Climate Economics

The State of the Art

Frank Ackerman, Elizabeth Stanton

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135074043
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Climate science paints a bleak picture: The continued growth of greenhouse gas emissions is increasingly likely to cause irreversible and catastrophic effects. Urgent action is needed to prepare for the initial rounds of climatic change, which are already unstoppable. While the opportunity to avert all climate damage has now passed, well-designed mitigation and adaptation policies, if adopted quickly, could still greatly reduce the likelihood of the most tragic and far-reaching impacts of climate change.

Climate economics is the bridge between science and policy, translating scientific predictions about physical systems into projections about economic growth and human welfare that decision makers can most readily use but it has too often consisted of an overly technical, academic approach to the problem.

Getting climate economics right is not about publishing the cleverest article of the year but rather about helping solve the dilemma of the century. The tasks ahead are daunting, and failure, unfortunately, is quite possible. Better approaches to climate economics will allow economists to be part of the solution rather than part of the problem. This book analyzes potential paths for improvement.

Part I

The science of climate change

1 Climate science for economists

Climate analysis requires an understanding of both economics and science. Climate science is a rapidly evolving field, rich with new areas of research, important advances that refine our understanding of well-established facts, and an increasing reliance on interdisciplinary approaches to complex research questions. Every few years, this body of knowledge is pulled together, subjected to additional layers of peer review, and published in Assessment Reports by the Intergovernmental Panel on Climate Change (IPCC). The latest of these – the Fourth Assessment Report (AR4) – was released in 2007 (IPCC 2007b), reflecting the peer-reviewed research literature through 2006. The next IPCC Assessment is expected in 2013–14.

The process of predicting future economic impacts from climate change and deciding how best to react to those impacts begins with estimates of the baseline, or business-as-usual, future world economy and the quantity of greenhouse gas emissions that it is likely to release. Climate scientists build on these economic projections, combining them with records of past climatic changes and the most up-to-date knowledge about the climate system, to predict future atmospheric concentrations of greenhouse gases, temperature increases, and other climatic changes. These projections of the future climate system are used to estimate the type and magnitude of impacts expected in terms of physical and biological processes, such as changes to water availability, sea levels, or ecosystem viability. Economic modeling places monetary values both on measures that would reduce greenhouse gas emissions and thereby avoid climate damages (the costs of mitigation) and on the physical damages that are avoided (the benefits of mitigation). Comparisons of climate costs and benefits are offered to policy makers to support recommendations of the best actions to take.

Each step in this process – from baseline economic projections to climate policy recommendations – adds more uncertainty, which is a central theme of this book. We begin with a review of the current state of the art in climate science as it relates to economic modeling. After a brief discussion of forecasts for business-as-usual (no mitigation) emissions, we review the latest projections of the future climate and the expected impacts to natural and human systems. We summarize climate system projections and impacts both in terms of the most likely, “best guess” prediction, and less probable, but still possible, worst case (at times, catastrophic) predictions. Later chapters of this book discuss techniques for economic impact assessment, as well as the estimation of costs of mitigation and adaptation under conditions of uncertainty.

Business-as-usual emissions

Baseline, or business-as-usual, emission scenarios do not plan for greenhouse gas mitigation. These projections are sensitive to assumptions about population and economic growth, innovation and investment in energy technologies, and fuel supply and choice. Projections of baseline emissions for future years vary widely. The most optimistic business-as-usual scenarios assume significant reductions over time in carbon emissions per unit of energy and in energy use per dollar of output, together with slow population growth and slow economic development. These scenarios project atmospheric concentrations of CO₂ as low as 500–600 ppm in 2100 – up from just above 390 ppm CO₂ today.¹ Pessimistic business-as-usual scenarios project much more rapid growth of global emissions over time, with CO₂ concentrations reaching 900–1,100 ppm by 2100. Recent research, however, suggests that parameters commonly used to link concentrations to emissions may be mis-specified; the fraction of CO₂ emissions sequestered in land and ocean sinks may be shrinking in response to climate change, suggesting that atmospheric concentrations would be higher at every level of emissions.

In this book, we will refer to a range of business-as-usual scenarios projecting from 540 to 940 ppm in 2100; these endpoints are chosen to match two of the Representative Concentration Pathways, RCP 8.5 and RCP 4.5, that will be used as part of a set of central emissions scenarios in AR5, the next IPCC Assessment Report.² These scenarios may be compared to those presented in the IPCC's Special Report on Emissions Scenarios (SRES; Nakicenovic et al. 2000).

• RCP 8.5 was developed using the MESSAGE model. This scenario reaches 540 ppm CO₂ in 2050 and 936 ppm CO₂ in 2100 (or 1,231 ppm CO₂-equivalent [CO₂-e] in 2100, including measures of all climate “forcing” agents). By 2060, it exceeds 560 ppm CO₂, or double the preindustrial concentration – a much-discussed milestone related to the rate of temperature change. Emissions in RCP 8.5 are similar to those of the SRES A1FI scenario, used in previous IPCC Assessment Reports. In the RCP 8.5 scenario, CO₂ emissions grow from 37 Gt CO₂ in 2010 to 107 Gt CO₂ in 2100.
• RCP 4.5 was developed using the MiniCAM model. It reaches 487 ppm CO₂ in 2050 and 538 ppm CO₂ in 2100 (or 580 ppm CO₂-e in 2100); in this scenario, concentrations stabilize before exceeding 560 ppm CO₂. Emissions in RCP 4.5 are similar to those of the SRES B1 scenario, with emissions peaking between 2040 and 2050 and falling to 16 Gt CO₂ in 2100 – a 43 percent decrease from 1990 emissions (a common benchmark). The RCP 4.5 scenario requires substantial use of carbon capture and storage technology (see Chapter 9) and energy efficiency measures; coal use falls significantly, while biomass, natural gas, and nuclear energy grow in importance.³ Clearly, this scenario involves investments that have the effect of reducing emissions, but it does not necessarily involve planned mitigation with the purpose of reducing greenhouse gas emissions.

Table 1.1 compares the RCP concentration projections to those of SRES, as well as to business-as-usual projections from a recent Energy Modeling Forum (EMF) meta-analysis⁴ and from Energy Technology Perspectives 2008, published by the International Energy Agency (IEA).⁵ RCP 8.5 falls in the upper half of EMF baseline scenarios, while RCP 3-PD is more optimistic than any EMF projection. IEA projections extend only to 2050 and exceed those of RCP 8.5 for that year.

Climate projections and uncertainty

AR4 found unequivocal evidence of global warming and rising sea levels (IPCC 2007c, Synthesis Report) and reported a very high confidence that these changes are the result of anthropogenic greenhouse gas emissions. The report also found it likely (with a probability greater than 66 percent) that heat waves and severe precipitation events have become more frequent over the past 50 years. Even if further emissions were halted, great inertia in the climate system would mean that the earth was “locked in” to several centuries of warming and several millennia of sea-level rise (although at a far slower pace and less extreme endpoints than would occur with additional emissions). Continuing the current trend of emissions could lead to abrupt or irreversible changes to the climate system.

Table 1.1 Business-as-usual emissions scenarios

Scenario	CO2 concentration (ppm)		Year exceeding 560 ppm CO2
	2050	2100
RCP 8.5	540	936	2060
RCP 6.0	478	670	2080
RCP4.5	487	538	NA
RCP 3-PD	443	421	NA
SRES A1FI	561	964	2050
SRES A2	527	846	2060
SRES A1B	527	710	2060
SRES B2	476	616	2090
SRES A1T	499	579	2080
SRES B1	485	545	NA
EMF baseline: highest	571	1,030	2050
EMF baseline: mean	522	782	2060
EMF baseline: lowest	499	612	2080
IEA 2008 baseline	550	NA	NA

Sources: see text.

Although it lags behind the most current research, AR4 is the standard reference for the field. In 2009, the University of New South Wales Climate Change Research Centre (CCRC) published a comprehensive review of the literature released since the close-off for material included in AR4 (Allison, Bindoff, et al. 2009).⁶ CCRC emphasizes several areas of research in which there have been significant new findings:

• Greenhouse gas emissions and global temperatures are following the highest scenarios (A1F1) considered in AR4. Recent CO₂ emissions have been growing three times faster than they were in the 1990s.⁷
• The rate at which ice sheets, glaciers, ice caps, and sea ice are disappearing has accelerated.
• The current rate of sea-level rise was underestimated in AR4, as were projections of future sea-level rise.
• Critical thresholds for irreversible change to climate and ecological systems are both imminent and difficult to predict with accuracy. There is a risk of crossing these tipping points before they are recognized.
• A two-thirds chance of avoiding a 2°C increase in global temperatures above preindustrial levels – the now-ubiquitous benchmark for avoiding dangerous climate change, found in both the science and policy literatures – will require that by 2050, emissions be reduced by 80 to 100 percent from their 2005 levels, depending on the year in which emissions peak.

The remaining sections of this chapter focus on several areas where advances since AR4 seem especially salient, including literature published through mid-2012. Of course, new research has been published in all areas of science over the past five years, but not all scientific findings overturn or qualitatively change previous results; many advance their field by making small improvements in accuracy or precision, confirming earlier findings, or ruling out counterfactuals. In our assessment, areas in which new findings represent a change to older research or an otherwise significant advance in our understanding of the climate system include:

• albedo changes and carbon-cycle feedbacks involving clouds, aerosols, and black carbon;
• sensitivity of temperature to the atmospheric concentration of greenhouse gases;
• the frequency and intensity of severe weather;
• downscaling of precipitation forecasts;
• alternatives to AR4's sea-level-rise projections;
• the unforeseen pace of sea ice loss.

To CCRC's assessment of the most important themes in contemporary climate science we add three more, discussed in detail below:

1 The climate system is complex and nonlinear. Interactions and feedback loops abound, and newer work demonstrates that studies of isolated effects can lead to missteps, confusing a single action in a greater process with the complete, global result.

2 “Overshooting” of global average temperatures is now thought to be irreversible on a timescale of several millennia. Once temperature reaches a peak, it is likely to remain at that level for millennia, even if atmospheric concentrations of greenhouse gases are reduced.

3 Climate impacts will not be globally uniform. Regional heterogeneity is a strong theme in the new literature, shifting findings and research methods in every subfield of climate science.

A complex truth

Many areas of the science of our climate system are well understood. Increased concentrations of greenhouse gases in the atmosphere are amplifying the sun's ability to warm the earth, changing precipitation levels and other weather patterns, causing sea levels to rise, and decreasing pH levels in the oceans. A strong scientific foundation, however, does not always lead to precise forecasts of climate outcomes. While the larger relationship among greenhouse gas emissions, global temperatures, and sea levels is clear, the field is challenged by the call from economists and policy makers for greater precision in modeling future climate impacts. Climate dynamics are rarely simple or linear, and long temporal lags complicate both modeling efforts and popular perceptions of the humans role in causing – and stopping – climate change. In many regions around the world, the present-day effects of CO₂ and other greenhouse gas emissions are unobservable, and year-to-year variability in weather obscures lo...

Table of contents

• Cover
• Half Title
• Routledge studies in ecological economics
• Full Title
• Copyright
• Contents
• Acknowledgments
• Introduction
• Part I The science of climate change
• Part II Climate damages
• Part III Economic theories and models
• Part IV Mitigation and adaptation
• Conclusion
• Notes
• References
• Index