Post-2015 Consensus: Climate Change Perspective, Mendelsohn
The optimal solution to the greenhouse gas problem minimizes the sum of the climate damage and the cost of mitigation over the long run, but the current UN initiative is not even close to achieving this. There are three key insights which emerge. First, mitigation cost should be balanced against climate damage; second, as marginal damage increases with higher concentrations of greenhouse gases, so marginal cost should also rise; and third, the marginal cost of mitigation should be equated across all emitters.
However, there are serious political difficulties, as the objective for each country is not necessarily what is best for the world overall. Thus, without international cooperation, individual countries have very little incentive to reduce emissions. Damages and costs are very difficult to estimate and lowest cost strategies call for long term commitments which are alien to most politicians and voters. The long delay between action and damage also raises questions about discounting.
Developed and emerging economies are each responsible for about 45% of emissions and must do most of the mitigation. But there is no silver bullet, and a portfolio of technologies is needed. Energy conservation, a move from coal to gas, renewable energy sources, bioenergy and nuclear power can all make contributions. Carbon capture and storage is also an important part of the solution, but the feasibility of the technology on a large scale must still be assessed. Finally, using forests for sequestration is cost effective, but using woody biomass as part of a bioenergy and carbon capture (BECCS) solution is expensive.
The most important insight from economics is that the cost of mitigation rises rapidly the more stringent the target. The cost of meeting a target of a maximum 5°C rise is about $10 trillion. Reducing this to 4° adds a further $10 trillion, but going down to 3° would cost $40 trillion, and to 2°, $100 trillion. The world is not yet ready for a large scale cost effective mitigation program, and the more aggressive targets do not allow for such delays.
In practice, a large fraction of the potential damage from climate change can be avoided by adaptation. Indeed, this is hard to prevent, since all sections of society have an incentive to do so.
However, there are still a number of types of damage which would occur, with reduction in global food production being the most feared. Coastal impacts – affecting areas where a large fraction of the world’s population and infrastructure are found – could also be large, but coastal cities could be relatively easily protected. Forests, on the other hand, are expected to prosper in a warmer, wetter world with more CO2, while the increased demand for cooling would be one of the biggest damages of global warming. On balance, ecosystem changes are likely to be modest, as are the overall health effects. However, there remains the possibility of a catastrophe, such as the melting of the Greenland and Antarctica ice sheets, which would take place slowly but double the cost of damage from sea level rise.
Summing all these effects, we see that small amounts of warming are unlikely to cause large damages. However, the net impact is likely to be harmful above a 2° rise and the cost of this would reach $100 billion a year by the time 3° was reached and $1 trillion for a 4° rise.
This essay argues that the present 2° limit is too stringent and does not justify the $100 trillion cost. The worst effects would only occur over 4° and the present value of a program to keep to this limit would be $20 trillion. However, any mitigation program is unlikely to be equitable and some compensation to poorer, low latitude countries in the form of help to diversify their economies would also be needed.
Finally, an insurance program is needed in case the effect of warming does indeed turn out to be greater than we estimate. This would be in the form of a program of geoengineering which could be implemented quickly if climate change turned out to be worse than expected.