Quantifying the economic risks of climate change


Understanding the value of reducing greenhouse-gas emissions matters for policy decisions and climate risk management, but quantification is challenging because of the complex interactions and uncertainties in the Earth and human systems, as well as normative ethical considerations. Current modelling approaches use damage functions to parameterize a simplified relationship between climate variables, such as temperature change, and economic losses. Here we review and synthesize the limitations of these damage functions and describe how incorporating impacts, adaptation and vulnerability research advances and empirical findings could substantially improve damage modelling and the robustness of social cost of carbon values produced. We discuss the opportunities and challenges associated with integrating these research advances into cost–benefit integrated assessment models, with guidance for future work.

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Figure 1: Schematic representation of the complex series of physical and socioeconomic processes and relationships encompassed by a damage function.
Figure 2: Damage estimates projected by the DICE, FUND and PAGE models at different levels of temperature change, corresponding to 2100 socioeconomics.


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A portion of this research was supported by the National Academies of Sciences, Engineering, and Medicine and the Electric Power Research Institute (EPRI) as part of an ancillary literature review of climate impacts and damages conducted as background to Chapter 5 of ref. 6. That work benefited from discussions with committee members M. Auffhammer and S. Rose. F.C.M. acknowledges support from US Department of Agriculture NIFA grant 2016-098. The views expressed in this paper are those of the individual authors and do not necessarily reflect those of a government agency, EPRI or its members.

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D.B.D. and F.C.M. designed and wrote the manuscript. F.C.M. produced Fig. 1. D.B.D. performed the analysis and produced Fig. 2.

Correspondence to Delavane Diaz.

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Diaz, D., Moore, F. Quantifying the economic risks of climate change. Nature Clim Change 7, 774–782 (2017). https://doi.org/10.1038/nclimate3411

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