Incorporating ‘catastrophic’ climate change into policy analysis

† The views expressed in this paper are those of the authors and do not necessarily reflect the views or policies of the US Environmental Protection Agency.

Abstract

Although existing economic research is informative with regard to the importance of including potential ‘catastrophic’ climate change impacts in the analysis of GHG mitigation benefits, the generic and abstract form of the ‘catastrophe’ implemented has led to a lack of specific policy implications. This article provides an important starting point for a discussion of how to improve economic modelling of potential large-scale impacts of climate change. It considers how the term ‘abrupt climate change’ has been used in the scientific literature to describe changes in the climate system and carefully reviews the characteristics of the events that have been discussed in this context. The findings are compared to the way in which the economic literature has modelled potential economic and human welfare impacts of these ‘catastrophic’ events. In general, the economics literature is found to have modelled such impacts in a uniform way that fails to account for differences in relevant end points and timescales. The result is policy recommendations based on events that do not resemble those of concern. Better treatment of these events in integrated assessment modelling would help ensure that future research efforts can serve as meaningful policy input.

Policy relevance

It has often been stated that current studies aimed at understanding the magnitude of optimal climate policy fail to adequately capture the potential for ‘catastrophic’ impacts of climate change. Existing economic modelling has provided evidence that, in general, potential climate catastrophes might significantly influence the optimal path of abatement. However, there is a need to move beyond experiments that are detached from important details of the climate problem to substantively inform the policy debate and improve analyses of GHG mitigation benefits (e.g. social cost of carbon estimates). This article identifies areas where modelling could be improved even within current frameworks and others where additional work is needed.

Keywords:

• climate change
• integrated assessment
• social costs
• welfare impacts

Acknowledgements

The authors appreciate the helpful comments of Tim Lenton of the University of Exeter and Steve Newbold of the US EPA National Center for Environmental Economics, and helpful research assistance from Scott Breen.

Notes

† The views expressed in this paper are those of the authors and do not necessarily reflect the views or policies of the US Environmental Protection Agency.

1. The ambition of a global threshold was endorsed in the 2009 Copenhagen Accord, in which two dozen key countries agreed to ‘prevent dangerous anthropogenic interference with the climate system’ by limiting global temperature increases to below 2 °C (UNFCCC, 2009).

2. For example: ‘We have a window of only 10–15 years to take the steps we need to avoid crossing catastrophic tipping points’ (Jan Balkenende & Tony Blair, 20 October 2006) and ‘Even if the ultimate result were an Earth that is still hospitable to mankind, the transition could be catastrophic’ (The Economist, June 18, 2012).

3. This article focuses on the economic study of specific large Earth system changes, outside of direct temperature response to anthropogenic emissions. For information on the potentially large welfare impacts associated with a significantly stronger than expected climate response to anthropogenic emissions, see Weitzman (2011).

4. The Intergovernmental Panel on Climate Change (IPCC) has also used the potentially confusing terminology of ‘large scale discontinuities’ to describe such events. However, the notion of a discontinuity in this case arises from observing the time path of the system over a long time horizon, and often does not refer to a mathematical discontinuity in equilibrium solutions of the system.

5. Estimating society's preference for trading off costs and benefits across time, particularly for intergenerational contexts, is an active area of discussion and research. Cropper (2013) provides a detailed discussion of the issue.

6. Real options analysis refers to a dynamic programming framework for modelling optimal policies that involves a non-trivial sunk cost under uncertain net benefits. Traditionally, the framework has considered problems with stochastic uncertainty whereby the decision maker learns passively over time about the state of nature. For more information on real options analysis, see Dixit and Pindyck (1994).

7. Other studies suggest WAIS collapse would take much longer (e.g. Pollard & DeConto, 2009), but there are still uncertainties and challenges in modelling or measuring ice-sheet dynamics (see e.g. Cooke, 2013; Little, Urbana, & Oppenheimer, 2013; Moore, Grinsted, Zwinger, & Jevrejeva, 2013, for some of the most recent reviews and assessments).

8. The SCC represents the discounted present value of the welfare losses from an additional ton of CO₂ emitted into the atmosphere in a given year.

9. In the previous version of the Policy Analysis of the Greenhouse Effect model, PAGE2002, a generic potential climate catastrophe was modelled as an instantaneous, permanent reduction in welfare, where the probability of occurrence was zero until a given threshold was reached, after which the probability would begin to rise (Hope 2006).

10. Table 2 is not meant to be exhaustive. See Lenton and Ciscar (2013) for a discussion of additional potential large-scale climate change-induced events as well as an overview of many critical linkages across Earth systems.

11. Consensus refers to a general understanding of how Earth systems will respond (e.g. which physical endpoints will be affected and the direction of impact on these endpoints) rather than scientific agreement on the detailed projections of physical impacts. For example, in the case of sea-level rise from ice-sheet melt, the scientific uncertainty is primarily with regard to the magnitude and rate of change.

12. To assess the welfare implications of non-marginal policies inclusive of potential climate catastrophes, the endogeneity of these physical endpoint changes to anthropogenic emissions needs to be established within the IAMs.