In their article, Nordhaus et al. (2017) investigate the economic impact of global warming. They estimate that a 3⁰C and 6 ⁰C increase in temperature would decrease world GDP by 2% and 8.1% respectively. However, other researchers have challenged these estimates on the premise that once a specific temperature threshold is exceeded it may lead to considerably higher economic costs.
How do the authors approach the economic impact of global warming?
For the examination of the economic impact of global warming, the authors estimate the damage caused by global warming on GDP. More specifically, they focus on its impact on consumption and the capital stock, and they also incorporate climate change mitigation and adaptation costs. They run their model across countries, for different temperature scenarios, and subsequently aggregate the impact of climate change on the global economy.
As a robustness check to their model, they also compare their findings to other research investigating the impact of climate change on GDP, attributing a larger weight on the studies that focused on the global level and less on more local ones. At the same time, the authors acknowledge the challenge to quantify some parameters that contribute to climate change and they attribute a 25% error around their estimates. This withstanding, their final estimate is that a 3⁰C temperature rise would reduce global GDP by 2% and a 6⁰C rise would decrease it by 8.1%
Is there a tipping point for climate change's economic downturn?
The authors proceed to examine the possibility of a tipping point, after which a further temperature increase there would lead to a disproportionately large amount of economic damage. They examined this hypothesis using the 2⁰C global warming scenario for which they find no evidence that it would cause a considerably higher economic hit. Instead, they concluded that the damages follow a smooth and predictable pattern across temperature increases. Their results are presented in Figure 1 below.
Figure 1: Global Economic Impact Caused by Temperature Increase
Source: Nordhaus et al. (2017). Note: The bubbles represent different studies used as data points by the authors. Their size corresponds to their respective weight for the study. The red line corresponds to the model of Nordaus et al.(2017).
Not everyone seems to embrace these findings…
Nordhaus et al’s estimates were challenged by Keen (2020), who argue that the paper likely underestimates the real impact. This was because it was based on research that relied on historic data from the 1960 to 2010 period. Given the uniquely high amount of greenhouse gases that will accumulate in the future, Keen (2020) argues that there is no strong basis to assume that past data points can predict climate change’s future impact. For instance, historical data do not account for the impact of a faster melting of the Arctic summer sea-ice and the associated ecosystem changes it would cause.
Finally, using findings from natural scientists, Keen rejects the possibility of a smooth and predictable pattern of economic damage due to climate change. Instead, he claims that climate change should be perceived as an inherently discontinuous process, and tipping points in temperature increases cannot be rejected.
Who’s right then?
There is not an easy answer to this question. There are still many uncertainties related to the consequences of climate change on the economy and an interdisciplinary approach will be needed to fully grasp its implications. For this reason, chances are that the debate of its impact on the world economy will not end any time soon.
Commenti