Economic Modelling of Climate-Change Impacts

KEY MESSAGES The monetary cost of climate change is now expected to be higher than many earlier studies suggested , because these studies tended not to include some of the most uncertain but potentially most damaging impacts. Modelling the overall impact of climate change is a formidable challenge, involving forecasting over a century or more as the effects appear with long lags and are very longlived. The limitations to our ability to model over such a time scale demand caution in interpreting results, but projections can illustrate the risks involved – and policy here is about the economics of risk and uncertainty. Most formal modelling has used as a starting point 2–3°C warming. In this temperature range, the cost of climate change could be equivalent to around a 0–3% loss in global GDP from what could have been achieved in a world without climate change. Poor countries will suffer higher costs. However, ‘business as usual’ (BAU) temperature increases may exceed 2–3°C by the end of this century. This increases the likelihood of a wider range of impacts than previously considered, more difficult to quantify, such as abrupt and large-scale climate change. With 5–6°C warming, models that include the risk of abrupt and large-scale climate change estimate a 5–10% loss in global GDP, with poor countries suffering costs in excess of 10%. The risks, however, cover a very broad range and involve the possibility of much higher losses. This underlines the importance of revisiting past estimates.