The economics of global warming refers to the economic costs and benefits of global warming, and to the economic impacts of actions aimed at the mitigation of and adaptation to global warming. Estimates come from a variety of sources, including integrated assessment models, which seek to combine socio-economic and biophysical assessments of climate change.
At an Intergovernmental Panel on Climate Change (IPCC) conference in April 2007, delegates from 120 nations discussed the specific economic and societal costs of mitigating global warming, and eventually approved the IPCC Fourth Assessment Report.
Projections of climate change
Integrated assessment models provide different projections as to the amount of future climate change. The IPCC have produced a report (SRES) where a number of different future scenarios are described. The scenarios differ in whether the future will be:
- 'more environmental' (scenarios with the 'B' prefix) or 'market-oriented' (scenarios with the 'A' prefix)
- 'more global' (scenarios with the '1' suffix) or 'more regional' (scenarios with the '2' suffix)
Forecasts of changes in global mean temperature for these scenarios are given in the IPCC report. The 'best estimate' global mean temperature increase (2090 to 2099 relative to the period 1980-1999) for these scenarios range from 1.8 degrees Celsius for the B1 scenario, to 4.0 degrees Celsius for the A1FI scenario. The 'likely' range (greater than 66% probability) over the same period for all the SRES scenarios is a global mean temperature increase of between 1.1 to 6.4 degrees Celsius.
A 2009 study by the MIT Joint Program on the Science and Policy of Global Change looked at future predictions of climate change. According to this study, there is a 57% likelihood of exceeding a 5 degrees Celsius increase in global mean temperature by 2100 (relative to the base years of 1981 to 2000). This is the 'no policy' estimate. In the 'policy' estimate, where greenhouse gas emissions are controlled to relatively low levels, the likeliest increase in global mean temperature for the same period is between 2 and 2.5 degrees Celsius.
According to a 2008 study by the Hadley Centre, for a 'business-as-usual' increase in global greenhouse gas emissions of 132% (from 1990 emission levels) by 2050, the rise in global mean temperature will be between 5.5 and 7.1 degrees Celsius (relative to pre-industrial levels) by 2100. In this estimate, the likeliest increase in global mean temperature is 5.5 degrees Celsius (50% chance of occurring), and the worst case increase in global mean temperature is 7.1 degrees Celsius (10% chance of occurring). The Hadley Centre study also looked at other emissions scenarios. In a scenario where there is an early and rapid decline in emissions (a 47% decrease from 1990 emission levels by 2050), global mean temperature is predicted to rise 2.1 to 2.8 degrees Celsius by 2100. For this scenario, 2.1 degrees Celsius is the likeliest increase in global mean temperature (50% chance of occurring), and 2.8 degrees Celsius the worst case increase in global mean temperature (10% chance of occurring).
Economic impacts of global warming
Main article: Effects of global warmingAggregate impacts
The IPCC Fourth Assessment Report, published in 2007, looked at the aggregate economic impacts of climate change:
Impacts of climate change are very likely to impose net annual costs, which will increase over time as global temperatures increase. Peer-reviewed estimates of the social cost of carbon in 2005 average US$12 per tonne of CO 2 , but the range from 100 estimates is large (-$3 to $95/tCO 2 ). This is due in large part to differences in assumptions regarding climate sensitivity, response lags, the treatment of risk and equity, economic and non-economic impacts, the inclusion of potentially catastrophic losses and discount rates. Aggregate estimates of costs mask significant differences in impacts across sectors, regions and populations and very likely underestimate damage costs because they cannot include many non-quantifiable impacts.
Aggregate impacts have also been quantified in other metrics: for example, climate change over the next century is likely to adversely affect hundreds of millions of people through increased coastal flooding, reductions in water supplies, increased malnutrition and increased health impacts.
According to the IPCC Report, with medium confidence (around 5/10 chance of being correct): 'aggregate market sector impacts of 2°C global mean temperature increase, above the 1990 level, will be plus or minus a few percent of global GDP, with most people in the world negatively affected. Studies of aggregate economic impacts found net damages beyond temperature increases of 2 to 3°C above 1990 levels, with increasing damages at higher magnitudes of climate change.' The Report adds that: 'On balance, the current generation of aggregate estimates in the literature is more likely than not to understate the actual costs of climate change.'
The Copenhagen Consensus
The 2004 Copenhagen Consensus assessed the problem of climate change compared to other issues such as control of diseases and malnutrition. Projects were proposed to address these problems, with each project judged by a panel of eight economists:
The panel looked at three proposals, including the Kyoto Protocol, for dealing with climate change by reducing emissions of carbon. The expert panel regarded all three proposals as having costs that were likely to exceed the benefits. The panel recognised that global warming must be addressed, but agreed that approaches based on too abrupt a shift toward lower emissions of carbon are needlessly expensive. The experts expressed an interest in an alternative, proposed in one of the opponent papers, that envisaged a carbon tax much lower in the first years of implementation than the figures called for in the challenge paper, rising gradually in later years. Such a proposal however was not examined in detail in the presentations put to the panel, and so was not ranked. The panel urged increased funding for research into more affordable carbon-abatement technologies.
The three climate change proposals were rated 'bad' and finished bottom in a ranking of all projects. In the 2008 Copenhagen Consensus, out of the 30 projects evaluated, climate change projects were ranked at number 14 (R&D in low-carbon energy technologies), 29, (R&D and mitigation) and 30 (mitigation only).
The Stern Review
One of the most widely noted projections on this issue is the Stern Review, a 2006 reportby the former Chief Economist and Senior Vice-President of the World Bank, Nicholas Stern, predicts that climate change will have a serious impact on economic growth without mitigation. The report suggests that an investment of one percent of global GDP is required to mitigate the effects of climate change, with failure to do so risking a recession worth up to twenty percent of global GDP.
In the Stern Review, net monetised cost estimates of climate change were negative (i.e., net damages) for all global mean temperature increases. The Review has been criticized by some economists, saying that Stern did not consider costs past 2200, that he used an incorrect discount rate in his calculations, and that stopping or significantly slowing climate change will require deep emission cuts everywhere.
Some economists have supported Stern's approach, or argued that Stern's estimates are reasonable, even if the method by which he reached them is open to criticism. Research by Weitzman has suggested that structural uncertainty and low-probability high-impact risks are very important, and that "the influence on cost-benefit analysis of fat-tailed structural uncertainty about climate change, coupled with great unsureness about high-temperature damages, can outweigh the influence of discounting or anything else".
Criticism of aggregate costs
Some experts are critical of how economic studies aggregate costs of climate change damage.Schneider and Lane argue that because of the problems of one-metric aggregations, multiple metrics should be used to assess climate change damages.
Monetising aggregate costs of climate change often requires valuations of human welfare, the state of the environment, etc. This process is called using surrogate prices. The methodology and results of calculating surrogate prices has been described as 'problematical' by Ackerman. Using the example of the First and Second World Wars, Jaeger et al. argue that human suffering is 'incommensurable with GDP figures'.
Schneider and Lane point to the inadequacies of market-aggregation-only analysis, using Bangladesh as an example. Sea level rise due to climate change could reduce Bangladesh's GDP by about 80%, but this would only be equivalent to a reduction in global GDP of 0.1%. In a market-aggregation-only analysis, a loss of 0.1% global GDP would be described as being relatively insignificant. Schneider and Lane dispute this result, arguing that loss of life and biodiversity in Bangladesh are 'at least as important as aggregate market impacts'.
Distribution of impacts
According to the IPCC report: 'here is medium confidence that a warming of less than 2°C above 1990 levels would have net negative impacts on market sectors in many developing countries and net positive impacts on market sectors in many developed countries; and high confidence t
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