The Impacts and Costs of Climate Change

The Impacts and Costs of Climate Change
statistical range around these numbers was found to be much larger, and the study also concluded that
it was misleading to present the numbers as single estimates due to the uncertainty in the values. The
study also undertook modelling analysis of emissions in future years, and found significant increases
in the values for future emissions. The analysis showed rises of 2 to 3% per year- so for example the
central illustrative estimate rose from 20- 25/tCO2 from emissions in the year 2000 to 34 Euro/tCO2
by 2020 (in 2000 prices).
The values from such studies are dependant on a number of key assumptions, notably the discount rate
used and the aggregation approach for impacts in different regions (whether distributional weights, i.e.
equity weights7) are used. The choice of discount rate has a very large effect on any values, because
most impacts of climate change occur in the future. Similarly most impacts occur in developing
countries, and so the decision on whether to equity weight or not has a significantly bearing on the
results8.
Economic Benefits of different stabilisation targets
Emerging work is starting to assess the potential benefits of different stabilisation targets. One recent
study9 has undertaken an expert consultation on the social costs of specific climate change scenarios.
The scenarios included three temperature scenarios (<2C, 2-4C, >4C), but also included variables
with respect to major events, socially contingent effects, discount rates, equity weighting, etc. Most
experts believed that under conditions of low temperature change (2C), the marginal social costs
would be low, most probably below Euro 15/tCO2. In contrast, for high temperature change (>4 ),
the expert response was that costs would be high: probably greater than Euro 30/tCO2 and plausibly as
high as 140Euro/tCO2.
The current study has also commissioned two new pieces of work from the FUND and PAGE models,
to investigate the potential benefits of different stabilisation targets. The PAGE2002 model10 has been
used to examine a number of different stabilisation targets. The results show costs of
* Euro 74 trillion from climate change under the baseline business as usual scenario for an average
discount rate of 2% pure rate of time preference and including equity weighting", falling to
* Euro 43 trillion under a 650 CO2 equivalent ppm stabilisation scenario, and
* Euro 32 trillion under a 550 CO2 equivalent ppm stabilisation scenario.
The analysis has also used the FUND model to assess the potential social costs under different CO2
stabilisation levels. This analysis above shows a strong decline in the marginal social cost of current
emissions with lower CO2 stabilisation concentrations.
7 By using equity weighting, it is possible to take into account how the costs and benefits accrue to different groups in society. Policies that
deliver greater net benefit to individuals in lower income groups are rated more favourably than those that benefit higher. Equity weights can
therefore be used to explicitly recognise distributional effects within a policy's net present value. In the case of climate change, we are trying
to recognise that vulnerable societies are likely to see significant impacts, and therefore that climate change mitigation policy will have a dis-
proportionately larger benefit to these groups.
8 Most models show that at small to moderate climate change, poorer countries (Africa, India, and Latin America) are net economic losers,
whereas richer countries, especially mid - Northern latitudes may actually gain. Essentially, the more weight we put on the distribution of
the impacts of climate change in developing countries, the more severe the aggregate impacts are.
9Tom Downing at the Stockholm Environment Institute (Oxford office), as part of recent work for Defra (UK).
10 Run by Chris Hope at the Judge Institute at the University of Cambridge.

11
Values are in 2000 prices. Note a trillion is a million million. This is based on a time horizon of 2200 and discounted back to a net
present value. The analysis for a business as usual run is based on the A2 scenario. The model has also assessed 550 ppm and 450 ppm CO2
concentrations levels. The value of a 2% PRTP is broadly consistent with the current EC recommended discount rate of 4% social rate of
time preference (assuming average GDP per capita growth of 2%). Note the use of lower discount rates, or declining discount rate schemes
would give higher values than presented- the use of higher discount rates would give lower values. For equity weighting an elasticity of
utility with respect to consumption of minus 1 has been used. Again the use of different assumptions on equity weighting would give
different values.

AEA Technology Environment, August 2005

iv

Watkiss, Paul; Downing, Tom; Handley, Claire & Butterfield, Ruth. The Impacts and Costs of Climate Change. Oxford, England. UNT Digital Library. http://digital.library.unt.edu/ark:/67531/metadc29337/. Accessed September 19, 2014.