Connecting Climate Science and Economics, Part 1

2007 and 2006 marked two important milestones in the climate science and the economics of climate change, respectively. The former was the highly authoritative 4th Assessment Report (AR4) of the Intergovernmental Panel on Climate Change (IPCC), the latter the more controversial Stern Review. Since then, a lot changed in both fields, as the understanding of the climate dynamics improved, and, on the other hand, the debate triggered by the Stern Review brought a number of new, innovative approaches to the economics of climate change. An important issue was to restore the connection between climate science and economics that appears to have been lost some time in the late 90’s (on which I commented here). Now, a comprehensive review of the improvements in both fields has been prepared by Frank Ackerman and Elizabeth Stanton of the Stockholm Environment Institute (Climate Economics: The State of the Art). In the following I am going to summarize the report’s most important and interesting findings in the area of climate science. Overviews of advances in climate economics in general, and in the economics of mitigation and adaptation will follow.

From the point of view of economic analysis, maybe the most important recent finding is that once a global mean temperature level is reached, it is likely to persist for centuries to come, irrespective of further reductions in greenhouse gas concentrations. This would mean that the so-called overshoot scenarios, common in the economics of climate change, are unfeasible. If global mean temperature is to be stabilized at a certain level (e.g., the much endorsed 2°C), this level shouldn’t be surpassed, not even for a short period of time – it could be impossible to correct the overshoot over a meaningful time span.

It appears clear that, even if we stopped all greenhouse gas emissions today, the temperatures and sea level would further rise due to climate system inertia – probably by 0.1-0.6°C (above 2000 levels) and 0.1-0.3m, respectively. However, stabilizing global mean temperatures at or below the 2°C threshold is still thought to be an imperative – above that level the probability of abrupt tipping-point effects (such as irreversible melting of ice caps) rises dramatically.

The Earth’s climate is a complex system full of feedback effects some of which are not yet properly understood. This leads to an (inherent) uncertainty in anticipating climate dynamics. Some climate scientists think that this situation cannot be improved much – we never will know exactly what will happen, until it actually happens. Some uncertainties can be reduced, but none can be removed. This aspect is, as is shown by Ackerman and Stanton in their discussion of the economics of climate change, central to the economic analysis of the problem.

The source of this general climate system uncertainty are numerous feedback effects. The understanding of some has improved since the IPCC’s AR4:

  • of the many aerosols affecting the climate black carbon (soot) appears to be of particular importance: especially when lying over ice and snow, it significantly lowers the Earth’s albedo (i.e., the ability of the planet’s surface to reflect solar radiation); furthermore, black carbon is believed to have tremendous amplification effects on the melting of mountain glaciers, thus threatening communities dependent on glacier water, especially in the longer run;
  • natural reservoirs of methane (a particularly potent greenhouse gas itself) in oceanic sediments and permafrost soils have recently been estimated to be much less stable than previously thought – significant releases are possible as a result of only modest increases in ocean or atmosphere temperatures, respectively;
  • assessments of feedbacks from afforestation and reduced deforestation have been updated – while increasing the cover of tropical forests is still expected to be a net benefit, for boreal forests afforestation seems to be a positive net feedback (i.e., an amplification of climate change) – implicating that, e.g., a wildfire in Siberia may in the long run be “good” for the climate; this results from the trade-off between forests as carbon sinks (decelerating climate change) and their contribution to the reduction of the Earth’s albedo (forests are thus increasing the amount of solar radiation uptake).

All this and further factors contribute to the great source of uncertainty: the climate sensitivity (i.e., in simplified terms, global mean temperature rise due to a doubling of greenhouse gas concentrations in the atmosphere). While it is certain that, without feedbacks, a doubling of CO2 concentrations would lead to a warming effect of 1.2°C, climate sensitivity with feedbacks is very difficult to assess. In AR4, the likely (two-thirds probability) range was given as 2.0 to 4.5°C. Newer research (including paleoclimatic analyses of historic climate changes) suggests that it may be higher – up to 7°C and higher – and vary over time.

An area in which the last Assessment Report seems to have been particularly conservative is sea-level rise. While it projected 0.18 to 0.38m sea-level rise under the B1 (optimistic baseline) scenario and 0.26-0.59m under A1FI (pessimistic baseline) in 2100, newer research indicates that this effect will likely be much more severe. Most recent estimates have an upper bound above 1m, for some of them it reaches 2m sea-level rise by the end of 21st century. This is mainly due to the inclusion of ice cap melting in the modelling of sea levels, ignored in the AR4 due to lack of reliable data. Furthermore, the research indicates that large regional differences in sea-level rise are to be expected – with a general pattern of higher rise in northern latitudes.

Another important aspect is how the changing climate is going to influence human and natural systems. Key findings identified in the report by Ackerman and Stanton are the following:

  • carbon fertilization, previously thought to be a significant benefit of greenhouse gas emissions in higher latitudes, is now estimated to be much lower – especially when further effects on agriculture and forests are taken into account (higher temperatures, higher levels of low-level ozone due to fossil fuel combustion etc.);
  • parts of the global coral ecosystems are believed to be irreversibly lost due to warming and ocean acidification; distribution of fisheries is expected to change significantly as ocean temperatures increase;
  • species living in the warmest parts of the world are thought to be particularly vulnerable to warming because they are adapted to a climate with very little variability – other than species living in higher latitudes; however, the latter may suffer especially from more intense extreme weather events (especially heat waves);
  • just as with other species, human health is likely to be adversely affected by rising temperatures, due to extreme weather events (heat waves, storms, flooding, droughts), reduced water availability in many regions and expansion of undesirable organisms (especially mosquitos).

In general, recent findings in climate science indicate that the consequences of continued climate change are likely to be more severe, that the uncertainty with regard to the exact magnitude of change may be irreducible, and that our climate may be changing at a faster pace than previously thought. All these findings are highly important for the analysis of economic impacts of climate change and for policy recommendations drawn from this analysis.

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