The economy-wide implications of sea level rise in 2050 are estimated using a static computable general equilibrium model. This allows for a better estimate of the welfare effects of sea level rise than the common direct cost estimates; and for an estimate of the impact of sea level rise on greenhouse gas emissions. Overall, general equilibrium effects increase the welfare costs of sea level rise, but not necessarily in every sector or region. In the absence of coastal protection, economies that rely most on agriculture are hit hardest. Although energy is substituted for land, overall energy consumption falls with the shrinking economy, hurting energy exporters. With full coastal protection, GDP increases, particularly in regions with substantial dike building, but utility falls, least in regions that protect their coasts and export energy. Energy prices rise and energy consumption falls. The costs of full protection exceed the costs of losing land. The results also show direct costs – the usual method for estimating welfare changes due to sea level rise – are a bad approximation of the general equilibrium welfare effects; previous estimates of the economic impact of sea level rise are therefore biased.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Beniston M., Tol R. S. J., Delecolle R., Hoermann G., Iglesias A., Innes J., McMicheal A. J., Martens W. J. M., Nemesova I., Nicholls R. J., Toth F. L. (1998). Europe. In: Watson R. T., Zinyowera M. C., Moss R. H. (eds), The Regional Impacts of Climate Change – An Assessment of Vulnerability, A Special Report of IPCC Working Group II. Cambridge University Press, Cambridge, pp. 149–185
Berrittella M., Bigano A., Roson R., Tol R. S. J. (2006). A General Equilibrium Analysis of Climate Change Impacts on Tourism. Tourism Management 27(5):913–924
Bijlsma L., Ehler C. N., Klein R. J. T., Kulshrestha S. M., McLean R. F., Mimura N., Nicholls R. J., Nurse L. A., Perez Nieto H., Stakhiv E. Z., Turner R. K., Warrick R. A. (1996). Coastal Zones and Small Islands. In: Watson R. T., Zinyowera M. C., Moss R. H. (eds), Climate Change 1995: Impacts, Adaptations and Mitigation of Climate Change: Scientific-Technical Analyses –Contribution of Working Group II to the Second Assessment Report of the Intergovernmental Panel on Climate Change 1 edn. Cambridge University Press, Cambridge, pp. 289–324
Bosello F., Roson R., Tol R. S. J. (2006). Economy-wide Estimates of the Implications of Climate Change: Human Health. Ecological Economics 58:579–591
Broadus J. M. (1996). Economizing Human Responses to Subsidence and Rising Sea Level. In: Milliman J. D., Haq B. U. (eds), Sea Level Rise and Coastal Subsidence. Kluwer Academic Publishers, Dordrecht, pp. 313–325
Burniaux, J.-M. and T. P. Truong (2002), GTAP-E: An Energy-Environmental Version of the GTAP Model. GTAP Technical Paper No. 16 (http://www.gtap.org)
Cline W. R. (1992). The Economics of Global Warming. Institute for International Economics, Washington, D.C.
Darwin R. F., Tol R. S. J. (2001). Estimates of the Economic Effects of Sea Level Rise. Environmental and Resource Economics 19:113–129
Deke, O., K. G. Hooss, C. Kasten, G. Klepper and K. Springer (2001), Economic Impact of Climate Change: Simulations with a Regionalized Climate-Economy Model. Kiel Institute of World Economics, Kiel, 1065
Dixon, P. and M. Rimmer (2002), Dynamic General Equilibrium Modeling for Forecasting and Policy. North Holland
Fankhauser S. (1994). Protection vs. Retreat – The Economic Costs of Sea Level Rise. Environment and Planning A 27:299–319
Fankhauser S., Tol R. S. J. (2005). On Climate Change and Economic Growth. Resource and Energy Economics 27:1–17
Hertel, T. W. (1996), Global Trade Analysis: Modeling and Applications. Cambridge University Press
Hertel, T. W. and M. Tsigas (2002), GTAP Data Base Documentation, Chapter 18.c “Primary Factors Shares” (http://www.gtap.org)
Hoozemans, F. M. J., M. Marchand and H. A. Pennekamp (1993), A Global Vulnerability Analysis: Vulnerability Assessment for Population, Coastal Wetlands and Rice Production at a Global Scale (second, revised edition). Delft Hydraulics, Delft
Houghton, J. T., Y. Ding, D. J. Griggs, M. Noguer, P. J. van der Linden and D. Xiaosu, eds. (2001), Climate Change 2001: The Scientific Basis – Contribution of Working Group I to the Third Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge: Cambridge University Press
IMAGE (2001), The IMAGE 2.2 Implementation of the SRES Scenarios. RIVM CD-ROM Publication 481508018, Bilthoven, The Netherlands
IPCC CZMS (1990), Strategies for Adaption to Sea Level Rise. Report of the Coastal Zone Management Subgroup, Response Strategies Working Group of the Intergovernmental Panel on Climate Change, Ministry of Transport and Public Works, The Hague
IPCC CZMS (1992), ‘A Common Methodology for Assessing Vulnerability to Sea-Level Rise-second revision’, Appendix C in Global Climate Change and the Rising Challenge of the Sea. Report of the Coastal Zone Management Subgroup, Response Strategies Working Group of the Intergovernmental Panel on Climate Change, Ministry of Transport, Public Works and Water Management, The Hague
Jansen, H. M. A., O. J. Kuik and C. K. Spiegel (1991), ‘Impacts of Sea Level Rise: An Economic Approach,’ in Climate Change – Evaluating the Socio-Economic Impacts. Paris: OECD
Kemfert C. (2002). An Integrated Assessment Model of Economy-Energy-Climate – The Model Wiagem. Integrated Assessment 3(4):281–298
McKibbin W. J., Wilcoxen P. J. (1998). The Theoretical and Empirical Structure of the GCubed Model. Economic Modelling 16(1):123–148
McLean, R.F., A. Tsyban, V. Burkett, J. O. Codignott, D. L. Forbes, N. Mimura, R. J. Beamish and V. Ittekot (2001), ‘Coastal Zones and Marine Ecosystems’, Chapter 6 in J. J. McCarthy, O. F. Canziani, N. A. Leary, D. J. Dokken and K. S. White, eds., Climate Change 2001: Impacts, Adaptation and Vulnerability – Contribution of Working Group II to the Third Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge: Cambridge University Press
Nicholls R. J., Leatherman S. P. (1995). Global Sea-level Rise. In: Strzepek K. M., Smith J. B. (eds), When Climate Changes: Potential Impact and Implications. Cambridge University Press, Cambridge
Nicholls R. J., S. P. Leatherman, K. C. Dennis and C. R. Volonte (1995), ‘Impacts and Responses to Sea-Level Rise: Qualitative and Quantitative Assessments’, Journal of Coastal Research Special Issue 14, 26–43
Nordhaus W. D. (1991). To Slow or Not to Slow: The Economics of the Greenhouse Effect. Economic Journal 101:920–937
Nordhaus W. D. (1994). Managing the Global Commons: The Economics of Climate Change. The MIT Press, Cambridge
Rijsberman, F. R. (1991), ‘Potential Costs of Adapting to Sea Level Rise in OECD Countries,’ in Responding to Climate Change: Selected Economic Issues (pp. 11–50). Paris: OECD
Roson, R. (2003), Modelling the Economic Impact of Climate Change. EEE Working Paper No. 9, ICTP, 2003, and proceedings of the 2003 EcoMod Conference, Istanbul, July 2003
Roson R., Tol R. S. J. (2006). An Integrated Assessment Model of Economy-Energy-Climate – The Model Wiagem: A Comment. The Integrated Assessment Journal 6(1):75–82
SCOR Working Group 89 (1991). The Response of Beaches to Sea Level Changes: A Review of Predictive Models. Journal of Coastal Research 7(3):895–921
Smith, J. B., H.-J. Schellnhuber, M. M. Q. Mirza, S. Fankhauser, R. Leemans, E. Lin, L. Ogallo, B. Pittock, R. G. Richels, C. Rosenzweig, R. S. J. Tol, J. P. Weyant and G. W. Yohe (2001), ‘Vulnerability to Climate Change and Reasons for Concern: A Synthesis’, Chapter 19, in J. J. McCarthy, O. F. Canziani, N. A. Leary, D. J. Dokken and K. S. White, eds., Climate Change 2001: Impacts, Adaptation, and Vulnerability (pp. 913–967). Cambridge: Cambridge University Press
Titus, J. G. (1992), ‘The Costs of Climate Change to the United States’, in S. K. Majumdar et al., eds., Global Climate Change: Implications, Challenges and Mitigation Measures (pp. 384–409). Easton: Pennsylvania Academy of Science
Titus J. G., Park R. A., Leatherman S. P., Weggel J. R., Greene M. S., Mausel P. W., Brown S., Gaunt C., Trehan M., Yohe G. W. (1998). Greenhouse Effect and Sea Level Rise: The Cost of Holding Back the Sea. Coastal Management 19:171–204
Tol R. S. J. (1995). The Damage Costs of Climate Change Toward More Comprehensive Calculations. Environmental and Resource Economics 5:353–374
Tol R. S. J. (1996). The Damage Costs of Climate Change Towards a Dynamic Representation. Ecological Economics 19:67–90
Tol R. S. J. (2002). Estimates of the Damage Costs of Climate Change – Part 1: Benchmark Estimates. Environmental and Resource Economics 21:47–73
Turner R. K., Adger W. N., Doktor P. (1995). Assessing the Economic Costs of Sea Level Rise. Environment and Planning A 27:1777–1796
US DoC (1992), Statistical Abstract of the United States. United States Department of Commerce Bureau of the Census, Washington, D.C.
US DoC (1993), Survey of Current Business. United States Department of Commerce Bureau of Economic Analysis, Washington, D.C.
WRI (2002), World Resources Database 2000–2001. World Resources Institute, Washington D.C.
Yohe G. W. (1990). The Cost of Not Holding Back the Sea Toward a National Sample of Economic Vulnerability. Coastal Management 18:403-431
Yohe G. W., Schlesinger M. E. (1998). Sea-Level Change: The Expected Economic Cost of Protection or Abandonment in the United States. Climatic Change 38:447–472
Yohe G. W., Neumann J. E., Ameden H. (1995). Assessing the Economic Cost of Greenhouse-Induced Sea Level Rise: Methods and Applications in Support of a National Survey. Journal of Environmental Economics and Management 29:S78–S97
Yohe G. W., Neumann J. E., Marshall P. (1999). The Economic Cost Induced by Sea Level Rise in the United States. In: Mendelsohn R. O., Neumann J. E. (eds), The Impact of Climate Change on the United States Economy. Cambridge University Press, Cambridge, pp. 178–208
Yohe G. W., Neumann J. E., Marshall P., Ameden H. (1996). The Economics Costs of Sea Level Rise on US Coastal Properties. Climatic Change 32:387–410
We had useful discussions about the topics of this paper with Andrea Bigano, Carlo Carraro, Sam Fankhauser, Marzio Galeotti, Andrea Galvan, Claudia Kemfert, Hans Kremers, Katrin Rehdanz and Kerstin Ronneberger. Useful comments on an earlier draft of this paper were provided by J.A. Smulders and two anonymous referees, but remaining errors are only ours. Marco Lazzarin gave essential support during early stages of the research, in particular on model calibration, adaptation and simulation runs. The Volkswagen Foundation through the ECOBICE project, the EU DG Research Environment and Climate Programme through the DINAS-Coast (EVK2-2000-22024) and ENSEMBLES projects, the US National Science Foundation through the Center for Integrated Study of the Human Dimensions of Global Change (SBR-9521914), the Michael Otto Foundation for Environmental Protection, and the Ecological and Environmental Economics programme at ICTP-Trieste provided welcome financial support.
A Concise Description of GTAP-EF Model Structure
The GTAP model is a standard CGE static model, distributed with the GTAP database of the world economy (http://www.gtap.org).
The model structure is fully described in Hertel (1996), where the interested reader can also find various simulation examples. Over the years, the model structure has slightly changed, often because of finer industrial disaggregation levels achieved in subsequent versions of the database.
Burniaux and Truong (2002) developed a special variant of the model, called GTAP-E, best suited for the analysis of energy markets and environmental policies. Basically, the main changes in the basic structure are:
energy factors are taken out from the set of intermediate inputs, allowing for more substitution possibilities, and are inserted in a nested level of substitution with capital;
database and model are extended to account for CO2 emissions, related to energy consumption.
The model described in this paper (GTAP-EF) is a further refinement of GTAP-E, in which more industries are considered. In addition, some model equations have been changed in specific simulation experiments. This appendix provides a concise description of the model structure.
As in all CGE models, GTAP-EF makes use of the Walrasian perfect competition paradigm to simulate adjustment processes, although the inclusion of some elements of imperfect competition is also possible.
Industries are modelled through a representative firm, minimizing costs while taking prices are given. In turn, output prices are given by average production costs. The production functions are specified via a series of nested CES functions, with nesting as displayed in the tree diagram of Figure A1.
Notice that domestic and foreign inputs are not perfect substitutes, according to the so-called “Armington assumption”, which accounts for – amongst others – product heterogeneity.
In general, inputs grouped together are more easily substitutable among themselves than with other elements outside the nest. For example, imports can more easily be substituted in terms of foreign production source, rather than between domestic production and one specific foreign country of origin. Analogously, composite energy inputs are more substitutable with capital than with other factors.
A representative consumer in each region receives income, defined as the service value of national primary factors (natural resources, land, labour, capital). Capital and labour are perfectly mobile domestically but immobile internationally. Land and natural resources, on the other hand, are industry-specific.
This income is used to finance the expenditure of three classes of expenditure: aggregate household consumption, public consumption and savings (Figure A2). The expenditure shares are generally fixed, which amounts to saying that the top-level utility function has a Cobb-Douglas specification. Also notice that savings generate utility, and this can be interpreted as a reduced form of intertemporal utility.
Public consumption is split in a series of alternative consumption items, again according to a Cobb-Douglas specification. However, almost all expenditure is actually concentrated in one specific industry: Non-market Services.
Private consumption is analogously split in a series of alternative composite Armington aggregates. However, the functional specification used at this level is the Constant Difference in Elasticities form: a non-homothetic function, which is used to account for possible differences in income elasticities for the various consumption goods.
In the GTAP model and its variants, two industries are treated in a special way and are not related to any country, viz. international transport and international investment production.
International transport is a world industry, which produces the transportation services associated with the movement of goods between origin and destination regions, thereby determining the cost margin between f.o.b. and c.i.f. prices. Transport services are produced by means of factors submitted by all countries, in variable proportions.
In a similar way, a hypothetical world bank collects savings from all regions and allocates investments so as to achieve equality of expected future rates of return. Expected returns are linked to current returns and are defined through the following equation:
where: r is the rate of return in region s (superscript e stands for expected, c for current), kb is the capital stock level at the beginning of the year, ke is the capital stock at the end of the year, after depreciation and new investment have taken place. ρ is an elasticity parameter, possibly varying by region, determining the sensitivity of regional investments to rate of returns differentials. When the model is calibrated, all variables on the right-hand side are known. Therefore, to be consistent with the assumption of equalization of expected returns, this elasticity parameter ρ is estimated accordingly. In this way, investment funds are modelled as imperfectly mobile in international markets.
Future returns are determined, through a kind of adaptive expectations, from current returns, where it is also recognized that higher future stocks will lower future returns. Regional investments determine the stocks of capital at the end of each period, so that the arbitrage condition on expected returns is satisfied.
In this way, savings and investments are equalized at the international but not at the regional level. Because of accounting identities, any financial imbalance mirrors a trade deficit or surplus in each region.
About this article
Cite this article
Bosello, F., Roson, R. & Tol, R.S.J. Economy-wide Estimates of the Implications of Climate Change: Sea Level Rise. Environ Resource Econ 37, 549–571 (2007). https://doi.org/10.1007/s10640-006-9048-5
- computable general equilibrium
- impacts of climate change
- sea level rise