Anyone familiar with the workings of debate concerning the validity of climate mitigation policies likely tends to notice a distinct pattern. On one hand, opponents of climate mitigation policy are generally skeptical both of models suggesting that the earth is warming and of literature suggesting that this warming is anthropogenic. Proponents of the policies, on the other hand, generally appeal to scientific consensus and its interpretation made by the IPCC in order to assert the validity of their policy recommendations. Onlookers of such debates could understandably be quick—but wrong—to assume that the validity of the data used by the IPCC automatically translates to the validity of any and all forms of climate mitigation policy.

In debates surrounding the implication of a policy change in general, it is arguably important for parties of any position to be aware of the total picture of possible benefits and costs this policy will plausibly cause. This awareness of consequence, unfortunately, is at many times lacking in the context of muddled debates on climate change policy. Proponents are regularly quick to claim that human societies will likely experience catastrophic damages and in many cases already do, implying that doing anything in terms of mitigation policy will tend to be beneficial.[1][2] Opponents, on the contrary, are quick to reject these claims out of hand. It is for these exact reasons that I recommend to people on any side of the debate Robert Murphy’s insightful article on the IPCC’s economic projections.

While Murphy rather clearly belongs in the camp skeptical of climate change “alarmism”, as he calls it, he nonetheless makes a convincing case—based on the IPCC’s own projections and its cited climate papers—that even a moderate range of climate mitigation policies will likely be harmful to global economic well-being based on projections ranging until the year 2100. He even manages to argue convincingly that economic harm resulting from climate policy within this century will likely outstrip the total economic harm caused by climate change in a virtual worst-case scenario.

The Cost of the IPCC’s Policy Recommendations

Murphy starts off by making clear that any informative cost-benefit analysis with respect to policy should look at marginal costs and benefits. In this case, it means that no government climate mitigation policy will completely negate projected climate change damages. This, in turn, implies that the economic damage caused by global warming in the “no mitigation policy” baseline should be compared to the global warming damages plus government policy damages in the alternative scenario where the government actively intervenes. This alternative scenario is defined by Murphy as the government attempting to limit total global warming to 2 degrees Celsius above pre-industrial levels:

“The IPCC itself doesn’t dictate what specific goal policymakers should adopt. However, for those familiar with the policy debate, it is commonplace for pundits and many experts to recommend a goal of limiting total global warming to 2 degrees Celsius. (For example, here’s a ThinkProgress post from 2009 explaining why the 2-degree limit is so crucial as a focal point of the debate.) And to be sure, there are many, many activists who push for a far more aggressive goal, such as limiting the temperature increase to 1.5 degrees (which makes a huge difference in compliance costs). Thus, by picking 2 degrees as the policy goal for this blog post, I am by no means attacking a straw man or stacking the deck against the interventionists. This is a quite “moderate” goal in their book. Yet, as I’ll show in the rest of this post, using the IPCC’s latest AR5 report, I can demonstrate that such a policy would impose more harm on the economy than it would deliver in benefits from a reduction in climate damages.”

Murphy subsequently cites the WGIII AR5 Technical Summary by the IPCC stating that long-term concentrations between 430 and 480 parts per million CO 2 eq are necessary in the year 2100 in order to keep global temperature change below 2 degrees Celsius. By using this policy-metric, he follows up by using it in conjunction with the following IPCC table illustrating global mitigation cost of climate policies:

Before interpreting the data illustrated in the table, a few statements by the IPCC will provide additional clarity. First, the IPCC policy report states multiple scenario models are used to calculate potential costs and damages. The projected costs are both based on reductions of baseline global consumption for general equilibrium models, and abatement costs as a percentage of baseline GDP for partial equilibrium models. The numbers in Table I can, therefore, be interpreted either as percentual reductions of baseline global consumption, or the mitigation costs as a percentage of GDP, depending on the type of equilibrium model used.

Murphy continues by explaining that, relative to the baseline of no additional climate mitigation policy, trying to achieve 430-480 ppm CO 2 eq will lead to a mitigation cost equal to 2.1-6.2% of total GDP in 2050 (mean = 3.4%). In the year 2100, this projected cost is increased to 2.9-11.4% of total GDP (mean = 4.8%). This mitigation cost relative to GDP/baseline consumption is explained by the IPCC as the result of lower annual growth rates. Models on the high range of cost-estimates share the characteristics of being relatively inflexible to achieve steep emission cuts and/or accounting for market-imperfections raising costs. Whether one believes the lower-bound or upper-bound of estimation to be more realistic should, therefore, depend on one’s perception of the difficulty inherent in achieving steep emission cuts and the role deviations from perfectly competitive equilibriums play in carbon pricing.

The IPCC report additionally notes that these cost estimates do not provide an exhaustive analysis because they cannot account for additional co-benefits and adverse effects of mitigation policies. The report explicitly outlines the difficulty inherent in quantifying these effects:

“Mitigation scenarios reaching about 450 to about 500ppm CO2eq by 2100 show reduced costs for achieving air quality and energy security objectives, with significant co-benefits for human health, ecosystem impacts, and sufficiency of resources and resilience of the energy system; these scenarios did not quantify other co-benefits or adverse side-effects (medium confidence). […] Overall, the potential for co-benefits of energy end-use measures outweighs the potential for adverse side-effects, whereas the evidence suggests this may not be the case for all energy supply and AFOLU measures. There is a wide range of possible adverse side-effects as well as co-benefits and spillovers from climate policy that have not been well-quantified (high confidence).”

In short, one can conclude from the IPCC report that a wide range of unquantifiable side-effects are not included in the economic damage estimate of Table I. In addition, the report notes that the net-effect of unintended consequences depends on the type of climate mitigation policy chosen. Murphy could well be criticized for simplifying the analysis and ignoring this important detail mentioned by the IPCC. However, he has also ignored aspects of the estimation that could very well strengthen his case, namely the assumptions underlying the IPCC’s cost estimates.

Table I clearly outlines that the projected mitigation costs are relevant only in cost-effective scenarios. The IPCC explains that a “cost-effective scenario” means immediate and perfect implementation of global mitigation policies in every country at the time of the report’s publication in 2014, including a single global carbon price. Any deviation from these assumptions will lead to increased costs/reductions in global consumption. Furthermore, the assumptions include a baseline of relatively unconstrained technological advancement and implementation.

As Table II illustrates, the 2.9-11.4% mitigation cost at the end of the century is highly dependent on underlying technological assumptions. For example, the absence of Carbon Capture & Storage (CCS) technologies will increase the estimated total discounted mitigation costs by 30-300% (mean = 138%). Smaller, but significant, discounted cost increases are also present when the total supply of energy produced by solar and wind power will not exceed 20% in any year before 2100 and when no additional nuclear power plants will be constructed. Finally, substantial increases in discounted total mitigation costs are estimated if modern bioenergy will not exceed 100 EJ/yr during this period.

The rightmost yellow columns in Table II illustrate that total mitigation cost will increase substantially if the implementation of extensive global mitigation measures is delayed. Even with those increased incurred costs, the chance of maintaining global temperature increase below 2 degrees Celsius is decreased substantially if global implementation is delayed until 2030. Currently, in 2019, it could already be assumed that total mitigation costs will likely be higher than the IPCC’s 2014 estimates solely due to delayed implementation. In short, Murphy ignores the fact that the underlying assumptions are likely to be unrealistic, leading to a relatively low range of cost estimates.

Reductions in Climate Change Damage

After reviewing the expected mitigation costs of IPCC’s policy recommendations, Robert Murphy attempts to gauge the expected economic harms of climate change damage in “business as usual” scenarios. By looking at a graph illustrating several representative concentration pathways (RCPs) and the associated increase in global temperature, Murphy argues that even in the worst-case scenario of RCP8.5—in terms of economic harms alone before 2100—government action appears unwarranted for.

Perhaps unwittingly so, but Murphy appears to present the RCP scenarios as if they were baseline scenarios in which little to no mitigation efforts were to take place. If this is Murphy’s case, it would significantly misrepresent the nature of RCP scenarios. As Van Vuuren et al. (2011) aptly describe:

“Socio-economic and emission scenarios are used in climate research to provide plausible descriptions of how the future may evolve with respect to a range of variables including socio-economic change, technological change, energy and land use, and emissions of greenhouse gases and air pollutants. They are used as input for climate model runs and as a basis for assessment of possible climate impacts and mitigation options and associated costs. For better comparisons between various studies as well as easier communication of model results, it is preferable to use a common set of scenarios across the scientific community.”

Rather than being actual probabilistic predictions of future global temperature if current socio-economic trends continue, RCPs are concentration pathways. A particular end-of-century target of atmospheric CO 2 concentration is chosen and socio-economic; land-use; and emission trajectories are adjusted in order to reach this concentration target. It is because of this fact that Murphy’s characterization of RCPs as baseline scenarios is somewhat misleading. RCP3-PD and RCP4.5, for instance, are designed as to be unreachable in absence of extensive global government mitigation efforts (Van Vuuren et al, 2011; Clarke et al. 2010; Thomson et al. 2011). Furthermore, even scenarios such as RCP6 contain governmental climate mitigation measures (Fujino et al. 2006).

On one hand, Murphy presenting any of the aforementioned RCPs as likely baseline scenarios is, therefore, simplifying or ignoring the intricacies of RCP scenarios at best. On the other hand, pundits and commentators on global warming policy presenting RCP8.5 as a standard or likely baseline scenario are similarly misleading readers about the likelihood of such disastrous scenarios occurring. Riahi et al. (2011) describe the RCP8.5 scenario as a conservative projection in which the global population increases very quickly to 12 billion in 2100 and technological progress slows down considerably. Both factors necessitate a return to coal-based economies for many of the industrializing third-world countries, leading to extremely high emissions and CO 2 concentrations over time.

On the other hand, scenarios such as RCP4.5 operate under radically different starting assumptions such as population growth, land use, and technological advancement and energy efficiency. These scenarios, therefore, cannot and should not be compared to RCP8.5 as the baseline.[3] For instance, under the technological assumptions in RCP8.5, the IPCC considers it unlikely that it is even achievable to stop the increase of global temperatures at 2 degrees Celsius above pre-industrial temperatures. The main point is thus that, rather than focusing on the highest forcing estimates as extremely likely during climate policy debate, one should look at the full range of expected baseline scenarios. An analysis provided by Dr. Nielsen-Gammon on the IPCC’s WGII AR5 report and MAGICC output reveals that the large majority of scenarios are clustered between RCP6 and RCP8.5.[4] To quote Riari et al. (2011):

“Finally, RCP8.5 leads to a forcing level near the 90th percentile for the baseline scenarios, but a recent literature review was still able to identify around 40 scenarios with a similar forcing level.”

My criticism of Robert Murphy’s simplification of RCP scenarios notwithstanding, however, I must admit that his central point remains untouched. Even taking a near worst-case scenario such as RCP8.5 as given will scarcely produce the disastrous economic harms before the end of the century as suggested by so many politicians and other public figures. Murphy takes the temperature increases of RCP8.5 as given and continues by comparing it to the range of GDP estimates provided by literature cited by the IPCC WGII AR5:

Based on the literature Murphy argues that, even in the very highest estimates of the worst-case scenario, compliance costs associated with mitigation policies will likely outweigh total economic harm resulting from climate change in 2050:

“Already, we can conclude that as of the year 2050, the chosen policy goal (of limiting the global temperature increase to 2°C) massively fails a global cost/benefit test, using the IPCC numbers. Remember, in the previous section we showed that even in the “worst case” pathway, the globe would only warm by 2.5°C by the year 2050. The table above shows us that the total damage from this warming is at most 2.5 percent of GDP. Therefore, even if massive intervention somehow eliminated all climate change damage—which it wouldn’t—then at best it would spare the globe 2.5 percent GDP of damage in the year 2050. And yet, we already know from our table with the gray shading earlier in this post, that the economic compliance costs of our policy would be 3.4 percent of global GDP in the year 2050.”

With respect to damage in the year 2100, Murphy acknowledges that research on GDP reduction due to global warming above 3°C is very sparse. The only study cited by the IPCC estimates a global reduction of GDP at 4.6% for warming around 5°C. Murphy makes the case that, even if the upper-range estimates of RCP8.5—around 5°C warming—are assumed, completely eliminating any warming by 2100 will still likely be more harmful economically than the total impact resulting from global warming in absence of any mitigation.

Note that—as mentioned before—Murphy doesn’t even take into account the fact that mitigation costs under cost-effective conditions as illustrated in Table I likely underestimate the global GDP reduction. In addition, reduction of global warming to 2°C above pre-industrial temperatures is considered unlikely even under extreme efforts in worst-case scenarios such as RCP8.5. In such scenarios, the total climate harm costs associated with 5°C warming should be compared to the total climate damage of 2°C+ warming plus the total mitigation costs.

Conclusion and Other Viable Arguments for Mitigation Policy

In light of the RCP own data, estimates, and citations, it thus becomes abundantly clear that widespread mitigation policies will be far from costless before 2100; a finding that should be readily recognized both by any skeptic and supporter of climate mitigation policy. I contend that this use of the IPCC’s own economic cost estimates fare particularly well against claims that the costs of mitigation policy will be insignificant or harmless. In addition, claims that climate change will cause large net economic harm before the year 2100, or even now, must necessarily be placed in the context of harms caused by active mitigation policy. Murphy, however, seems to overstate his case somewhat in claiming that these cost estimates constitute a definite case against the implementation of climate mitigation policy. However, there are numerous arguments/objections one could put forward in support of mitigation that goes beyond the purposes of this article. These arguments and objections include:

Non-Economic Harm inflicted by Climate Change (e.g. ecosystem damage)

Even if climate mitigation policy proves to be expensive to implement and maintain up until 2100, several cases can still be made in favor of stringent climate mitigation policy. For example, proponents of policy could base their standard of harm not solely on GDP reductions, but also on many forms of harm to social welfare and ecosystems that are not easily measurable and do not translate to GDP reductions. Analysis of such grounds should, in any case, also include the awareness that global government intervention in the economy also has the potential for negative consequences immeasurable by GDP metrics. Not insignificant according to many policy skeptics being the loss of liberty associated with widespread economic interventions.

2. Unequal Distribution of Global Climate Change Damage

An additional line of argument in favor of policy measures could be the objection that damages resulting from climate change will disproportionately affect poor countries that are ill-equipped to adapt to such damages. While undoubtedly a correct point of view, proponents of such arguments must, again, also recognize that climate mitigation policies will likely affect developing countries disproportionately. Environmental policy by first-world countries often tends to negatively affect developing countries, as outlined in-depth by Roberts (2011). The impacts of mitigation policies could be quite substantial, as stated by Hasegawa et al. (2018):

“A robust finding is that by 2050, stringent climate mitigation policy, if implemented evenly across all sectors and regions, would have a greater negative impact on global hunger and food consumption than the direct impacts of climate change. The negative impacts would be most prevalent in vulnerable, low-income regions such as sub-Saharan Africa and South Asia, where food security problems are already acute.”

Many policy proponents should recognize that their vision of stringent and expensive mitigation policy, too, has the potential to keep millions of people in poverty and beyond access to affordable energy. This could be especially true in countries with high population growth on the brink of industrialization.

3. Objections to IPCC Estimates

Another objection to this blog article could be expressed by means of criticizing the IPCC’s methods as overly conservative. In essence, arguing that their estimates of global damages caused by a certain degree of warming and/or their warming projections probably underestimate the damage/warming that will occur. While a minority of climate scientists could undoubtedly present arguments in favor of this thesis, no proponent of this thesis should simultaneously attempt to deride climate skeptics for arguing that the IPCC likely overestimates future warming and/or damages. Finally, the damage estimates offered by the IPCC are based on a wide and expanding array of external economic climate models and literature.

4. Viewing Mitigation Costs as “Insurance Premium” to Climate Risk

Lastly, proponents could base their policy prescriptions on horizons extending beyond the year 2100. Many scenarios with high concentrations of CO 2 predict temperature hikes extending far beyond the 5°C limit outlined in RCP scenarios. Due to the skewed and fat-tailed nature of unlikely and potentially disastrous events happening in such scenarios, it is difficult to model GDP harm with any degree of accuracy. Proponents of policy could, therefore, frame the debate in a way that economic harm caused by mitigation policy could be viewed as a form of insurance premium against unknowable “black swan” problems arising in the far future. See the upcoming paper by Taleb et al. (2016) for further elaboration on this argument. Proponents of this “precautionary principle” should nevertheless provide a consistent framework that deals with (1) the cost-limit governments should be able to legitimately impose on economic actors for mitigating “black swans” and to what extent, and (2) the total risk-budget for society and how/why resources should be diverted to particular risks such as climate change in specific.[5][6]

In any case, the reasons offered for climate change policy by its proponents are heterogeneous and high in number. No single analysis of GDP harm, no matter how damning, could thus provide an insurmountable critique of such policy in general. As an adherent of the Austrian method of economic thought, I myself do not even necessarily agree with GDP as a useful measurement for economic well-being; let alone subjective well-being. As a libertarian, I would say that the net effects of a policy on GDP hardly constitute a viable case for justifying the policy. What I thus aim to achieve by this article is simply to better elucidate on the expected cost and benefits of climate policy whenever cost-benefit analyses are considered relevant by any party in any particular debate. In the end, I thoroughly hope people from any side of the debate will contemplate the additional arguments offered in this essay without pre-judgment.

[1] A prominent example of future catastrophic damage to humans is the hyperbolic claim of Rep. Alexandria Ocasio-Cortez that the “world will end in 12 years if we don’t address climate change” [Link]

[2] A popular claim about current damage to humans links global warming directly to the Syria conflict, with people such as U.S. ex-president Barack Obama; ex-vice president Al Gore; Prince Charles, and Sen. Bernie Sanders, and many more expressing such viewpoints. Sen. Sanders even goes so far as to argue that “climate change is directly linked to the growth of terrorism”. The author of the relevant article argues that the research behind this subject is extremely sparse and inconclusive. [Link]

[3] This misrepresentation of the RCP8.5 as the “baseline scenario” compared to the presentation of RCP6 and lower as ceteris paribus “active mitigation scenarios” is even committed by the European Climate Foundation and Cambridge University. For more information, view this link.

[4] For Dr. Nielsen-Gammon’s analysis of RCP scenarios and the definition of “business as usual” baselines, see this link.

[5] For a critical assessment of the argument, see Judith Curry’s article on the upcoming paper by Taleb et al. (2016); in particular her viewpoint on the precautionary principle as advocated by the authors. [Link]

[6] With respect to point (1), even the explicit acknowledgment of Taleb’s precautionary principle would beg the question how much and, more importantly, what type of specific action should be taken in response to tail-risk. Are attempts to stabilize global warming to 4-5°C (in conjunction with adaptation measures) more viable than mitigation policies attempting to limit global warming to 1.5-3°C? As of yet, Taleb’s principle tells us little about such issues.

References

Arent, D. J., R. S. J., Tol, E., Faust, J. P., Hella, S., Kumar, K. M., Strzepek, F. L., Tóth, and D. Yan. (2014). Key economic sectors and services – supplementary material. Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B.,V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L.White (eds.)].

Clarke, L., Edmonds, J., Krey, V., Richels, R., Rose, S., Tavoni, M. (2010). International climate policy architectures: overview of the EMF 22 international scenarios. Energ Econ 31(2):S64–S81

Fujino, J., Nair, R., Kainuma, M., Masui, T., Matsuoka, Y. (2006). Multigas mitigation analysis on stabilization scenarios using aim global model. The Energy Journal Special issue #3:343–354

Hasegawa et al. (2018). Increased Risk of Food Insecurity Under Stringent Global Climate Change Mitigation Policy. Nature Climate Change (8), pp. 699–703

IPCC, (2014). Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, R.K. Pachauri and L.A. Meyer (eds.)]. IPCC, Geneva, Switzerland, 151 pp.

IPCC, (2014). Summary for Policymakers. In: Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Edenhofer, O., R. Pichs-Madruga, Y. Sokona, E. Farahani, S. Kadner, K. Seyboth, A. Adler, I. Baum, S. Brunner, P. Eickemeier, B. Kriemann, J. Savolainen, S. Schlömer, C. von Stechow, T. Zwickel and J.C. Minx (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.

Riahi, K., S. Rao, V., Krey, C., Cho, V., Chirkov, G., Fischer, G., Kindermann, N., Nakicenovic, and P. Rafaj. (2011). RCP 8.5 — A scenario of comparatively high greenhouse gas emissions. Climatic Change 109:33-57

Roberts, J. M., 2011. How Western environmental policies are stunting economic growth in developing countries. Journal of Oil Palm & the Environment, 2, 48-62.

Taleb, N. N., Norman, J., Read, R., Bar-Yam, Y. (2016). Climate Models and Precautionary Measures.

Thomson A. M., Calvin, K. V., Smith. S. J., Kyle. G. P., Volke. A., Patel, P., Delgado-Arias. S., Bond-Lamberty, B., Wise, M. A., Clarke, L. E. (2011). RCP4.5: a pathway for stabilization of radiative forcing by 2100. Climatic Change.

Van Vuuren et al., (2011). The representative concentration pathways: an overview. Climatic Change, 109: 5–31