Innovation for

Remaking the Planet

Some Economics of
Geoengineering R&D

Timo Goeschl
Dept. of Economics
Heidelberg University

Carbon cycle

Projected global mean temperatures

Cost-Benefit Comparison

CLIMATE ENGINEERING

A definition
Geoengineering is the intentional large-scale
manipulation of the global environment. The term has
usually been applied to proposals to manipulate the
climate with the primary intention of reducing undesired
climatic change caused by human influences.
D. Keith (1998)

Geoengineering: Basic considerations

Two variants
GHG

GHG

Climate

Societal

emissions

concentration

forcing

Welfare

Adaption
Mitigation/
Abatement

Solar radiation
management
(SRM)

Atmospheric
carbon removal
(CDR)

Geoengineering Interventions

Old ideas new interest and legitimacy

P. Crutzen
Climatic Change, 2006

Is there a quick fix?

March 24, 2008

10

Two types of Climate Engineering

Solar radiation management Carbon cycle engineering
Solar radiation management (SRM)

Carbon dioxide removal (CDR)

Sulfates in the stratosphere

Biomass + CCS

Sea salt aerosols in low clouds

Direct capture of CO2 from air

Altering plant albedo

Adding Fe to oceans

Engineered particles in mesosphere

Adding macro-nutrients to oceans

Adding alkalinity (Mg) to oceans

Bio-char
Adding alkalinity to soils
Fast, cheap, imperfect and uncertain;
and it does very little to manage the
carbon in the air

Slow and expensive,

but gets the carbon out

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Royal Society 2008

Science Policy: Weighing the options

12

THE ECONOMICS OF CLIMATE

ENGINEERING
13

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 geoengineering
technologies

Goes, Tuana and Keller 2011, Bickel and Agrawal 2013; MorenoCruz and Keith 2012; Emmerling and Tavoni 2013;
Barrett 2008; Moreno-Cruz, Ricke, and Keith 2012; Nemet and
Brandt 2012; Goeschl, Heyen, and Moreno-Cruz 2013; Barrett
2014;

2. the policy-oriented study of instruments and institutions

drawing on economics in order to help govern these
technologies so as to further societys welfare.

Weitzman 2013

14

GE Economics vs Economics of Climate

Change
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 barely
understood => high returns to research?
Deployment will not require financial cooperation, but
R&D probably will
Deployment likely requires coordination due to
heterogeneity of impacts
2. Nature of intergenerational transfer
Not just money or in-kind benefits
Transfer of a technological capability
15

Synopsis
Current literature review
Klepper, 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 of

Slowing 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.
16

Normative vs. positive perspectives on

geoengineering R&D
Normative:
What ought to be done?
Optimal R&D levels

Positive:
What will be done?

Understanding R&D
incentives that CE provides
to different agents

When?
Where?
How?
Why?

Within a generation, across

countries and agents
Across generations

At different stages of CE
Under different regulatory
systems governing

Cost-benefit analysis
adjusted for

GHG mitigation (Paris Accord)

Deployment (liability)
R&D (public vs. private)

Risk
Uncertainty

17

Milestone stages and agents

Stage/Agent

Global

Nation

Research
Development
Deployment

18

Firm

Current patenting activity

4.5
4
3.5
3
2.5
SRM
CDR

2
1.5
1

0.5
0

2009

2010

2011

2012

2013

2014

2015

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
Intergenerational
technology transfer
(Goeschl et al. 2013)
Legal regimes and
innovation (Goeschl
and Pfrommer 2015)
Positive economics of
CE R&D (Nemet and
Brandt 2012)
Strategic incentives
(Heyen 2015)
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INTERGENERATIONAL CE
TECH TRANSFER
21

Research question
How should an altruistic current generation behave towards
the future generation?
Premise: Current generation is concerned about wellbeing of generations in 2060
Concern about
Damages from current generations 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

24

Strategic equilibria in b-K-space

25
Source: Goeschl, Heyen
and Moreno-Cruz 2013

Institutional answers
Most of the strategic solutions are only second-best.
No testament constraint
What could be the nature and shape of institutions could
resolve the intergenerational conflict?
Bovenberg (1995): Intergenerational bonds
Gerlagh and Liski (2012): Exploit irreversibilities as
commitment devices in climate policies

26

Goeschl and Pfrommer 2015

LIABILITY REGIMES AND

GEOENGINEERING R&D
27

28

Motivation
Some international regime is a prerequisite for large-scale
experiments 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

29

Two reliability issues

(Schmidt et al.,
ESD, 2013)

1. Are predictions
convergent across
models?

(Shindell et al.,
JGR, 2004)

2. Are all models wrong in

the same way?

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Research questions
What are the implications for R&D of basing a liability
system on non-experiential risk assessments?
Incentives
Solutions (LAquila Earthquake case)
How well can a liability system perform in terms of risk
allocation
Across extant parties?
Across time?

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Interdisciplinary Interaction

Model intercomparison

Reliability and
Responsibility

Real analogues and

models (volcanos)

Epistemology of model
based liability

Model Reliability

Ethical implications

(Re-)Liability and
Incentives

Regime Design
and Reliability

Efficient risk-sharing

ReDesign of intl liability

Optimal vs. research

Incentive compatibility
32

Nemet and Bandt (2012)

POSITIVE ECONOMICS OF
GEOENGINEERING R&D
33

Positive economics of geoengineering R&D

Nemet and Brandt (2012): Whom would you expect to be
developing 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 resource
rents
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 from
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carbon taxes

Schematic model

35

CO2 permit price and DAC cost

36

Carbon price effect

37

DAC effect
Insufficient to support R&D
program

38

(Heyen 2015)

R&D CONFLICTS

39

What is a Climate Game?

The climate system connects people and countries.
For everybody, climate is a function of what
everybody does.
If one agent draws more on the resource, then
everybody is affected.
Different actions:
Mitigation: How much GHG to emit?
CDR: How much GHG to remove from the
atmosphere?
SRM: Whether to inject particles to inject into the
stratosphere and if so how many?
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What is a Climate Game?

Lack of international jurisdiction => Countries activities
cannot be mandated.
Possibly, institutions could be developed to enable
management of the climate system for the global good
What are the strategic incentives for players that these
institutions would have to overcome?
Idiosyncratic components: Heterogeneities
Common components: Strategic behavior
These incentives depend on the game.
=> Lets look at Mickey Mouse versions of these.
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Mitigation A Common Property

Resource Game with 8 identical
countries entering to gain by emitting
Country No.

Global net
benefit

Average benefit
for emitting
country
1
100
100
2
150
75
3
175
59
Strategic
incentive
for every
4
180
45
country: Emit rather than not
5
175
35
6
125
21
7
70
10
8
8
1
If benefits at n=4 were shared42 equally, then every country gets 22.5.

CDR A Prisoners Dilemma

Neverneverland

Rest of the World

Remove
Dont
1,10
-11, -90
2, 8
--10, -100

Remove

Dont

Strategic incentive for every country:

For every country individually, not
removing
is the dominant
strategy.
No removal
rather than
removal
This is despite the fact that globally,
everyone should remove carbon.
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SRM A Coordination Game

Three equilibria
Country B
But: How do coordinate on whichDeploy
one will be played?
Dont
Country A

Deploy

-15, -15

0, -10

Dont

-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 highest
preference 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&D
incentives of two asymmetric countries.
Finding: Future deployment conicts spill backwards into
the R&D stage in complex ways.
Prospect of free-riding unambiguously weakens
innovation incentives
Prospect of free-driving more complex, including the
possibility of excessive R&D and incentives for
counter-R&D.
45

R&D in a free-driving world

Country 1s WTP for R&D is lower for low

deployment costs!
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CONCLUSION

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Conclusion
Geoengineering is already part of the
hypothetical technology portfolio
Even though technologies do not yet
exist
Geoengineering R&D, esp, for SRM,
conceptually very different from energy
efficiency or emissions reduction R&D
Raises numerous normative and positive
issues of technology policy
International dimensions
Intergenerational dimensions
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