NEWS: placing a dollar cost on potential climate threats proved hard for IPCC scientists and economists
By Gerard Wynn
It is difficult to put a dollar cost on the threat of climate change, a UN climate panel said on Monday, pushing back against the efforts of economists to compare the cost of cutting carbon emissions with doing nothing.
Governments and people could instead base their decisions, on how far to cut emissions, on the chances of avoiding serious dangers such as sea level rise, crop damage and species extinctions.
The report by the UN’s Intergovernmental Panel on Climate Change (IPCC) was the second in a three-part series documenting evidence, impacts and steps to cut greenhouse gas emissions.
The problem of climate change, especially at higher levels of warming, was too uncertain and unpredictable to monetise in a deterministic way, one of the lead authors of the report, Stanford University’s Chris Field, told reporters.
Economists have differed strongly over estimates for the future costs of climate change, using complicated assumptions over how easily future generations could deal with droughts, floods and rising seas, and how wealthy they might be, captured in the notion of a “discount rate”.
A high discount rate assumed adaptation was easier and future peoples richer, and reduced the present value of future climate damage.
The British economist Nicholas Stern used a very low discount rate in his “Stern Review: the Economics of Climate Change”, published in 2006.
As a result, he famously calculated that the cost of climate change damage would be up to twenty times greater than the cost of cutting emissions, thus presenting an argument for urgent action.
The IPCC on Monday backed away from the issue, saying “global economic impacts from climate change are difficult to estimate”.
“Economic impact estimates completed over the past 20 years vary in their coverage of subsets of economic sectors and depend on a large number of assumptions, many of which are disputable, and many estimates do not account for catastrophic changes, tipping points, and many other factors.”
“Estimates vary strongly with the assumed damage function and discount rate.”
The Stern Review used a very low discount rate of 0.1% per year to estimate very large costs from doing nothing about climate change.
The former chief economist of the World Bank calculated that climate change could cause damage equivalent to up to 20% of global economic output, or GDP.
That compared with a cost of cutting greenhouse gas emissions of as little as 1% of GDP.
“Hundreds of millions of people could suffer hunger, water shortages and coastal flooding as the world warms,” Stern’s report warned.
The highly regarded Yale University economist William Nordhaus strongly disputed those results.
“An examination of the (Stern) Review’s radical revision of the economics of climate change finds … that it depends decisively on the assumption of a near-zero time discount rate,” he said, in an article published in the Journal of Economic Literature in 2007.
“The central questions about global warming policy – how much, how fast, and how costly – remain open. The Review informs but does not answer these fundamental questions.”
The IPCC did supply an estimate for the cost of damage from about 2 degrees Celsius global warming, at 0.2 to 2% of GDP (called “income”).
That estimate served to illustrate the controversy.
One of the two IPCC “coordinating lead authors” dealing with that particular topic, the economist Richard Tol, said he had pulled out of the writing team because the report had become too alarmist.
Evidence of a tug of war is found in the changing language between a draft summary report from October 2013, and the final summary report published on Monday.
The final IPCC summary inserted the comment that such calculations were “difficult”.
“Losses are more likely than not to be greater, rather than smaller, than this range,” it added.
“Disaster loss estimates are lower bound estimates because many impacts, such as loss of human lives, cultural heritage, and ecosystem services, are difficult to value and monetize, and thus they are poorly reflected in estimates of losses,” it also inserted into the original draft summary.