Post Midterm Assignment

Part 1
Group 2
Gabriella Devina Tirta 18010088
Hoe Michelle 18010104
Ivetta Izhora Inaray 18010112
#1 Explain and analyze how we can calculate the ecological value of
natural capital.

There are 2 approaches to estimate ecological value of natural capital:

- Mitigation Cost - how much would it cost to resolve the environmental damage that is
caused
- E.g. how much would it cost to offset the damage cause by pollution
- Willingness to pay - a survey is conducted to ask how much the public is willing to pay to
maintain natural resources and services
- E.g. how much are people willing to pay to prevent a certain species from going extinct
- This is controversial as people would state a value above what they are actually
willing to pay
(Miller & Spoolman, 2009)
#1 Explain and analyze how we can calculate the ecological value of
natural capital.

To estimate the ecological value of a natural capital is to categorize its value. Environmental
economists and ecologists have developed ways to estimate non-use values of natural resources
and ecological services not represented in market transactions :
- Existence Value - a monetary value placed on a resource such as an old-growth forest or
endangered species just because it exists, even though we may never see or use it
- Aesthetic Value - monetary value placed on a forest, species, or part of nature because for
its beauty.
- Bequest or option value - value based on the willingness of people to pay to protect some
forms of natural capital/natural heritage for the future generations.

(Miller & Spoolman, 2009)

#2 Explain and analyze how we came up with the idea that we need to
limit the earth’s temperature to max 1.5℃

● 1.5°C is the target limit set out in the Paris Agreement (2015).
● Aim: To strengthen the global response to the threat of climate change.
● Reason: By limiting temperature increase to 1.5°C, it is expected that
adaptation to the changes will be less difficult, and our world will
suffer fewer negative impacts.

Full version: (Summary for Policymakers — Global Warming of 1.5 ºC, 2018)
Analysis: Some considerations when determining the
1.5°C target limit
● Extinction rate: Risks of irreversible changes in biodiversity and ecosystems.

"A species that goes extinct at two degrees will still be extinct if you come back down to 1.5C," said
Dr Stephen Cornelius from WWF, a former UK government IPCC negotiator (McGrath, 2021).

● Average temperature because global warming is not a uniform process. Take considerations of the
poles because they are warming faster than other areas due to their natural factors.

● Preview of extreme temperatures in many regions. For examples, heatwaves in Pakistan (43.3°C)
and Portugal (46°C), and El Nino costed dozens of lives.
(Part 1) Intergovernmental Panel on Climate Change (IPCC) used models based on monthly global mean surface
temperature to estimate anthropogenic global warming in the years to come.
(Part 2) Computed simple climate models to a stylized pathway (hypothetical future) in which net CO2 emissions
are reduced hypothetically.
What difference does
a half a degree
actually make?

Summary of major differences in

terms of the impacts on the world of
1.5 and 2℃ (McGrath, 2021).
The Copernicus Climate Change Service (C3S*) has developed a free application – the ‘Global temperature
trend monitor’ – for anybody to use to see the current rate of global warming and explore how soon we could
reach the 1.5°C limit if warming continues at today’s pace.
#3 Explain and analyze how the social costs of carbon is calculated

To value a certain production or activity towards its impacts on climate change, the social cost of carbon (SCC)
estimation is often used.

The SCC is calculated based on the monetized damage (commonly in

dollars) from emitting one unit of CO2 to the atmosphere (Van den
Bijgaart et al., 2016). These information can be obtained through a
comprehensive estimation of climate change damages that may
includes potential property damages, changes in energy system costs,
such as reduced costs for heating and increased costs for air
conditioning, and other concerning issues that can be generated
(The Social Cost of Carbon | Climate Change | US EPA, 2021).
#3 Explain and analyze how the social costs of carbon is calculated

There are a lot of models in SCC estimation. In short, we can start by

determining the contributing factors on certain activity and
generate a mathematical model to give a quantitative data of each
parameters. These are some papers that discuss the SCC model:
1. Van den Bijgaart, Inge; Gerlagh, Reyer; Liski, Matti (2016). A SIMPLE
FORMULA FOR THE SOCIAL COST OF CARBON. Journal of Environmental
Economics and Management, (), S0095069616000061–.
doi:10.1016/j.jeem.2016.01.005
2. The “Social Cost of Carbon” Made Simple by Stephen Newbold, Charles
Griffiths, Chris Moore, Ann Wolverton, and Elizabeth Kopits in
https://www.epa.gov
#3 Explain and analyze how the social costs of carbon is calculated

This page will show one example of SCC formulation using Monte Carlo analysis from The “Social Cost of
Carbon” Made Simple by Stephen Newbold, Charles Griffiths, Chris Moore, Ann Wolverton, and Elizabeth
Kopits in https://www.epa.gov

As the SCC can be estimated by setting the total derivative of the expected value of the social welfare
function equal to zero;

W0 = social welfare in the current period

Ct = aggregate consumption,
xt = greenhouse gas emissions in period t (≥0)
#3 Explain and analyze how the social costs of carbon is calculated

and solving for dCt + ∂ W0 t ] dx t :

This equation represents the SCC over a period time of t, which can be used as the estimation of GHG
emissions of a particular project over time. Keep in mind that this equation applies to under certainty or
uncertainty scenarios, where in the former case the expectation operators are unnecessary to estimate the
social welfare.
#3 Explain and analyze how the social costs of carbon is calculated

To calculate the social welfare (W), several parameters can be used and formulated, thus result in this
equation:

The W is implied as the sum of discounted future utilities of all individuals who will live between the current
date of t and the end of the planning horizon, H.

Nt = per capita consumption

ut = utilities = ln Ct
ρ = the pure rate of time preference which discounts future utilities
#3 Explain and analyze how the social costs of carbon is calculated

Additional information:

The SCC can be calculated based on several type of gas emission. EPA and other federal agencies use the
social cost of carbon (SC-CO2) to value the climate impacts of rulemakings. However, current data
collecting and modelling end up with a limitation on the SC-CO2 assessment; it does not include all
important damages to the algorithm.

Therefore, it is common to include other assessment to provide more accurate estimation such as the
social cost of methane (SC-CH4) and the social cost of nitrous oxide (SC-N2O); to estimate the benefits of
reductions in non-CO2 greenhouse gas emissions in recent rulemakings, such as the final emission
standards for New and Modified Sources in the Oil and Natural Gas Sector.
References
19january2017snapshot.epa.gov. 2021. The Social Cost of Carbon | Climate Change | US EPA. [online] Available at:
<https://19january2017snapshot.epa.gov/climatechange/social-cost-carbon_.html> [Accessed 9 May 2021].
Climate.copernicus.eu. 2021. How close are we to reaching a global warming of 1.5°C? | Copernicus. [online] Available at:
<https://climate.copernicus.eu/how-close-are-we-reaching-global-warming-15degc#:~:text=In%20December%202020%2C%2
0global%20warming,years%20up%20until%20December%202020.> [Accessed 23 May 2021].
McGrath, M., 2021. What does 1.5C mean in a warming world?. BBC News, [online] Available at:
<https://www.bbc.com/news/science-environment-45678338> [Accessed 23 May 2021].
Miller, G., & Spoolman, S. (2009). Living in the environment (16th ed., p. 616). Belmont: Brooks/Cole.
Ipcc.ch. 2018. Summary for Policymakers — Global Warming of 1.5 ºC. [online] Available at: <https://www.ipcc.ch/sr15/chapter/spm/>
[Accessed 23 May 2021].
The Climate Reality Project. 2019. Why Is 1.5 Degrees the Danger Line for Global Warming?. [online] Available at:
<https://www.climaterealityproject.org/blog/why-15-degrees-danger-line-global-warming> [Accessed 23 May 2021].
Van den Bijgaart, I., Gerlagh, R., & Liski, M. (2016). A simple formula for the social cost of carbon. Journal of Environmental Economics and
Management, 77, 75-94.