皇家华人

While climate scientists warn that climate change could be catastrophic, economists such as 2018 Nobel prize winner William Nordhaus assert that it will be nowhere near as damaging. In a 2018 paper published after he was awarded the prize, Nordhaus claimed that 3掳C of warming would reduce global GDP by just 2.1%, compared to what it would be in the total absence of climate change. Even a 6掳C increase in global temperature, he claimed, would reduce GDP by just 8.5%.

If you find reassurance in those mild estimates of damage, be warned. In a newly published paper, I have demonstrated that the data on which these estimates are based relies upon seriously flawed assumptions.

Nordhaus鈥檚 celebrated work, which, according to the Nobel committee, has 鈥渂rought us considerably closer to answering the question of how we can achieve sustained and sustainable global economic growth鈥�, gives governments a reason to give climate change a low priority.

His estimates imply that the costs of addressing climate change exceed the benefits until global warming reaches 4掳C, and that a mild carbon tax will be sufficient to stabilise temperatures at this level at an overall cost of less than 4% of GDP in 120 year鈥檚 time. Unfortunately, these numbers are based on empirical estimates that are not merely wrong, but irrelevant.

Nordhaus (and about 20 like-minded economists) used two main methods to derive sanguine estimates of the economic consequences of climate change: the 鈥渆numerative method鈥� and the 鈥渟tatistical method鈥�. But my research shows neither stand up to scrutiny.

The 鈥榚numerative method鈥�

In the enumerative method, to quote neoclassical climate change economist Richard Tol, 鈥渆stimates of the 鈥榩hysical effects鈥� of climate change are obtained one by one from natural science papers 鈥� and added up鈥�.

This sounds reasonable, until you realise that the way this method has been deployed ignores industries that account for 87% of GDP, on the assumption that they 鈥渁re undertaken in carefully controlled environments that will not be directly affected by climate change鈥�.

Nordhaus鈥檚 list of industries that he assumed would be unaffected includes all manufacturing, underground mining, transportation, communication, finance, insurance and non-coastal real estate, retail and wholesale trade, and government services. It is everything that is not directly exposed to the elements: effectively, everything that happens indoors or underground. Two decades after Nordhaus first made this assumption in 1991, the economics section of the IPCC Report repeated it:

鈥淓conomic activities such as agriculture, forestry, fisheries, and mining are exposed to the weather and thus vulnerable to climate change. Other economic activities, such as manufacturing and services, largely take place in controlled environments and are not really exposed to climate change.鈥�

This is mistaking the weather for the climate. Climate change will affect all industries. It could turn fertile regions into deserts, force farms 鈥� and the cities they support 鈥� to move faster than topsoil can develop, create storms that can blow down those 鈥渃arefully controlled environments鈥�, and firestorms that burn them to the ground.

It could force us to eliminate the use of fossil fuels before we have sufficient renewable energy in place. The output of those 鈥渃arefully controlled environments鈥� will fall in concert with the decline in available energy. The assumption that anything done indoors will be unaffected by climate change is absurd. And if this is wrong, then so are the conclusions based upon it

The same applies to the 鈥渟tatistical method鈥�. As I explained in a previous article, this method assumes that the relationship between temperature and GDP today could be used to predict what will happen as the whole planet鈥檚 climate changes. But while temperature isn鈥檛 a particularly important factor in economic output today, climate change will do much more than simply raise individual countries鈥� temperature by a few degrees 鈥� the disruption it will cause is enormous.

The damage function

Nonetheless, these optimistic estimates were used to calibrate Nordhaus鈥檚 so-called 鈥渄amage function鈥�, a simple equation that predicts a small and smooth fall in GDP from a given rise in temperature. But climate change will not be a smooth process: there will be tipping points.

Nordhaus justified using a smooth equation by incorrectly claiming that climate scientists, including Tim Lenton from the University of Exeter, had concluded that there were 鈥渘o critical tipping elements with a time horizon less than 300 years until global temperatures have increased by at least 3掳C鈥�. In fact, Lenton and his colleagues identified Arctic summer sea ice as a critical tipping point that was likely to be triggered in the next decade or two by changes of between 0.5掳C and 2掳C:

鈥淲e conclude that the greatest (and clearest) threat is to the Arctic with summer sea-ice loss likely to occur long before (and potentially contribute to) GIS [Greenland ice sheet] melt.鈥�

The reason these mistakes are so significant is that, despite the flawed assumptions on which it is based, this work has been taken seriously by politicians, as Nordhaus鈥檚 Nobel Prize recognises. To these policymakers, a prediction of future levels of GDP is far easier to understand than unfamiliar concepts like the viability of the ecosystem. They have been misled by comforting numbers that bear no relation to what climate change will, in fact, do to our economies.

This article was first published in the on 9 September.

Links

• UCL Office of the Vice-Provost: Research

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• 鈥楽cenic view of snow capped mountains under cloudy sky鈥� 听Credit:听听from听 CC by 2.0