There’s been a reasonable amount of discussion about Bjorn Lomborg’s fairly recent paper [w]elfare in the 21st century: Increasing development, reducing inequality, the impact of climate change, and the cost of climate policies. A key part of the paper is the claim that
Climate-economic research shows that the total cost from untreated climate change is negative but moderate, likely equivalent to a 3.6% reduction in total GDP.
The claim above is based on the figure on the right, which shows damage functions for various Integrated Assessment Models (IAMs). The claim above is based on estimates for the damage at ~4oC of warming, but plotting these out to 8oC illustrates, in my view, an issue with these damage estimates.
Suggesting that the impact of 8oC of warming would be ~10%, or less, seems so nonsensical that it’s hard to know where these estimates have any validity. There have also been numerous critiques of these damage functions. There’s Steve Keen’s rather blunt critique, but there also a paper by Diaz & Moore that synthesizes published damage function critiques.
Of course, I do realise that if you want to do some kind of economic modelling to assess the impact of climate change and to potentially inform policy-making, you do need something. However, given the simplicity of these damage functions, I do think one should be cautious of making strong, definitive, claims about the economic impact of climate change.
What’s more, if you look at William Nordhaus’s recent paper, you find that the damage, as a fraction of output, is indeed around 4% for the reference scenario, but with a range from close to 0, to about 12%. So, it has a non-negligible chance of being quite large enough to not be reasonable described as moderate.
Lomborg’s paper goes on to say:
The popular 2°C target, in contrast, is unrealistic and would leave the world more than $250 trillion worse off.
However, if you scroll down the paper, you discover that this devastating (and unrealistic) policy would cost 5.4% of future global GDP. So, the economic impact of ~4oC of warming would be moderate at ~4% (but, potentially, >10%) of global GDP but trying to limit warming to 2oC would be devastating at 5.4% of global GDP.
Also, the reference scenario for these estimates is one that is expected to lead to 4 ± 1oC of warming. Anyone who’s been following the climate debate should be aware that there’s been a lot of recent discussion about this. There are strong indications that our current policy is taking us towards a 3 ± 1oC world. Therefore, the reference scenario used in Lomborg’s paper almost certainly makes it seem more challenging/costly to limit warming to 2oC than may now be the case.
I should probably wrap this up. I think that making strong claims about the economic impact of climate change is sub-optimal, especially given the assumptions that are needed in order to develop damage functions (we haven’t actually experienced 4oC of global warming). Also, given that climate change is essentially irreversible on human timescales, we may still want to avoid ~4oC of warming, even if there are indications that the economic impact may be moderate. Also, even if the cost of limiting warming to 2oC is greater than the economic impact of 4oC, maybe this is a cost worth bearing, especially if we’ve already made inroads that this analysis has ignored.
Welfare in the 21st century: Increasing development, reducing inequality, the impact of climate change, and the cost of climate policies, Bjorn Lomborg’s July 2020 paper.
The appallingly bad neoclassical economics of climate change, Steve Keen’s critique of IAM damage functions.
Quantifying the economic risks of climate change, Diaz & Moore (2017).
Projections and Uncertainties About Climate Change in an Era of Minimal Climate Policies, William Nordhaus’s 2016 paper.
A 3C World Is Now “Business as Usual”, article by Zeke Hausfather and Justin Ritchie.