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Estimates of the economic damages from climate change

Posted on 5 October 2021 by ATTP

This is a re-post from ATTP's blog

Since I’ve discussed climate economics before, I thought I would briefly highlight a recent seminar involving, amongst others, Steve Keen and Tim Lenton. The topic was are the estimates of economic damages from climate change erroneous? The basic answer to this questions is yes.

The presenters make a number of good points. Steve Keen highlights how there is little empirical support for the damage functions. There are attempts to estimate how economic activity depends on climate, but there is a huge difference how it might vary in different regions of the planet today, and how it might be impacted by global warming of a similar magnitude.

Tim Lenton highlighted how we may already be close to triggering certain tipping elements and how these economic analyses tend to ignore such outcomes, or may even not be able to properly consider them. In one economic analysis, it was suggested that the collapse of the Atlantic Meridional Overturning Circulation (AMOC) may have a positive economic impact because it might slightly dampen global warming. As Tim Lenton pointed out, this was an “insane” result given that such a collapse would result a major reorganisation of the entire climate system.

Matheus Grasselli, another of the speakers, presented quite a detailed analysis of William Nordhaus’s DICE model. He highlighted how it essentially assumes that the system is always in equilibrium, even if there has been some major shock. He also showed how the results depended strongly on assumptions about damages. What I thought was particularly interesting is that in the DICE model, everything seems to recover even in extreme scenarios.

So, it seems that there is a general view that there are many valid criticisms of these economic analyses. However, at the risk of being accussed of being deferential again, I do think there are many economists who acknowledge this and who are trying to do more appropriate analyses. I do think that some of the damage estimates are way too low, and that the results of some of these analyses have been presented in ways that then play into the hands of those who want to minimise the impact of climate change.

However, this is clearly a very complicated problem and we do need some kind of idea of the economic impact of climate change and what we might be able to do to limit the impact. The key thing, in my view, is to be upfront about the assumptions used in the models, the limitations of the models, and to recognise that there are many things that to which we simply can’t assign a quantitative value. I would be interested in what others think, though.

Links:

NAEC seminar : Are the estimates of economic damages from climate change erroneous? – seminar involving, amongst others, Steve Keen and Tim Lenton.

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Comments

Comments 1 to 4:

  1. Sounds like a good meeting. There seems to have been a touch of optimism present, in their seeking economic models that matter. From the outside it seems much more optimistic than an NSF seminar I organized at New Jersey Institute of Technology in 1986. It was for international economists that had an interest in environmental deterioration impacting infrastucture. My climate change research from the Stockholm School of Economics in 1977 was the rational behind the meeting. Models of social and physical infrastructure, including governing systems, were discussed relative to deterioration of their essential context. 

    Those in attendance were quite pessimistic about chances for avoiding economic and societal turbulence from consequences of relying on short-term economic valuation as the motivator of humans. They thought 2035 looked like a bad time. Many lecturers were there and recorded. Nicholas Georgescu-Roegen was the most emphatic about the urgent need for a different kind of concern.  In his response to questions from a Swiss economist, about the value of ecological economics modeling and thinking, Nicholas responded:

    "Ecology will eat economics." 

    Thereafter he and I wrote a paper on "Second Law Economics," that joined the stack of the unpublishable, due to reviewers calling it "pointless pessimism."   Based on events of the 35 years it seems the reviewers were right. It was pointless.  One reviewer called climate change "ad hominem."  

    NSF reviewers avoided such labels and set up a National Academy of Science Commission in 2001 based on the earlier seminar. It was called "Committee on Business Strategies for Public Capital Investment," Published by NRC. The Committee's draft report of 2003 had much potential but was edited in the White House before release. A Presidential Aid managed the re-review saying our earlier draft report contined too much "ad hominem" material? Probably that term needs to be avoided as humans keep moring towards the fateful. Its use is mostly as policies of the political, not a means to empower the scientific.

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  2. Here's a late-breaking item: Do climate dynamics matter for economics?

    The author arguably suffers from  what might charitably be termed "chronic irrational exuberance," so this article will need careful scrutiny, complete fact-checking; to an unusual degree full containment and isolation of various impulses cannot be taken for granted. 

    Unfortunately the piece is paywalled and even US$ 9.99 is big gamble against odds of utility.

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  3. Seems to me that meaningful action to mitigate adverse climate change does not include considerations of economics. Some of the climate problems are already upon us...yet, the greater public and their government's decision-makers are paralyzed. The economic cost of adverse climate change seems directly (and largely) related to the presence on Earth of a biomass composed of (going on) 8 billion humans and billions of domestic livestock who's numbers nearly no one is able or willing to reduce. As long as that footprint upon the planet exists, matters of economic cost or benefits will never find a meaningful place in the discourse...certainly not in any action plan. Jared Diamond might offer that a "collapse" will have to finish out its typical process, after which "what's left" will have to begin again...albeit differently.

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  4. If economic damage accrues, then change your policy.  If you can't change your policy, then you are 'up the creek without a paddle'.  Thus, it is your ability to change your policy that must figure heavily when adding up economic damages.  Each policy option has a 'permanence risk' that may be the most significant factor in its evaluation; far more important than knowing in fine detail what economic damages will acrue from that option.  It bears repeating that while solar and wind farms can be taken down, nobody is trivially taking down an excess of atmospheric carbon dioxide.  Hence, the carbon option has a large 'permanence risk', while the renewable option does not.  If we admit we have a limited ability to see what these options hold for the economy, then the desireability of the renewable option becomes plain.

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