While many authors have specifically examined the science of climate change, there is also a wealth of literature examining the economic costs of action – or inaction. While this is only a very brief review, the politics of climate mitigation and adaptation suggest the economic issues are likely to become increasingly significant. Thus, this section provides a short list of some of the more recent and important work.
Collectively, the reports and articles cited here significantly raise earlier estimates of the costs of climate impacts, while reaffirming the results of many earlier studies suggesting that mitigation measures are both feasible and relatively inexpensive in comparison (see, for example, the IPCC’s 2001 Working Group 3 Report on Mitigating Climate Change).
A comprehensive report by former World Bank chief economist Nicholas Stern undertaken on behalf of the UK government documents both the costs of climate change and of options for mitigation and adaptation. The Stern report estimates the cost of a changed climate could be from 5 percent to 20 percent of global GDP. Costs include those related to losses from declining agricultural production, heat-waves, droughts, flooding events, extreme precipitation, biodiversity loss, disease spread, and soil erosion. Conversely, the study estimates that a stabilization at 500-550 ppm CO2equivalent (CO2e, a measure of the contribution of six key greenhouse gases) will cost the global community roughly 1 percent of GDP by 2050. Necessary changes would include decarbonizing 60 percent the power sector. Policies called for in the Stern report include a strong carbon signal through taxes, trading, or regulation, and research and development into low carbon-intensive technologies. In addition, Stern suggests that activities to curtail greenhouse gas emissions will be substantially more expensive if action is delayed rather than initiated in the near future: if we fail to act within the next decade or two, stabilization at 550 ppm CO2e may be too challenging to achieve at all.
Implications: While critics have suggested the Stern report uses too low a discount rate (magnifying the impacts on future generations and raising the cost of inaction), the report is likely to generate considerable international debate – and may presage new and equally strong results from the more extensive IPCC report (to be released in mid-2007). However, it remains to be seen if any of the solutions recommended in the report meet the acid test of political acceptability and become enacted into national or international legislation. Furthermore, even the stabilization level suggested by Stern (at 550 ppm CO2e) is likely to generate considerable climate-rated impacts and global costs.
The Nordhaus paper evaluates the linkages between geographic variables and GDP using new data and simplified climate scenarios. While he concludes that cold regions (e.g. ice-covered Greenland and Siberia) tend to have lower area GDP values than do warmer regions, he also projects that a doubling of the CO2 concentration along with concomitant temperature increases, would lead to major loss in global GDP. In one scenario, Nordhaus models a 3 degrees C temperature increase, and in a second scenario, both temperature and precipitation change. Population-weighted GDP loss ranges from 1.7 percent (in the temperature only case) to 3 percent (in the temperature and precipitation case).
Implications: As with the Stern report described above, this study substantially raises earlier estimates of the cost of inaction on climate change – including significantly lower earlier estimates by the author. Furthermore, the study highlights some of the regional disparities of climate consequences, suggesting that the poorest regions (e.g. Africa) would continue to see some of the worst damages.
A recent study evaluating multiple computer generated economic models of climate mitigation costs suggests that stabilization of carbon dioxide concentrations at 450 ppm CO2 would not nearly be as expensive as previous estimates, which suggested stabilization costs would equate to 3-15 percent of global GDP in 2100. According to the results of this project (the Innovation Modeling Comparison Project), nine of the eleven models in the study result in costs of less than 0.5 percent of GDP loss by 2100 for stabilization at 450 ppm. Moreover, climate mitigation may result in net benefits, as new technologies may spur growth.
Implications: As the price of climate-related damages continues to rise, the development and penetration of new technologies offers the potential for ever lower costs to solve the problem. In fact, the net economic impact from new technology deployment may even be positive. However, it is an outstanding question as to which companies and sectors will benefit the most from technological innovation.