owned power companies: Lessons from a comparative analysis, Journal of Cleaner Production, Volume 355, 2022, 131796,ISSN 0959-6526, https://doi.org/10.1016/j.jclepro.2022.131796. https://doi.org/10.1016/j.jclepro.2022.131796

An Empirical Climate Damage Function Accounting for Climate Extremes and Adaptation

Published in Working Paper, 2022

Quantifying the economic impacts of climate change is crucial to inform mitigation and adaptation policy but faces challenges surrounding impacts of climate extremes and uncertainty around the range of plausible adaptation pathways. We overcome these by using machine learning and econometric model selection to construct an empirically-derived climate damage function allowing for impacts of a range of climate extremes under adaptation independent of any specific emission scenario. We use a novel baseline of forecasts of future economic development until the end of the century and – in absence of adaptation – project a decline in median country-level GDP per capita of up to 66% for warming beyond 4.5°C relative to no climate change. Projected marginal impacts under no adaptation suggest an approximate 12% decline in median country-level GDP per capita for each additional °C warming. We further show that the damage curve is not invariant to adaptation and provide empirical evidence of historical adaptation over time and incomes at a macro-economic level. Instability over time lowered the level of projected median GDP per capita impacts by approximately 20 percentage points relative to no-adaptation. Income-driven adaptation could reduce the marginal impacts of an additional degree of warming by a half to around 6% of GDP per capita per additional °C. Nevertheless, projected damages remain high and unequal even in the presence of adaptation reiterating the urgent case for stringent mitigation policy.

Recommended citation: Schwarz, Moritz and Pretis, Felix, An Empirical Climate Damage Function Accounting for Climate Extremes and Adaptation (February 1, 2022). Available at SSRN: https://ssrn.com/abstract=4022690 or http://dx.doi.org/10.2139/ssrn.4022690 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4022690

Discovering What Mattered: Answering Reverse Causal Questions by Detecting Unknown Treatment Assignment and Timing as Breaks in Panel Models

Published in Working Paper, 2022

Much of empirical research focuses on forward causal questions (‘Does X cause Y?’) while answering reverse causal questions (‘What causes Y?’) can provide invaluable insights but is difficult to implement in practice. Here we operationalise the modelling of reverse causal questions through the detection of unknown treatment assignment and timing as structural breaks in fixed effects panel models. We show that conventional treatment evaluation of known interventions in a two-way fixed effects panel (often interpreted as difference-in-differences) is equivalent to allowing for heterogeneous structural breaks in the treated units’ fixed effects. Using machine learning, we can thus detect previously unknown heterogeneous treatment effects as structural breaks in individual fixed effects corresponding to unit-specific treatment which can be subsequently attributed to potential causes. We demonstrate the feasibility of our approach by detecting the impact of ETA terrorism on Spanish regional GDP per capita without prior knowledge of its occurrence. Our proposed method to detect breaks in panel models can be readily implemented using our open-source R-package ‘gets’ with the ‘getspanel’ update or using the (adaptive) LASSO.

Recommended citation: Pretis, Felix and Schwarz, Moritz, Discovering What Mattered: Answering Reverse Causal Questions by Detecting Unknown Treatment Assignment and Timing as Breaks in Panel Models (January 31, 2022). Available at SSRN: https://ssrn.com/abstract=4022745 or http://dx.doi.org/10.2139/ssrn.4022745 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4022745

Testing for Coefficient Distortion due to Outliers with an Application to the Economic Impacts of Climate Change

Published in Working Paper, 2021

Outlying observations can bias regression estimates, requiring the use of robust estimators. Comparing robust estimates to those obtained using OLS is a common robustness check, however, such comparisons have been mostly informal due to the lack of available tests. Here we introduce a formal test for coefficient distortion due to outliers in regression models. Our proposed test is based on the difference between OLS and robust estimates obtained using a class of Huber-skip M-type estimators (such as Impulse Indicator Saturation or Robustified Least Squares). Establishing asymptotics of the corresponding Huber-skip M-estimators using an empirical process CLT recently developed by Berenguer-Rico et al. (2019), we show that our distortion test has an asymptotic chi-squared distribution, and is valid for cross-sectional as well as panel and time series models. To improve finite sample performance and to alleviate concerns on distributional assumptions, we further introduce and explore three bootstrap testing schemes. We apply our outlier distortion test to estimates of the macro-economic impacts of climate change allowing for adaptation. We find that OLS estimates are significantly different to those obtained using a robust estimator and provide evidence of income-driven adaptation. Projecting the resulting damage curve to the end of the century shows that outlier-robust estimates dampen projected GDP losses and reduce the estimated marginal impacts of additional warming under adaptation.

Recommended citation: Jiao, Xiyu and Pretis, Felix and Schwarz, Moritz, Testing for Coefficient Distortion due to Outliers with an Application to the Economic Impacts of Climate Change (August 31, 2021). Available at SSRN: https://ssrn.com/abstract=3915040 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3915040

Climate change: Answers to common questions.

Published in A Report prepared for Pictet Asset Management, 2020

This report, written for Pictet Asset Management, seeks to dispel many of the lingering myths about climate change and sheds new light on the scale of the likely damage if decision makers fail to meet carbon emission targets. Uncertainty about climate science and economics poses challenges for business and finance. Reasonable and intelligent people frequently ask us for a reference document to set out what is known and not known about climate change, including research that is sometimes contrary to prevailing societal beliefs, if only to avoid debates about areas that are settled and instead to direct attention to the areas where further research is valuable. We have structured this report into nine areas of doubt commonly expressed about climate science and economics, each of which is broken down into points of contention. We also highlight key facts and estimates in which scholars have high levels of confidence. Each section begins with a common challenge about climate science and economics, expressed as a quotation.

Recommended citation: Hepburn, C. and Schwarz, M. (2020). Climate change: Answers to common questions. A Report prepared for Pictet Asset Management. https://www.group.pictet/media-relations/media-releases/climate-change-9-contentions-testing-truthfulness

Climate change and emerging markets after Covid-19

Published in A Report prepared for Pictet Asset Management, 2020

This report, written for Pictet Asset Management, offers a deep and broad analysis of the risks and opportunities emerging economies – and the world more generally – face from climate change in a post-Covid-19 world. The insights of this report are based on the latest economic and climate modelling techniques.

Recommended citation: Cohen, F., Ives, M., Srivastav, S., Schwarz, M., Lu, Y., Mealy, P., Bento Maffei de Souza, P., Jackson, L., Hepburn, C. (2020). Climate change and emerging markets after Covid-19. A Report prepared for Pictet Asset Management. https://am.pictet/en/globalwebsite/global-articles/2020/pictet-asset-management/climate-change-and-emerging-markets-after-covid

The Challenge of Using Epidemiological Case Count Data: The Example of Confirmed COVID-19 Cases and the Weather

Published in Environmental and Resource Economics, 2020

The publicly available data on COVID-19 cases provides an opportunity to better understand this new disease. However, strong attention needs to be paid to the limitations of the data to avoid making inaccurate conclusions. This article, which focuses on the relationship between the weather and COVID-19, raises the concern that the same factors influencing the spread of the disease might also affect the number of tests performed and who gets tested. For example, weather conditions impact the prevalence of respiratory diseases with symptoms similar to COVID-19, and this will likely influence the number of tests performed. This general limitation could severely undermine any similar analysis using existing COVID-19 data or comparable epidemiological data. This could mislead decision-makers on questions of great policy relevance.

Data and Code: Github

Selected Press Coverage:
Press release by the Oxford Martin School

Recommended citation: Cohen, F., Schwarz, M., Li, S., Lu, Y., Jani, A. (2020). The Challenge of Using Epidemiological Case Count Data: The Example of Confirmed COVID-19 Cases and the Weather. Environmental and Resource Economics. https://link.springer.com/article/10.1007/s10640-020-00493-2#Sec43

Antworten auf zentrale Fragen zur Einführung von CO2-Preisen. Gestaltungsoptionen und ihre Auswirkungen für den schnellen Übergang in die klimafreundliche Gesellschaft

Published in Diskussionsbeiträge der Scientists for Future, 2019

Derzeit wird in Deutschland daher kontrovers diskutiert, ob und wie CO2-Emissionen einen höheren Preis bekommen können. Dabei werden die Formen einer CO2-Steuer, einer Erweiterung des europäischen Emissionshandels oder Mischformen und Varianten dieser Instrumente erwogen. Mit der nachfolgenden Zusammenstellung einiger in der Öffentlichkeit häufig diskutierter Fragen bereiten wir den Stand der Forschung für Interessierte auf.

Online Version

Recommended citation: Mattauch, L., Creutzig, F., aus dem Moore, N., Franks, M., Funke, F., Jakob, M., Sager, L., Schwarz, M., Voß, A., Beck, M. L., Daub, C. H., Drupp, M., Ekardt, F., Hagedorn, G., Kirchner, M., Kruse, T., Loew, T., Neuhoff, K., Neuweg, I., Peterson, S., Roesti, M., Schneider, G., Schmidt, R., Schwarze, R., Siegmeier, J., Thalmann, P., Wallacher, J. (2019). Antworten auf zentrale Fragen zur Einführung von CO2-Preisen. Gestaltungsoptionen und ihre Auswirkungen für den schnellen Übergang in die klimafreundliche Gesellschaft. (Version 2). Diskussionsbeiträge der scientists for future. https://doi.org/10.5281/zenodo.3644498

Uncertain impacts on economic growth when stabilizing global temperatures at 1.5°C or 2°C warming

Published in Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences, 2018

Empirical evidence suggests that variations in climate affect economic growth across countries over time. However, little is known about the relative impacts of climate change on economic outcomes when global mean surface temperature (GMST) is stabilized at 1.5°C or 2°C warming relative to pre-industrial levels. Here we use a new set of climate simulations under 1.5°C and 2°C warming from the “Half a degree Additional warming, Prognosis and Projected Impacts” (HAPPI) project to assess changes in economic growth using empirical estimates of climate impacts in a global panel dataset. Panel estimation results that are robust to outliers and breaks suggest that within-year variability of monthly temperatures and precipitation has little effect on economic growth beyond global nonlinear temperature effects. While expected temperature changes under a GMST increase of 1.5°C lead to proportionally higher warming in the Northern Hemisphere, the projected impact on economic growth is larger in the Tropics and Southern Hemisphere. Accounting for econometric estimation and climate uncertainty, the projected impacts on economic growth of 1.5°C warming are close to indistinguishable from current climate conditions, while 2°C warming suggests statistically lower economic growth for a large set of countries (median projected annual growth up to 2% lower). Level projections of gross domestic product (GDP) per capita exhibit high uncertainties, with median projected global average GDP per capita approximately 5% lower at the end of the century under 2°C warming relative to 1.5°C. The correlation between climate-induced reductions in per capita GDP growth and national income levels is significant at the p<0.001 level, with lower-income countries experiencing greater losses, which may increase economic inequality between countries and is relevant to discussions of loss and damage under the United Nations Framework Convention on Climate Change.

Blog Post, Visualisations, and Data

Press Coverage

Recommended citation: Pretis, F., Schwarz, M., Tang, K., Haustein, K., & Allen, M. R. (2018). Uncertain impacts on economic growth when stabilizing global temperatures at 1.5 C or 2 C warming. Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences, 376(2119), 20160460. https://royalsocietypublishing.org/doi/full/10.1098/rsta.2016.0460

Wirtschaftswachstum und Klimawandel: Chancen und Herausforderungen auf dem Weg zur klimafreundlichen Gesellschaft

Published in Wirtschaftspolitische Blätter, 2017

Die internationale Staatengemeinschaft hat die Dekarbonisierung der Wirtschaft zum Schutz vor unbeherrschbarem Klimawandel beschlossen. Gegenwärtig gibt es auf globaler wie nationaler Ebene eine Vielzahl politischer Maßnahmen zur Erreichung dieses Ziels. Diese müssen jedoch stark ausgebaut und effizient ausgestaltet werden. Der vorliegende Beitrag zeigt auf, dass Klimaschutz grundsätzlich mit Wirtschaftswachstum vereinbar ist, aber ebenso, dass diese Vereinbarkeit sehr anspruchsvoll sein wird und eine kohärente politische Regulierung benötigt: Umfassende CO2-Preise sind eine notwendige Bedingung für ambitionierten Klimaschutz in wachsenden Wirtschaften. Diese sind aber nicht hinreichend; ergänzende Maßnahmen zum existierenden EU-Emissionshandel werden für eine effiziente Dekarbonisierung in Österreich benötigt. Am Beispiel des Verkehrssektors und der Landwirtschaft Österreichs zeigen wir auf, wie eine gut gestaltete Klimapolitik Chancen für Wirtschaft und Gesellschaft eröffnet.

Blog Post

Recommended citation: Mattauch, L., Roesti, M., Schwarz, M. and Siegmeier J. (2017). Wirtschaftswachstumund Klimawandel: Chancen und Herausforderungen auf dem Weg zur klimafreundlichenGesellschaft. Wirtschaftspolitische Blätter. 3/2017. https://www.wko.at/site/WirtschaftspolitischeBlaetter/mattauch-et-al.pdf