by Judith Curry

The economic value of climate mitigation depends sensitively on the slim possibility of extreme warming.

Tall tales and fat tails: The science and economics of extreme warming

Raphael Calel, David Stainforth, Simon Dietz

It has recently been highlighted that the economic value of climate mitigation depends sensitively on the slim possibility of extreme warming. This insight has been obtained through a focus on the fat upper tail of the climate sensitivity probability distribution. However, while climate sensitivity is undoubtedly important, what ultimately matters is transient temperature change. A focus on transient temperature change stresses the interplay of climate sensitivity with other physical uncertain- ties, notably eective heat capacity. In this paper we present a conceptual analysis of the physical uncertainties in economic models of climate mitigation, leading to an empirical application of the DICE model, which investigates the interaction of uncertainty in climate sensitivity and the eective heat capacity. We expand on previous results exploring the sensitivity of economic evaluations to the tail of the climate sensitivity distribution alone, and demonstrate that uncertainty about the system’s effective heat capacity also plays a very important role. We go on to discuss complementary avenues of economic and scientic research that may help provide a better combined understanding of the physical and economic processes associated with a rapidly warming world.

This is a new working paper from the London School of Economics, which can be downloaded [here]. From the Discussion:

Uncertainty about the shape of the fat upper tail of the climate sensitivity distribution can wreak havoc with economic analysis of climate policies. However, the climate sensitivity matters only indirectly. Economic analysis is sensitive to the probability of extreme warming, and high values of the climate sensitivity are only one of the factors that lead to rapid warming. As we have shown, uncertainty about the effective heat capacity also matters a great deal for economic analysis, and this uncertainty greatly amplifies the economic consequences of uncertainty about the shape of the tail of the climate sensitivity distribution.

With results like these, it is perhaps understandable that some have concluded the risk of a climate catastrophe should be the sole determinant of climate policy. Whether one agrees with this assessment or not, it highlights the need to improve our understanding of the relevant risks. It would be valuable to place a greater emphasis on exploring uncertainty about the probability of very high transient temperature changes directly, which would entail a more inclusive discussion of the underlying physical uncertainties that accompany a rapidly warming world. A concrete example of this is carbon cycle feedbacks, which, studies suggest, may be substantially different in character in a high-warming scenario compared with low warming.

A secondary conclusion relates to the importance of the damage function in economic analysis. As we saw in section 3, with one damage function the expected value of the policy was rather insensitive to the probability of extreme warming, while another damage function makes the economic analysis hypersensitive. This is because each damage function implicitly defines what level of warming is considered catastrophic, and uncertainty about extreme warming plays a profoundly different role in economic analysis depending on how we define `catastrophic’. For all of the focus on the economics of catastrophic climate change, surprisingly little attention has been paid to this issue. At a basic level, we must try to understand better the limits of human adaptation to climate change. A noteworthy example is provided by Sherwood and Huber (2010), who note that for temperatures above 35C, dissipation of metabolic heat becomes impossible in humans and mammals, causing hyperthermia and death. They proceed to estimate that with an increase in global mean temperature of roughly 12C, most of todays population would be living in areas that experienced temperatures of more than 35C for extended periods. Given how important the limits of adaptation appear to be for economic calculations, further exploration of such limitations may prove informative.

Our analysis indicates it would be especially valuable to gain a greater understanding of both the physical and social processes associated with a much warmer world. The proposed endeavour will necessarily be speculative in many respects. It will involve trying to understand which physical feedbacks will become signicant in the next few centuries, and how much warming they can and cannot account for. It will require that we both imagine and take seriously the social and demographic processes that would accompany a quickly changing climate. The fat tail of the climate sensitivity distribution has perhaps been an effective vehicle for bringing attention to the issue of extreme warming, but it is time to move beyond this convenient metaphor and build a scientific view of society in a rapidly warming world.

JC comments: There are a number of interesting points in this paper, two that I find most significant are:

calling out the need to actually define ‘catastrophic’ and understand the limits of adaptation

focus on effective heat capacity of the climate system (I agree this is a highly important and relatively neglected parameter

The issue of effective heat capacity is looming very large at present, owing to arguments regarding sequestration of heat in the deep ocean. I will try to cook up a thread on that topic in the coming week, in the mean time I would appreciate your suggestions of references.