ABARE on the costs of climate change
I’ve been reading the latest ABARE report on climate change, kindly sent to me by my colleague Renuka Mahadevan . While there are some problems with the analysis and even more with the way it’s been reported, the central findings are strikingly consistent with estimates I’ve made about the costs of stabilsing global CO2 levels, most recently here
All the evidence, though, is that we can reduce emissions to levels consistent with stabilising global CO2 levels over the next few decades at a cost of around 5 per cent of GDP – a few years worth of economic growth at the most. Quite possibly, as in previous cases, this wll turn out to be an overestimate.
ABARE studies a number of scenarios in which global CO2 levels are stabilised at 575 parts per million in 2100 and reports the estimated reduction in global product at 2050, which ranges from 1.7 per cent to 4.3 per cent, or from a bit under 1 years per capita growth to a bit over 2 years. That is, in the worst-case scenario (which is somewhat problematic in modelling terms, I think), the living standards in 2150 will be those that would have been reached in 2048 under the base projection.
ABARE is not known for lowballing the estimated costs of mitigating climate change, but if you’re going to do a credible modelling exercise, it’s inevitable that numbers of this magnitude will emerge. This simply reflects the fact that carbon-based fuels make up only a modest proportion of the value of total output, and that the demand for carbon (or more precisely C02) emissions is bound to be at least moderately elastic in the long run.