07/02/2020

Are Economists Globally Understating Or Overstating The Cost Of Climate Change?

ABC News - Nassim Khadem

Some economists argue that the world can financially cope with 4°C of warming. (ABC News: Alistair Kroie)
In a blog written after the devastating bushfires that swept across his home state of New South Wales, Australian economist Steve Keen states, "I have to admit that I am personally not coping well with climate change".
Professor Keen says he's feeling the "same generalised anxiety about the future felt by Greta Thunberg and the young people she's inspired to strike for the climate", before criticising the work of William Nordhaus and other neoclassical economists.
"Since policymakers take what economists predict seriously — even after the 2008 financial crisis — they have been duped and have drastically underestimated how severe climate change will actually be," Professor Keen argues.
William Nordhaus is a renowned American economist whose work modelling the economic impact of climate change earned him the 2018 Nobel Memorial Prize in Economic Sciences.
He is not a climate change denialist. His view is that greenhouse gas emissions from human activities will have a negative impact and he's urged governments globally to implement a carbon tax.
But it's the extent to which Professor Nordhaus — and other economists who agree with him — predict climate change will impact the economy (and thereby the level of action needed to curb it) that has been the subject of intense debate.
The Paris Agreement goal is to keep global warming this century well below two degrees Celsius compared with pre-industrial levels.
Swedish climate activist Greta Thunberg has inspired many young people around the world to strike for climate change. (AP: Markus Schreiber)
At one end of the scale are Professor Nordhaus and Richard Tol.
Tol, a professor of economics at the University of Sussex, has since 1994 been a convening lead author with the United Nations body for assessing the science related to climate change, the Intergovernmental Panel on Climate Change (IPCC).
Both Nordhaus and Tol argue that the world can survive a 4°C increase in global average temperature and the economic impact won't be severe.
They also argue we shouldn't reduce emissions too quickly, because the economic cost to people today will be higher than the benefit of protecting people in the future.
Professor Nordhaus told ABC News he was not available to comment, but has previously said that "optimal policy" would result in global warming of about 3°C by 2100 and 4°C by 2150.
William Nordhaus, one of the laureates of the Nobel Prize in Economics on the screen, has long argued that we shouldn't reduce emissions too quickly. (AP: Henrik Montgomery)
At the other end of the scale are people like British economist Nicholas Stern and Professor Keen who argue that at 4°C the world would reach a tipping point — when the impacts of climate change become so catastrophic that it is possibly too late to reverse them.
So why do economists differ so greatly, and is anyone ultimately right?

Richard Tol: the loss from climate change won't be immense
When the IPCC delivered its Fifth Assessment Report in October 2014, Professor Tol was one of the authors of chapter 10.
Richard Tol, a convening lead author with the IPCC since 1994, believes technology will help advanced nations cope with climate change and limit economic damage. (Supplied: Richard Tol )

This chapter looked specifically at the economic impacts of climate change, and has come under criticism from other economists for some of its estimates.
It suggested that, while "many estimates do not account for catastrophic changes, tipping points, and many other factors", the global annual economic losses for additional temperature increases of ~2°C are between 0.2 and 2.0 per cent of income.
Meanwhile, a summary chapter of that report used far stronger language.
The summary said that mitigation pathways to limit warming to below 2°C relative to pre-industrial levels "would require substantial emissions reductions over the next few decades and near zero emissions of CO2 and other long-lived greenhouse gases by the end of the century".
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At the time Professor Tol had disagreed with some findings of the summary of that chapter as being "too alarmist".
Professor Tol's view is that climate change is a problem, but that welfare loss will not be immense.
He believes that technological advancement will help advanced nations cope with the impact of climate change, and this in turn will dent the negative economic impact.
"We have decent observations on natural disasters going back a century, data on crop yields going back longer," Tol tells ABC News.
"These data all show that, over time, we have become much less vulnerable to weather and climate, partly because economic growth has meant that we can afford to better protect ourselves, and partly because technology is so much better now."
But Professor Tol is worried that the impact will be disproportionate depending on where people live. That is, people in poorer countries are more vulnerable than those living in richer countries.
He says, while rapid warming of the earth would be very costly, he believes that "warming is not very rapid".
Even moving beyond 4°C to a 6°C warming scenario, he says the world won't end.
"6°C is the difference between Melbourne and Perth," Professor Tol argues.
"If it were to warm by 6°C degrees in a century — it will not — you have about 100 years to upgrade Melbourne's air-conditioning, drainage, etc, to Perth standards. That costs money, but it won't ruin the economy."

Steve Keen: 4°C would unleash a 'howitzer'
But Professor Steve Keen, who now works as an honorary professor at University College London, responds that humanity has never existed in, let alone experienced, a planet with that temperature.
Australian economist Steven Keen says humanity has never existed in, let alone experienced, a planet with a 4°C increase in global average temperature. (The 7.30 Report)
"How on earth would such a drastic change in temperature make such a tiny difference to GDP?," Professor Keen asks.
He says economists like Nordhaus and Tol use data on GDP and temperature today across the globe (and primarily, across the USA) as a proxy for what will happen when global temperatures rise.
Their models, he argues, assume technology improves at such a rapid pace that the impact of such catastrophic events will be muted.
"All their models tell us is that they have faith — and a faith that bears no relation to the actual way in which capitalist economies function," Professor Keen says.
One of Professor Nordhaus's papers includes an equation for calculating the damage from climate change impacts that "assumes that damages are 2.1 per cent of global income at 3°C warming and 8.5 per cent of income at 6 °C warming".
Professor Keen argues that even if we had 500 years to do adapt to rising sea levels, Nordhaus' argument is ridiculous.
"So much of humanity's resources would be damaged or destroyed, so much would need to be devoted to rebuilding, moving, and resettling," Professor Keen says.
"We would be lucky to have any resources left to produce output, let alone expand it."
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He also notes in a recent blog that Nordhaus's estimates of the potential economic damage exclude entire industries such as manufacturing and mining.
"Nordhaus has put the world into a Dirty Harry movie gone bad: having advised policymakers that a simple and low tax on carbon is a Magnum 44 for shooting climate change, they scoff at the danger, telling climate change, 'Do you feel lucky, punk?'.
"In reality, climate change is armed with a howitzer, and the policy Nordhaus recommends — letting the global temperature reach levels 4 degrees above preindustrial levels — would unleash that howitzer."
Nicholas Stern: economists 'grossly underestimate' climate change cost
The Grantham Research Institute on Climate Change and the Environment is chaired by Nicholas Stern, who in 2006 led a review on the economics of climate change for the British Government.
British economist Nicholas Stern co-authored a report noting economists had "grossly underestimated many of the most serious consequences" of climate change. (Kieran Doherty: Reuters)
Grantham, in September 2019, released a report noting that "economic assessments of the potential future risks of climate change have been omitting or grossly underestimating many of the most serious consequences for lives and livelihoods".
The report argued this happened because such risks are difficult to quantify and lie outside of human experience.
Dr Stern was not available to comment.
But Bob Ward, the policy and communications director at Grantham who co-authored that report with Dr Stern and other economists, tells ABC News there are problems with models used by Nordhaus, Tol and others.
"There is good evidence that we are rapidly approaching, or may already have passed, the critical temperature at which destabilisation of the major land-based ice sheets in Greenland and West Antarctica becomes inevitable," Mr Ward says.
This, he adds, would see several metres of global sea level rise.
"Together, the Greenland and West Antarctica ice sheets contain enough ice to raise global sea levels by about 13 metres.
"Such sea level rise might take several centuries to occur, but we cannot rule out rises of more than a metre by the end of this century, which would threaten the lives and livelihoods of millions of people around the world's coastlines."

Kamiar Mohaddes: whether rich or poor, all countries will suffer
Kamiar Mohaddes is an economist at the Cambridge Judge Business School at the University of Cambridge.
University of Cambridge economist Kamiar Mohaddes predicts at least 7 per cent of global GDP will disappear by 2100 because of business-as-usual carbon emissions. (Supplied: Kamiar Mohaddes)
He co-authored a recent study that suggested at least 7 per cent of global GDP will disappear by 2100 as a result of business-as-usual carbon emissions.
This includes more than 10 per cent of incomes in developed nations including Canada, New Zealand and the United States, and a 7 per cent loss for Australia.
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The Morrison Government risks being stranded at the intersection of climate change related disasters and their economic fallout, writes Ian Verrender.
"In fact allowing for temperature increases to affect the variability of temperature shocks, they show that the estimated GDP per capita losses would almost double at the global level to over 13 per cent, with the income losses being more than 16 per cent for Australia and the United States," Dr Mohaddes explains.
The study found that, whether rich or poor, virtually all countries would suffer economically by 2100 without mitigation and adaptation policies.
There are several reasons why the losses estimated in his study were larger than those generally discussed in policy circles.
Firstly, he says, the frequency and severity of weather events and natural disasters depend heavily on the variability of temperatures.
"We explicitly model the variability of weather patterns, not only averages of climate variables," Dr Mohaddes explains.
He also notes that traditionally economists (such as Nordhaus) have argued that climate change affects economic activity mainly through the agricultural sector.
But he says other sectors, including forestry, fisheries, mining, construction, manufacturing, transport, communications, public utilities, wholesale trade, retail trade and services would all be hit by climate change.

Nicki Hutley: costs of climate change will be 'astronomical'
Deloitte Access Economics partner Nicki Hutley says there are all sorts of technological options available to help reduce emissions, but none of that contradicts the fact that if we get to a 4°C rise in global average temperatures there would be huge economic costs.
Deloitte Access Economics partner Nicki Hutley says if we get to a 4°C rise in average temperatures there will be huge economic costs. (Supplied: Deloitte)

"Anyone who says a 4°C [rise] is not going to have an impact is quite frankly drinking something weird," Ms Hutley exclaims.
The Australian Business Roundtable for Disaster Resilience and Safer Communities — a group made up of community and business leaders who are working towards ensuring Australia becomes more equipped for extreme weather events — has considered the economic damage of natural disasters across states and territories.
In a 2017 report, it found that the total economic cost of natural disasters in the 10 years to 2016 averaged $18.2 billion per year, equivalent to 1.2 per cent of average gross domestic product (GDP) over the same period.
It said this was expected to reach $39.3 billion per year on average by 2050 (in present value terms), even without considering the impact of climate change (and the latest bushfires are likely to hugely inflate those estimates).
The report noted that "while the science has advanced, it remains difficult for experts to model the timing, location and intensity of disaster events in response to climate variability and change", and therefore the $39.3 billion estimate was conservative.
"This [climate change] is so multidimensional, and the costs are astronomical," Ms Hutley says.
She also points out that the IPCC itself has called on international leaders to limit global warming below or close to 1.5°C, which would require the world to cut net emissions by about half by 2030 and reach net zero by 2050.
"The idea is that we avoid getting to four degrees," she said.

John Quiggin: Economists don't look beyond tipping points
John Quiggin, an Australian Laureate Fellow in Economics at the University of Queensland, says the problem with economic models is how they treat the worst-case scenarios.
John Quiggin, from the University of Queensland, said the problem with economic models is how they treat the worst-case scenarios. (Supplied: John Quiggin)
"A lot of attention has been paid to the lower levels of [global] warming because they are easier to evaluate," he observes.
"Once you get past tipping points, we don't really have a good handle on what may happen."
He estimates the economic cost of the latest Australian bushfires alone could hit about $100 billion.

Bushfire cost could run into billions
Ross Garnaut's climate change prediction is coming true and it's going to cost Australia billions, economists warn.
This estimate takes into account massive underinsurance by households and businesses, damage to public infrastructure (which will have to be rebuilt to a higher standard in preparation for future disasters), lost tourism, ongoing health effects from smoke and pollution, and the destruction of entire ecosystems.
"If you look at the way economists were framing the debate, the assumption was bad things will happen around 2050, so how you discount costs and benefits 30 years into the future is a big deal," Dr Quiggin explains.
"The arrival of climate change much sooner than people expected will render the debate about the discount rate largely irrelevant. Climate change is happening now."
Another issue that has divided economists is how much it will cost to reduce emissions.
"The technological advancements we have seen mean we could decarbonise the economy very cheaply if we choose to," Dr Quiggin argues.
"But even with technological improvements, it will only happen if the policymakers want it to happen."

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As Our Planet Gets Greener, Plants Are Slowing Global Warming

Phys.org - Boston University

Credit: CC0 Public Domain
Preface
Chi Chen, a Boston University graduate researcher, and Ranga Myneni, a BU College of Arts & Sciences professor of earth and environment, have released a new paper that reveals how humans are helping to increase the Earth's plant and tree cover, which absorbs carbon from the atmosphere and cools our planet.
The boom of vegetation, fueled by greenhouse gas emissions, could be skewing our perception of how fast we're warming the planet.

 Key points
  • Long-term satellite records reveal a significant global greening of vegetated areas since the 1980s, which recent data suggest has continued past 2010.
  • Pronounced greening is observed in China and India due to afforestation and agricultural intensification.
  • Global vegetation models suggest that CO2 fertilization is the main driver of global vegetation greening.
  • Warming is the major cause of greening in boreal and Arctic biomes, but has negative effects on greening in the tropics.
  • Greening was found to mitigate global warming through enhanced land carbon uptake and evaporative cooling, but might also lead to decreased albedo that could potentially cause local warming.
  • Greening enhances transpiration, a process that reduces soil moisture and runoff locally, but can either amplify or reduce runoff and soil moisture regionally through altering the pattern of precipitation.
Taking a closer look at 250 scientific studies, land-monitoring , climate and environmental models, and field observations, a team of Boston University researchers and international collaborators have illuminated several causes and consequences of a global increase in vegetation growth, an effect called greening.
In a new study, published in Nature Reviews Earth & Environment, the researchers report that climate-altering carbon emissions and intensive land use have inadvertently greened half of the Earth's vegetated lands. And while that sounds like it may be a good thing, this phenomenal rate of greening, together with , , and sea-ice decline, represents highly credible evidence that human industry and activity is dramatically impacting the Earth's climate, say the study's first authors, Shilong Piao and Xuhui Wang of Peking University.
Green leaves convert sunlight to sugars while replacing in the air with oxygen, which cools the Earth's surface. The reasons for greening vary around the world, but often involve intensive use of land for farming, large-scale planting of trees, a warmer and wetter climate in northern regions, natural reforestation of abandoned lands, and recovery from past disturbances.
And the chief cause of global greening we're experiencing? It seems to be that rising are providing more and more fertilizer for plants, the researchers say. As a result, the boom of global greening since the early 1980s may have slowed the rate of global warming, the researchers say, possibly by as much as 0.2 to 0.25 degrees Celsius.
"It is ironic that the very same carbon emissions responsible for harmful changes to climate are also fertilizing plant growth, which in turn is somewhat moderating global warming," says study coauthor Dr. Jarle Bjerke of the Norwegian Institute for Nature Research.
Boston University researchers previously discovered that, based on near-daily NASA and NOAA satellite imaging observations since the early 1980s, vast expanses of the Earth's vegetated lands from the Arctic to the temperate latitudes have gotten markedly more green.
"Notably, the NASA [satellite data] observed pronounced greening during the 21st century in the world's most populous and still-developing countries, China and India," says Ranga Myneni, the new study's senior author.
Even regions far, far removed from human reach have not escaped the global warming and greening trends. "Svalbard in the high-arctic, for example, has seen a 30 percent increase in greenness [in addition to] an increase in [summer temperatures] from 2.9 to 4.7 degrees Celcius between 1986 and 2015," says study coauthor Rama Nemani of NASA's Ames Research Center.
Over the last 40 years, carbon emissions from fossil fuel use and have added 160 parts per million (ppm), a unit of measure for air pollutants, of CO2 to Earth's atmosphere. About 40 ppm of that has diffused passively into the oceans and another 50 ppm has been actively taken up by plants, the researchers say. But 70 ppm remains in the atmosphere, and together with other greenhouse gases, is responsible the land warming patterns that have been observed since the 1980s.
"Plants are actively defending against the dangers of carbon pollution by not only sequestering on land but also by wetting the atmosphere through transpiration of ground water and evaporation of precipitation intercepted by their bodies," says study coauthor Philippe Ciais, of the Laboratory of Climate and Environmental Sciences, Gif-sur-Yvette, France. "Stopping deforestation and sustainable, ecologically sensible afforestation could be one of the simplest and cost-effective, though not sufficient, defenses against climate change," he adds.
LARGE IMAGE

It is not easy to accurately estimate the cooling benefit from global greening because of the complex interconnected nature of the climate system, the researchers say. "This unintended benefit of global greening, and its potential transitory nature, suggests how much more daunting, and urgent, is the stated goal of keeping global warming to below 1.5 to 2 degrees Celsius, especially given the trajectory of and history of inaction during the past decades," says study coauthor Hans Tømmervik of the Norwegian Institute for Nature Research, Norway.

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RBA Governor Warns Of 'Profound' Impact From Climate Change, Urges Investment

Sydney Morning Herald - Shane Wright | Matt Wade

Reserve Bank governor Philip Lowe has warned climate change will have a "profound" impact on the economy and leave businesses with stranded assets while urging governments to borrow more to boost productivity and protect it from a warming environment.
As economists warned the country faced its first quarter of negative growth in nine years due to the combined impact of the coronavirus and the summer's bushfires, Dr Lowe used his first public address of the year to urge more investment to deliver "strong and consistent growth" rather than relying on the nation's fundamentals to get by.
RBA governor Philip Lowe says business and government should borrow more to invest in productivity-enhancing projects including ways to deal with climate change. Credit: AFR
The bank kept official interest rates at an equal record low of 0.75 per cent at its February board meeting on Tuesday, tipping the economy to grow 2.75 per cent this year despite the impact of the bushfires and the outbreak of coronavirus.
Dr Lowe said the bank believed the fires would likely cut GDP across the December and March quarters by 0.2 percentage points while the drought would hurt growth by 0.25 per cent through the year. It was too early to determine the full impact of the coronavirus.
The Federal Chamber of Automotive Industries reported on Tuesday there were 71,731 new cars bought through January, the worst opening to a year since 2003. The chamber noted bushfires and international issues such as the coronavirus were likely reasons for the poor performance.
In an address to the National Press Club, Dr Lowe said low interest rates meant there was no excuse for business and governments not to borrow and invest in projects such as infrastructure, technology upgrades, education and training or energy systems.
He said governments and businesses should also invest in dealing with climate change, arguing it was already having a financial impact that would only grow.
"I think that we're seeing climate change affect patterns of production and distribution and investment. We're seeing the cost and availability of insurance change, which is going to affect where people invest," he said.
"The fact that it is affecting the value of assets and can likely do that in the future means that there are financial stability implications over time. We're likely to see at some point some stranded assets and the value falls."
The Morrison government is aiming to deliver the nation's first federal budget surplus since before the global financial crisis.
But Dr Lowe said there are more pressing budget policy challenges, including the way for fiscal and monetary policy to stabilise the economy given low interest rate settings.
"Whether or not the government has a small budget surplus from an economic perspective is not really that important," he said.
Interest rates and the budget may be called in to help the economy with growing concerns about the impact of coronavirus.
ANZ's economics team had initially expected the virus to lower growth by 0.2 percentage points in the March quarter, but now say it appeared the virus and the response to it across the world would likely take half a percentage point off growth through the first three months of this year.
Several market economists are now tipping the coronavirus may see Australia post its first quarter of negative growth in nine years. Credit: Getty
Economists Felicity Emmett and David Plank said the tourism and education sectors would be hit hardest but there would be a broader impact across the country.
"Local consumer sentiment took a hit from the bushfires and the news regarding the virus is keeping confidence levels low," they said.
"Rising uncertainty about the impact of the virus is likely to test business confidence, and there is the potential for investment plans to be delayed."
They were backed by AMP Capital chief economist Shane Oliver who said GDP could be 0.2 percentage points lower this quarter, but growth would rebound in the June quarter.
The last time the Australian economy contracted in a quarter was in early 2011 when cyclones closed key ports across Queensland and Western Australia. The economy quickly rebound in the June quarter.

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