The Impacts and Costs of Climate Change Page: 29
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The Impacts and Costs of Climate Change
The probability characteristics of the marginal costs of carbon dioxide emissions
$/tC ($1995) Mode Mean 5% 10% Median 90% 95%
Base 1.5 93 -10 -2 14 165 350
Author-weights 1.5 129 -11 -2 16 220 635
Peer-reviewed only 5.0 50 -9 -2 14 125 245
No equity weights 1.5 90 -8 -2 10 119 300
Equity weights -0.5 101 -20 -2 54 250 395
PRTP=3% only 1.5 16 -6 -2 7 35 62
PRTP= 1% only 4.7 51 -14 -2 33 125 165
PRTP< 0% only 6.9 261 -24 -2 39 755 1610
The analysis combined the studies to form a probability density function. This has shown that
uncertainty is strongly right-skewed. If all studies are combined, the median $14/tC (1995 values), the
mean $93/tC, and the 95 percentile $350/tC. This is approximately equal to a median of Euro 4/tCO2,
a mean of Euro 25/tCO2, and a 95 percentile of Euro 96/tCO2. For this review, we consider the mean
is the appropriate estimator of central tendency; given the right-skewed distribution the mode and the
median will both be biased towards low valuations. Using the weights favoured by authors, the mean
is $129/tC and the 95 percentile $635/tC33 . Studies with a lower discount rate had higher estimates
and much greater range. Similarly, studies that use equity weighting have higher estimates and a larger
range. Studies that are peer-reviewed have lower estimates and smaller uncertainty ranges. The
highest estimates are in the grey literature. In his paper, Tol concluded that the marginal damage costs
of carbon dioxide emissions are unlikely to exceed $50/tC (14 Euro/tCO2), and are probably much
The trend in the data is towards lower values over time, as shown in the figure above. The reason for
the drop in the estimated values over the past decade is because of more recent climate scenarios,
consideration of explicit socio-economic reference scenarios (generally of wealthier futures), inclusion
of benefits as well as impacts, and notably due to autonomous adaptation (which allows economic
costs to be off-set in anticipation of climate change). Based on this newer literature, some
commentators conclude that the social costs of climate change are low: with typical assumptions about
discounting and aggregation, the central estimate of the marginal damage cost of carbon dioxide
emissions may be lower than the marginal abatement costs for post-Kyoto scenarios (Euro 20/tCO2)
and possibly below the estimated marginal abatement cost to Europe of meeting Kyoto (Euro
12/tCO234). However, it should be noted that such trends may change in future analysis. Two
emerging findings are that climate sensitivity and likelihood of severe impacts increases at lower
temperature thresholds maybe higher than previously expected35.
Moreover, the studies do not cover all the impact categories described above, and most researchers
(and indeed the IPCC) consider the possibility of negative surprises are more likely than positive ones.
We have therefore assessed the coverage of the valuation studies to investigate the extent to which
they may under-estimate the "full" impacts of climate change.
33 The explanation of this increase is that some studies (Azar and Sterner, 1996; Tol, 1999) deliberately reproduce the low
estimates of Nordhaus (1994) and then argue that his assumptions are biased downwards.
34 The costs considered are from the European Climate Change Programme (ECCP 2001), which identified 42 possible
measures, which could lead to some 664-765 MtCO2 equivalent emissions reductions that could be achieved at a cost lower
than 20 /tonne CO2eq. This is about double the emissions reduction required for the EU in the first commitment period of the
Kyoto Protocol. They provide approximate costs for Kyoto and post Kyoto (e.g. 2020) scenarios of 12/tCO2 in 2010,
16/tCO2 in 2015 and 20/tCO2 in 2020.
35 See the Report of the Steering Committee from the International Symposium on the Stabilisation of Greenhouse Gases,
Hadley Centre, Met Office, Exeter UK, Feb 2005.
AEA Technology Environment, August 2005
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Watkiss, Paul; Downing, Tom; Handley, Claire & Butterfield, Ruth. The Impacts and Costs of Climate Change, text, September 2005; Oxford, England. (digital.library.unt.edu/ark:/67531/metadc29337/m1/40/: accessed July 21, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; .