Those opposing a fast transition to renewable energy and other aggressive action to fight catastrophic climate change often argue that the economic costs would be too great. Now, with the proliferation of extreme hurricanes, droughts, floods, wildfires, and other disasters linked to a changing climate, it has grown more apparent that the status quo also carries a cost – defined as the “social cost” of carbon. But recent research indicates existing economic models may have low-balled those potential social costs by trillions of dollars.
Papers accounting for the value of nature and heat-related mortality conclude that the social cost of carbon is in the hundreds of dollars per ton of carbon dioxide pollution. A new study published in Environmental Research Letters (ERL) also finds that the cost of doing nothing could be 15 times greater yet. The trillion-dollar question for climate economists is: will climate damages have persistent effects that result in slower economic growth?
“Climate change makes detrimental events like the recent heat wave in North America and the floods in Europe much more likely,” noted the new study’s co-author Chris Brierley of the University College London. “If we stop assuming that economies recover from such events within months, the costs of warming look much higher than usually stated. We still need a better understanding of how climate alters economic growth, but even in the presence of small long-term effects, cutting emissions becomes much more urgent.”
That insight has important repercussions for federal climate rules. In adopting new regulations, federal agencies are required to weigh the resulting costs and benefits to American taxpayers. Experts estimate how much a ton of carbon dioxide pollution costs society as a result of the climate change damages it causes. This “social cost” of carbon is notoriously difficult to pin down. Wild cards include uncertainties about the magnitude of climate damages and about the resulting economic costs, and subjective judgments about how much governments value or discount the wellbeing of future generations.
From Obama’s $50 per ton, to Trump’s near-zero, to Biden’s TBD – to be determined
The Obama administration pegged the social cost of carbon at about $50 per ton, but the Trump administration reduced the federal social cost of carbon estimate to near zero by heavily discounting the value of future generations and entirely disregarding the wellbeing of humans beyond U.S. borders. The Biden administration reversed those changes by restoring the Obama administration estimate and now is in the process of incorporating the latest research to further update the value.
In a separate but relevant new report, the World Meteorological Organization has found that over the past five decades, the number of extreme weather disasters has increased fivefold globally and associated costs have increased sevenfold. More than half of those costs have been borne by the United States, largely because of damages resulting from extreme Atlantic hurricanes like Katrina in 2005, Harvey, Maria, and Irma in 2017, Sandy in 2012, and Andrew in 1992. Damages from these storms totaled almost $500 billion (nearly $1.2 trillion when adjusted for inflation). This year’s Hurricane Ida is expected to add $95 billion to that total. And as the latest IPCC report concluded, hotter global temperatures and ocean waters will cause a greater proportion of tropical cyclones to rapidly intensify and become dangerous Category 4 and 5 hurricanes.
Slower growth means compounded costs
Many climate-economics models have assumed the global economy will keep growing at a steady rate no matter how much the climate changes. Over the past decade, more and more climate economists have questioned this assumption, noting that economies will increasingly struggle to fully recover from persistent and worsening climate damages.
UC Davis climate economist Frances Moore, who was not involved in the new ERL study, said the novel part of its approach involves figuring in the possibility of “partial persistence” of damages from climate change. “This is probably a more realistic representation of what is really going on” as opposed to previous studies that either chalked up damages as permanent “or not persistent at all.”
The ERL study concluded that if just 10% of economic damages from climate change were to persist and reduce economic growth, the social cost of carbon would increase by a factor of 15, into the thousands of dollars per ton. Moreover, the authors found that these adverse economic impacts would be heavily borne by countries in Africa, South Asia, and Latin America: developing countries that have contributed the least to the climate crisis, but which are the most vulnerable to its impacts as a result of their already hot climates and lack of resources available for adaptation efforts.
The study authors also investigated the possibility that countries could reinforce their resilience to persistent climate damages through adaptation measures. They concluded that keeping the social cost of carbon below $600 per ton “would require lowering the persistence of temperature-related economic impacts by half within less than 25 years.” Such an approach would require immense investments in climate adaptation that would be especially difficult for poorer countries to afford.
Efforts to quantify the economic costs of climate change often overlook its human toll. For example, in just the summer of 2021 alone, Hurricane Ida claimed at least 82 lives, 242 died in the European floods, and likely over 1,000 were killed in the Pacific Northwest heat wave. The economic benefits of policies to curb climate change usually will outweigh the associated costs, especially if persistent climate damages slow economic growth. But the non-economic benefits stemming from avoided deaths and the improved well being of future generations make the climate policy cost-benefit analysis more compelling yet.
On a more positive note, deaths caused by extreme weather events have declined since the 1970s thanks largely to improved hurricane and weather emergency early warning systems. However, more than 90% of the deaths related to weather disasters have occurred in developing countries, once again highlighting the inequity in climate change impacts. For example, droughts in Ethiopia, Sudan, and Mozambique accounted for the most such deaths, at over 650,000 in total.
The results of this new research strengthen the case for ambitious climate policies. “The risk of costs being even higher than previously assumed reaffirms the urgency for fast and strong mitigation,” said ERL study co-author Paul Waidelich of ETH Zürich. “It shows that choosing to not reduce greenhouse gas emissions is an extremely risky economic strategy.”