Page 147 - Ecuador's Banana Sector under Climate Change

chapter 6: climate change policies and their potential impact on ecuador’s banana sector - an economic analysis
In May, 2013, the United States Government issued revised SSC estimates. Table 48 indicates that these estimates will increase at five-year intervals until 2050. Columns 2, 3 and 4 differ because of the discount rate that is used to calculate the long-term costs.44 The lower the discount rate, the less rapid the future discount will be; therefore, it is assumed that the SCC will be at its lowest level for the 5 percent discount rate and at its highest level for the 2.5 percent discount rate. Some experts will contend that the future should not be discounted in SCC estimates, since it will discriminate against future generations. A discount rate of zero, however, will result in significantly higher SCC values. Discount rates between 2 percent and 3 percent are generally accepted, since they represent a range of long-term real interest rates. Column 5 in the table - unlike the others - is based on the 95th percentile of the distribution of SCC estimates, while those in columns 2, 3 and 4 are based on the average of the distribution. To incorporate some of the increased fat-tail risks of climate change, a value is applied from the upper end of the distribution (Pindyck, 2013).
2.1 The demand for bananas
From various life-cycle analyses (LCAs) of the carbon footprint of bananas - exported from Central America and sold in EU and United States supermarkets - there is approximately 1 kg-CO2e/kg of bananas (Table 51), later discussed. To assess the impact of a broadly applied emission tax on the consumer demand for bananas, consideration should be given to how the emission tax is applied to other goods and services, since the relative tax rate will influence consumer demand. Figure 46 illustrates the GHG emissions per kilo of various food items at the retail
Table 48 Revised social cost of CO2, 2010-50
(in 2007 US dollars per metric tonne of CO2)
Discount Rate
5.0%
3.0%
2.5%
3.0%
Basis:
Avg.
Avg.
Avg.
95th
2010 11
2015 12
2020 12
2025 14
2030 16
2035 19
2040 21
2045 24
2050 27
33 52 90
38 58 109
43 65 129
48 70 144
52 76 159
57 81 176
62 87 192
66 92 206
71 98 221
Source: Interagency Working Group on Social Cost of Carbon, United States Government (2013)
44 Dividing 70 by the discount rate shows how much future costs are discounted, relative to current costs. For example, a discount rate of 5 percent value costs 14 years in the future at half the value of current costs (70/5 = 14); the same discount rate value costs 28 years in the future at one quarter of current costs; and so forth, every 14 years, the value is halved.
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