Climate Change Has A Multi-Trillion Dollar Cost That Economic Models Leave Out

Climate change will be expensive to deal with, but the costs will be even higher than models admit, because it will not happen smoothly, but in fits and starts, leading to unpredictable surges in forces like damaging storms like this one in Maine in 2018. Arthur Villator/Shutterstock

When economists attempt to calculate the financial cost of future global heating they conclude it is far greater than the price of prevention. Nevertheless, new research has shown the true cost is likely to be higher still because these models are based around rising average temperatures. They miss the fact increasing greenhouse gasses will also cause wider and more unpredictable variations in temperatures, something societies built on predictability are ill-equipped for.

"When we cause a system like the Earth's climate to warm, it does not warm smoothly and uniformly,” said Professor Sandra Chapman of the University of Warwick in a statement. As a physicist, this is something Chapman is aware of, but many economists are not.

Chapman teamed up with Dr Raphael Calel of Georgetown University to address this flaw. "Our study identifies a new category of economic costs—those arising from the unpredictable, but unavoidable fluctuations in global climate that we're bound to face,” Calel said

In Nature Communications, Chapman and Calel's findings show that current economic forecasting models that fail to take into consideration these unpredictable variations in global temperatures could mean we are underestimating the economic effect of climate change by trillions of dollars.

They estimate the cost comes to $10-50 trillion over the next 200 years, in addition to what models produced previously. The brain struggles to comprehend such eye-watering numbers, but it's equivalent to a burden of up to $7,000 for every person on Earth – an unimaginable sum for some people.

The paper refers to these variations as “aleatory uncertainty,” in contrast to the other forms of uncertainty, which models already go to great lengths to address. Much attention has been paid, the paper notes, “[to] that part of our uncertainty stemming from our inability to precisely estimate key model parameters” such as how strongly the Earth will warm from a particular rise in carbon dioxide levels. However, the focus is on average changes, missing sharp jumps between periods of slower change.

Society depends heavily on being able to plan for the future. Besides intangible effects, a hotter world will require much extra spending – stronger sea walls, buildings designed for cooler conditions, heat resistant crops for example. None of these, however, are as expensive as unpredictability. If we don't know how much hotter things will be at a particular location, planning needs to take in a wide range of possibilities, few of them cheap.

A wise global planner, Calel and Chapman conclude, would spend $3 trillion if they could eliminate the aleatory uncertainty on one of the Intergovernmental Panel On Climate Change (IPCC)'s lower estimates for future temperature rise. This cost multiplies once you acknowledge we don't know which IPCC scenario will prove correct, with the two sorts of uncertainty compounding each other.

One implication of their work is the same one almost every paper on climate change reaches, the authors conclude: we need to be working harder to reduce greenhouse emissions. The other is to ready ourselves for fluctuations, for example with more robust food supplies and storage capable of lasting out longer bad periods.

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