11 March 2010

Bias in IPCC AR4 WGIII? A Guest Post by Richard Tol, Part V

This post is Part V of Richard Tol's look at the IPCC AR4 WGIII. The first four posts looked at Chapter 11. Part I is here. Part II is here. Part III is here. Part IV is here. Parts I, II and II looked at Chapter 11 in AR4 WGIII. This installment, like Part IV looks at Chapter 3.

Richard Tol is a research professor at ESRI in Ireland, one of the top 175 economists in the world and a contributor to the work of the Intergovernmental Panel on Climate Change (IPCC), where his work is widely cited. In this guest post, the fourth of a series, Richard takes a look at parts of the IPCC AR4 Working Group III, which has largely escaped scrutiny in recent months. In this Part V he concludes that,
In sum, the IPCC made a mistake in SRES. Instead of admitting and correcting the mistake in AR4, the IPCC distorts the literature review to hide the mistake.
Please have a look at Richard's full discussion below. If you have questions or criticisms of Richard's analysis please submit them in the comments, I am sure that Richard will be happy to engage.
Ignoring the Actual Balance of Views on PPP vs. MER

In parts 1, 2 and 3, I looked at Chapter 11 of the Fourth Assessment Report of Working Group III of the Intergovernmental Panel on Climate Change.

Here, as in part 4, I turn my attention to Chapter 3. The first and second order draft of the chapter and the review comments can be found here.

There was controversy over the IPCC SRES scenarios back in 2003. Ian Castles and David Henderson noted that the IPCC had used market exchange rates (MER) in lieu of purchasing power parity rates (PPP). This is an arcane bit of economics, but easily understood by anyone who was travelled: A dollar goes much further in a poor country.

Economists have long known that international comparisons of living standards using MER are just wrong. But SRES is about emissions. Emission data are derived from energy and agriculture statistics, measured in physical units. So, PPP v MER is irrelevant. Or is it?

The SRES scenarios assume convergence: Poorer countries grow faster than richer countries. In the very long run, everyone is equally rich. If measured in MER, the gap between rich and poor is large; and poor countries grow fast. If measured in PPP, the gap is smaller, and economic growth is slower. Economic growth drives emissions growth. Therefore, PPP v MER matters.

The Summary for Policy Makers of WG3 reads as follows:
Available studies indicate that the choice of exchange rate for GDP (MER or PPP) does not appreciably affect the projected emissions, when used consistently.
In other words, PPP v MER is irrelevant. Castles and Henderson are dismissed as “inconsistent”.

Chapter 3 devotes almost three pages (180-184) to this issue. Here are a few citations. On p. 171 (summary):
In the case of the SRES, the emissions trajectories were the same whether economic activities in the four scenario families were measured in MER or PPP.
On p. 181:
Nordhaus (2005) recommends that economic growth scenarios should be constructed by using regional or national accounting figures (including growth rates) for each region, but using PPP exchange rates for aggregating regions and updating over time by use of a superlative price index. In contrast, Timmer (2005) actually prefers the use of MER data in long-term modelling, as such data are more readily available, and many international relations within the model are based on MER.
At first sight, this paragraph is balanced – but Nordhaus is a leading authority in climate economics and national accounting. Both papers are cited as presentations at a workshop – but Nordhaus’ paper was accepted for publication when the Second Order Draft was reviewed. Timmer’s paper was never submitted.

On p. 183:
Manne and Richels (2003) and McKibbin et al. (2004a, 2004b) find some differences in emission levels between using PPP-based and MER-based estimates.
According to Manne and Richels (2003), carbon dioxide emissions in 2100 drop by 14% from 21 to 18 10^9 tonnes of carbon. They write that “virtually the entire emissions decline occurs in the non-Annex I countries”. Figure 3 suggest a drop of 21% from 14 to 11 10^9 tonnes of carbon. Does that classify as “some” or “not appreciably”?

McKibbin et al. go further: “we show that emission projections based on convergence assumptions defined in MER terms, are 40% higher by 2100 than emissions generated using a PPP comparison of income differentials between economies.” For China, the difference is over 80%; for the Less Developed Countries, almost 110%.

PPP v MER is trivialized on p. 183 of Chapter 3:
To summarize: available evidence indicates that the differences between projected emissions using MER exchange rates and PPP exchange rates are small in comparison to the uncertainties represented by the range of scenarios and the likely impacts of other parameters and assumptions made in developing scenarios, for example, technological change.
The reviewers did not agree at all with the drafts of the chapter. There were 11 votes of protest and 2 votes of support in the First Order Draft; and 16 votes of protest against 1 votes of support in the Second Order Draft.

The reviewers also alert the authors to three further, peer-reviewed papers: Dixon and Rimmer, Tol, and Smith et al. The first two papers matter because the models are specified in a different way but reach the same conclusion as Manne and Richels and McKibbin et al. (there is a substantial difference). The paper of Smith et al. matters because it shows that sulfur emissions would be different as well. These papers were not cited in the published chapter. The chapter did, however, use the phrase “evidence from the limited number of new PPP-based studies” in the summary. The “limited number” probably refers to Manne and Richels and McKibbin – that is, two papers. In fact, there are five papers – and zero papers that use a full-blown model to show the opposite.

There is also a Pielke moment. Comment FOD 3-183:
other modelling teams (IMAGE, IIASA) did not recalibrate but argue on first principles, or as Tol (forthcoming, Climatic Change) argues, on a misinterpretation of first principles (Richard Tol, Hamburg University)
comment is wrong: Tol does not reject the “no change” vision in his paper.
That, the IPCC authors know better what Tol writes about than Tol himself!

In sum, the IPCC made a mistake in SRES. Instead of admitting and correcting the mistake in AR4, the IPCC distorts the literature review to hide the mistake.