New IPCC Report: Cost of Unchecked Man-Made Climate Change Likely Minimal

The
United Nations’ Intergovernmental Panel on Climate Change (IPCC)
has just issued the “Summary
for Policymakers” for its new report, Climate Change 2014:
Impacts, Adaptation, and Vulnerability. The report aims to sum
up what is known about the likely impacts of future climate change,
including more droughts, higher sea levels, greater risk of species
extinction, and so forth. But what will these changes cost humanity
in terms of economic output? Here is the relevant section from the
Summary:

Global economic impacts from climate change are
difficult to estimate.

Economic impact estimates completed over the past  20 years
vary in their coverage of subsets of economic sectors and depend on
a large number of assumptions, many of which are disputable, and
many estimates do not account for catastrophic changes, tipping
points, and many other factors. With these recognized limitations,
the incomplete estimates of global annual economic losses for
additional temperature increases of ~2°C are between 0.2
and 2.0% of income (emphasis added) (±1 standard deviation
around the mean)(medium evidence, medium agreement). Losses are
more likely than not to be greater, rather than smaller, than this
range (limited evidence, high agreement). Additionally, there are
large differences between and within countries. Losses accelerate
with greater warming (limited evidence, high agreement), but few
quantitative estimates have been completed for additional warming
around 3°C or above. Estimates of the incremental economic impact
of emitting carbon dioxide lie between a few dollars and several
hundreds of dollars per tonne of carbon (robust evidence, medium
agreement). Estimates vary strongly with the assumed damage
function and discount rate.

Let’s assume that the increase in future global average
temperature is below 2°C. Gross world product (GWP) in 2012 was
about $72 trillion. That divvied up between 7.2 billion people
yields an average per capita income of around $10,000. Now assume
that world economy grows at 2.5 percent annually over the next 85
years and world population reaches 10 billion. GWP in 2100 would be
about $590 trillion and per capita GDP would $59,000. If climate
change lowered income by 2 percent by 2100, that would mean GWP
would be $578 trillion and per capita GWP would be $57,800. How
much should people living now on $10,000 per year sacrifice so that
people making six times more in 2100 have an extra $1,200 in
income?

Now let’s assume that the high climate change damage estimate
promulgated in the
Stern Review: The Economics of Climate Change (2006)
reduces incomes in 2100 by as much as 20 percent below what they
would otherwise have been. Average income in 2100 would then be
just $47,500—still nearly five times more than current global per
capita income.

Over at The Telegraph, economist Andrew Lilico provides
this
interesting analysis:

The new report will apparently tell us that the global GDP costs
of an expected global average temperature increase of 2.5
 degrees Celsius over the 21st century will be between 0.2 and
2 per cent. To place that in context, the well-known Stern Review
of 2006 estimated the costs as 5-20 per cent of GDP.
Stern estimates the costs of his recommended policies for
mitigating climate change at 2 per cent of GDP – and his estimates
are widely regarded as relatively optimistic (others estimate
mitigation costs as high as 10 per cent of global GDP). Achieving
material mitigation, at a cost of 2 per cent and more of global
GDP, would require international co-ordination that we have known
since the failure of the Copenhagen conference on climate change
simply was not going to happen. Even if it did happen, and were
conducted optimally, it would mitigate only a fraction of the total
rise, and might create its own risks.

And to add to all this, now we are told that the cost might be
as low as 0.2 per cent of GDP. At a 2.4 per cent annual GDP growth
rate, the global economy increases 0.2 per cent every month.

So the mitigation deal has become this: Accept enormous
inconvenience, placing authoritarian control into the hands of
global agencies,
at huge costs that in some cases exceed 17 times the benefits
even on the Government’s own evaluation criteria, with a global
cost of 2 per cent of GDP at the low end and the risk that the cost
will be vastly greater, and do all of this for an entire century,
and then maybe – just maybe – we might save between one and ten
months of global GDP growth.

The IPCC Summary does additionally warn that warming higher than
2°C might shove the climate system over tipping points that
would produce substantially more losses. The Summary asserts that
“low-probability outcomes with large consequences, is central to
understanding the benefits and tradeoffs of alternative risk
management actions.” The chance of total catastrophe warrants some
action be taken to avoid it, but how much and at what cost?

For a discussion of that issue, see my article, “Wagging
the ‘Fat Tail’ of Climate Catastrophe.”

Note: Ronald Bailey is on book leave and should not be
blogging, but he couldn’t resist this time.