White House report understates impact of climate change

The White House last week published an analysis by the Council of Economic Advisers which spells out the large economic costs of delaying action to tackle climate change. But the consequences of global warming could be much greater than the report suggests.

It concludes that the price tag for cutting emissions of greenhouse gases, which are the main driver of climate change, will increase by 40 percent if action is postponed for a decade. And the report points out that if the world misses its agreed target of limiting the rise in global average temperature to no more than 2 degrees Celsius, the damage caused by climate change would increase by an amount equivalent to 0.9 percent of global GDP if warming of 3 degrees occurs. Further warming, with the global average temperature rising by 4 degrees Celsius, would create additional damage worth 1.2 per cent of GDP, according to the report.

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However, these estimates are produced by an economic modelling that omits some of the most serious potential impacts of climate change.

For instance, it leaves out catastrophic consequences, such as a huge release of methane — a powerful greenhouse gas — from thawing permafrost that accelerates the rate of warming. It also largely ignores the possibility that changes in extreme weather, for instance, could trigger large migrations of people away from the worst affected areas, with the potential for conflicts and war.

The most recent assessment by the Intergovernmental Panel on Climate Change warns that global warming by more than 2 degrees Celsius would lead to temperatures that have not occurred on Earth for any extended period since the Pliocene Epoch about 3 million years ago, when the polar ice caps were much smaller and sea level was up to 20 metres higher than today.

So it is perhaps not surprising that the economic model struggles to simulate a prehistoric climate that modern humans have never experienced.

The model makes the additional assumption that the growth of the global economy would carry on unabated no matter what impacts climate change creates. Indeed, if the global temperature rose by about 18 degrees, which would probably kill most of the world's population, the model estimates that economic output would only be halved!

Simon Dietz and Nicholas Stern, my colleagues at London School of Economics and Political Science, have produced a new academic paper for The Economic Journal which explores how the results from this model are affected if different assumptions that are more in line with the scientific evidence are made about the consequences of climate change. They considered the possibility of much more severe damages and took into account that climate change could affect productivity as well as economic output. They found that climate change could, in a pessimistic scenario, lead to a decline in living standards across the world by the second half of this century.

So the report by the Council of Economic Advisers presents a conservative assessment of the economic risks from climate change. Nevertheless, its main conclusion remains valid: Further delay in cutting greenhouse gas emissions is likely to be costly and dangerous.

With the recent Risky Business study and the National Climate Assessment earlier this year also spelling out the threats to the economy, other countries are hoping that the United States is coming to terms with the challenge posed by rising greenhouse gas levels, as negotiations continue on a new international agreement on climate change, to be signed in Paris at the end of next year. But current plans put forward by countries are nowhere near consistent with the objective of having a reasonable chance of avoiding dangerous climate change by limiting global warming to more than 2 degrees Celsius.

A forthcoming summit of world leaders, scheduled to take place at the United Nations in New York in September, will present an important opportunity for President Obama and Chinese President Xi Jinping to push forward efforts to close the gap between current ambitions and what is necessary. Ahead of the summit, the Global Commission on the Economy and Climate, headed by former Mexican President Felipe Calderón, is due to publish a major report on the economic benefits of the transition to a low-carbon economy. It will make clear that there are substantial opportunities to increase prosperity and well-being by cutting greenhouse gases and managing the huge risks of climate change. More investment and innovation will accelerate the pace of technological change, driving economic growth while also increasing energy security and creating a world that is cleaner and safer.

It will add to the growing weight of evidence that policies that are good for the climate are also good for the economy.

Ward is policy and communications director at the ESRC Centre for Climate Change Economics and Policy and the Grantham Research Institute on Climate Change and the Environment at London School of Economics and Political Science.