EXCHANGE RATES AND CLIMATE CHANGE: AN APPLICATION OF FUND

Richard Tol

No FNU-45, Working Papers from Research unit Sustainability and Global Change, Hamburg University

Abstract: As economic and emissions scenarios assume convergence of per capita incomes, they are sensitivity to the exchange rate used for international comparison. Particularly, developing countries grow slower with a purchasing power exchange rate than with a market exchange rate. Different exchange rates may lead to scenarios with very different per capita income. However, these scenarios also assume convergence of energy intensities, which at least partly offsets the income effect, so that scenarios with different exchange rates would differ less in greenhouse gas emissions. Differences become smaller still if atmospheric concentrations and global warming is considered. However, differences become larger again if one considers the costs of meeting a certain stabilisation target, as the gap between baseline and target is more sensitive to the exchange rate used than the baseline itself. Differences also grow larger if one looks at climate change impacts, which are determined not just by climate change but also by development. The sensitivity to the exchange rate is purely due to imperfect data, imperfect statistical analysis of data, a crude spatial resolution, and imperfect models.

Keywords: Climate change; emissions scenarios; purchasing power parity; market exchange rate (search for similar items in EconPapers)
JEL-codes: Q54 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2004-06, Revised 2004-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published, Climatic Change, 75, 59-80

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