Select Committee on Economic Affairs Written Evidence

Memorandum by the Tyndall Centre for Climate Change Research

  The Tyndall Centre is a national UK centre for trans-disciplinary research on climate change. It is dedicated to advancing the science of integration, to seeking, evaluating and facilitating sustainable solutions to climate change and to motivate society through promoting informed and effective dialogue. The Tyndall Centre welcomes the opportunity to submit evidence to this review and would like to be kept informed of subsequent developments.

Emma L Tompkins, Emily Boyd, Sophie Nicholson-Cole, Rachel Warren, Mike Hulme

Q.  How are the current estimates of the scale of climate change damage derived?

  Damage functions relating some metric quantification of a climate impact to temperature and /or temperature change, are commonly used to compare the benefits of alternative mitigation policies. This requires the use of some means to assess the global damages accruing due to climate change across multiple sectors and regions. Typically, the metric chosen is the monetised costs of climate change. In the simplest case, a global aggregate damage function is used to link the costs of climate impacts to temperature. Such damage estimates are strongly affected by both the functional forms and the parameters used to simulate impacts.

  In the literature, few studies have estimated climate impacts at a range of temperatures and thus the damage functions are usually extrapolated from one or two benchmark estimates—typically a "no climate change" case, and at "doubling of CO2 concentrations on pre-industrial levels" (eg, Tol 2002b). Pearce (1996) reviewed estimates of climate impacts on the US economy and many functional forms are calibrated using these estimates. Extrapolation implies that a functional form has to be assumed from only two data points. The graph below illustrates the functional forms of damage functions employed in the literature. The earlier approaches (eg Manne et al 1995, Nordaus 1993a,b) use polynomials (a type of mathematical formula) in the absolute level of temperature change in a global aggregate approach. Dowlatabadi & Granger Morgan (1993) use a different approach in which probabilistic damage surfaces are estimated for market and non-market goods, expressing GDP losses as a function of change in radiative forcing and time. Later approaches include regional and sectoral disaggregation (eg Agriculture, Industry) and use more complex functional forms taking into account both the level and rate of change of temperature (Tol 2002b). However, knowledge of impacts at the regional scale is uneven and far too incomplete for a thorough regional analysis, particularly in the developing world. This prevents a holistic treatment of impacts in a rigorous fashion across regions. Thus methods are frequently somewhat ad hoc. Another critical feature of climate change is an expected increase in the variability of the climate, and indeed this may be much more important that an increase in mean temperatures and mean sea levels.

  Of general concern to all these damage function approaches are (i) the general lack of any, or an adequate, treatment of damages due to extreme weather events, which are predicted to increase in magnitude with climate change and are likely to be responsible for a large component of climate change damage; (ii) only one study (Azar & Lindgren 2003) takes any consideration of the potential for large scale changes in the earth system such as the melting of Greenland or West Antarctic Ice Sheets, the breakdown of the thermohaline circulation, the collapse of the Amazon rainforest or the release of methane clathrates; (iii) the choice of discount rate dramatically affects the value of damage that is incurred in 2100 as opposed to damage that occurs in 2020, raising moral questions as to whether the quality of life of future generations should be subject to a discount rate at all; (iv) little or crude representation of adaptation, eg by setting threshold on aggregate damage function of global temperature range below which there is no modelled damage (Hope et al 1993) or with very optimistic assumptions of super-intelligent farmer and full potential for CO2 fertilisation realised (Tol 2002b); (v) lack of treatment in damage functions of interaction between climate damages in different sectors, eg water demand, agriculture, and conservation of natural ecosystems; (vi) inadequate treatment of future commitments to temperature and sea level rise which are reached if emissions E are emitted in year Y; (vii) in multi-sectoral approaches, how to aggregate across different metrics, eg lives at risk/crop failure; (viii) if monetisation is used to resolve this, which is often extremely controversial, especially when considering how to value intangibles (ie, non-market goods such as existence of ecosystems); (ix) if monetisation is used, whether to use PPP or MER exchange rates to aggregate across regions.

  In summary, therefore, many different authors have used different methods to arrive at very different estimations for damage. The Figure above illustrates the drivers which, when included or not in the calculations, tend to increase/decrease the damage values arrived at. These damage values, normalised to a single ton of carbon, are commonly referred to as the "social cost of carbon". (this should not be confused with the costs of removing, or preventing, that ton of carbon from entering the atmosphere, ie, the mitigation cost). The same calculations of damage are used in models which attempt to deduce the optimal timing of mitigation.

  In conclusion, damage valuation and cost-benefit exercises for climate change policy are fraught with methodological difficulties which are difficult to resolve. Hence, in many people's opinion the damages due to climate change are best expressed in terms of (for example): lives at risk due to hunger, flooding of river/cost, exposure to disease, water stress, species extinctions, ecosystem functioning problems, and large scale changes in the earth system. The use of a database of different damages expressed in terms of different metrics, not monetised except where uncontroversial, and regionally specific, is more useful. Such databases are compiled in the literature (for example, Hare 2003; there is process led by Defra to gather an impacts database following the February 2005 Exeter conference).

Q.  What are the uncertainties in these estimates?

  Clearly, there are considerable uncertainties in estimating climate damages. However, there is a more robust understanding of the levels of climate impacts that could occur as temperature rises, although even these are affected by the future socio-economic development pathway, since this affects both the stocks at risk and the adaptive capacity of the human systems. Uncertainty increases as damage is monetised and then aggregated across sectors, leading to very large discrepancies (up to two orders of magnitude) between different estimates of the social cost of carbon.

Q.  In monetary terms, the impact of change and the costs of control may be greater in rich countries than in poor countries. But is this an adequate measure?


  Those most exposed to the impacts of climate change will experience the worst physical impacts, eg people in low lying areas, people struggling with existing climate variability, people with limited capacity to adapt to new conditions. However, preparedness levels will determine how sensitive the different groups are to that exposure. A group with high levels of preparedness will experience much lower impacts and hence lower costs of impacts. Preparedness refers to both minimising the causes of climate change (mitigating), as well as being able to cope with the consequences (adaptation).

  Wealth (or lack of it) is not the best indicator of who will cope best with the impacts of climate change; a better indicator is the level of preparedness. For example, recent research on the impacts of hurricanes in the Caribbean reveals that two countries with excellent preparedness, the Cayman Islands and Cuba, which have very different levels of income, managed the 2004 hurricane season much more successfully, and with less impact that the middle income, but less prepared countries of Grenada and Jamaica.


  Preparedness may cost more in a rich country than in a poor country due to higher relative prices, eg relative price of sand bags. However, as climate change is a global trans-boundary problem, which requires international cooperation, both in terms of technology transfer and resource sharing to solve it, the issue of relative cost has to be considered as just one of many factors influencing the decision-making process.


  Other criteria that need to be considered alongside economic efficiency when making decisions about managing climate change include: the legitimacy of the decision making process to reach internationally agreed upon targets and strategies, the equitable distribution of costs and benefits in managing the problem, and most importantly the effectiveness of the different strategies to achieve the desired outcome.

Q.  What would be the relative costs and benefits of using resources, otherwise expected to be allocated to climate change controls, instead to expand international development assistance?


  As mentioned above, using conventional economic efficiency arguments in isolation to make decisions about resource allocation for climate change is not necessarily appropriate (even if the quantification of damage costs can be made—see above).


  In addition, the argument that climate change control activities have to be traded-off against international development expenditure is unrealistic. For example, the UK Department of Trade and Industry could subsidise British industry to invest in mitigation technologies—this is not money that would have been allocated to international development initiatives. In addition, the UK can invest in "climate-proof" international development, for example, supporting renewable energy projects for small islands; this would provide energy security and mitigate climate change.

  Bjorn Lomborg's Copenhagen Consensus suggested that resources should be invested in international development and not climate change mitigation, but he didn't take into account that climate change will exacerbate many existing issues of poverty, particularly in natural resource dependent communities, low-lying communities, coastal communities, and any others vulnerable to changing climate variability, including more intense extreme events such as wind storms. The climate change issue has the potential to be an additional stressor that could exacerbate vulnerability and poverty and as it progresses, it is likely to increase the economic gradient between north and south.

Q.  When are damages likely to occur and how satisfactory is the economic approach to dealing with costs and benefits that are distant in time?


  If anthropogenic climate change is occurring now—which it is with a high likelihood; cf. IPCC Third Assessment Report—then it follows that some of the damage being caused by extreme weather events now is already attributable to anthropogenic climate change. The difficulty is knowing "how much", "where" and "when". It remains scientifically problematic to attribute any one extreme weather event to anthropogenic climate change, although new methods are being developed which exploit the idea of "fractional attributable risk" (cf. its use in the arguments over tobacco and human health). For example, the 2003 summer heatwave in Europe caused considerable damage, both in terms of human health (up to 20,000 premature deaths) and economic losses (estimates of

15,000,000,000). Although statistically the event was extremely rare—some estimates suggest a 1-in-40,000 year event—there is evidence from climate models that anthropogenic climate change is radically reducing the odds of such an event occurring, and recurring (Stott et al, 2004).

  It is certainly possible to make estimates—based on models—on how likely such events will be to occur in the future, and it may soon become an established methodology to be able to make such statements as "The fractional attributable risk due to anthropogenic climate change for a certain extreme weather event, and associated damage, was 0.9—ie, 90 per cent".


  Economic analysis may be useful to assess in monetary terms the costs and benefits of balancing adaptation actions and mitigation activities, however, there is as yet not an agreed upon method by which this can be undertaken. It is widely argued that two critical issues make the use of conventional cost-benefit analysis inappropriate for use as a decision support tool when dealing with climate change; these are the uncertainties and the time frame. First, the long time frame over which climate change impacts will occur raises the problem of selecting an appropriate discount rate by which to discount future impacts and future adaptations. Second, the uncertainties associated both with the timing and type of climate change that will appear, as well as the adaptation strategies that may be adopted to cope with it, make estimating costs and benefits too uncertain (see answer above).

  Subjective decision-making is important when managing extremely uncertain events with big impacts. For example, in 1953 after the East of England storms the Thames Barrier was constructed. This decision was not based on a cost-benefit analysis but on a subjective decision (strongly influenced by politics) to avoid another occurrence of the number of deaths following a large storm. The Barrier has turned out to be crucial to protecting London, yet the number of uses of the Barrier probably could not have been estimated in 1953, and hence the benefits of the Barrier could not have been estimated. It is unrealistic to think that pure cost-benefit analysis will guide all future adaptation decisions.

  Q. What other associated benefits might there be from reducing greenhouse gas emissions?

  Undertaking mitigation activity now, ie reducing greenhouse gases will reduce the need to adapt in the future, as it is assumed that the impacts will not be so severe (so long as greenhouse gases can be stabilised at an appropriate level). Investing in mitigation technology in the present time reduces the uncertainty associated with future adaptation costs. We also know that there are limits to adaptation, which we will approach as we do not mitigate. For example, if the sea level rises by a meter there is little that can be done (given our current technology and resources) to hold the sea back from the entire coastline of the UK.

  The UK could become an economic leader in exporting mitigation technology

  Mitigation now would reduce the likelihood of low probability but very high impact events resulting from rapid climate change. Rapid climate change could appear as:

    —  A collapse of the Thermohaline Circulation (which could lead to mass migration south).

    —  Rapid sea level rise (which could lead to mass migration inland)

    —  Accelerated climate change through feedback mechanisms from melting permafrost (which could lead to mass migration north).

  Clearly the consequences of mass migration would be severe and best avoided.

1 March 2005

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