Op-Ed, Part I: The Price of Climate Catastrophe

Can the world afford to ignore climate change?

by John J. Berger

Unlike the direct, short-term impacts of costly but discrete climate disasters, such as hotter heat waves, more intense droughts, or wilder storms, the coming broad economic impacts of rapid climate change—unprecedented in human experience—are more complex and difficult to meaningfully quantify.

To cite a planetary-scale example, climate change may disturb the Atlantic Meridional Overturning Circulation, an enormous current that transfers heat from the equator to the poles. This would disrupt ocean ecosystems and alter the productivity of both the ocean and the landmasses, whose temperature is modulated by the current. From the human point of view, marine fisheries would be jeopardized. The Intergovernmental Panel on Climate Change has already found that these currents are slowing. Who can say what the ultimate price tag may be?

How, too, shall we put a price on the impact of changing the ocean’s chemistry or its ability to soak up excess heat or carbon dioxide from the atmosphere?

Should we guesstimate the cost of these impacts by putting a price tag on the ecosystem services that the oceans provide us? Or does it really make any sense to apply this narrow economic approach to an ecosystem as vast and basic to survival as the oceans? With less risk, it would be far safer to put a steep, economy-wide price on carbon, so we can radically reduce the rate of greenhouse gas emissions and halt climate change.

Climate-Dependent Economy

One distinguished effort to estimate the economic costs of future climate was a report for the British government, led by former World Bank chief economist and Chancellor of the Exchequer Sir Nicholas Stern. That study concluded in 2006 that, based on formal economic models, the global cost of unmitigated climate change would amount to “losing at least 5 percent of global GDP per year, now and forever”.

Stern’s widely cited report went on to say, however, that if a wider range of impacts not included in those models were considered, the cost of global climate “could rise to 20 percent of GDP or more”. Looking back on the report in 2013, however, Lord Stern said that he had underestimated the risk:

“The planet and the atmosphere seem to be absorbing less carbon than we expected, and emissions are rising pretty strongly. Some of the effects are coming through more quickly than we thought then. […] I think I would have been a bit more blunt. I would have been much more strong about the risks of a four- or five-degree [Celsius] rise.”

Conventional economic studies are nonetheless useful for indicating the general nature of the economic effects of climate change, even when they may be unreliable in gauging their magnitude. For example, a review of studies in the journal Low Carbon Economy shows that as temperature rises in poor developing countries, industrial output, investment, and per capita income will all fall relative to their expected performance under normal climatic conditions.

There are uncertainties about how an entire economy will fare under climate change, but agronomists can make specific forecasts of, for example, how individual crops will respond as temperature rises or precipitation changes. When these studies are aggregated, a …

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