Lecture on total impact of climate change and marginal impact of carbon dioxide emissions. Covers Chapter 6 of Climate Economics textbook.

1. Economic impacts
• The problem
– Sources
– Mechanisms
– Possible futures
– Consequences
• The solution

2. Year
GlobalmeanwarmingoC
I Risks to Unique and Threatened Systems
II Risks from Extreme Climate Events
III Distribution of Impacts
IV Aggregate Impacts
V Risks from Future Large-Scale DiscontinuitiesSource: IPCC 2001

3. -25.0
-22.5
-20.0
-17.5
-15.0
-12.5
-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5
Welfare-equivalentincomechange(inpercent)
Global warming (in degrees centrigrade)

4. Methods
• Enumerative method
– Quantify impact, estimate price, add up
• Computable general equilibrium
– Quantify impact, shock model, estimate welfare
change
• Statistical method
– Estimate relationship between activity and
climate over space, assume it holds over time
– Estimate relationship between well-being and
climate
• Elicitation method
– Ask experts

5. -25.0
-22.5
-20.0
-17.5
-15.0
-12.5
-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5
Welfare-equivalentincomechange(inpercent)
Global warming (in degrees centrigrade)

6. Caveats
• Incomplete assessment
• Interactions between impacts
• Stylised adaptation
• Low probability, high impact
• Indirect impacts
• Large-scale changes

7. -25.0
-22.5
-20.0
-17.5
-15.0
-12.5
-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5
Welfare-equivalentincomechange(inpercent)
Global warming (in degrees centrigrade)

8. Marginal Damage Costs
• The marginal damage cost is the damage
done by an additional tonne of CO2 emitted
• It is the change in the net present value of
the monetised impacts, normalised by the
change in emissions
• The marginal damage cost is the Pigou tax –
it says how much we should spend on
climate policy, by how much we should raise
energy prices
• It is a normative concept; it tells us what
to do, given our values

10. The marginal damage costs of carbon dioxide emissions.
all 3% 1% 0% SCC Pigou
mode 91 27 87 240 31 24
median 310 35 156 471 43 30
mean 422 40 208 590 50 34
st dev 688 36 285 685 38 32
skewness 2 1 2 2 1 1
kurtosis 13 4 8 11 4 5

13. Economic Impact
• Discussed impacts of climate change
on welfare
• Benefit of climate policy is the
avoided impact
• Uncertain, many assumptions
• Mix of normative and positive
elements