Stringent Mitigation Policy Implied By Temperature Impacts on Economic Growth

Abstract:

Integrated assessment models (IAMs) compare the costs of greenhouse gas mitigation with damages from climate change in order to evaluate the social welfare implications of climate policy proposals and inform optimal emissions reduction trajectories. However, these models have been criticized for lacking a strong empirical basis for their damage functions, which do little to alter assumptions of sustained GDP growth, even under extreme temperature scenarios. We implement empirical estimates of temperature effects on GDP growth-rates in the Dynamic Integrated Climate and Economy (DICE) model via two pathways, total factor productivity (TFP) growth and capital depreciation. Even under optimistic adaptation assumptions, this damage specification implies that optimal climate policy involves the elimination of emissions in the near future, the stabilization of global temperature change below 2°C, and a social cost of carbon (SCC) an order of magnitude larger than previous estimates. A sensitivity analysis shows that the magnitude of growth effects, the rate of adaptation, and the dynamic interaction between damages from warming and GDP are three critical uncertainties and an important focus for future research.