Economic damages from on-going climate change imply deeper near-term emission cuts

Schultes, Anselm and Piontek, Franziska and Soergel, Bjoern and Rogelj, Joeri and Baumstark, Lavinia and Kriegler, Elmar and Edenhofer, Ottmar and Luderer, Gunnar (2020): Economic damages from on-going climate change imply deeper near-term emission cuts.

Abstract

Current analyses of pathways limiting global warming to well below 2°C, as called for in the Paris Agreement, do not consider the climate impacts already occurring below 2°C. Here we show that accounting for these damages significantly increases the near-term ambition of transformation pathways. We use econometric estimates of climate damages on GDP growth and explicitly model the uncertainty in the time that damages persist and in the climate sensitivity. We find that carbon prices in 2030 are higher compared to the case where only the 2°C is considered; the median value is $115 per tonne of CO2. The long-term persistence of damages, while highly uncertain, is a main driver of optimal near-term climate policy. Accounting for damages on economic growth increases the gap between the currently pledged nationally determined contributions and the welfare-optimal 2030 emissions for 2°C by two thirds, compared to pathways considering the 2°C limit only.

• Item Type: MPRA Paper
• Language: English
• Keywords: Climate change; Climate change mitigation; Climate change impacts; Climate policy; International climate policy; Paris Agreement; Transformation pathways
• Subjects: F - International Economics > F5 - International Relations, National Security, and International Political Economy > F53 - International Agreements and Observance ; International Organizations; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q56 - Environment and Development ; Environment and Trade ; Sustainability ; Environmental Accounts and Accounting ; Environmental Equity ; Population Growth

References

Hope, C. & Hope, M. The social cost of CO2 in a low-growth world. Nature Climate Change 3, 722–724. doi:10.1038/nclimate1935 (2013).

Tol, R. S. J. The economic impact of climate change in the 20th and 21st centuries. Climatic Change 117, 795–808. doi:10.1007/s10584-012-0613-3 (2013).

Nordhaus, W. Estimates of the Social Cost of Carbon: Concepts and Results from the DICE-2013R Model and Alternative Approaches. Journal of the Association of Environmental and Resource Economists 1, 273–312. doi:10.1086/676035 (2014).

Lenton, T. M. et al. Tipping elements in the Earth’s climate system. Proceedings of the National Academy of Sciences 105, 1786–1793. doi:10.1073/pnas.0705414105 (2008).

Kriegler, E., Hall, J. W., Held, H., Dawson, R. & Schellnhuber, H. J. Imprecise probability assessment of tipping points in the climate system. Proceedings of the national Academy of Sciences 106, 5041–5046 (2009).

Frieler, K et al. Limiting global warming to 2 C is unlikely to save most coral reefs. Nature Climate Change 3, 165–170 (2013).

Cai, Y., Lenton, T. M. & Lontzek, T. S. Risk of multiple interacting tipping points should encourage rapid CO 2 emission reduction. Nature Climate Change 6, 520–525 (2016).

United Nations Framework Convention on Climate Change 1992. https://unfccc.int/resource/docs/convkp/conveng.pdf. 119. United Nations. Paris Agreement 2015. http://unfccc.int/files/essential_background/convention/application/pdf/english_paris_agreement.pdf.

Schellnhuber, H. J., Rahmstorf, S. & Winkelmann, R. Why the right climate target was agreed in Paris. Nature Climate Change 6, 649–653. doi:10.1038/nclimate3013 (2016).

Steffen, W. et al. Trajectories of the Earth System in the Anthropocene. Proceedings of the National Academy of Sciences 115, 8252–8259 (2018).

Umweltveränderungen, Wissenschaftlicher Beirat der Bundesregierung Globale. Wege zur Lösung globaler Umweltprobleme: Jahresgutachten 1995 (Springer, 1996).

Climate Change 2014: Mitigation of Climate Change (eds Edenhofer, O. et al.)(Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 2014).

Rogelj, J. et al. Mitigation pathways compatible with 1.5 C in the context of sustainable development (2018).

Weyant, J. Some Contributions of Integrated Assessment Models of Global ClimateChange. Review of Environmental Economics and Policy 11, 115–137. doi:10.1093/reep/rew018 (2017).

IPCC, 2014: Summary for policymakers in Climate Change 2014: Impacts,Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (eds Field, C. et al.) (Cambridge University Press, Cambridge, United Kingdom and New York,USA, 2014).

Carleton, T. A. & Hsiang, S. M. Social and economic impacts of climate. Science 353. doi:10.1126/science.aad9837 (2016).

Dell, M., Jones, B. F., Olken, B. a. & Gates, M. What Do We Learn from the Weather? The New Climate-Economy Literature. Journal of Economic Literature 52, 740–798. doi:10.3386/w19578 (2014).

Burke, M., Hsiang, S. M. & Miguel, E. Global non-linear effect of temperature on economic production. Nature, 1–16. doi:10.1038/nature15725 (2015).

Carleton, T., Hsiang, S. & Burke, M. Conflict in a changing climate. The European Physical Journal Special Topics 225, 489–511. doi:10.1140/epjst/e2015-50100-5 (2016).

Dietz, S. & Venmans, F. Cumulative carbon emissions and economic policy: in search of general principles. Journal of Environmental Economics and Management 96, 108–129 (2019).

Bansal, R., Ochoa, M. & Kiku, D. Climate change and growth risks tech. rep. (National Bureau of Economic Research, 2016).

Burke, M., Hsiang, S. M. & Miguel, E. Global non-linear effect of temperature on economic production. Nature 527, 235–239. doi:10.1038/nature15725 (2015).

Henseler, M. & Schumacher, I. The impact of weather on economic growth and its production factors. Climatic Change 154, 417–433 (2019).

Kahn, M. E. et al. Long-term macroeconomic effects of climate change: A cross-country analysis tech. rep. (National Bureau of Economic Research, 2019).

Burke, M. & Tanutama, V. Climatic Constraints on Aggregate Economic Output, Working Paper 25779 (National Bureau of Economic Research, 2019). doi:10.3386/w25779.

Hope, C. The Marginal Impact of CO2 from PAGE2002: An Integrated Assessment Model Incorporating the IPCC’s Five Reasons for Concern. The Integrated Assessment Journal 6, 19–56 (2006).

Diaz, D. & Moore, F. Quantifying the economic risks of climate change. Nature Climate Change 7, 774–782. doi:10.1038/nclimate3411 (2017).

Ricke, K., Drouet, L., Caldeira, K. & Tavoni, M. Country-level social cost of carbon. Nature Climate Change 8, 895–900 (2018).

Moore, F. C. & Diaz, D. B. Temperature impacts on economic growth warrant stringent mitigation policy. Nature Climate Change 5, 127–132. doi:10.1038/nclimate2481 (2015).

Dietz, S. & Stern, N. Endogenous growth, convexity of damage and climate risk: how Nordhaus’ framework supports deep cuts in carbon emissions. The Economic Journal 125, 574–620 (2015).

Moyer, E., Woolley, M., Matteson, N., Glotter, M. & Weisbach, D. A. Climate Impacts on Economic Growth as Drivers of Uncertainty in the Social Cost of Carbon. The Journal of Legel Studies 43, 401–425 (2014).

Ueckerdt, F. et al. The economically optimal warming limit of the planet. Earth System Dynamics 10 (2019).

Glanemann, N., Willner, S. N. & Levermann, A. Paris Climate Agreement passes the cost-benefit test. Nature communications 11, 1–11 (2020).

Estrada, F., Tol, R. S. & Gay-Garcı́a, C. The persistence of shocks in GDP and the estimation of the potential economic costs of climate change. Environmental Modelling & Software 69, 155–165 (2015).

Piontek, F. et al. Economic growth effects of alternative climate change impact channels in economic modeling. Environmental and Resource Economics 73, 1357–1385 (2019).

Hänsel, M. C. et al. Climate economics support for the UN climate targets. Nature Climate Change, 1–9 (2020).

Meinshausen, M. et al. Greenhouse-gas emission targets for limiting global warming to 2 degrees C. Nature 458, 1158–62. doi:10.1038/nature08017 (2009).

Hope, C. The 10 trillion value of better information about the transient climate response. Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences 373, 20140429. doi:10.1098/rsta.2014.0429 (2015).

Rogelj, J. et al. A new scenario logic for the Paris Agreement long-term temperature goal. Nature 573, 357–363 (2019).

O’Neill, B. C. et al. The roads ahead: Narratives for shared socioeconomic pathways describing world futures in the 21st century. Global Environmental Change 42, 169–180. doi:10.1016/j.gloenvcha.2015.01.004 (2017).

Riahi, K. et al. The Shared Socioeconomic Pathways and their energy, land use, and greenhouse gas emissions implications: An overview. Global Environmental Change 42, 153–168. doi:10.1016/j.gloenvcha.2016.05.009 (2017).

Krey, V. et al. Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (eds Edenhofer, O. & al., E.) (Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 2014).

Huppmann, D., Rogelj, J., Kriegler, E., Krey, V. & Riahi, K. A new scenario resource for integrated 1.5 C research. Nature climate change 8, 1027–1030 (2018).

Luderer, G. et al. Description of the REMIND model (Version 1.6). SSRN Electronic Journal 2697070 (2015).

Leimbach, M., Bauer, N., Baumstark, L. & Edenhofer, O. Mitigation Costs in a Globalized World: Climate Policy Analysis with REMIND-R. Environmental Mod-eling and Assessment 15, 155–173. doi:10.1007/s10666-009-9204-8 (2010).

Leimbach, M., Schultes, A., Baumstark, L., Giannousakis, A. & Luderer, G. Solution algorithms for regional interactions in large-scale integrated assessment models of climate change. Annals of Operations Research. doi:10.1007/s10479-016-2340-z (2016).

Bauer, N., Brecha, R. J. & Luderer, G. Economics of nuclear power and climate change mitigation policies. Proceedings of the National Academy of Sciences 109, 16805–16810. doi:10.1073/pnas.1201264109 (2012).

Luderer, G. et al. Economic mitigation challenges: how further delay closes the door for achieving climate targets. Environmental Research Letters 8, 034033. doi:10.1088/1748-9326/8/3/034033 (2013).

Bertram, C. et al. Complementing carbon prices with technology policies to keep climate targets within reach. Nature Climate Change 5, 235–239. doi:10.1038/nclimate2514 (2015).

KC, S. & Lutz, W. The human core of the shared socioeconomic pathways: Population scenarios by age, sex and level of education for all countries to 2100. Global Environmental Change 42, 181–192. (2017).

Dellink, R., Chateau, J., Lanzi, E. & Magné, B. Long-term economic growth projections in the Shared Socioeconomic Pathways. Global Environmental Change 42, 200–214. doi:10.1016/j.gloenvcha.2015.06.004 (2017).

Meinshausen, M., Raper, S. C. B. & Wigley, T. M. L. Emulating coupled atmosphere-ocean and carbon cycle models with a simpler model, MAGICC6 - Part 1: Model description and calibration. Atmospheric Chemistry and Physics 11, 1417–1456. doi:10.5194/acp-11-1417-2011 (2011).

Allen, M. R. et al. Warming caused by cumulative carbon emissions towards the trillionth tonne. Nature 458, 1163–1166. doi:10.1038/nature08019 (2009).

Collins, M. et al. Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. (eds Stocker, T. F. et al.) 1029–1136 (Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 2013).

Millar, R., Allen, M., Rogelj, J. & Friedlingstein, P. The cumulative carbon budget and its implications. Oxford Review of Economic Policy 32, 323–342. doi:10.1093/oxrep/grw009 (2016).

CMIP5 Coupled Model Intercomparison Project – WCRP World Climate Research Programme http://cmip-pcmdi.llnl.gov/cmip5/.

Kopp, R. E., Golub, A., Keohane, N. O. & Onda, C. The Influence of the Specification of Climate Change Damages on the Social Cost of Carbon. Economics 6, 1. doi:10.5018/economics-ejournal.ja.2012-13 (2012).

Dell, M., Jones, B. F. & Olken, B. a. Temperature Shocks and Economic Growth: Evidence from the Last Half Century. American Economic Journal: Macroeconomics 4, 66–95. doi:10.1257/mac.4.3.66 (2012).

Pindyck, R. S. Uncertain outcomes and climate change policy. Journal of Environmental Economics and Management 63, 289–303. doi:10.1016/j.jeem.2011.12.001 (2012).

Stern, N. The Structure of Economic Modeling of the Potential Impacts of Climate Change: Grafting Gross Underestimation of Risk onto Already Narrow Science Models. Journal of Economic Literature 51, 838–859. doi:10.1257/jel.51.3.838 (2013).

Burke, M., Hsiang, S. M. & Miguel, E. Global non-linear effect of temperature on economic production - Supplementary materials. Nature 527 (2015).

Dell, M., Jones, B. F. & Olken, B. a. Temperature and Income: Reconciling New Cross-Sectional and Panel Estimates. American Economic Review 99, 198–204. doi:10.1257/aer.99.2.198 (2009).

Hsiang, S. M. & Jina, A. S. The causal effect of environmental catastrophe on long- run economic growth: Evidence from 6700 cyclones. NBER Working Paper Series. doi:10.3386/w20352 (2014).

Myhre, G. et al. Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (eds Stocker, T. et al.) chap. 8 (Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 2013).

Burke, M., Hsiang, S. M. & Miguel, E. Global non-linear effect of temperature on economic production. Nature 527, 235–239. doi:10.1038/nature15725 (2015).

Burke, M., Hsiang, S. M. & Miguel, E. Global non-linear effect of temperature on economic production - Supplementary materials. Nature 527 (2015).

Burke, M. Replication data for Burke, Hsiang, Miguel 2015 2015. https://purl.stanford.edu/wb587wt4560.

Dellink, R., Chateau, J., Lanzi, E. & Magné, B. Long-term economic growth pro- jections in the Shared Socioeconomic Pathways. Global Environmental Change 42, 200–214. doi:10.1016/j.gloenvcha.2015.06.004 (2017).

Pindyck, R. S. Uncertain outcomes and climate change policy. Journal of Environmental Economics and Management 63, 289–303. doi:10.1016/j.jeem.2011.12.001 (2012).

Moyer, E., Woolley, M., Matteson, N., Glotter, M. & Weisbach, D. A. Climate Impacts on Economic Growth as Drivers of Uncertainty in the Social Cost of Carbon. The Journal of Legel Studies 43, 401–425 (2014).

Moore, F. C. & Diaz, D. B. Temperature impacts on economic growth warrant stringent mitigation policy. Nature Climate Change 5, 127–131. doi:10.1038/nclimate2481 (2015).

Estrada, F., Tol, R. S. & Gay-Garcı́a, C. The persistence of shocks in GDP and the estimation of the potential economic costs of climate change. Environmental Modelling & Software 69, 155–165 (2015).

Nordhaus, W. D. Rolling the ’DICE’: An optimal transition path for controlling greenhouse gases. Resource and Energy Economics 15, 27–50 (1993).

Nordhaus, W. Estimates of the Social Cost of Carbon: Concepts and Results from the DICE-2013R Model and Alternative Approaches. Journal of the Association of Environmental and Resource Economists 1, 273–312. doi:10.1086/676035 (2014).

Golosov, M., Hassler, J., Krusell, P. & Tsyvinski, A. Optimal Taxes on Fossil Fuel in General Equilibrium. Econometrica 82, 41–88. doi:10.3982/ECTA10217 (2014).

Rezai, A. & van der Ploeg, F. Robustness of a simple rule for the social cost of carbon. Economics Letters 132, 48–55. doi:10 . 1016 / j . econlet . 2015 . 04 . 007 (2015).

Emmerling, J. & Anthoff, D. Inequality and the Social Cost of Carbon. CESifo Working Papers 5989 (2016).

Leimbach, M., Schultes, A., Baumstark, L., Giannousakis, A. & Luderer, G. Solution algorithms for regional interactions in large-scale integrated assessment models of climate change. Annals of Operations Research. doi:10.1007/s10479-016-2340-z (2016).

Rogelj, J. et al. A new scenario logic for the Paris Agreement long-term temperature goal. Nature 573, 357–363 (2019).

Rogelj, J. et al. Mitigation pathways compatible with 1.5 C in the context of sustainable development (2018).

Climate Change 2014: Mitigation of Climate Change (eds Edenhofer, O. et al.) (Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 2014).

AR5 WG III Scenario Database https://tntcat.iiasa.ac.at/AR5DB.

Wong, K. Y., Chuah, J. H. & Hope, C. The impact of time horizon on integrated climate assessment models. Clean Technologies and Environmental Policy 17, 2361–2374. doi:10.1007/s10098-015-0978-x (2015).

Allen, M. R. Drivers of peak warming in a consumption-maximizing world. Nature Climate Change 6, 684–686. doi:10.1038/nclimate2977 (2016).

CMIP5 Coupled Model Intercomparison Project – WCRP World Climate Research Programme http://cmip-pcmdi.llnl.gov/cmip5/.

Willmott, C. J. & Matsuura, K. Terrestrial Air Temperature and Precipitation: Monthly and Annual Time Series (1950 - 1999) 2001. http://climate.geog.udel.edu/~climate/html_pages/README.ghcn_ts2.html.

University of Delaware Air Temperature and Precipitation v4.01 http://www.esrl.noaa.gov/psd/.

Center for International Earth Science Information Network - CIESIN - Columbia University. Gridded Population of the World, Version 4 (GPWv4): Population Count Adjusted to Match 2015 Revision of UN WPP Country Totals. 2016. doi:10.7927/H4SF2T42. http://sedac.ciesin.columbia.edu/data/set/gpw-v4-population- count-adjusted-to-2015-unwpp-country-totals/data-download (2016).

KNMI Climate Explorer https://climexp.knmi.nl/selectfield_cmip5.cgi.

Joos, F. et al. Carbon dioxide and climate impulse response functions for the computation of greenhouse gas metrics: a multi-model analysis. Atmospheric Chemistry and Physics 13, 2793–2825. doi:10.5194/acp-13-2793-2013 (2013).

Ricke, K. L. & Caldeira, K. Maximum warming occurs about one decade after a carbon dioxide emission. Environmental Research Letters 9, 124002. doi:10.1088/ 1748-9326/9/12/124002 (2014).

Williams, R. G., Goodwin, P., Roussenov, V. M. & Bopp, L. A framework to under- stand the transient climate response to emissions. Environmental Research Letters 11, 015003. doi:10.1088/1748-9326/11/1/015003 (2016).

Steinacher, M. & Joos, F. Transient Earth system responses to cumulative carbon dioxide emissions: linearities, uncertainties, and probabilities in an observation- constrained model ensemble. Biogeosciences 13, 1071–1103. doi:10.5194/bg- 13- 1071-2016 (2016).

Millar, R. J., Nicholls, Z. R., Friedlingstein, P. & Allen, M. R. A modified impulse-response representation of the global response to carbon dioxide emissions. Atmospheric Chemistry and Physics Discussions, 1–20. doi:10 . 5194 / acp - 2016 - 405 (2016).

Dasgupta, P. Discounting climate change. Journal of Risk and Uncertainty 37, 141–169. doi:10.1007/s11166-008-9049-6 (2008).

Sterner, T. & Persson, U. M. An Even Sterner Review: Introducing Relative Prices into the Discounting Debate. Review of Environmental Economics and Policy 2, 61–76. doi:10.1093/reep/rem024 (2008).

Van den Bergh, J. C. J. M. & Botzen, W. J. W. A lower bound to the social cost of CO2 emissions. Nature Climate Change 4, 253–258. doi:10.1038/nclimate2135 (2014).

Schneider, M. T., Traeger, C. P. & Winkler, R. Trading off generations: Equity, discounting, and climate change. European Economic Review 56, 1621–1644. doi:10.1016/j.euroecorev.2012.08.006 (2012).

Kahn, M. E. et al. Long-term macroeconomic effects of climate change: A cross-country analysis tech. rep. (National Bureau of Economic Research, 2019).

Dell, M., Jones, B. F. & Olken, B. a. Temperature Shocks and Economic Growth: Evidence from the Last Half Century. American Economic Journal: Macroeconomics 4, 66–95. doi:10.1257/mac.4.3.66 (2012).

Kalkuhl, M. & Wenz, L. The impact of climate conditions on economic production. Evidence from a global panel of regions (2018).

Burke, M. & Tanutama, V. Climatic Constraints on Aggregate Economic Output Working Paper 25779 (National Bureau of Economic Research, 2019). doi:10.3386/ w25779.

Nordhaus, W. D. DICE code https://sites.google.com/site/williamdnordhaus/dice-rice.