Including temperature’s effects on economic growth boosts present-day social costs of carbon to $220/ton, and this still isn’t including the extreme (last 10%) risks

a new study from the Harvard School of Public Health finds that carbon dioxide (CO2) has a direct and negative impact on human cognition and decision-making. These impacts have been observed at CO2 levels that most Americans — and their children — are routinely exposed to today inside classrooms, offices, homes, planes, and cars.

The relationship between temperature and the human capability to produce goods and services was also one of many potential topics of discussion at a 13 November meeting of a panel charged with reviewing the social cost of carbon by the US National Academies of Science, Engineering and Medicine. The panel is drafting a preliminary report looking at whether the US government’s figure should be adjusted to account for the science in the Intergovernmental Panel on Climate Change’s latest assessment, completed in 2014. In practical terms, the central issue is how a handful of computer models that calculate the social cost of carbon differ, and whether they capture all of the potential damage that global warming could produce.

Without action to diminish global warming, average global incomes would be 23% less in 2100 than they would be in a stable climate, according to research published on 21 October in Nature1. The effects would be most pronounced in warmer, developing countries, with some of the poorest in danger of being worse off at the end of the century than they are today.  “With global impacts this big, the social cost of carbon has to be way higher” than current estimates, says lead author Marshall Burke, an economist at Stanford University in California.  It is not entirely clear why temperature would influence economic growth rates, but Burke cites research suggesting that heat affects human cognition and reduces labour productivity outdoors2.  “We can’t just assume that people are not sensitive to temperature,” he says.

One of the first major studies to document the effects of temperature on economic growth was led by Melissa Dell, an economist at Harvard University in Cambridge, Massachusetts. Published in 20123, it looked at several decades of economic and weather data in 125 countries, and found that a 1 °C increase in average annual temperature reduces economic growth by 1.4 percentage points in poor countries; it found no discernible impact in richer ones. The study identified short-term effects on agriculture, industrial activity and political stability.

Frances Moore, an environmental economist at the University of California, Berkeley, and co-author Delavane Diaz, now at the Electric Power Research Institute based in Palo Alto, California, plugged the growth rates calculated by Dell and her colleagues into an “integrated assessment model” that simulates both global warming and economic activity. They found4 that considering temperature effects boosted the present-day social cost of carbon to $220 per tonne.  “If you allow temperature to affect growth rates, then that has a permanent effect on the economy,” Moore says. “Those damages just accumulate over time.”

A number of leading economists, including Gernot Wagner and Martin Weitzman think it could be considerably worse than that even, with a 10% chance of catastrophe or systemic collapse.  Weitzman is from Harvard and Wagner is Lead senior economist at Environmental Defense Fund, adjunct associate professor at Columbia, research associate at Harvard Kennedy School, visiting research associate at Oxford, and co-author of Climate Shock.  Climate Shock is on the Financial Times and McKinsey Business Book of the Year longlist.

Momentum towards effective carbon pricing is building. California, joined by the Canadian province of Quebec, leads by pricing 85% of such emissions at around US$12 per tonne. Sweden applies the highest value globally on half of its carbon dioxide emissions, at up to $125 per tonne. The European Union has the largest system in terms of tonnes covered, pricing 45% of its greenhouse-gas emissions at about $8 per tonne. China is experimenting with regional cap-and-trade systems. And the US Clean Power Plan encourages states to meet emissions-reduction targets through market-based mechanisms. Yet global emissions continue to climb.

See for full primary source article

  1. Burke, M., Hsiang, S. M. & Miguel, E. Nature 527, 235239 (2015).  ArticlePubMedChemPort
  2. Joshua Graff Zivin and Matthew Neidell Journal of Labor Economics Vol. 32, No. 1 (January 2014), pp. 1-26
  3. Dell, M., Jones, B. F. & Olken, B. A. Am. Econ. J. Macroecon. 4, 6695 (2012). Article
  4. Moore, F. C. & Diaz, D. B. Nature Clim. Change 5, 127131 (2015).