Ten facts about the economics of climate change and climate policy
INTRODUCTION: SCIENTIFIC BACKGROUND
Substantial Biophysical Damages Will Occur in the Absence of Strong Climate Policy Action
The world’s climate has already changed measurably in response to accumulating greenhouse gas (GHG) emissions. These changes as well as projected future disruptions have prompted intense research into the nature of the problem and potential policy solutions. This document aims to summarize much of what is known about both, adopting an economic lens focused on how ambitious climate objectives can be achieved at the lowest possible cost.
Considerable uncertainties surround both the extent of future climate change and the extent of the biophysical impacts of such change. Notwithstanding the uncertainties, climate scientists have reached a strong consensus that in the absence of measures to reduce GHG emissions significantly, the changes in climate will be substantial, with long-lasting effects on many of Earth’s physical and biological systems. The central or median estimates of these impacts are significant. Moreover, there are significant risks associated with low probability but potentially catastrophic outcomes. Although a focus on median outcomes alone warrants efforts to reduce emissions of GHGs, economists argue that the uncertainties and associated risks justify more aggressive policy action than otherwise would be warranted (Weitzman 2009; 2012).
The scientific consensus is expressed through summary documents offered every several years by the United Nations–sponsored Intergovernmental Panel on Climate Change (IPCC). These documents indicate the projected outcomes under alternative representative concentration pathways (RCPs) for GHGs (IPCC 2014). Each of these RCPs represents different GHG trajectories over the next century, with higher numbers corresponding to more emissions (see box 1 for more on RCPs).
BOX 1. REPRESENTATIVE CONCENTRATION PATHWAYS (RCPS)
The expected path of GHG emissions is crucial to accurately forecasting the physical, biological, economic, and social effects of climate change. RCPs are scenarios, chosen by the IPCC, that represent scientific consensus on potential pathways for GHG emissions and concentrations, emissions of air pollutants, and land use through 2100. In their most-recent assessment, the IPCC selected four RCPs as the basis for its projections and analysis. We describe the RCPs and some of their assumptions below:
- RCP 2.6: emissions peak in 2020 and then decline through 2100.
- RCP 4.5: emissions peak between 2040 and 2050 and then decline through 2100.
- RCP 6.0: emissions continue to rise until 2080 and then decline through 2100.
- RCP 8.5: emissions rise continually through 2100.
The IPCC does not assign probabilities to these different emissions pathways. What is clear is that the pathways would require different changes in technology and policy. RCPs 2.6 and 4.5 would very likely require significant advances in technology and changes in policy in order to be realized. It seems highly unlikely that global emissions will follow the pathway outlined in RCP 2.6 in particular; annual emissions would have to start declining in 2020. By contrast, RCPs 6.0 and 8.5 represent scenarios in which future emissions follow past trends with minimal to no change in policy and/or technology.
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