The choice on climate change is obvious, according to a new report from the United Nations' Intergovernmental Panel on Climate Change: We can spend money now on reducing fossil fuel usage, or we can see what how much climate change costs over the long run.
The United Nations, understandably, recommends the former. The IPCC report attempts to outline how the world's governments can mitigate the scenarios the group outlined earlier this month: increased drought, higher sea levels, reductions in food supplies, extinctions, damage to sea life. But how much does that mitigation cost?
Let's start with the key data.
Cost to GDP of climate change
We've created this table using information from the new climate report and other sources, to help give some insight into how the economics play out. The temperatures in the table below indicate the maximum warming by 2100.
|2° C||3° C||4° C||Unchecked|
|CO2 levels||450 ppm||650 ppm||1000 ppm||1000-plus|
|Cost to GDP to stay at this temperature||0.04 – 0.14 percent per year||0.01–0.05 percent||Minimal||Nothing|
|Cost to GDP from climate change at the temperature level||0.2–2 percent per year||Unclear||5–20 percent per year||Unclear|
The two key data points are in bold: how much it will cost to stay at the warming levels and the amount climate change will cost if we do. In other words, 2 degrees of warming means 0.24 to 2.14 percent lower GDP growth through 2100. Four degrees means 5 to 20 percent.
There are several caveats and a lot of context that should be added. First, the context.
Climate change is mostly linked to fossil fuel burning. When we're talking about climate change, we're talking mostly about burning coal and oil for energy. Since 2000, global production of carbon dioxide has increased 2.2 percent, according to one graph from the report (above), thanks to increases in CO2 production from fossil fuel burning. The concentration of carbon dioxide in the atmosphere recently passed 400 ppm; as that level increases, temperatures will increase.
Climate change is underway; the debate is over how high temperatures get by the end of the century. Thanks to the increased amount of carbon dioxide and other greenhouse gases in the atmosphere, a certain amount of global warming is already happening, as the UN report (and common sense) indicates. The question is how bad it gets. A 1 degree increase over 20th century averages by the end of this century would mean far, far fewer negative effects than a 4 degree increase — currently envisioned as the worst-case scenario.
Fighting climate change will reduce global productivity. The crux of the new report is the extent to which fighting climate change — reducing the use of coal, increasing efficiency for cars, etc. — will affect the economy. Global GDP is expected to expand year-over-year for the rest of the century. Investing in fighting climate change will reduce that amount somewhat.
Climate change will reduce global productivity. Of course, the negative effects of climate change will also reduce global productivity. And this is the biggest question mark from the IPCC: it isn't clear how much. But there is other information that provides a guide.
And now the caveats.
It is important to note that we are mixing sources in that first table. The range of costs to GDP comes from two charts produced in the IPCC report, one comparing how controlling CO2 emissions would cost the economy and the other showing how CO2 relates to temperature. [ SHOW CHARTS ] In both cases, we're dealing with ranges, not certainties.
The economic costs from climate change itself comes from two sources. The range for a 2-degree increase is from the IPCC itself. But the 0.2 to 2 percent figure has come under fire for being too conservative. "The quoted figures of 0.2 to 2.0 percent of GDP (gross domestic product) are at best an under-estimate, and at worst completely meaningless," the British government complained, according to Reuters. That's because it's extremely difficult to predict precisely which of the negative effects will happen and to what scale. Will fisheries die out? Will drought ravage crops? Will flooding take thousands of lives? Probably some combination will happen, but it's hard to value. The costs for the 4-degree increase come from the 2006 Stern Review completed by the World Bank, which figured heavy costs to the economy at that temperature increase. In January 2013, the economist who conducted that review, Nicholas Stern, argued that reality was far, far worse than his 2006 estimate. So that, too, may be an underestimate.
"Climate policy is not a free lunch," IPCC co-chairman Ottmar Edenhofer said at a press conference over the weekend, to point out that fighting climate change would be costly. But not fighting climate change is almost certainly going to be more costly, and with costs that are far harder to predict. Climate policy isn't a free lunch, but it would be nice if the world had enough food in 2100 to actually allow people to eat meals.