Ohio State University Extension Fact Sheet

Ohio State University Extension

Agricultural Economics

2120 Fyffe Rd., Columbus, Ohio 43210


Climate Change: Science, Policy, and Economics

AE-3-98

Brent Sohngen

Introduction

The scientific concern about global climate change arises from the buildup of greenhouse gases in our atmosphere. Although there are several different greenhouse gases (i.e., carbon dioxide, methane, and CFC's), most scientists and policymakers focus on carbon dioxide as it captures the largest portion of human emissions. Concern about climate change focuses on human activities, because these activities are suspected to have caused the large increase in atmospheric greenhouse gas concentrations since pre-industrial times, and they are predicted to cause continued increases in the future. The actual size of the predicted increase depends on the particular scenario of changes in population, income, and technology. For a general description of the issue of climate change, see Ohio State University Extension Fact Sheet "Global Climate Change," 1996, by Thomas W. Blaine (CDFS-186-96).

The effect of human industrial activity on carbon dioxide concentration in the atmosphere is shown graphically in Figure 1. Pre-industrial concentrations of carbon dioxide are given as 280 parts per million volume (ppmv). Actual concentrations are shown to rise from 280 ppmv to 354 ppmv between 1860 and 1990. Without strict reductions in carbon dioxide emissions, concentrations are predicted to increase in the future. Scientists suspect that fossil fuel burning, deforestation, and other human activities have caused the increase since pre-industrial times.

CO2 in atmosphere, premindustrial
Figure 1. Pre-industrial, actual and predicted future actual
concentrations of carbon dioxide in the atmosphere

The possibility of climate change arises from the scientific concern that higher carbon dioxide concentrations will change future climate. In the popular and scientific literature, this has been referred to as global warming, or the greenhouse effect. Given that carbon dioxide and other greenhouse gases moderate the current climate, the concern is that higher levels of carbon dioxide will change future climate, possibly making it warmer.

Within both the popular press and scientific literature, the prediction of a changing climate has been linked to the prediction of a changing global environment. Some of the more drastic predictions of environmental change include large-scale forest dieback, sea level rise, altered agricultural productivity (higher or lower, depending on the region), and other impacts. If these impacts occur, they are likely to have both social and economic consequences. If it gets warmer, for example, air conditioning bills may increase more rapidly than heating bills decline. Or, if climate changes too rapidly for forests to adjust, future timber supplies may be lower, leading to higher prices. Given the potential size and nature of these impacts, it is important to understand the science behind them and the level of uncertainty associated with each. In addition, because climate change has become a policy issue that is being discussed in terms of possible global treaties, it is important to understand the relationship between the science and the policy.

Climate change science and policy involves many questions. The scientific-policy links are shown graphically in Figure 2. Each box represents a piece of the science-policy system. In the first four boxes, physical scientists attempt to determine the relationship between carbon dioxide concentrations in the atmosphere and climate. These scientists develop extensive models to predict future climates based on predicted future carbon dioxide concentrations.

climate change
Figure 2. Links between scientific inquiry and policy analysis
in understanding the climate change question

The fifth box represents the work of natural scientists, who assess how a changing climate will affect natural systems. The question they are asking is: given the climate change predictions, how will the Earth's environment change? The sixth box captures the response of social and economic systems to the impacts of potential climate change, i.e., what are the social and economic consequences. Policy enters Figure 2 because there is feedback between the social and economic consequences and human activity. If predicted damages are large enough, society may decide to reduce carbon dioxide emissions today. These emissions can only be reduced by altering human activity.

This fact sheet builds upon the earlier fact sheet by Thomas Blaine (CDFS-186-96) by providing additional background on the current state of the science, policy, and economics of climate change. It begins with a look at the physical science, and then discusses potential impacts and potential economic damages. The fact sheet is designed to separate what is currently recognized as fact and hypothesis. Despite what is reported in the literature, climate researchers have been pretty clear on this issue.

Physical Science

The physical science components of climate change questions are shown in boxes 1-4 in Figure 2. The global scientific community has attempted to assess the state of science on climate change through the Intergovernmental Panel on Climate Change (IPCC). The IPCC involves scientists from around the world who have thoroughly assessed the literature to determine what conclusions can be drawn from evidence and what conclusions are still uncertain. The IPCC is part of the United Nations, and its mission is to periodically assess what we know and do not know about climate change. More information on this process can be found at the website http://www.unep.ch/iuc/.

The IPCC recently published a three-volume report on climate change. This section draws heavily on the results of Working Group I (Intergovernmental Panel on Climate Change, 1996a) which assessed the state of the science. Table 1 presents a set of "facts" known about the physical components of climate change.

The evidence presented in Table 1 leads the IPCC to make the following statement: "The balance of evidence suggests a discernible human influence on global climate." The language in this statement is careful; it does not suggest a new set of physical principals. It does suggest, however, that evidence in the scientific literature is moving towards the conclusion that human activity is increasing carbon dioxide in the atmosphere, and that this increase is having an influence on global climate.

Table 1. Results of the assessment of climate change science

Of particular note, however, is that scientists did not conclude that climate change was leading to increased climate variability. Although some indicators suggest greater variability, many indicate less variability. There is not a conclusive link between climate change and larger storms, or more frequent tornadoes or hurricanes.

Stating that humans are influencing climate now and predicting the path of climate change in the future are two entirely different propositions. The future will depend on many things, such as future carbon dioxide emissions and feedback loops with carbon sinks (such as oceans and forests). Another strand of physical research has focused on modeling future climate change based on predictions of higher carbon dioxide concentrations. These models are called Global Circulation Models, or GCM's.

There are three problems with the current state of GCM's. First, the global carbon cycle and atmospheric chemistry are very complex and not completely understood. Without understanding these complexities more thoroughly, it is difficult to develop models that are accurate. A good example focuses on earlier GCM models. They could not predict the current climate very well in the 1980s because the effect of cooling gases, such as sulfur dioxide, in the atmosphere was not well understood at the time. The effects of sulfur dioxide are now better understood, and this knowledge has allowed GCM's to become more proficient at explaining the current climate.

Second, the models are based on future predictions of sources and sinks of carbon dioxide, which are also uncertain. "Sources" refer to those entities that emit carbon dioxide into the atmosphere, such as fossil fuel burners. "Sinks" refer to those entities that remove carbon dioxide from the atmosphere, such as forest growth. These sources and sinks are shown in Table 2, with current estimates of the size of carbon sources and sinks in Petagrams and percentages. A Petagram is 1015 grams. To see why future sources and sinks are uncertain, consider the example of fossil fuel burning. There are good estimates of how much fossil fuel is burned today, but future predictions of fossil fuel burning rely on future population, technology, and income. Because the future level of these variables is uncertain, scientists have an incomplete knowledge of how much fossil fuel will be used in the future. This relates to Figure 1 in that the predicted path of carbon dioxide emissions in the future is uncertain at best.

Table 2. Sources and Sinks of Carbon Dioxide in the atmosphere and estimates of size
Petagrams
(1015 grams)
Percentage of Total
Sources or Sinks
Sources
 Fossil Fuel Use5.577%
 Tropical Deforestation1.623%
 Total Source7.1100%
Sinks
 Atmospheric Storage3.357%
 Ocean Uptake2.035%
 Northern Forest Regrowth0.58%
 Total Sink5.8100%
Net Annual Emission1.3-

Third, feedbacks between sources and sinks are not well understood. For example, it is well established that plants need carbon dioxide to grow, but we do not know whether increased carbon dioxide concentrations will increase plant growth rates in the future. If forests do sequester more carbon dioxide, forests will help reduce the concentration in the atmosphere. However, sequestration of carbon in forests depends on the area of forests, which in turn depends on the demand for food and forest products, which is dependent on future population, income, and technology, all of which are uncertain.

Despite these difficulties, the IPCC presents "best" estimates of future climate change (Table 3). These estimates are derived by considering average results from different GCM's. It is important to understand the difference between Tables 1 and 3. Table 1 provides evidence that is supported with historical data. These are fairly well established within the literature, although they are by no means agreed upon by all scientists. Table 3 presents model results, which are predictions that cannot and should not be construed as scientific fact.

Table 3. "Best" guesses of potential future climate change based on climate models

Climate Impacts

In addition to those studying climate systems, many scientists are investigating how climate change may affect natural systems. These scientists use the climate models as their beginning point. With climate model results, predictions of impacts in natural systems can be made. Because these impacts are based on the GCM models, it is important to understand that these impacts contain all of the uncertainty in the climate predictions discussed above, plus the uncertainty in the models used to predict changes in natural systems.

Some of the predicted impacts that have been discussed in the scientific literature are listed in Table 4. These impacts are derived from the IPCC Working Group II report, titled "Scientific-Technical Analysis of Impacts, Adaptations, and Mitigation of Climate Change" (IPCC, 1996b). It is important to note that Table 4 provides only a partial list of the potential impacts suggested by modelers. There is considerable debate in the literature surrounding both the possibility of these impacts, and their scale.

Table 4. Partial list of potential impacts of climate change on selected natural systems
System Potential Impacts Cited in the Scientific Literature
Forests
  • Altered growth and regeneration capacity
  • Increased disturbance patterns (fires, pests, pathogens, etc.)
  • Poleward shift of temperate species
Coasts/Oceans
  • Altered tidal range due to sea level rise
  • Altered temperature regimes
  • Changes in sediment and nutrient transport
Freshwater resources
  • Precipitation level depends on regional patterns of climate change
  • Precipitation levels will affect: Surface and groundwater supply for drinking, industrial use, irrigating, hydropower, navigation, and aquatic ecosystems
Food and Fiber
  • Productivity changes depend on regional patterns of climate change
  • Adaptation is important, depending on economic and ecologic constraints
  • Forest production will depend on forest impacts above and adaptation
  • Global fishery production is not expected to change dramatically
Human Infrastructure
  • Sea level rise may cause substantial changes in coastal areas
Human Health
  • Mortality and illness due to intensity and duration of heat waves
  • Increased exposure to certain infectious diseases (malaria, dengue, etc.)
  • Respiratory disorders due to climate interactions with pollutants

For example, one of the most contentious debates surrounds the concept of carbon fertilization. Because plants utilize carbon to grow, the carbon fertilization hypothesis suggests that additional carbon in the atmosphere could lead to higher plant growth rates. While some scientists argue that additional carbon will lead to carbon fertilization, others argue that it will have little or no effect. One argument these scientists point to is that plant growth is typically limited by one or another factor. Thus, if nitrogen is limited, additional carbon dioxide may have little impact on plant growth. Over time, these debates will be clarified by scientists, but for now they remain substantial.

Economic Analysis

Economists have assessed two components of climate policy. First, they have attempted to determine the value of damages that may arise from predicted natural science impacts. Second, they have estimated the costs of alternative options for reducing carbon dioxide emissions.

For market economic systems such as the United States, economic damages should be assessed because we first must ask the question, "even if climate change occurs, should we do anything about it?" One way to answer this question is to develop a cost-benefit analysis for climate change. Cost-benefit analysis involves estimating economic benefits of avoiding future damages from climate change and comparing those to the current costs of avoiding it.

Estimates of the range of damages caused by climate change have been developed by a host of economists. One economist, for example, suggests that each 3-degree rise in temperature will lead to a 1.33 percent loss in Gross Domestic Product (GDP; Nordhaus, 1993). In dollar terms, predictions of damages range from $5 to $125 per ton of carbon emitted (IPCC, 1996c). These damages contain all of the uncertainty discussed above, plus additional uncertainty contained in economic models themselves. Furthermore, the damages may be highly site specific. For example, developed economies may be able to adjust and adapt to climate change relatively easily, while developing economies may be less able to adjust. More recent evidence from the United States suggests that this country will not experience large damages from climate change, and even may benefit in some sectors (Mendelsohn and Neumann, 1998).

Estimates of the costs of reducing carbon dioxide emissions are also variable. Some of the options suggested for avoiding climate change are listed in Table 5. To provide an idea of the variability of these costs, two marginal cost curves from the literature are shown in Figure 3. These cost curves show the cost per ton of carbon dioxide emissions avoided for different levels of greenhouse gas (GHG) emissions. Both figures show that as carbon dioxide emissions are reduced more and more, it becomes increasingly costly. The estimates by Lovins and Lovins (1991) suggest that we could reduce up to 40 percent of our carbon dioxide emissions cheaply, or even for free. However, the estimates by Nordhaus (1991), suggest that the costs of reducing even the first few percentage points of carbon dioxide emissions are fairly substantial.

Table 5. Alternative options for reducing carbon dioxide emissions

Greenhouse gas emissions
Figure 3. Marginal cost curves for different percentage
reductions in annual greenhouse gas emissions

Putting the economic damages and costs of avoiding climate change together, economists have estimated the effect of reducing carbon dioxide emissions on GDP. Because such a large percentage of global emissions arises from burning fossil fuels, and fossil fuels provide energy for economic growth, these estimates provide a link between policies that target fossil fuel emission reductions (such as those listed in Table 5) and economic activity. Studies that consider stabilizing carbon dioxide emissions at 1990 levels indicate that the annual costs in developed countries range from - 0.5 percent of GDP to 2.0 percent of GDP. Thus, stabilizing greenhouse gases could lead to an economic gain of $60 billion or a loss as great as $240 billion per year. The costs for developing countries are harder to estimate and therefore are not presented here.

Conclusion

While science has recently concluded that human activity is influencing current climate, there is much less certainty about future climate change and its impacts. The uncertainty results in part from the fact that the models used to predict future climates are based on atmospheric science that is still evolving, and also from uncertain estimates of the growth rate in carbon dioxide emissions and uncertain estimates of the size of carbon sinks (i.e., forests and oceans) and potential feedback loops. Not only is the future path of climate change uncertain, but the impact on natural systems contains uncertainty of its own. Economic estimates of damages and costs contain their own uncertainty, but they also provide likely bounds for the extent of the economic damages and costs.

Despite the uncertainty, climate change policy is being developed. Governments around the world are reacting to the perceived threat with policies that may affect each of us. These policies may include large reductions in fossil fuel dependence, given that such a large portion of carbon dioxide in the atmosphere is predicted to arise from human emissions.

This paper has attempted to provide some background on the science and policy of climate change. It is intended only as a first step to understanding all of the issues surrounding this global debate. Additional information can be obtained by consulting the references or contacting the author. In addition, Table 6 presents several World Wide Web sites with information related to climate change. This list of sites is not all-inclusive, but many of them contain links to other sites as well.

Table 6. Links to World Wide Web sites that contain additional information on climate change

References

Intergovernmental Panel on Climate Change. 1996a. Report of Working Group I: The Science of Climate Change. Cambridge: Cambridge University Press.

Intergovernmental Panel on Climate Change. 1996b. Report of Working Group II: Scientific-Technical Analysis of Impacts, Adaptations, and Mitigation of Climate Change. Cambridge: Cambridge University Press.

Intergovernmental Panel on Climate Change. 1996c. Report of Working Group III: The Economic and Social Dimensions of Climate Change. Cambridge: Cambridge University Press.

Lovins, A. B. and L. H. Lovins. 1991. Least Cost Climatic Stabilization. Annual Review of Energy and the Environment. 16:433-501.

Mendelsohn, Robert, and James Neumann. 1998. The Market Impact of Climate Change on the US Economy. Cambridge: Cambridge University Press.

Nordhaus, William D. 1993. Rolling the 'Dice': An Optimal Transition Path for Controlling Greenhouse Gases. Resource and Energy Economics. 15:27-50.

Nordhaus, William D. 1991. The Cost of Slowing Climate Change: A Survey. The Energy Journal. 12(1): 37-65.


All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status.

Keith L. Smith, Associate Vice President for Ag. Adm. and Director, OSU Extension.

TDD No. 800-589-8292 (Ohio only) or 614-292-1868



| Ohioline | Search | Fact Sheets | Bulletins |