5. Benefits/damage valuation
Economists have tried to assign dollar values to expected climate damages; early estimates often projected surprisingly small economic impacts. Which damages can be evaluated in monetary terms? Are newer estimates of expected damages growing larger?
The economics of inaction on climate change: a sensitivity analysis
Frank Ackerman and Ian J. Finlayson
Climate Policy (2006) 6: 509-526.
Economic models of climate change often take the problem seriously, but paradoxically conclude that the optimal policy is to do almost nothing about it. We explore this paradox as seen in DICE. Three aspects of that model, involving the discount rate, the (large) assumed subjective benefits of moderate warming, and the treatment of the latest climate science, are sufficient to explain the timidity of the model’s optimal policy recommendation. With modifications to those three points, DICE shows that the optimal policy is a much higher and rapidly rising marginal carbon price; and that higher carbon price has a greater effect on physical measures of climate impacts. Our modifications exhibit nonlinear interactions; at least at low discount rates, there is synergy between individual changes to the model.
A comment on “Economy-wide estimates of the implications of climate change: Human health”
Frank Ackerman and Elizabeth A. Stanton
Ecological Economics (2008) 66: 8-13.
Economists have often projected very small damages, or even net benefits, from the early stages of warming. This article responds to an extreme case, in which Francesco Bosello, Roberto Roson, and Richard Tol make the remarkable prediction that one degree of global warming will save more than 800,000 lives annually by 2050 — an estimate that Bosello et al. fail to substantiate. They rely on research that identifies a simple empirical relationship between daily temperature and mortality, but ignores the countervailing effect of human adaptation to gradual changes in average temperature. While focusing on small changes in average temperature, they ignore the important health impacts of extreme weather events. Bosello et al. extrapolate the effects of changes in average temperature far beyond the level that is apparently supported by their principal sources, and introduce arbitrary assumptions that bias the result toward finding net health benefits from warming.
Note: the original article, to which this responds, is
Economy-wide estimates of the implications of climate change: Human health
Francesco Bosello, Roberto Roson and Richard S. J. Tol
Ecological Economics (2006) 58(3): 579-591.
A rejoinder from the authors of the original article appears at
Economy-wide estimates of the implications of climate change — a rejoinder
Francesco Bosello, Roberto Roson and Richard S. J. Tol
Ecological Economics (2008) 66(1): 14-15.
Costs of climate change: The effects of rising temperatures on health and productivity in Germany
Michael Hübler, Gernot Klepper and Sonja Peterson
Ecological Economics (2008) 68(1-2): 381-393.
The aim of the study is to quantify climate induced health risks for Germany. Based on high resolution climate scenarios for the period 2071 to 2100 we forecast the number of days with heat load and cold stress. The heat frequency and intensity rise overall but more in the south. Referring to empirical studies on heat induced health effects we estimate an average increase in the number of heat induced casualties by a factor of more than 3. Heat related hospitalization costs increase 6-fold not including the cost of ambulant treatment. Heat also reduces the work performance resulting in an estimated output loss of between 0.1% and 0.5% of GDP.
Climate and happiness
Katrin Rehdanz and David Maddison
Ecological Economics (2005) 52: 111-125.
Climate affects heating and cooling requirements, health, clothing and nutritional needs as well as recreational activities. As such, it is to be expected that individuals will have a preference for particular types of climate. This paper analyses a panel of 67 countries attempting to explain differences in self-reported levels of happiness by reference to, amongst other things, temperature and precipitation. Various indices are used, including means, extremes and the number of hot, cold, wet and dry months. Even when controlling for a range of other factors, climate variables have a highly significant effect on country-wide self-reported levels of happiness. Thus differential patterns of anthropogenically induced climate change might alter the distribution of happiness between nations, with some countries moving toward a preferred climate and others moving further away. Only a few high-latitude countries might benefit from projected near-term temperature changes. Countries already characterized by very high summer temperatures would most likely suffer losses from climate change.
The impact of global warming on U.S. agriculture: An econometric analysis of optimal growing conditions
Wolfram Schlenker, W. Michael Hanemann and Anthony C. Fisher
Review of Economics and Statistics (2006) 88(1): 113-125.
Older analyses often projected net agricultural gains from the first few degrees of warming in the U.S. and other northern countries. This study links farmland values (a proxy for value of agricultural output) to climatic, soil, and socioeconomic variables for U.S. counties east of the 100th meridian, the historical boundary of agriculture not primarily dependent on irrigation. Many econometric specifications are explored; the authors’ preferred version shows farmland value peaking at about the current average temperature for the region, and at precipitation levels well above current averages. Days with temperatures above 34°C are always harmful to crops; climate change would cause a sharp increase in the number of those days. The impacts projected from climate change in this century would reduce average farmland value by 27% to 69%, depending on the climate scenario employed. Gains would be restricted to northern New England, upstate New York, and northern parts of Michigan, Wisconsin, and Minnesota, while losses, much larger in aggregate, would occur in the great majority of agricultural counties.
An even Sterner Review: introducing relative prices into the discounting debate
T. Sterner and U. M. Persson
Review of Environmental Economics and Policy (2008) 2(1): 61-76.
By estimating that the cost of unmitigated climate damages is an order of magnitude higher than most earlier estimates, the Stern Review on the Economics of Climate Change has had a major influence on the policy discussion on climate change. Not surprisingly, severe criticism has been levied against the report, especially by those who claim that the Stern Review's results hinge mainly on a discount rate that is too low. While we have no strong objections to the discounting assumptions adopted in the Stern Review, our main point in this article is that the conclusions reached in the Stern Review can be justified without using a low discount rate. We argue that nonmarket damages from climate change are probably underestimated and that future scarcities caused by the changing composition of the economy and climate change should lead to rising relative prices for certain goods and services. This will raise the estimated damage of climate change and modify as well as counteract the effect of discounting. We illustrate this effect using a slightly modified version of Nordhaus's DICE model and show that taking relative prices into account can have as large an effect on economically warranted abatement levels as a low discount rate.