KEY MESSAGES

The monetary cost of climate change is now expected to be higher than many earlier studies suggested, because these studies tended not to include some of the most uncertain but potentially most damaging impacts.

Modelling the overall impact of climate change is a formidable challenge, involving forecasting over a century or more as the effects appear with long lags and are very longlived. The limitations to our ability to model over such a time scale demand caution in interpreting results, but projections can illustrate the risks involved – and policy here is about the economics of risk and uncertainty.

Most formal modelling has used as a starting point 2–3°C warming. In this temperature range, the cost of climate change could be equivalent to around a 0–3% loss in global GDP from what could have been achieved in a world without climate change. Poor countries will suffer higher costs.

However, ‘business as usual’ (BAU) temperature increases may exceed 2–3°C by the end of this century. This increases the likelihood of a wider range of impacts than previously considered, more difficult to quantify, such as abrupt and large-scale climate change. With 5–6°C warming, models that include the risk of abrupt and large-scale climate change estimate a 5–10% loss in global GDP, with poor countries suffering costs in excess of 10%. The risks, however, cover a very broad range and involve the possibility of much higher losses. This underlines the importance of revisiting past estimates.