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Economic Losses Due to Climate Change May Be 6 Times Higher Than Thought Before

Posted January 20, 2015

A recent U.S. government study concluded that every additional ton of carbon dioxide released into the atmosphere in 2015 will incur $37 worth of economic damage.

Authors of the study thought this damage would manifest itself in decreased agricultural yields, lower worker productivity and harmful effects on human health.

According to a new computer model, greenhouse emissions might need to be cut much more rapidly than we thought. Image credit: Library of Congress via Wikipedia, Public Domain.

According to a new computer model, greenhouse emissions might need to be cut much more rapidly than we thought. Image credit: Library of Congress via Wikipedia, Public Domain.

But now a new paper, released online last week in the journal Nature Climate Change, challenges this estimation.

Frances Moore and Delavane Diaz, both PhD candidates at Stanford University, claim that the actual figure is significantly higher than what the U.S. government currently uses to guide their energy regulations.

“We estimate that the social cost of carbon is not $37 per ton, as previously estimated, but $220 per ton,” said Moore.

Study co-author Delavane Diaz urged government officials to take their study as a cue to increase efforts to curb greenhouse gas emissions.

“If the social cost of carbon is higher, many more mitigation measures will pass a cost-benefit analysis,” she explained. “Because carbon emissions are so harmful to society, even costly means of reducing emissions would be worthwhile.”

The impacts of future climate change are usually estimated by employing special computer models, known as integrated assessment models, or IAMs.

These models predict how temperature changes might affect economic activity through loss of crops, increased demand for cooling and other relevant factors.

However useful for determining the costs and benefits of reducing emissions, which help governments form their CO2 reduction policies, IAMs are fairly simplified and not as reliable as was thought before.

“For 20 years now, the models have assumed that climate change can’t affect the basic growth rate of the economy,” said Moore.

“But a number of new studies suggest this may not be true. If climate change affects not only a country’s economic output but also its growth, then that has a permanent effect that accumulates over time, leading to a much higher social cost of carbon.”

Moore and Diaz claim that money spent on adapting to extreme weather and rebuilding destroyed infrastructure are the main ways that decrease available investment funds, which ultimately lead to a permanent drop in GDP.

For their study, the team took a popular IAM, called the Dynamic Integrated Climate Economy (DICE) model and modified it in three ways: they allowed climate change to affect the growth rate of the economy; accounted for adaptation to climate change; and made the model representative of high- and low-income countries.

This modified model showed that while climate change would take only a slight hit in developed countries (one that’s not so different from previous estimations), poorer countries might see a dramatic effect.

“The average annual growth rate in poor regions is cut from 3.2 per cent to 2.6 per cent, which means that by 2100 per-capita GDP is 40 per cent below reference,” the authors write.

Based on prior estimations, the prudent way to go about halting catastrophic effects of global warming is to first stabilize emissions and then begin to decrease them in 2070.

But Moore and Diazs’ model suggests that if we want to be effective at it, we need to drop emissions to near zero as soon as by 2030.

The authors also noted two important limitations to their study: the modified model does not take into account the fact that new technologies take time to develop and become viable, and the potential for mitigation efforts to also impact growth.

“For these reasons, the rapid, near-term mitigation level found in our study may not necessarily be economically optimal,” said Diaz.

“But this does not change the overall result that if temperature affects economic growth rates, society could face much larger climate damages than previously thought, and this would justify more stringent mitigation policy.”

Sources: study abstract,,,,

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