Climate Change

Climate Change Costs By 2100: Doing Nothing Has the Same Price Tag as Doing Something

Adapting to climate change would cost roughly the same as trying to slow it.

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Year 2100
Physics of the Future

"Without additional mitigation, and even with adaptation, warming by the end of the 21st century will lead to high to very high risk of severe, widespread, and irreversible impacts globally." So warns the Intergovernmental Panel on Climate Change (IPCC) in a draft of its Synthesis report leaked to Bloomberg News. Lurking behind those first seven words is a political choice: To what extent do we react to climate change by trying to stop it, and to what extent do we respond by trying to adapt to it? Which approach will yield more benefits, and which will impose more costs?

The final report, due in November, will combine and summarize the findings in the IPCC's three earlier reports this year. The first of those reports looked at the scientific evidence for man-made global warming. The second analyzed how humanity might respond to warming temperatures through adaptation—the "process of adjustment to actual or expected climate and its effects." The third looked at how we might respond through mitigation—"a human intervention to reduce the sources or enhance the sinks of greenhouse gases." (In addition to cutting the emissions of greenhouse gases, this would include ways to suck such gases out of the atmosphere, by, say, planting more forests.) Most climate researchers believe that some additional warming is inevitable, so people will have to engage in both adaptation and mitigation.

The adaptation report reckons that if the world takes no steps to deal with climate change, and temperatures increase by around 2 degrees Celsius, the annual economic losses will be "between 0.2 and 2.0% of income." It adds, "Losses are more likely than not to be greater, rather than smaller, than this range."

What about mitigation? Making the heroic set of assumptions that all countries of the world begin mitigation immediately, that everyone adopts the same carbon price, and that all key low- and no-carbon technologies are now available, keeping carbon dioxide concentrations below 450 parts per million by 2100 would reduce consumption growth "by 0.04 to 0.14 percentage points over the century relative to annualized consumption growth in the baseline that is between 1.6 percent and 3 percent per year." The median estimate for the reduced annual growth in consumption is 0.06 percent.

How can we compare the projected losses in the adaptation report to the projected costs in the mitigation report?

In 2012, the IPCC asked economists at the Organization for Economic Development and Cooperation (OECD) to peer into the future and devise a plausible set economic development and greenhouse gas emissions scenarios called shared socioeconomic pathways to the year 2100. The economists came up with five different scenarios. Let's take a look at a couple of those scenarios to get some idea of how the world's economy might evolve over the remainder of this century.

The OECD analysis begins in 2010 with a world population of 6.8 billion and a total world gross product of $67 trillion, yielding a global per capita income just shy of $10,000. (All figures are in 2005 dollars.) For reference, the U.S.'s per capita income in 2010 averaged $42,000.

One scenario is described as the "middle of the road" projection, in which "trends typical of recent decades continue, with some progress towards achieving development goals, reductions in resource and energy intensity at historic rates, and slowly decreasing fossil fuel dependency." If history unfolds as this scenario suggests, world population will peak at around 9.6 billion in 2065 and fall to just over 9 billion by 2100. The world's economy will have grown more than eightfold from $67 trillion to $577 trillion (in 2005 dollars). Average income per person globally will have increased from around $10,000 today to $60,000 by 2100. U.S. annual incomes would average just over $100,000.

In the "conventional development" scenario, by contrast, the world economy grows flat out at more than 3 percent annually, relying on "an energy system dominated by fossil fuels, resulting in high [greenhouse gas] emissions and challenges to mitigation." Because there is more urbanization and higher levels of education, world population peaks at 8.6 billion in 2055 and falls to 7.4 billion by 2100. The world's economy will grow fifteen-fold to just over $1 quadrillion, and the average person in 2100 will be earning about $138,000 per year. U.S. annual incomes would exceed $187,000 per capita.

It is of more than passing interest that people living in this warmer world are much better off than they would be in the "middle of the road" scenario. The OECD analysis notes that these richer and more highly educated people will face "lower socio-environmental challenges to adaptation," thanks to "attainment of human development goals, robust economic growth, highly engineered infrastructure with redundancy to minimize disruptions from extreme events, and highly managed ecosystems." In other words, greater wealth and advanced technologies will significantly enhance our capabilities to deal with the consequences of climate change.

Future temperatures will perhaps be higher, by 2100 the average is likely to hover around the ~2°C benchmark. In the scenarios sketched out above, a worst-case 2 percent loss of income resulting from adaptation would mean that the $60,000 and $138,000 per capita income averages would fall to $58,800 and $135,240, respectively.

In the IPCC's mitigation report, the optimal scenario for keeping greenhouse gas concentrations below 450 parts per million would cut future incomes by between 3 and 11 percent by 2100. Let's look at how much the worst-case mitigation scenario might reduce future incomes. Without mitigation, the increase of global gross product to $577 trillion in the "middle of the road" scenario implies an economic growth rate of 2.42 percent between 2010 and 2100. Cutting that growth rate by 0.14 percentage points to 2.28 percent yields an income of $510 trillion in 2100, reducing per capita incomes from $60,000 to $57,000. Growth in the conventional development scenario is cut from 3.07 percent to 2.93 percent, reducing overall income from over $1.015 quadrillion to $901 trillion and cutting average incomes from $138,000 to $122,000.

All of these figures must be taken a vat of salt, since they are projections for economic, demographic, and biophysical events nearly a century from now. That being acknowledged, the IPCC's projected losses to incomes from doing nothing to slow climate change appear to be roughly comparable to the losses incurred by trying to slow climate change. In other words, doing nothing about climate change will cost future generations roughly the same as doing something.

"Most philosophers and economists hold that rich generations have a lower ethical claim on resources than poorer generations," observes the Yale economist William Nordhaus. How much should people living on incomes averaging $10,000 a year now spend to make sure that people whose incomes will likely be many-fold higher don't see their wealth reduced by a couple of percentage points?