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European Institute
on Economics
and the Environment
RFF
CMCC
Physical and Economic Risks of Climate Change
Laurent Drouet⋆
OECD Expert Workshop, 19 February 2024
⋆
RFF-CMCC EIEE European Institute on Economics and the Environment, Milan, Italy
CONTEXT
Source: IPCC AR6 WGIII Chap. 3 (2022)
Accounting for climate risks
• The majority of mitigation
pathways ignore climate benefits
from avoided geophysical and
economic impacts.
• e.g. the additional climate risk from
temperature overshoot.
1
CONTEXT
Source: IPCC AR6 WGIII Chap. 3 (2022)
Accounting for climate risks
• The majority of mitigation
pathways ignore climate benefits
from avoided geophysical and
economic impacts.
• e.g. the additional climate risk from
temperature overshoot.
Why?
• Lack of fully-fledged coupled
geophysical impacts in IAMs.
• High uncertainty surrounding
economic damages.
1
ECONOMIC IMPACT ESTIMATES
Source: IPCC AR6 WGII Chap. 16 (2022)
2
CLIMATE SENSITIVITY
Percentiles (MAGICC) Full distribution
3
ACCOUNTING FROM CLIMATE CHANGE DAMAGES
IAMPACT: a framework to systematically compute a variety of climate change impacts
and post-process the scenarios from the Integrated Assessment Models.
Geophysical impacts Economic impacts
• Fast, accounting for uncertainties (probabilistic assessment)
• Worldwide, at regional or country-level
• Based on existing literature and impact model outputs.
4
ACCOUNTING FROM CLIMATE CHANGE DAMAGES
We used this framework in 4 studies:
• Drouet et al. (2021) to compare the climate benefits from scenarios with and without
overshoot.
• Drouet, Bosetti & Tavoni (2022) to assess the net economic benefits of the IPCC
scenarios.
• ADB (2023) to assess the impacts of the net-zero transition for developing Asia.
• Rodés Bachs, Aleluia Reis, Drouet & Tavoni (under review) to compare the air
pollution benefits from scenarios with and without overshoot.
5
GEOPHYSICAL IMPACTS
15 Impact response functions (Arnell et al., 2019)
Agricultural drought frequency [% chance], duration [% of time]
Frost days [days/years], Heating Degree Days [◦
C]
(Major) Heatwave frequency [% chance], duration [days/years], Cooling degree days [◦
C]
Reduction in crop duration [days]: Maize, Rice, Soybean, Spring/Winter Wheat
Runoff increases, decreases [% of area]
6
IPCC AR6 CLIMATE SCENARIOS WITH AND WITHOUT OVERSHOOT
0.05°C
600 GtCO2
0.13°C
600 GtCO2
0.16°C
500 GtCO2
0.1°C
700 GtCO2
0.09°C
700 GtCO2
0.04°C
800 GtCO2
End of century
Net zero
POLES ENGAGE TIAM−ECN 1.1 WITCH 5.0
AIM/CGE V2.2 COFFEE 1.1 MESSAGEix−GLOBIOM_1.1
2025 2050 2075 2100 2025 2050 2075 2100 2025 2050 2075 2100
1.0
1.5
1.0
1.5
Global
mean
temperature
increase
[°C]
a)
End of century
Net zero
−20
0
20
40
2025 2050 2075 2100
CO2
emissions
[GtCO2]
b)
W
M
C
A
P
0
5
10
15
2025 2050 2075 2100
non−CO2
emissions
[GtCO2e]
End of century
Net zero
c)
Source: Drouet et al. (2021)
7
GEOPHYSICAL IMPACTS
Comparison of maximum impact until 2100
• Extra burden from overshoot (EOC > NZ)
• Larger differences observed at lower temperature
targets.
• Fatter tail associated with overshooting.
8
NET ECONOMIC BENEFITS OF MITIGATION PATHWAYS
A framework that computes the climate benefits of IAMs scenarios (Drouet et al., 2022).
9
RESULTS FOR BURKE ET AL. (2015)
Well-below 2◦C scenarios (IPCC SR 1.5◦C)
Share of scenarios with positive net benefits
Net present value (3% dr)
10
REGIONAL HETEROGENITY
2050 2100 2100
2◦
C
1.5◦
C
0 25 50 75 100
[%]
0 25 50 75 100
[%]
−10 0 10 20 30
[T$]
a. b.
Proportion of scenarios with positive net benefits Net benefits
11
RESULTS FOR MANY DAMAGE FUNCTIONS
1.5C 2C
−1000 0 1000 −1000 0 1000
DJO 0L RP
TAKAKURA
DICE
DJO 10L P
DJO 5L P
DJO 0L P
BHM LR P
PRETIS
HS NCAT
KW LVL
BHM SR RP
DJO 10L RP
ACEVODO
BHM LR L
BHM SR
DJO 5L RP
HS TOT
BHM LR RP
HENSELER
BT CNTRY
BHM LR
BT STATE
KW BHM
Net Present Value [Trillion USD2018]
Temperature
percentile
05
50
95
Damage function
growth−based
level−based
Statistics
5% 95%
50%
Parameters’ quality
All significant
Not all significant
12
THE COACCH DAMAGE FUNCTION
Source: van der Wijst et al. (2023)
13
AIR POLLUTION HEALTH AND ECONOMIC IMPLICATIONS
Health Impacts — 7 Formulations
• Premature deaths
Economic Damages from Air Pollution — 4 Formulations
• Economic growth impacts
• Human Capital Lost (HCL) (dependend on premature deaths)
• Value of Statistical Life (VSL) (dependend on premature deaths)
14
ACCOUNTING FOR AIR POLLUTION DAMAGES
AR6 climate scenarios
ACCOUNTING FOR AIR POLLUTION DAMAGES
AR6 climate scenarios
15
NET-ZERO EMISSION SCENARIOS ASSESSMENTS
Premature deaths estimates in 2030 Avoided damages estimates in 2030
16
OVERSHOOT RISK ASSESSMENT
Premature deaths estimates in 2030 Avoided damages estimates in 2030
with overshoot
without overshoot
17
SOME KEY TAKEAWAYS
• Incorporating climate benefits into models is challenging.
• Post-processing is a practical approach used in various studies.
• Probabilistic evaluation allows for risk assessment.
• The lack of feedback mechanisms is still an issue.
• Future advancements will enable the integration of geophysical and economic
impacts within IAMs.
• The COACCH damage function provides a way to represent the uncertainties
associated with economic damages.
18
Thank you!
laurent.drouet@cmcc.it
18
REFERENCES
• Drouet, Laurent, et al. (2021) Net zero-emission pathways reduce the physical and
economic risks of climate change. Nature Climate Change 11 (12), 1070–1076.
• Drouet, L., Bosetti, V. & Tavoni, M. (2022) Net economic benefits of well-below 2° C
scenarios and associated uncertainties. Oxford Open Climate Change 2,1.
• Emmerling, J., Aleluia Reis, L., Drouet, L., Raitzer, D., & Pradhananga, M. (2023).
Assessing the Implications of a Global Net-Zero Transition for Developing Asia:
Insights from Integrated Assessment Modeling. Asian Development Bank
Economics Working Paper Series, (709).
• Rodés-Bachs, C., Aleluia Reis, L., Drouet, L., Rafaj, P., & Tavoni M. (under review).
Beyond the Limit: The air pollution damages of overshooting temperature. Preprint on
reseachsquare.
• Van Der Wijst, Kaj-ivar, et al. (2023) New damage curves and multimodel analysis
suggest lower optimal temperature. Nature Climate Change 13,5: 434–441.

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Laurent Drouet - Physical and Economic Risks of Climate Change.pdf

  • 1. European Institute on Economics and the Environment RFF CMCC Physical and Economic Risks of Climate Change Laurent Drouet⋆ OECD Expert Workshop, 19 February 2024 ⋆ RFF-CMCC EIEE European Institute on Economics and the Environment, Milan, Italy
  • 2. CONTEXT Source: IPCC AR6 WGIII Chap. 3 (2022) Accounting for climate risks • The majority of mitigation pathways ignore climate benefits from avoided geophysical and economic impacts. • e.g. the additional climate risk from temperature overshoot. 1
  • 3. CONTEXT Source: IPCC AR6 WGIII Chap. 3 (2022) Accounting for climate risks • The majority of mitigation pathways ignore climate benefits from avoided geophysical and economic impacts. • e.g. the additional climate risk from temperature overshoot. Why? • Lack of fully-fledged coupled geophysical impacts in IAMs. • High uncertainty surrounding economic damages. 1
  • 4. ECONOMIC IMPACT ESTIMATES Source: IPCC AR6 WGII Chap. 16 (2022) 2
  • 6. ACCOUNTING FROM CLIMATE CHANGE DAMAGES IAMPACT: a framework to systematically compute a variety of climate change impacts and post-process the scenarios from the Integrated Assessment Models. Geophysical impacts Economic impacts • Fast, accounting for uncertainties (probabilistic assessment) • Worldwide, at regional or country-level • Based on existing literature and impact model outputs. 4
  • 7. ACCOUNTING FROM CLIMATE CHANGE DAMAGES We used this framework in 4 studies: • Drouet et al. (2021) to compare the climate benefits from scenarios with and without overshoot. • Drouet, Bosetti & Tavoni (2022) to assess the net economic benefits of the IPCC scenarios. • ADB (2023) to assess the impacts of the net-zero transition for developing Asia. • Rodés Bachs, Aleluia Reis, Drouet & Tavoni (under review) to compare the air pollution benefits from scenarios with and without overshoot. 5
  • 8. GEOPHYSICAL IMPACTS 15 Impact response functions (Arnell et al., 2019) Agricultural drought frequency [% chance], duration [% of time] Frost days [days/years], Heating Degree Days [◦ C] (Major) Heatwave frequency [% chance], duration [days/years], Cooling degree days [◦ C] Reduction in crop duration [days]: Maize, Rice, Soybean, Spring/Winter Wheat Runoff increases, decreases [% of area] 6
  • 9. IPCC AR6 CLIMATE SCENARIOS WITH AND WITHOUT OVERSHOOT 0.05°C 600 GtCO2 0.13°C 600 GtCO2 0.16°C 500 GtCO2 0.1°C 700 GtCO2 0.09°C 700 GtCO2 0.04°C 800 GtCO2 End of century Net zero POLES ENGAGE TIAM−ECN 1.1 WITCH 5.0 AIM/CGE V2.2 COFFEE 1.1 MESSAGEix−GLOBIOM_1.1 2025 2050 2075 2100 2025 2050 2075 2100 2025 2050 2075 2100 1.0 1.5 1.0 1.5 Global mean temperature increase [°C] a) End of century Net zero −20 0 20 40 2025 2050 2075 2100 CO2 emissions [GtCO2] b) W M C A P 0 5 10 15 2025 2050 2075 2100 non−CO2 emissions [GtCO2e] End of century Net zero c) Source: Drouet et al. (2021) 7
  • 10. GEOPHYSICAL IMPACTS Comparison of maximum impact until 2100 • Extra burden from overshoot (EOC > NZ) • Larger differences observed at lower temperature targets. • Fatter tail associated with overshooting. 8
  • 11. NET ECONOMIC BENEFITS OF MITIGATION PATHWAYS A framework that computes the climate benefits of IAMs scenarios (Drouet et al., 2022). 9
  • 12. RESULTS FOR BURKE ET AL. (2015) Well-below 2◦C scenarios (IPCC SR 1.5◦C) Share of scenarios with positive net benefits Net present value (3% dr) 10
  • 13. REGIONAL HETEROGENITY 2050 2100 2100 2◦ C 1.5◦ C 0 25 50 75 100 [%] 0 25 50 75 100 [%] −10 0 10 20 30 [T$] a. b. Proportion of scenarios with positive net benefits Net benefits 11
  • 14. RESULTS FOR MANY DAMAGE FUNCTIONS 1.5C 2C −1000 0 1000 −1000 0 1000 DJO 0L RP TAKAKURA DICE DJO 10L P DJO 5L P DJO 0L P BHM LR P PRETIS HS NCAT KW LVL BHM SR RP DJO 10L RP ACEVODO BHM LR L BHM SR DJO 5L RP HS TOT BHM LR RP HENSELER BT CNTRY BHM LR BT STATE KW BHM Net Present Value [Trillion USD2018] Temperature percentile 05 50 95 Damage function growth−based level−based Statistics 5% 95% 50% Parameters’ quality All significant Not all significant 12
  • 15. THE COACCH DAMAGE FUNCTION Source: van der Wijst et al. (2023) 13
  • 16. AIR POLLUTION HEALTH AND ECONOMIC IMPLICATIONS Health Impacts — 7 Formulations • Premature deaths Economic Damages from Air Pollution — 4 Formulations • Economic growth impacts • Human Capital Lost (HCL) (dependend on premature deaths) • Value of Statistical Life (VSL) (dependend on premature deaths) 14
  • 17. ACCOUNTING FOR AIR POLLUTION DAMAGES AR6 climate scenarios
  • 18. ACCOUNTING FOR AIR POLLUTION DAMAGES AR6 climate scenarios 15
  • 19. NET-ZERO EMISSION SCENARIOS ASSESSMENTS Premature deaths estimates in 2030 Avoided damages estimates in 2030 16
  • 20. OVERSHOOT RISK ASSESSMENT Premature deaths estimates in 2030 Avoided damages estimates in 2030 with overshoot without overshoot 17
  • 21. SOME KEY TAKEAWAYS • Incorporating climate benefits into models is challenging. • Post-processing is a practical approach used in various studies. • Probabilistic evaluation allows for risk assessment. • The lack of feedback mechanisms is still an issue. • Future advancements will enable the integration of geophysical and economic impacts within IAMs. • The COACCH damage function provides a way to represent the uncertainties associated with economic damages. 18
  • 23. REFERENCES • Drouet, Laurent, et al. (2021) Net zero-emission pathways reduce the physical and economic risks of climate change. Nature Climate Change 11 (12), 1070–1076. • Drouet, L., Bosetti, V. & Tavoni, M. (2022) Net economic benefits of well-below 2° C scenarios and associated uncertainties. Oxford Open Climate Change 2,1. • Emmerling, J., Aleluia Reis, L., Drouet, L., Raitzer, D., & Pradhananga, M. (2023). Assessing the Implications of a Global Net-Zero Transition for Developing Asia: Insights from Integrated Assessment Modeling. Asian Development Bank Economics Working Paper Series, (709). • Rodés-Bachs, C., Aleluia Reis, L., Drouet, L., Rafaj, P., & Tavoni M. (under review). Beyond the Limit: The air pollution damages of overshooting temperature. Preprint on reseachsquare. • Van Der Wijst, Kaj-ivar, et al. (2023) New damage curves and multimodel analysis suggest lower optimal temperature. Nature Climate Change 13,5: 434–441.