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Climate Hustle

Climate impacts

Posted on 1 November 2018 by Guest Author

This is a re-post from ...and Then There's Physics

Carbon brief has a very nice interactive report that show the impacts of climate change at 1.5C, 2C and beyond. It presents the various projected climatic, ecological, and economic changes on both global and regional scales. It is an impressive dive into the relevant literature.

On Twitter, Doug McNeall said something I’ve often wondered myself. Essentially, why don’t projections of large climatic and ecological changes lead to large projected economic damages? Of course, I don’t know the economic literature particularly well, so one potential answer is that some economic analyses do project large changes. However, it also seems that some certainly do not.

One possibility is that the global economic impact will indeed be relatively small, even if the climatic and ecological changes are large. Of course, even if this were the case, this wouldn’t necessarily imply that a cost-benefit analysis wouldn’t still suggest that it would be beneficial to address climate change.

Additionally, even if the global economic impact is relatively small, that doesn’t mean that there can’t be large impacts in some regions, or that some of the impacts (such as the loss of ecosystems, for example) aren’t things that are difficult to quantify economically, at least in a way that we would all broadly agree with.

However, I do think there are reasons to be cautious about some of these economic analyses. Let me provide a caveat up front. I’m not an expert at this, so am happy to be corrected if I get something wrong, and am partly writing this in the hope that I might learn something more.

For starters, these analyses are typically linear. This essentially means that they can say nothing about the possibility of some kind of large shock. Some of these analyses actually suggest the possibility of quite small global economic impacts even for extremely large changes in climate (see links below), which would seem to suggest that there is some point at which these calculations break down.

Also, as I understand it, most of these analyses do not consider how climate change might impact economic growth itself (see this Carbon Brief Explainer about IAMs). If the global economy grows at 3% per year, then it will be about 10 times bigger in 2100 than it is today. A large economic impact in 2100, might then seem small by comparison to the global economy at that time. Equivalently, if you discount these future economic costs to today, they can also seem quite small. Is it reasonable to assume that global economic growth will be largely unaffected by climate change?

My own view, which I’m happy to be convinced is wrong, is that these kind of analyses are fine if you want to understand things like what would happen if we did something (like impose a carbon tax). They’re probably also fine if you’re interested in how the economy will response to relatively small climate and ecological perturbations, or will respond over the next few decades. Where I think we should be more cautious is when the climate/ecological perturbations are large, or when considering very long, multi-decade timescales.

You might regard it as ironic that I’ve defended climate projections over quite long timescales, while suggesting that we should be cautious about economic projections over the same timescales. For starters, there are aspects of these climate projections about which we have more confidence than others (global versus regional responses, for example), and the uncertainty does grow as the timescale increases. So, it’s not as if we completely trust climate projections either. However, as this paper by Jonathan Koomey points out, physical systems have structural constancy, while economic and societal systems do not. We can be confident that the response of a physical system to a perturbation will be the same in the future as it is now. We can’t be similarly confident when it comes to economic/societal systems.

Hence, I think it is reasonable to be more confident in the long-term climate projections than in the long-term economic projections. However, I’m not suggesting that these economic projections have no value. As George Box said, all models are wrong but some are useful. I think it’s important to understand when we can be confident in what a model is suggesting, and when not. If some think we should be confident in economic projections over long timescales and even when the projected climate/ecological changes are very large, I’d be interested to hear why.

Links:
The impacts of climate change at 1.5C, 2C and beyond (Interactive Climate Brief post about climate impacts).
Q&A: How ‘integrated assessment models’ are used to study climate change (Carbon Brief post about Integrated Assessment Models – IAMs).
Economics and Values (Post I wrote about economics and values).
We don’t even agree about the basics (Post I wrote about why we shouldn’t judge climate models in the same way we might judge economic models).
The Treatment of Risk and Uncertainty in the US Social Cost of Carbon for Regulatory Impact Analysis (Paper highlighting: To take the DICE model as an example (Nordhaus, 2008; Nordhaus & Boyer, 2000), it can easily be shown that the assumption of a quadratic relationship between damages and temperature, together with the modellers’ specific coefficient values, implies that global warming can reach more than 6°C before the equivalent of 10% of global GDP is lost, and 18°C before the equivalent of 50% is lost.)

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Comments 1 to 20:

  1. Economics does not have the tools to make reliable long term predictions. Its history of prediction is poor, gdp estimates even a couple of years ahead lack accuracy, they never predicted the 2008 financial crash, or any crash really. This is because economics assumes people behave in simplistic ways when they don't, and because they take a narrow view of climate costs. This is not to say their work is useless of course, but it suggests a risk that climate costs will more likely be underestimates, and that we need to be wary.

    Economics measures things in terms of profits and gdp growth. Very little attention is given to measuring happiness or human well being. The mines will keep extracting minerals even in a heatwave, to an extent and  at a cost,  so gdp output might march on, but its a miserable thing to live with heatwaves especially  in countries that are already hot. Evidence suggests heatwaves may make parts of the world uninhabitable.

    What projections are the economic models based on? The IPCC predict a worst case scenario of 10 degrees by 2100 if we go on burning fossil fuels. Economics has to consider worst case scenarios. Have they considered this, because my reading is they don't.

    You don't even need an economic analysis to know worst case scenarios of 10 degrees will cost significantly.

    How do you price climate tipping points? Its hard to even evaluate climate outcomes from those other than to say all the evidence suggests they will be mostly negative.

    You have species loss potentially on a huge scale in worst case scenarios. How do you price this? A study I saw threw a rather arbitrary and small sum of money at this issue, but clearly many people consider loss of species a serious issue. Perhaps its an emotional thing, but this is not unimportant, and the natural world supplies approximately 50% of our pharmaceutical drugs.

    Have they considered the costs of climate refugees? Causation would include heatwaves, crop losses, and loss of coastline just for starters. Look at the problem we have right now with political refugees, and you can triple that. It's not just the economic cost either, its the anxiety and tension.

    Then theres the potential of refugeess leading to global conflict. Of course economists aren't bothered by wars, because gdp typically increases, but the rest of us might be bothered.

    Economics is a useful tool, but a very crude too in evaluating the climate problem, and imho almost certainly underestimates the impacts.

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  2. Sorry I meant the IPCC predicted a worse case scenario of approx, 5 degrees celsius by 2100 and 10 - 12 degrees celsius by 2300. 

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  3. Problems with economics and its ability to make good predictions here and here. and here. 

    Climate change and the refugee problem here. Ultimately it risks driving up inflation at this sort of scale. Something not always considered in cost analysis.

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  4. Well how much of an impact do people expect from 1.5C or 2C?

    A developed world economy like the UK or Canada will often see agriculture, the sector most at risk as only 2%ish of GDP. Areas like service sector will be closer to 60%. How many days shopping do they expect to see lost nationally from extreme weather at 1.5C?

    What is the realistic expectation of infrastructure damage at perhaps 2C? The UKs annual infrastructure spend by the government is projectd to be about £110 billion a year. Are we really expecting £110 billion a year in damage to road, rail, schools and hospitals? That would require something on the sclae of hurricane Harvey\Sandy hitting the UK every year.

    Now developing world economies have a far higher % of gdp in agriculture, are often in regions more at risk from smaller changes (due to the tropics being generally more stable) and have far smaller spends on infrastrcuture so much smaller scale events will chew up their entire annual budget then see them going backwards. 

    The biggest cost to the developed world economy is going to be insurance and increasing premiums.

    I am not an economist and fully support radical action to cut CO2. I am just trying to be realistic about the financial side of 1.5 and 2C on the GDP of the big economies.

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  5. Here is a little puzzle for you.  You have a test tube.  It is full of food for a particular micro-organism.  This little beast doubles once each minute.  In exactly one hour, 60 minutes, the tube will be full of this organism and all the food will be gone.  Question.  At which minute will there be half food and half micro-organism.  Answer at the bottom of the page.

    Once again, an economist talking about economic growth and how bad it would be if it didn't continue.  How many times has it been stated that we live on a finite world.  Economic growth is what is goint to  kill us.  If you double the size of an economy, to a first approximation you use twice the water wood and metal, produce twice the garbage and pollution and push nature, which we depend on for our continuous survival into an ever smaller corner.  If we are to survive, we must learn how to live well without an ever expanding economy.  Here is a table of how many years it takes to double an economy at various annual percent increases.  You can calculate it yourself, using your kid's calculator.  For 1%, put log2 divided by log 1.01.

    1%   70 years

    2%   35 years

    3%    23 years

    4%    18 years

    5%    14 years

    How many countries do you know that can find twice the resources they use today and cope with twice the garbage and pollution.

    Answer Minute 59 (work backwards if the answer seems strange)

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  6. William @5 exactly. Infinite growth is not possible in a finite world and growth has to slow, - at least growth based on basic resources. Services could possibly expand. Economists are obsessed with growth, but some are starting to acknowledge the resource issue.

    GDP growth has been slowing in recent decades in America and western countries anyway, and this might partly reflect increasing extraction costs of materials. Just look at trends on any economics data base like tradingeconomics.com.

    The following is maybe of interest to people: World 3 model interactive simulator. You can input data on resources, industrial growth, population growth etcetera and generate trends. Crude but interesting and useful model.

    Sorry I did a couple of years of maths at varsity, but much has been forgotten, so I won't add much on the maths.

    I will just make this point. We are using resources too fast. It will leave future generations with shortages and painful choices, and will ultimately force gdp growth down anyway.

    If we wish to consider the well being of future generations, the solutions are a combination of proactive policies to get population growth to slow asap, recycling, conservation of resources, less profligate use of resources, and deliberately accepting a steady state growth model at least in rich countries. 

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  7. Discussing economic predictions is a rather pointless distraction. As nigelj has mentioned, economic forecasting is poor because the forecasting is based on rather erroneous presumptions about the behaviour of the participants in the system.

    What is needed is sustainable actions that eliminate poverty and actions that do no harm to future generations (do not reduce non-renewable resources, do not create challenges that future generations will have to attempt to deal with). The systems that have developed to date have failed to do that, because that was never their intended objective (it is not why they were developed). And the damage done to the natural resources and ecosystems of the planet are plenty of proof that all of the systems have been failures (not just capitalism), even the supposedly more advanced ones that proudly declare that their 'partial correction' of the damage done is brilliant testimony for the greatness of their way of developing wealth.

    The best understanding of what has developed, and the required corrections, are the Sustainable Development Goals. And the Climate Action Goal has been an understood required correction of what has developed for a long time. In one form or another, the need to curtail the creation of CO2 from the burning of fossil fuels has been understood by global leaders since the early 1970s (when it was part of the many identified damaging developments addressed in the Stockholm Conference).

    The economists who like to claim that free market capitalism is "The Greatest" fail to explain how that claim fits with the way things have gone related to fossil fuel burning (and all the other damaging economic developments) since the early 1970s. Only a few of those have been reluctantly sort of mitigated, and not because of the 'responsible' actions of people in the economic games (certainly not by the actions of the bigger winners). Responsible leaders have struggled to implement corrective actions, and have even lost power by attempting to do so.

    The economic systems, including the ways a majority of the evaluators evaluate it, are badly broken. The only legitimate economic activities are the ones that future generations could continue to benefit from almost indefinitely on this amazing perpetual motion machine we live on. The SDGs make that clear. Correcting what has developed is the challenge.

    Calling what has developed what it actually is "systems containing very unacceptable and unsustainable activity, systems needing lots of help to be corrected" is the first step (just like the first step of any damaging addiction correction program - admit the real problem, and admit that help is needed to learn how to correct and limit the harmful behaviour).

    Expecting the corrections to occur from the actions of the biggest winners in the systems, without correcting the systems and how people can win in the systems, is the folly of many economists.

    The SDGs are open to input for improvement. Any attempt to claim something that is contrary to the SDGs without providing a justification for it "improving" the SDGs needs to be corrected.

    Economic growth can continue into the future. But the required first step is correcting the unsustainable developments that have occurred, removing them from the system, while changing the system to only allowing new activity that is almost certain to be sustainable to enter the economic competition. And even 'almost certain to be sustainable activity' will need to be monitored to ensure it is actually sustainable, with corrections made as required as soon as possible.

    That will not 'please everyone', but 'pleasing everyone' is not the point. Compromises attempting to 'please everyone' have seriously compromised the development of a sustainable future for humanity.

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  8. TTauri:

    While only 2% of the GDP is agriculture, most people spend much more of their budget on food.  

    If agriculture were to collapse that would not mean the GDP would drop 2%.   It means everyone would starve to death.  Much of the Arab Spring was caused by a 10% increase in the price of wheat.  That increase was caused by drought in Russia related to climate change.

    The USA has a very large food excess.  We make some food into gasoline for our cars.  That is not the case in many areas of the world.  Many of the refugees coming from Central America are fleeing climate change that caused their farms to fail.  Trump says they are invading our country.

    Think your statements through.  If agriculture yield went down so that the USA had enough food but none to export it would cause world wide starvation.  The effect is far beyond 2% of GDP.

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  9. TTauriStellarBody

    I think you have broken things into useful components,  but your view is too narrow, as MS implies. Heres another:

    "The biggest cost to the developed world economy is going to be insurance and increasing premiums."

    This is assuming you can even get insurance. Who is going to continue to insure against things like sea level rise ? Its probably not going to happen. This in turn could lead to a collapse in coastal property values, another cost. Housing collapses cause recessions. Have economists considered all this? Their record in general does not inspire confidence.

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  10. michael sweet

    "If agriculture were to collapse that would not mean the GDP would drop 2%"

    Can you please cite from either IPCC Special Report on 1.5C or from IPCC 5th Assessment Report where you have gotten "agricultural collapse" and precisely what that means espcially with respect too the topic, the lack of loss of global GDP from climate related incidents as referred too in the article above. 

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  11. Predicting a "sea change" in complex, chaotic systems like climate and economics is extremely difficult, and disastrous change can occur much more quickly than most people realize.  I do, however, agree with others in this conversation that the science of climate research is on much more solid footing than that of modern economics. 

    I remember reading many years ago about someone who challenged an American meteorologist (weatherman?) on next-day forecasting.  By simply predicting every next day to have the same weather as the current day, he won - because the meteorological predictions of change in the day were so inaccurate.  That matches my feelinga about our current global capitalist system - as long as governments cater to the ultra wealthy and corporate sectors, they believe that the good times and exponential growth can go on forever. 

    Another factor in overly rosy economic predictions is that people don't want to hear bad news about the future. Often, any predicted change in a negative direction that does not come to fruition leads to people no longer believing the source -unless you are Donald Trump.  The U.S. president is a master at telling his fans just what they want to hear - and it is almost always based on falsehoods and inaccuracies. Even when his words are immediately debunked, his fans refuse to accept the truth.  Following this surrealistic  phenomenon leads me to believe that a similar psychology leads to the stubborn denialism that refuses to accept the reality of the looming disasters that will be precipitated by AGW/CC. 

    Economists do the same thing as Trump without overtly lying, but simply refuse to consider and include all of the obvious possibilities and their liklihoods in their calculations.   Their theories, hyphtheses, and calculations may be mathematical marvels, but the "garbage in garbage out" maxim applies here. 

    Reading this post and its replies prompted me to go to Google to look for "economic prediction failures" - and I was a bit surprised at how the first page of results was filled with exactly what I was looking for.  It looks like I've found some very interesting information to peruse over the next few days. 

    I see two possibilities for the next few decades - either modern civilization and its global economy will hit a wall - or drive over a cliff. And either one will likely be at full speed with "the pedal to the metal."

    At age 76, I probably will not be around to see it. Many of my contemporaries are already gone, and unlike me, did not live long enough to see even the real beginning of the global "tragedy of the commons" surfacing so obviously.  The current path of modern technological civilization will likely lead to its end.  The focus on "saving the earth" was completely wrong. The earth will survive and life will continue to evolve - just not in the way we humans with out collective monumental hubris expected.

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  12. TTauri,

    From your link to IPCC-SR15:

    "B5.3. Limiting warming to 1.5°C, compared with 2ºC, is projected to result in smaller net reductions in yields of maize, rice, wheat, and potentially other cereal crops, particularly in subSaharan
    Africa, Southeast Asia, and Central and South America; and in the CO2 dependent, nutritional quality of rice and wheat (high confidence). Reductions in projected food availability are
    larger at 2ºC than at 1.5°C of global warming in the Sahel, southern Africa, the Mediterranean, central Europe, and the Amazon (medium confidence). Livestock are projected to be adversely
    affected with rising temperatures, depending on the extent of changes in feed quality, spread of diseases, and water resource availability (high confidence). {3.4.6, 3.5.4, 3.5.5, Box 3.1, CrossChapter Box 6 in Chapter 3, Cross-Chapter Box 9 in Chapter 4}" my emphasis.

    I already mentioned revolutions partly caused by failure of the wheat harvest in Russa.  The Syrian war was caused by agricultural failure due to unprecented AGW linked drought.  In locations like Egypt where many people live on $2 per day and buy all their food, a small increase in the price of food results in severe problems.

    Your post seemed to suggest a maximum decline in GDP from severe agricultural effects of a few percent.  I wanted to point out that agricultural effects can be much larger than the current percent of GDP.  People require food.  Currently in developed countries food is cheap.  If agriculture strains cause food shortages the price will rapidly increase.  AGW related drought in Texas a few years ago killed 20% of cattle.  Several years of that would cause an increase in food costs.

    I am not sure what you want from me with respect to the OP.  Your question is not clear to me. 

    I have seen economic forecasts that sugest minor changes from AGW when climate forecasts include large land areas being rendered too hot for humans to live there any longer.  The economic forecasts cannot consider the climate forecasts in detail.

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  13. So this

    "B5.3. Limiting warming to 1.5°C, compared with 2ºC, is projected to result in smaller net reductions in yields of maize, rice, wheat, and potentially other cereal crops, particularly in subSaharan Africa, Southeast Asia, and Central and South America"

    Is your justification for this:

    "If agriculture were to collapse that would not mean the GDP would drop 2%"

    You are saying a drop in yeilds is a collapse in agriculture. 

    We know the low latitudes will be disproportionately hit. But we also know that the mid lattiudes are where the bulk of the worlds GDP is generated. 

    The opening post asks why is it that GDP seems to be so slightly affected by 1.5C and 2C. Once we get beyond the sloganeering and rhetoric few seem to have built cases on data.

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  14. Amplifying a couple of points. The article says that economists estimate climate change will reduce economic output "by a few percent" implying costs are low. If only this were true, but is it?

    In fact some reports find about 3% or so, The Stern Report thinks 5%, but if a wide range of impacts is included it says it would be 20% of gdp. This is not small. Its is not rhetoric or sloganeering.

    For some background information: The Stern report is on wikipedia, and an article " economic impacts of climate change " is on wikipedia and it is written around what the research has found.

    The problem is threefold. Firstly economists have a terrible record of prediction of future economic scenarios in general. They are "data driven" but tend to understimate problems and over estimate growth scenarios. This suggests on balance that their projections of changes to total economic output, ie costs are likely to be innacurate, and likely to be underestimates. This is not rhetoric or sloganeering. Their poor record is well documented.  

    Secondly yes I take the point that things have to be "data driven" but it depends on what data they are looking at, so their range of focus. As the article states changes to economic growth are generally ignored in many studies, and there's evidence from various reports that climate change will decrease growth on balance. It also appears from the wikipedia article that the problems and costs of sea level rise and migration, refugees and potential conflict are largely ignored (as I suggested in comment 1). This casts doubt on the usefulness of economic studies.

    Once you get above 3 degrees heatwave problems become intense something not terrribly well captured by the economic studies from what I have read.

    In other words the economic studies tend to focus only on hard data that is very certain, and for very modest warming scenarios, and ignore the difficult stuff, yet that difficult stuff looks to be a huge potential component with few upsides.

    Three, estimating climate impact costs is difficult because of uncertainties.

    Another problem is the use of economic output as a metric. This measures repair costs as economic output, so disguises an obvious problem that we are repairing things, not moving forwards in a useful way.

    The economic studies find interesting things on agriculture and wildly different results, but on balance most studies do find a negative effect but with huge regional variations with lower latitudes generally harder hit as pointed out by commentators. But the IPCC still finds a problem in Europe at just 2 degrees. This would be greater at higher levels of warming from what I have read. Even a moderate sized problem in Europe would just so obviously have significant effects not easily captured in typical economic analysis. It will certainly hurt poor people who spend a lot of their available income on food. It doesnt take much to tilt economies into recessions and crashes.

    It appears climate change could well cause economic growth to slow from various studies. But this growth is slowing anyway. Anyone that thinks robust economic growth going forwards will continue and save us from the costs of climate change is frankly delusional, because none of the data suggests we can maintain high rates of economic growth in the future.

    And thirdly to reiterate a couple of points. Economic output does not capture anything like the full effects of climate change on human beings and ecosystems and plenty of evidence and data suggests huge problems.

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  15. "A few percent"? As if that wasn't a big deal ?!!!!??

    If that is anything between 2 and 6, it's going to plunge the majority of Western countries in stagnation or steep recession. How is that not a problem? And we're not even taling about the rest of the World.

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  16. The author summarizes what some think: "One possibility is that the global economic impact will indeed be relatively small, even if the climatic and ecological changes are large.”

    How’s that work? Our economy isn’t created by spreadsheets and computer algorithms fine tuned to profit making. It’s a vast interdependent network fueled by exploiting and consuming Earth’s valuable resources, this includes farmland, forests, fishing.

    I don’t think economists recognize the Earth has entered a one way climate regime shift.

    The course of the near future is determined and it’s a game of global Weather Roulette. Increasingly extreme and destructive weather events will happen. Where they strike is the Global Economic wild card, location, location, location.

    Seems that all too few recognize the depth of the complexity and interdependencies, nor vast variety of cascading consequences of AGW will inevitably trigger. Economy needs energy, energy production needs cooling water, river water or coastal ocean water. River waters are warming, rivers are drying, sea water is warming and sea levels are rising, increasingly intense storm surges and flooding are to be expected.

    Healthy global agriculture, communication and transportation networks likewise are absolutely dependent on relatively moderate and predictable weather patterns for any number of reasons - yet most seem to have no appreciation for the myriad of interdependent linkages. Worst, seems most couldn't care less.

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  17. Ttauri,

    As I pointed out, one of the principle causes of the Syrian war was climate change.

    aleppo distruction

    Wholesale distruction like this is caused by declines in food production.  Over 1 million refugees headed to Europe.  Climate change is causing much of the migration to the USA from Central America.  A small decline in food production can cause hundreds of millions of deaths.

    If you think that is no big deal OK.  I think that will be a problem.

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  18. The Washington Post: Article on food scarcity in general and it's history of causing armed conflicts and riots, and examples of recent impacts of climate change on the issues.

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  19. Case in point:

    "We’re probably undervaluing healthy lakes and rivers
    Economists often ignore the human health benefits of keeping water bodies clean"
    BY LAUREL HAMERS, OCTOBER 14, 2018

    www.sciencenews.org/blog/science-public/were-probably-undervaluing-healthy-lakes-and-rivers

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  20. More cases in point:

    Economic models significantly underestimate climate change risks

    We are almost certainly underestimating the economic risks of climate change

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