Since I’ve discussed climate economics before, I thought I would briefly highlight a recent seminar involving, amongst others, Steve Keen and Tim Lenton. The topic was are the estimates of economic damages from climate change erroneous? The basic answer to this questions is yes.
The presenters make a number of good points. Steve Keen highlights how there is little empirical support for the damage functions. There are attempts to estimate how economic activity depends on climate, but there is a huge difference how it might vary in different regions of the planet today, and how it might be impacted by global warming of a similar magnitude.
Tim Lenton highlighted how we may already be close to triggering certain tipping elements and how these economic analyses tend to ignore such outcomes, or may even not be able to properly consider them. In one economic analysis, it was suggested that the collapse of the Atlantic Meridional Overturning Circulation (AMOC) may have a positive economic impact because it might slightly dampen global warming. As Tim Lenton pointed out, this was an “insane” result given that such a collapse would result a major reorganisation of the entire climate system.
Matheus Grasselli, another of the speakers, presented quite a detailed analysis of William Nordhaus’s DICE model. He highlighted how it essentially assumes that the system is always in equilibrium, even if there has been some major shock. He also showed how the results depended strongly on assumptions about damages. What I thought was particularly interesting is that in the DICE model, everything seems to recover even in extreme scenarios.
So, it seems that there is a general view that there are many valid criticisms of these economic analyses. However, at the risk of being accussed of being deferential again, I do think there are many economists who acknowledge this and who are trying to do more appropriate analyses. I do think that some of the damage estimates are way too low, and that the results of some of these analyses have been presented in ways that then play into the hands of those who want to minimise the impact of climate change.
However, this is clearly a very complicated problem and we do need some kind of idea of the economic impact of climate change and what we might be able to do to limit the impact. The key thing, in my view, is to be upfront about the assumptions used in the models, the limitations of the models, and to recognise that there are many things that to which we simply can’t assign a quantitative value. I would be interested in what others think, though.
NAEC seminar : Are the estimates of economic damages from climate change erroneous? – seminar involving, amongst others, Steve Keen and Tim Lenton.