This opinion piece was inspired by an academic paper, Economists’ erroneous estimates of damages from climate change (Keen et al, 17 Aug 2021). In the Institute we have championed the idea of T-shapedness, where the vertical represents our depth in our home domain and the horizontal our ability to reach across to, and connect with, experts from other domains. This paper is an example of T-shaped climate scientists reaching out to the economics domain.
The paper is a breathtakingly-polite savaging of the work (DICE model) of a Nobel laureate (William Nordhaus). In cartoon form, the paper says ‘we are climate scientists; you economists have misunderstood and misapplied our work, and so your recommendations to policy makers are woefully inadequate’. It would appear that the economists have not been as T-shaped as we would have liked.
While the paper specifically targets the DICE model, because it was the first and therefore has been disproportionately influential, the points I wish to examine are common to all climate models estimating economic damage. First, no model yet incorporates the concept of climate tipping points. Second, I want to attempt to change your frame of reference from seeing climate mitigation as a cost, to seeing it as pure upside relative to the true baseline of losing everything. I will address these in reverse order.
To start, consider the language of economic climate modelling which includes the ‘damage function’. Damage relative to what? Typically, damage relative to no climate change. The idea is to allow us to do a cost-benefit analysis. If the cost of mitigating climate change is greater than the likely damage (no benefit), then we should let climate change occur.
There is a level of warming that will cause a 100% loss of GDP. We have not yet taken sufficient action to eliminate that as a possibility. So why not set that as our baseline, which would turn all those ‘costs’ of mitigation into investments that yield an attractive upside return.Tim Hodgson
Then consider how often you hear phrases like ‘doing X will cause a loss in GDP of Y%’. A loss relative to what? Well, typically, relative to GDP in the complete absence of global warming. Let’s be very clear – at this point there is no feasible future which is free of global warming. It therefore makes no sense to claim non-warmed-GDP as the baseline for comparison. The problem is how much warming we should assume for the baseline, and the set of actions necessary to achieve that. For example, the agreements reached at COP26 suggest we are aiming for somewhere between 1.8C and 2.4C of warming. But actually delivering on those commitments will entail a whole bunch of forced transitions, from banned activities to carbon prices, and how do we project GDP from that? Will the ‘new’ GDP more than offset the ‘decommissioned’ GDP? I would like to propose a simplification and a new framing. There is a level of warming that will cause a 100% loss of GDP. We have not yet taken sufficient action to eliminate that as a possibility. So why not set that as our baseline, which would turn all those ‘costs’ of mitigation into investments that yield an attractive upside return.
To hopefully add credibility to my argument, let me turn to climate tipping points. These are points of no return, where a system goes from one state to another state with no path back. In our case we are talking about a climate system that has provided a pleasant niche in which humans have thrived, and moving it into a new state – hotter, and likely more dangerous and less pleasant – with no path back1. I feel sufficiently strongly that this is a crucial point that I will say it again using different words.
We have been living in an era of human-caused climate change (global warming). This is, actually, good news, because if we have been causing it, we can stop causing it and there is a path back to the old, pleasant and less-dangerous niche. However, if we continue to force the climate system to warm, and we trigger a tipping point then we pitch ourselves into a new era. In that era, climate change will be partly human-caused and partly nature-caused. This is bad news, because we could drop our emissions to zero but we will not, then, be able to persuade nature to ‘un-tip’ herself. There will be no path back to our pleasant niche. Instead we will then face the prospect of a ‘tipping cascade’ where the passing of one tipping point causes us to trip over subsequent tipping points. This calls for grown up risk management, which in turn distinctly calls for sharp thresholds to be built into our models’ damage functions – even if we don’t have the first clue as to how punitive to make them. As a gratuitous aside the Keen et al paper notes that “the top 9 general economics journals have published 57 papers on climate change, out of a total of over 77,000 papers”. We really haven’t put the work in that we need to.
I would like to finish on a somewhat philosophical note. I take it as given that we need to act against climate change. The question then is, will we base our actions on our understanding, or on model output? The Institute’s climate beliefs working group concluded that we have all the evidence we need to act – and no model was harmed in reaching that conclusion. We can read the work of the climate scientists and we can understand enough of it to apply to our own domain. We already understand extreme-risk thinking – that we tread a single path into the future, so path-dependency matters, as does paying up to avoid the things that can kill you. If we do tip into a new climate state then the models won’t help us, because relationships will have changed, and we won’t (initially) have any data to estimate them. In short, we already understand what we need to do. I guess all we need now is the heart, and the courage, to act.
1 In Future of the human climate niche (PNAS May 26, 2020), Xu et al estimate that over the next 50 years between 1 and 3 billion people will be “left outside the climate conditions that have served humanity well over the past 6,000 y”
Tim Hodgson is co-head of the Thinking Ahead Group, an independent research team at WTW and executive to the Thinking Ahead Institute (TAI). The document describing the climate beliefs is available here. Click to read the first post in the series, We need superteams to change the climate by Tim Hodgson.