Environmental tipping points significantly affect the cost−benefit assessment of climate policies

Abstract

Most current cost−benefit analyses of climate change policies suggest an optimal global climate policy that is significantly less stringent than the level required to meet the internationally agreed 2°C target. This is partly because the sum of estimated economic damage of climate change across various sectors, such as energy use and changes in agricultural production, results in only a small economic loss or even a small economic gain in the gross world product under predicted levels of climate change. However, those cost−benefit analyses rarely take account of environmental tipping points leading to abrupt and irreversible impacts on market and nonmarket goods and services, including those provided by the climate and by ecosystems. Here we show that including environmental tipping point impacts in a stochastic dynamic integrated assessment model profoundly alters cost−benefit assessment of global climate policy. The risk of a tipping point, even if it only has nonmarket impacts, could substantially increase the present optimal carbon tax. For example, a risk of only 5% loss in nonmarket goods that occurs with a 5% annual probability at 4°C increase of the global surface temperature causes an immediate two-thirds increase in optimal carbon tax. If the tipping point also has a 5% impact on market goods, the optimal carbon tax increases by more than a factor of 3. Hence existing cost−benefit assessments of global climate policy may be significantly underestimating the needs for controlling climate change.climate change | tipping point | ecosystem | carbon tax | relative price effect

Climate change induced socio-economic tipping points: review and stakeholder consultation for policy relevant research

“…To illustrate the last point, consider the potential impacts of accounting for SETPs in cost-benefit-analysis (CBA), a common tool for guiding climate policy (Tol 2003). Accounting for climate tipping points may significantly alter CBA because the extra economic damage justifies more radical mitigation policies, such as a higher carbon tax reflecting the higher social cost of carbon (Lenton and Ciscar 2013, Cai et al 2015, Van Der Ploeg 2016. Similarly, any additional damage from passing impact SETPs increases the costs of inaction, making mitigation measures more cost-effective.…”

Carbon Prices for The Next Hundred Years

“…If the Greenland icesheet becomes unstable, it may still take centuries for the sea level to rise. For rich tipping-point dynamics, see Cai et al (2015a). 17 The property of a persistent hazard rate marks an important distinction between this approach and the threshold model, where such persistent hazard rate is impossible.…”

“…In their model, the expected global warming path leads to a hazard rate that increases over time, from about 0.25% to 1% per year, and a cumulative probability of about 50% for such major event by 2200. Cai et al (2013Cai et al ( , 2015a also deploy a statedependent process, but they also assume a 1 K global warming threshold, below which the climate system is stable. Above 1 K, the climate system can shift into a bad state, with the hazard rate increasing proportionally with the global temperature anomaly.…”

“…Cai et al . (, ) also deploy a state‐dependent process, but they also assume a 1 K global warming threshold, below which the climate system is stable. Above 1 K, the climate system can shift into a bad state, with the hazard rate increasing proportionally with the global temperature anomaly.…”

Complementing CO<sub>2</sub> emission reduction by solar radiation management might strongly enhance future welfare

“…The potential benefits of SRM are obvious: a reduction of global warming and warming-induced damages and a reduced transition likelihood of temperature-related climate tipping points (Cai et al, 2016). However, SRM cannot avert all climate change .…”