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What Climate Change Means in Dollars and Cents

How badly will global warming hurt the world economy? The answer in yesterday's new report by the Intergovernmental Panel on Climate Change is clear. Depending on the assumptions, er… uh, carry the four… add the pure rate of time preference… hmmmm, we can't say without caveats.

"Different economies will be affected differently," the report states.

Even if there was an aggregate number that economists and scientists stood behind without hemming and hawing, it wouldn’t be practical. Companies and governments couldn’t just take a global GDP loss projection and plug it into their planning curves and cost-benefit analyses. (There is a number in the report , but hemming and hawing about it, too.)

What’s needed is a much, much smaller, more user-friendly number that can translate the world of climate change risk into a language that everyone understands, that of dollars, euros, pounds, yen, yuan and on. Something more useful, professionally, to planners and strategists than even the latest volume of evidence documenting manmade climate change.

Don’t miss the BNEF Future of Energy Summit, April 7-9 in New York City. Look who’s coming . Follow #BNEF2014 on Twitter.

Fortunately, there is such a thing. It represents the damage every additional ton of carbon dioxide has the potential to inflict on the world. The wonks call it "the social cost of carbon." It's a tool that helps countries account for climate risks, and in doing so, hopefully, mitigate against them. Researchers take in scientific findings -- the potentially "severe, pervasive and irreversible impacts" across natural and human systems -- and blend them into a dollar figure.

Here’s the downside. The fact that many policymakers find having a social cost of carbon to be useful doesn’t make it any easier to calculate. Its value can change depending on whom you ask, and what assumptions they make about future population, consumption, economic growth and emissions. Moderates (among resource economists) tend to guide the policy conversation. The Obama administration updated its estimate last year, to $37 a ton of carbon dioxide, for 2015; partisan outrage (among House members) ensued.

The IPCC report acknowledges, refreshingly, just how difficult the social cost of carbon is to estimate. "We're peering far into the future, study[ing] many impacts on many countries," said Richard Tol, professor of economics at the University of Sussex and co-author of the new report’s economic damages chapter, by email. "So the best you can do is uncertainty, sensitivity or robustness analysis (depending on your taste)."

And estimates do vary by taste. Reasonable stabs at the SCC vary by a factor of two, depending on assumptions economists make about demographic trends -- by a factor of at least four depending on how quickly or slowly money is discounted over time, according to chapter 10 of the report. The spread in estimates is a sign of the disagreement about how to calculate them in the first place, across vast amounts of time and geography, and through what the report enigmatically calls "states of the world."

By now, researchers have a sense of which places and peoples might be the most vulnerable to climate change. They’re confident about the leading cause. Estimates of the cost of each ton of CO2 exist in several flavors. All that’s left to do is either something or nothing.

More by Eric Roston (@eroston ):

Visit www.bloomberg.com/sustainability for the latest from Bloomberg News about energy, natural resources and global business.

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