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Exchange rates and climate change: An application of FUND

journal contribution
posted on 2023-06-08, 11:08 authored by Richard TolRichard Tol
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 are project to 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 incomes. 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.

History

Publication status

  • Published

Journal

Climatic Change

ISSN

0165-0009

Publisher

Springer Verlag

Issue

1-2

Volume

75

Page range

59-80

Department affiliated with

  • Economics Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2012-04-19

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    University of Sussex (Publications)

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