I already have written on why monetizing the losses from climate change must lead to flawed results and therefore to flawed reaction proposals (see here). But there still are other problems related to taking GDP estimates as the basis for analyzing the economics of climate change, which I haven’t mentioned.
In his recent article for the Newsweek, Schelling made the following remark:
Estimates of lost world product due to climate change are moderate because the poor have so little to lose. More than a billion people, maybe 2 billion, are estimated to live on less than the equivalent of $2 per day. If a billion of those poorest people lost half their income, it would be an overwhelming tragedy, a true catastrophe, worse than all the earthquakes, floods, tsunamis, landslides, and fires of the past decade happening every year. But those billion people together would lose only $365 billion per year. That is less than 1 percent of world income! They have so little to begin with that what they can lose doesn’t amount to much of a statistic. But they can lose tragically.
I don’t agree with every word Schelling says in his article (especially with what he has written about the impacts on United States’ economy – see here), but the remark quoted above touches a very important issue: the economics of climate change has to stop monetizing the losses. It just isn’t possible in a reasonable way. Instead, economists should concentrate their effort on finding ways to achieve targets set by the climate science efficiently. That’s big enough a challenge. In this way economics could really contribute to the fight against climate change, instead of only making it ever more complicated.