Economic cost of climate change underestimated, study finds

13th January 2015

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Katharine Mason

The economic damage caused by a tonne of carbon dioxide emissions could be six times higher than previously calculated, according to scientists at Stanford University.

The value of this damage, also known as the social cost of carbon, is used to calculate the costs and benefits of action to mitigate climate change.

“If the social cost of carbon is higher, many more mitigation measures will pass a cost-benefit analysis," said study co-author Delavane Diaz, a PhD student in the department of management science and engineering at Stanford's school of engineering.

For example, a 2013 US study concluded that a tonne of CO2 emitted in 2015 would cause $37 worth of economic damage, including decreased agricultural yields, harm to human health and lower worker productivity. However, the scientists at Stanford concluded that the cost is actually $220 a tonne.

The study pours doubt on a computer model widely-used for calculating the economic impacts of climate change, known as an integrated assessment model (IAM). The model has been used by governments in the US, UK, Canada, Mexico, France, Germany and Norway to analyse climate and energy policy proposals.

The Stanford research highlights the limitations of IAMs, such as the failure to account for how damages associated with climate change might persist over time.

Co-author Frances Moore, a PhD student in environment and resources in Stanford's school of earth sciences, said: “For 20 years now, the models have assumed that climate change can't affect the basic growth rate of the economy.

"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,” she said.

The scientists modified an IAM called the dynamic integrated climate economy model (DICE) and modified it to allow climate change to affect the growth rate in the economy; to account for adaptation to climate change and to represent high- and low-income countries.

One major finding of the analysis is that the higher cost of damage to the economy would justify very rapid and very early mitigation to limit global temperature rise to 2°C.

“This effect is not included in the standard IAMs,” Moore said, “so until now it's been very difficult to justify aggressive and potentially expensive mitigation measures because the damages just aren't large enough.”

However, the scientists note that their study does not factor in the potential for mitigation actions to also impact growth.

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