The Impacts and Costs of Climate Change Page: iii

                                
The Impacts and Costs of Climate Change
Valuation of Climate Change (baseline)
The project has also reviewed the estimates of the monetary benefits of climate change. A number of
approaches have been used to assess the total and the marginal global costs (social costs) of
greenhouse gas emissions'. These estimates can be used to investigate the benefits of future climate
change policy, and can be compared to the costs of greenhouse gas mitigation.
A recent review of the literature of the marginal social costs of climate change has found just under 30
studies2. If these are combined, this provides a mean value of around Euro 25/tCO2, and a 95th
percentile of Euro 96/tCO23. Some recent studies in the literature show a trend towards lower values
than these, with some studies indicating marginal benefits that are lower than the marginal abatement
costs of post-Kyoto (2020) scenarios, i.e. lower than Euro 20/tCO2, and some probably lower than
Euro 12/tCO24. However, these values must be viewed with caution. Recent work5 has reviewed
these literature estimates against the all potential climate change impacts - as represented by the
matrix below showing all impacts and values. The work has concluded that the current literature
values only represent a sub-set of all impacts. Most studies tend to be focused on the top left hand
corner of the matrix (looking at market damages from predictable events). Very few cover non-market
damages, and almost none include major events. The current literature values are therefore a sub-total
of the full cost of climate change.
Uncertainty in Valuation      I
Uncertainty                           Market               Non Market      (Socially Contingent)
in
Predicting        Projection    Coastal protection        Heat stress        Regional costs
Prediting     Projection
Climate         (e,g, sea level  Loss of dryland       Loss of wetland       Investment
Change             Rise)
Energy (heating/cooling)
Agriculture         Ecosystem change      Comparative
Bounded
Boued              Water                Biodiversity       advantage &
Risks
(e.g. droughts,    Variability            Loss of life     market structures
floods, storms)  (drought, flood, storms)  Secondary social effects
System          Above, plus            Higher order
change       Significant loss of land  social effects       Regional
& surprises      and resources        Regional collapse       collapse
(e.g. major
events)     Non- marginal effects  Irreversible losses
Source: Downing and Watkiss, 2003.
This work also undertook additional analysis with existing climate change valuation models, and
concluded that a lower central bound might result in a value of 15 Euro/tCO2, a central illustrative
estimate of 20 - 25 Euro/tCO2, and an upper central estimate of 80 Euro/tCO26 (for current, year 2000
emissions- note these estimates do not include all the impacts in the risk matrix above). The full
1 The marginal social cost is the damage from an additional tonne of CO2 emitted. Specifically, it is the change in the net present value of
the monetised impacts, normalised by the change in emissions. This should not be confused with the total impact of climate change or the
average impact (the total divided by the total emissions of carbon).
2 This review was undertaken by Richard Tol. The values include the original authors' use of discount rate and equity weighting. Note from

his analysis, Tol concluded that marginal damage costs of carbon dioxide emissions were unlikely to exceed $50/tC (14 Euro/tCO2).
3We have converted from USD2000 to Euro2000 ($1 = 1.0) using purchasing power parity exchange rates from 2000.
4 These are the marginal abatement costs from post-Kyoto policies in 2020, and for Kyoto in 2012, as estimated by the ECCP.
5 Tom Downing, Cameron Hepburn, Chris Hope, and Paul Watkiss in work for the UK Department of Environment, Food and Rural Affairs,
on the Social Cost of Carbon. http://socialcostofcarbon.aeat.com/; the project final report will be available in April 2005.
6
6 The authors stress that there is no single value and that the range of uncertainty around any value depends on ethical as well as economic
assumptions. These indicative values are based on a declining discount rate and include equity weighting.
AEA Technology Environment, August 2005                                                                           iii