How climate damage costings from EPA Scientists are misleading and how to correct

The Los Angeles Times earlier this month had an article

From ruined bridges to dirty air, EPA scientists price out the cost of climate change. (Hattip Climate Etc.)

By the end of the century, the manifold consequences of unchecked climate change will cost the U.S. hundreds of billions of dollars per year, according to a new study by scientists at the Environmental Protection Agency.
However, they also found that cutting emissions of carbon dioxide and other greenhouse gases, and proactively adapting to a warming world, would prevent a lot of the damage, reducing the annual economic toll in some sectors by more than half.

The article is based on the paper
Climate damages and adaptation potential across diverse sectors of the United States – Jeremy Martinich & Allison Crimmins – Nature Climate Change 2019

The main problem is with the cost alternatives, contained within Figure 2 of the article.

Annual economic damages from climate change under two RCP scenarios. RCP8.5 has no mitigation and RCP4.5 massive mitigation. Source Martinich & Crimmins 2019 Figure 2

I have a lot of issues with the cost estimates. But the fundamental issue centers around costs that are missing from the RCP4.5 costs to enable a proper analysis to be made.

The LA Times puts forward the 2006 Stern Review – The Economics of Climate Change – as an earlier attempt at calculating “the costs of global warming and the benefits of curtailing emissions.
The major policy headline from the Stern Review (4.7MB pdf)

Using the results from formal economic models, the Review estimates that if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more. In contrast, the costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1% of global GDP each year.

The Stern Review implies a straight alternative. There are either the costs of unmitigated climate change OR the costs of mitigation policy. The RCP4.5 is the residual climate damage costs after costly policies have been successfully applied. The Stern Review quotation only looked at the policy costs, not the residual climate damage costs after policy has been applied, whereas Martinich & Crimmins 2019 only looks at the residual climate damage costs and not the policy costs.

The costs of any mitigation policy to combat climate change must include both the policy costs and the damage costs. But this is not the most fundamental problem.

The fundamental flaw in climate mitigation policy justifications

The estimated damage costs of climate change result from global emissions of greenhouse gases, which raise the average levels of atmospheric greenhouse gases which in turn raise global average temperatures. This rise in global average temperatures is what is supposed to create the damage costs.
By implication, the success of mitigation policies in reducing climate damage costs is measured in relation to the reduction in global emissions. But 24 annual COP meetings have failed to even get vague policy intentions will collectively stabilize emissions at the current levels. From the UNEP Emissions Gap Report 2018 is Figure ES.3 showing the gap between intentions and the required emissions to constrain global warming to 1.5°C and 2.0°C.

Current mitigation policies in the aggregate will achieve very little. If a country were to impose additional policies, the marginal impact would be very small in reducing global emissions. By implication, any climate mitigation policy costs imposed by a country, or sub-division of that country, will only result in very minor reductions in the future economic damage costs to that country. This is even if the climate mitigation policies are the most economically efficient, getting the biggest reductions for a given amount of expenditure. As climate mitigation is net costly, under current climate mitigation policies will necessarily impose burdens on the current generation, whilst doing far less in reducing the climate impacts on future generations in the policy area. Conversely, elimination of costly policies will be net beneficial to that country. Given the global demands for climate mitigation, politically best policy is to do as little possible, whilst appearing to be as virtuous as possible.

Is there a way forward for climate policy?

A basic principle in considering climate mitigation is derived from Ralph Niebuhr’s Serenity Prayer

God, grant me the serenity to accept the things I cannot change,
Courage to change the things I can,
And wisdom to know the difference.

An emended prayer (or mantra) for policy-makers would be to change things for the better. I would propose not having perfect knowledge of the future, but having a reasonable expectation that it will change the world for the better. If policy is costly, the benefits should exceed the costs. If policy-makers are aiming to serve their own group, or humanity as a whole, then they should have the serenity accept that there are the costs and harms of policy. In this light consider a quote by Nobel Laureate Prof William Nordhaus from an article in the American Economic Review last year.

The reality is that most countries are on a business-as-usual (BAU) trajectory of minimal policies to reduce their emissions; they are taking noncooperative policies that are in their national interest, but far from ones which would represent a global cooperative policy.

Nordhaus agrees with the UNEP emissions gap report. Based on the evidence of COP24 Katowice it is highly unlikely most countries will not do a sudden about-face, implementing policies that are clearly against their national interest. If this is incorrect, maybe someone can start by demonstrating to countries that rely on fossil fuel production for a major part of their national income – such as Russia, Saudi Arabia, Iran and other Middle Eastern countries – how leaving fossil fuels in the ground and embracing renewables is in their national interests. In the meantime, how many politicians will public accept that it is not in their power to reduce global emissions, but continue implementing policies whose success requires that they are part of policies that collectively will reduce global emissions?

If climate change is going to cause future damages what are the other options?

Martinich & Crimmins 2019 have done some of the work in estimating the future costs of climate change for the United States. Insofar as these are accurate forecasts, actions can be taken to reduce those future risks. But those future costs are contingent on a whole series of assumptions. Mostly crucially, the large magnitude of the damage costs are usually contingent  on dumb economic actor assumptions. That is, people have zero behavioral response to changing conditions over many decades. Two examples I looked at last year illustrate the dumb economic actor assumptions.

A Government Report last Summer claimed that unmitigated climate change would result in 7000 excess heat deaths in the UK by the 2050s. The amount of warming was small. The underlying report was based on the coldest region of England and Wales only experiencing average summer temperatures in the 2050s on a par with those of London (the warmest region) today. Most of the excess deaths would be in the over 75s in hospitals and care homes. The “dumb actors” in this case are the health professionals caring for patients in extreme heatwave in the 2050s in exactly the same way as they do today, even though the temperatures would be slightly higher. Nobody would think to try adapt practices through learning from places with hotter summers than the UK at present. That is from the vast majority of countries in the world.

Last year a paper in Nature Plants went by the title “Decreases in global beer supply due to extreme drought and heat”. I noted the paper made a whole serious of dubious assumptions, including two “dumb actor” assumptions,  to arrive at the conclusion that beer prices in some places could double due to global warming. One was that although in the agriculture models barley yields would shrink globally by 16% by 2100 compared to today contingent on a rise of global average temperatures of over 3.0°C , in Montana and North Dakota yields could double. The lucky farmers in these areas would not try to increase output, nor would farmers faced with shrinking yields reduce output. Another was that large price discrepancies in a bottle of beer would open up over the next 80 years between adjacent countries. This includes between Britain and Ireland, despite most of the beer sold being produced by large brewing companies, often in plants in third countries. No one would have the wit to buy a few thousand bottles of beer in Britain and re-sell it at a huge profit in higher-priced Ireland.

If the prospective climate damage costs in Martinich & Crimmins 2019 are based on similar “dumb actor” assumptions then any costly adaptation policies derived from the report might be largely unnecessary. People on the ground will have more effective localized, efficient, adaptation strategies. Generalized regulations and investments based on the models will fail on a benefit cost basis.

Concluding comments

Martinich & Crimmins 2019 look at US climate damage costs under two scenarios, one with little or no climate mitigation policies, the other with considerable successful climate mitigation. In the climate mitigation scenario they fail to add in the costs of climate mitigation policies. More importantly, actual climate mitigation policies have only been enacted by a small minority of countries, so costs expended on mitigation will not be met by significant reductions in future climate costs. Whilst in reality any climate mitigation policies is likely to lead to worse outcomes than doing nothing at all, the paper implies the opposite.
Further, the assumptions behind Martinich & Crimmins 2019 need to be carefully checked. If it includes “dumb economic actor” assumptions then on this alone the long-term economic damage costs might be grossly over-estimated. There is a real risk that adaptation policies based on these climate damage projections will lead to worse outcomes than doing nothing.
Overall, if policy-makers want to make a positive difference to the world in combating climate change, they should acquire the wisdom to identify areas where they can only do net harms. In the current environment, that will take an extreme level of courage. However, these justifications are far less onerous than the rigorous testing and approval process that new medical treatments need to go through before being allowed in general circulation.

Kevin Marshall

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