The Two Numbers Climate Economists Can’t Stand to See Together

Photographer: Talia Herman/Corbis

A car at the bottom of the Almaden Reservoir, which due to dry weather conditions is at a record low of 5%, in San Jose, California. Close

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Photographer: Talia Herman/Corbis

A car at the bottom of the Almaden Reservoir, which due to dry weather conditions is at a record low of 5%, in San Jose, California.

Okay, fine. You're persuaded that climate change is a problem. So if we can work out the costs and benefits of reducing carbon emissions, we'll be able to decide on the cheapest course of action, right?

Not so fast. The two numbers that you'd need to do that apparently shouldn't be compared, under penalty of lectures from either climate scientists or economists. Both numbers come from separate draft reports that are still being finalized by the Intergovernmental Panel on Climate Change.

Here’s what they are, and what they mean.

The first number is a projection of how much global warming might cost in damages: from 0.2 percent to 2 percent of economic output, if temperatures rise 2.5 degrees Celsius (4.5 degrees Fahrenheit) from pre-industrial levels.

That’s from the "impacts, adaptation and vulnerability" working group of the IPCC, which will published its new report on Monday. There's no timeline given for the warming; for reference, temperatures have already risen about 0.85 of a degree since 1880.

The second is an estimate of how much of global GDP it might cost to prevent dangerous warming: as much as 4 percent by 2030. That’s from the "mitigation" working group, which looks at what tools we have to cut greenhouse gases, which comes out April 13.

At first glance, the numbers suggest doing nothing to protect the climate may be cheaper than limiting fossil fuel emissions, even if extreme heat becomes normal and sea levels rise as scientists expect.

Easier Said Than Done

In fact, the figures have little to do with each other.

They're measuring different things. The first, “impact” number compares the cost of damage with a no-warming economic growth scenario; the second, or “policy cost” number compares the cost of reducing carbon emissions with our current high-carbon trajectory, according to Dimitri Zenghelis, a climate economist at the London School of Economics. “They absolutely can’t be compared,” he said.

What they do show together is the difficulty economists have in making their findings useful to policy makers and the public.

The reports are important because they'll guide the 194 nations that are trying to broker by the end of 2015 a new deal to fight climate change. The IPCC’s findings will help inform the pace of emissions cuts and the scale of spending on infrastructure, from renewable energy plants to coastal defenses. If all countries can be persuaded to act together, the costs can be kept down.

"The cost of managing reasonable climate targets is small if it is done in an efficient manner and with participation of nations,'' said William Nordhaus, a professor of economics at Yale University and the author of the recent book, The Climate Casino.

As a general matter, cost-benefit analyses of climate action (or inaction) poorly capture the central problem, that there’s a small but increasing probability of utter catastrophe. So we might want to spend more now to avoid greater possible damages in the future.

"As human beings we tend to act to avoid those kinds of enormous planetary scale disasters, just as you'd pay an insurance premium to protect your house," said Zenghelis.

The cost of keeping global warming to a reasonably safe level of 2 degrees Celsius (3.6 degrees Fahrenheit) since industrialization is mind-boggling in anyone’s calculation. The International Energy Agency has estimated that to limit fossil fuel emissions, the world needs to invest $16 trillion, about the same as U.S. annual economic output.

The IPCC will offer new insight on Monday with the second instalment of its fifth assessment of global warming since 1988. Rajendra Pachauri, who leads the organization, is due to hold a press conference at 9 a.m. on March 31 in Yokohama, Japan.

Damage Estimates

Tallying up the costs of climate change is fraught with pitfalls. If we did nothing to reduce emissions, the temperature rise isn’t likely to stop at 2.5 degrees, the level the IPCC damage projection considers.

There’s little formal economic analysis of the effects of a greater than 3-degree Celsius rise in global temperatures, said Chris Field, the U.S.-based scientist who’s overseeing next week's report. The World Bank says the Earth is on track to warm by 4 degrees. That's not noticeable in the course of an afternoon. Globally, it's the difference between the last ice age and the climate that prevailed through most of human history.

There’s been “little progress in estimating future damages or the risks from abrupt and catastrophic climate change,” such as the melting of the Greenland ice sheet, said Yale's Nordhaus.

The estimate also fails to weight damages. It's a global number, but the globe won't be uniformly affected. Low-lying and poor regions are most at risk.

The valuations don’t account for the effect on nations like the Maldives and Tuvalu, which may be wiped off the map by rising seas, said Field, founding director of the Carnegie Institution’s Global Ecology program and a professor at Stanford University. Or richer cities like Miami and New Orleans.

The Costs of Action

The other side of the equation is the cost of action -- the price society will have to pay for switching from fossil fuels to renewable energy, and systems that use less power. Keeping emissions down to levels compatible with a 2-degree temperature rise would cost 1 percent to 4 percent of output in 2030 and 2 percent to 12 percent in 2100, according to the draft of the mitigation report, which is due to be released on April 13.

The end-of-century number is fraught because it doesn’t give much account for improvements in efficiency and technology in the next few decades, said Zenghelis, the LSE economist. A future global energy system made largely of renewables may have far fewer expenses than one fueled by increasingly hard-to-get oil and gas. The IPCC projection doesn’t seem to account for that, he said.

“That strikes me as insane,” Zenghelis said.

The IPCC draft acknowledges that the mitigation cost calculations, ``don’t consider the benefits of slower climate change such as improved health, and the reduction in impacts of warming.''

Putting It All Together

The IPCC will publish a "synthesis report" in October that shuffles together findings from the science study (released in September), Monday's impacts report and the economic tome coming in April. One of its main jobs is to "integrate information on the benefits of reducing the risk of dangerous climate change and on the costs of mitigation," said Ottmar Edenhofer, chief economist at the Potsdam Institute for Climate Impact Research in Germany. That may not be so easy, because the judgments that go into a cost-benefit analysis “are not necessarily shared by all the scientists,” he said.

The numbers might be disputed and imprecise but one thing about the costs is as certain climate gets: They're coming.

“If we make the wrong choices now we’ll be dealing with them for decades,” said Zenghelis. “The longer we delay, the higher the cost will actually be.”

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