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Economic Impacts of a Glacial Period: a Thought Experiment to Assess the Disconnect Between Econometrics and Climate Sciences

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Economic Impacts of a Glacial Period: a Thought Experiment to Assess the Disconnect Between Econometrics and Climate Sciences Earth Syst. Dynam., 11, 1073–1087, 2020 https://doi.org/10.5194/esd-11-1073-2020 © Author(s) 2020. This work is distributed under the Creative Commons Attribution 4.0 License. Economic impacts of a glacial period: a thought experiment to assess the disconnect between econometrics and climate sciences Marie-Noëlle Woillez1, Gaël Giraud2,3,4, and Antoine Godin1,5 1Agence Française de Développement, 5 rue Roland Barthes, 75012 Paris, France 2Georgetown Environmental Justice Program, Georgetown University, 37th and O Streets N.W., Washington D.C. 20057, USA 3Centre d’Economie de la Sorbonne, Paris 1 University Panthéon-Sorbonne, 106–112 bd. de l’Hôpital, 75013 Paris, France 4Chair Energy & Prosperity, Institut Louis bachelier, 28 place de la Bourse, 75002 Paris, France 5Centre de recherche en Économie et gestion de Paris Nord, Université Sorbonne Paris Nord, 99 avenue Jean-Baptiste Clément, 93430 Villetaneuse, France Correspondence: Marie-Noëlle Woillez ([email protected]) Received: 15 May 2020 – Discussion started: 27 May 2020 Revised: 28 August 2020 – Accepted: 14 September 2020 – Published: 4 December 2020 Abstract. Anthropogenic climate change raises growing concerns about its potential catastrophic impacts on both ecosystems and human societies. Yet, several studies on damage induced on the economy by unmitigated global warming have proposed a much less worrying picture of the future, with only a few points of decrease in the world gross domestic product (GDP) per capita by the end of the century, even for a global warming above 4 ◦C. We consider two different empirically estimated functions linking GDP growth or GDP level to temperature at the country level and apply them to a global cooling of 4 ◦C in 2100, corresponding to a return to glacial conditions. We show that the alleged impact on global average GDP per capita runs from −1:8 %, if temperature impacts GDP level, to C36 %, if the impact is rather on GDP growth. These results are then compared to the hypothetical environmental conditions faced by humanity, taking the Last Glacial Maximum as a reference. The modeled impacts on the world GDP appear strongly underestimated given the magnitude of climate and ecological changes recorded for that period. After discussing the weaknesses of the aggregated statistical approach to estimate economic damage, we conclude that, if these functions cannot reasonably be trusted for such a large cooling, they should not be considered to provide relevant information on potential damage in the case of a warming of similar magnitude, as projected in the case of unabated greenhouse gas emissions. 1 Introduction places, numerous studies emphasize the risks associated with increased frequency and/or magnitude of extreme events Since the first Intergovernmental Panel on Climate Change (e.g., droughts, heat waves, storms, floods), rising sea level, (IPCC, 1990) report, anthropogenic climate change has been and glacier melting (IPCC, 2013). These risks have drawn at- the subject of large research efforts. Increased knowledge tention to potential catastrophic consequences for the world has raised growing concerns about its potential catastrophic economy (Weitzman, 2012; Dietz and Stern, 2015; Bovari impacts on both ecosystems and human societies if green- et al., 2018). Yet, several other studies on damage induced house gas (GHG) emissions continue unmitigated. In addi- on the world economy by unmitigated global warming have tion to the worsening of mean climate conditions in many proposed a much less worrying picture of the future, with Published by Copernicus Publications on behalf of the European Geosciences Union. 1074 M.-N. Woillez et al.: Economic impacts of a glacial period: a thought experiment economic damage limited to only a few points of the world (2018). On the other hand, by design, statistical relationships gross domestic product (GDP)1 (see Tol, 2018, for a review). linking climatic variables to economic damage could be ap- Some authors could even conclude that “a century of climate plied either to a warming or to a cooling. Therefore, we test change is likely to be no worse than losing a decade of eco- two of them for a hypothetical return to the LGM, except for nomic growth” and hence that “there are bigger problems the presence of northern ice sheets (see Sect.5), correspond- facing humankind than climate change” (Tol, 2018, p. 6). ing to a global cooling of 4 ◦C in 2100. Such results seem surprising when compared to the conclu- We chose two statistical functions linking GDP and tem- sions of the last IPCC report (IPCC, 2013) and to various perature at the country level: the first one has been introduced rather alarming publications since then (Hansen et al., 2016; by Burke et al.(2015) and formalizes the impact of tem- Mora et al., 2017; Steffen et al., 2018; Nolan et al., 2018). perature on country GDP growth; the second one by Newell Damage functions2, at the heart of many macroeconomic et al.(2018) relates temperature to country GDP level 3. The analyses of climate change impacts, have, however, been strength of this exercise lies in our ability to counter-check heavily criticized for their lack of empirical or theoretical the results on potential damage under scrutiny with recon- foundations and for their inadequacy to evaluate the impact structions from paleoclimatology. of climate change outside the calibration range (Pindyck, The paper is structured as follows: Sect.2 briefly surveys 2013, 2017; Pottier, 2016; Pezzey, 2019). the existing literature on climate change and economic dam- Here, we want to further highlight the disconnect be- age; Sect.3 presents the methodology and data used here. tween climate sciences and economic damage projected at The next section then describes the results obtained for our the global scale, focusing on econometric approaches. To do cooling scenario, and Sect.5 compares these results with so, two different strategies could be considered. what is known of the Earth under such a climate situation. Section6 then discusses our results in light of the known – Carefully list all the climate and environmental changes, strengths and weaknesses of such empirical functions, while as described by climate models for the end of the cen- Sect.7 concludes. tury (including extreme events, sea level rise, etc.) that are not accounted for by such damage functions and show that the damage would be much larger than the 2 Connecting climate change and economic projections obtained with these functions, as done by damage DeFries et al.(2019) for assessments of climate change damage in general. This option would strongly rely on The literature on the broad topic of damage functions (see projections from current Earth system models and there Tol, 2018, for a review) can be organized into two main ap- are still many uncertainties, especially on potential tip- proaches linking climate change to economic damage: an ping points in the climate system. enumerative approach, which estimates physical impacts at a sectorial level from natural sciences, gives them a price, – Apply some econometric methods to a different, but and then adds them up (e.g., Fankhauser, 1994; Nordhaus, rather well-known, past climate change for which not 1994b; Tol, 2002), versus a statistical (or econometric) ap- only results from climate models are available, but also proach based on observed variations of income across space various climate and environmental proxy data, and dis- or time to isolate the effect of climate on economies (e.g., cuss the plausibility or implausibility of the results. Nordhaus, 2006; Burke et al., 2015). We investigate this latest option, choosing the Last Glacial Each method has its pros and cons, some of which have Maximum (LGM, about 20 000 years ago) as a test past already been acknowledged in the literature. period. On the one hand, the global temperature increase projected by 2100 for unabated GHG emissions (scenario – The main advantage of the enumerative approach is that RCP8.5, Riahi et al., 2011) is indeed roughly of the same am- it is based on natural sciences experiments, models, and plitude, though of opposite sign, as the estimated temperature data (Tol, 2009). It distinguishes between the different difference between the preindustrial period and the LGM, economic sectors and explicitly accounts for climate which is about 4 ◦C(IPCC, 2013). The magnitude of cli- impacts on each of them. Yet, results established for a matic and environmental changes during the last glacial-to- small number of locations and for the recent past are interglacial transition can thus provide an index of the mag- usually extrapolated to the world and to a distant future nitude of the changes that may occur for a warming of sim- in order to obtain global estimates of climate change im- ilar amplitude in 2100, as already postulated by Nolan et al. pacts. The validity of such extrapolation remains dubi- ous, and it can lead to large errors. Moreover, account- 1World GDP is probably a misnomer, as we should rather re- ing for potential future adaptations is a real challenge fer to global world product instead. We will nonetheless retain the common usage of “world GDP”. 3Both Burke et al.(2015) and Newell et al.(2018) then create a 2The term damage function refers to the formal relation between world GDP value via a population-weighted average of the country climatic conditions and economic impacts at the global level. GDP. Earth Syst. Dynam., 11, 1073–1087, 2020 https://doi.org/10.5194/esd-11-1073-2020 M.-N. Woillez et al.: Economic impacts of a glacial period: a thought experiment 1075 and therefore a major source of uncertainty in the pro- Capturing the impact of warming on growth rather than on jections. This method also implies being able to cor- GDP level may appear more realistic. Indeed, it allows global rectly identify all the different channels through which warming to have permanent effects and also accounts for re- climate affects the economy, which is by no means an source consumption to counter the impacts of warming, re- easy task.
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