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A Note on the Economic Cost of Climate Change and the Rationale to Limit it Below 2°C

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  • Patrice Dumas
  • Stephane Hallegatte
  • Jean-Charles Hourcade

Abstract

This note highlights a major reason to limit climate change to the lowest possible levels. This reason follows from the large increase in uncertainty associated with high levels of warming. This uncertainty arises from three sources: the change in climate itself, the change’s impacts at the sector level, and their macroeconomic costs. First, the greater the difference between the future climate and the current one, the more difficult it is to predict how local climates will evolve, making it more difficult to anticipate adaptation actions. Second, the adaptive capacity of various economic sectors can already be observed for limited warming, but is largely unknown for larger changes. The larger the change in climate, therefore, the more uncertain is the final impact on economic sectors. Third, economic systems can efficiently cope with sectoral losses, but macroeconomic-level adaptive capacity is difficult to assess, especially when it involves more than marginal economic changes and when structural economic shifts are required. In particular, these shifts are difficult to model and involve thresholds beyond which the total macroeconomic cost would rise rapidly. The existence of such thresholds is supported by past experiences, including economic disruptions caused by natural disasters, observed difficulties funding needed infrastructure, and regional crises due to rapid economic shifts induced by new technologies or globalization. As a consequence, larger warming is associated with higher cost, but also with larger uncertainty about the cost. Because this uncertainty translates into risks and makes it more difficult to implement adaptation strategies, it represents an additional motive to mitigate climate change.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Patrice Dumas & Stephane Hallegatte & Jean-Charles Hourcade, 2010. "A Note on the Economic Cost of Climate Change and the Rationale to Limit it Below 2°C," World Bank Publications - Reports 19943, The World Bank Group.
  • Handle: RePEc:wbk:wboper:19943
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    References listed on IDEAS

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    1. Stéphane Hallegatte, 2007. "Do Current Assessments Underestimate Future Damages From Climate Change?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(3), pages 131-146, July.
    2. Robert J. Lempert & David G. Groves & Steven W. Popper & Steve C. Bankes, 2006. "A General, Analytic Method for Generating Robust Strategies and Narrative Scenarios," Management Science, INFORMS, vol. 52(4), pages 514-528, April.
    3. Wolfram Schlenker & Michael J. Roberts, 2006. "Nonlinear Effects of Weather on Corn Yields," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 28(3), pages 391-398.
    4. Stéphane Hallegatte, 2005. "The time scales of the climate-economy feedback and the climatic cost of growth," Post-Print hal-00716720, HAL.
    5. Philippe Ambrosi & Jean-Charles Hourcade & Stéphane Hallegatte & Franck Lecocq & Patrice Dumas & Minh Ha Duong, 2009. "Optimal Control Models and Elicitation of Attitudes towards Climate Damages," International Series in Operations Research & Management Science, in: Jerzy A. Filar & Alain Haurie (ed.), Uncertainty and Environmental Decision Making, chapter 0, pages 177-209, Springer.
    6. Stephen Schneider & William Easterling & Linda Mearns, 2000. "Adaptation: Sensitivity to Natural Variability, Agent Assumptions and Dynamic Climate Changes," Climatic Change, Springer, vol. 45(1), pages 203-221, April.
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    Cited by:

    1. Baptiste Perrissin Fabert & Etienne Espagne & Antonin Pottier & Patrice Dumas, 2012. "The “Doomsday” Effect in Climate Policies. Why is the Present Decade so Crucial to Tackling the Climate Challenge?," Working Papers 2012.62, Fondazione Eni Enrico Mattei.

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