Climate policy targets revisited
Richard S J Tol 25 April 2014
The IPCC’s Fifth Assessment Report estimates lower costs of climate change and higher costs of abatement than the Stern Review. However, current UN negotiations focus on stabilising atmospheric concentrations of greenhouse gases at even lower levels than recommended by Stern. This column argues that, given realistic estimates of the rate at which people discount the future, the UN’s target is probably too stringent. Moreover, since real-world climate policy is far from the ideal of a uniform carbon price, the costs of emission reduction are likely to be much higher than the IPCC’s estimates.
The Stern Review of the Economics of Climate Change is the most famous economic assessment of climate policy (Stern et al. 2006). The Stern Review puts the costs of unmitigated climate change at 5–20% of GDP (now and forever), it estimates that the cost of stabilising atmospheric concentrations around 525 ppm CO2e are 1% of GDP (in 2050), and recommends that concentrations be stabilised around 500 ppm CO2e.1
climate change, emissions, externalities, greenhouse gases, pollution, carbon, cost-benefit analysis