Climate Economics: The State of the Art

Cross-posted from Triple Crisis. Climate science paints an ever-more-detailed picture: irreversible, catastrophic events are becoming increasingly likely as greenhouse gas emissions continue to rise. Climate economics, particularly in its policy applications, lags behind: leading models and analyses frequently ignore the extreme risks and the intergenerational aspect of the problem - and rely on simplistic and dated interpretations of the underlying science. Yet the state of the art has progressed rapidly, in the research literature on climate economics as well as science. To address this problem, Liz Stanton and I wrote Climate Economics: The State of the Art, which has just been published by Routledge. Our book grew out of a request from the World Wildlife Fund for an update on climate economics since the Stern Review. In that 2006 review, commissioned by the British government, Nicholas Stern argued persuasively for a new approach to the economics of climate change, emphasizing arguments for a very low discount rate and a focus on catastrophic risks. As we explain, both science and economics have continued to advance since Stern's path-breaking work. After a review of "climate science for economists," we examine three major areas: the treatment of climate damages in economics; new developments in economic theory; and the economics of mitigation and adaptation. Here are a few highlights from our book: Recent studies suggest that peak temperatures, once reached, will persist for centuries, if not millenia. Mitigation scenarios have often assumed that the world can "overshoot" a target such as 2°C of warming and then come back to it through later emission reductions; since this option is not available, much more stringent reductions are needed for climate stabilization.