Low-Energy Fridays: Why is it so hard to estimate climate damages?
A couple of weeks ago, Low-Energy Fridays highlighted that the social cost of carbon is based on estimates of future economic damages. But how do we know if they are correct? The simple answer is that we don’t, but it is possible to say that some damages from climate change are more certain than others. The challenge for policymakers is that the methods used to inform policy rely on weighing one cost against another, and often they don’t have the time or ability to assess the credibility of various estimates.
An important word to keep in mind when analyzing climate damage estimates is death. The most pessimistic estimates of climate damages are often depicted as costing large chunks of GDP, but this is because they estimate high mortality. Inversely, more optimistic estimates of future climate damages do not estimate much future death from climate change. The well-known study underpinning the 2018 National Climate Assessment (NCA) said that climate change could cost the United States 10 percent of its GDP, but almost all of those damages are from increased weather-related mortality. The authors backtracked on the NCA’s claim, stating that their research was taken out of context.
The interesting takeaway is that even though the media often talks about climate change effects in a variety of ways (hurricane intensity, crop yields, heat waves, etc.), none of these factors yield the same levels of potential economic cost that death does, so climate damage estimates are highly sensitive to assumptions of mortality.
But the challenge is that it is extremely hard to know future weather-related mortality rates. For one thing, weather-related mortality is going down, not up. Some, however, dispute that, arguing that there are uncounted weather-related fatalities. Then there is also the fact that, generally, cold weather is more dangerous than hot weather, so some argue that climate change avoids death rather than causes it. But a more sober, analytical take recognizes that almost all weather-related mortality is avoidable. Studies that assume that climate-related mortality is inevitable (like the study featured in the NCA) may be unrealistic (and the authors of that study also state that their estimate is what could occur if nothing is done, not a “prediction”).
There is also an ongoing debate as to whether many of the existing analyses severely underestimate climate damages because of something known as the “wet-bulb temperature.” In lay terms, wet-bulb temperature is when both heat and humidity reach a point where sweat no longer cools a person down, making them far more vulnerable to heat-related mortality. Doomsday “climate-fiction” stories depict climate change pushing a heat wave over the edge, causing large swathes of people to die because it becomes deadly to be outdoors. However, these scenarios also ignore the adaptability of populations; weather forecasting means people will be forewarned about when it is deadly to be unsheltered, making deaths avoidable. Fiction may spur imagination and philosophy, but policy needs to be based on fact.
On the other hand, some of the more moderate estimates of climate damages are critiqued for not including enough factors. The Congressional Budget Office (CBO) estimates that climate damages in the United States total 0.03 percent of GDP—far lower than the study featured in the NCA. But the CBO was focused primarily on property damage impacts from extreme weather and did not include many other potential impacts from climate change.
Simply put, estimates of future damages from climate change depend primarily on how much the authors expect people to die because of weather-related events. There are good reasons to think that climate change worsens this risk, but there are also good reasons to expect that by the time those risks arise, humans will be better able to mitigate them. Consequently, we end up with seemingly credible analyses that predict both high and low costs of climate change.
The key point for policymakers to keep in mind is that climate change is not simply an occurrence to be predicted, but an ongoing condition that exacerbates risk. Even though the apparent worthiness of climate-policy cost is related to projected future damages, what doesn’t change is the estimated cost-effectiveness of various climate policies (e.g., permitting reform is more important for clean energy growth than subsidies). Policymakers should focus on identifying the lowest-cost policies that abate the most emissions rather than relying on uncertain, high-projected climate damages to justify inefficient, high-cost policies.