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How Will Climate Change Affect World Income?

Contributed by Robert Lyman © 2022. Robert Lyman’s bio can be read here.

Understanding climate change and how it may affect people in future is complicated. It is so complicated that writers of news stories often get away with writing scary stories about the awful things that “will” happen, rather than truthfully describing what the “experts” say might happen. This article will try to explain in simple, easy-to-understand words what the most recent research shows may be the effects of climate change on the world’s economy, meaning the incomes that people will have to live on by the year 2100.

First, a warning. Nobody knows what will happen in future. The best that anyone can do is to guess. So don’t trust anyone who tells you that such-and-such a catastrophe or such-and-such a perfect outcome will happen fifty or more years from now. They are lying. The best that anyone can do is to assemble what the best current studies show are the relationships between natural and human influences on the climate; the comparative influences of different economic, scientific and population trends; and the range of possibilities about how these things may change in future. “Experts” of whom there are tens of thousands, then compete with one another to convert these possibilities into numbers and feed the numbers into models that can be run on computers – dozens of models running on thousands of computers.

Part of this guessing process is to experiment with different possibilities, packaged together as “scenarios”. A scenario is just an elaborate set of guesses about what might actually happen. The outcomes of the model calculations are then compared and boiled down into a summary by various organizations. Some of these organizations have a political agenda, meaning that they have self-serving reasons for making the model outcomes sound really bad or really good.

Actually, the “experts” often run two different kinds of model-based studies, one that attempts to estimate how the global climate and temperatures will change in the future (i.e. in 2100 and beyond) and one that attempts to estimate how the world economy will change in response to these climatic and temperature trends.

The Intergovernmental Panel on Climate Change (IPCC) is an international organization that coordinates and uses much of this analysis. Based on its work, some twenty published estimates indicated that, with a projected increase of average global temperatures of three degrees Celsius by 2100 [over pre-industrial temperatures of 1860, we are presently at 0.8-1.1 C above pre-industrial temperatures], there would be a reduction in the global economy by 2100 of 3 per cent or less.

This means that, without the projected climate change, global incomes would likely increase by about 80% (the rate of increase varying considerably by country), whereas with climate change the increase in incomes would be about 77%. In other words, the IPCC report said that the economic impact of human-induced climate change, based on its models, is not totally unimportant, but quite small. That, of course, is not how it was reported in the media. The media instead focused on the IPCC’s worst case scenario, which shows average global temperatures rising by 7 degrees C. or more. That scenario includes an unprecedented increase in coal consumption and an increase in the global population to about 12 billion people, both of which are regarded by most “experts” as highly implausible. The mainstream media and many academics have treated the worst case scenario as though it were the most likely scenario. By definition, it is not.

Under the worst case scenario, people tend to focus entirely on the potentially adverse climate effects. Ross McKitrick, a prominent Canadian economist, has pointed out that the economic effects are even more striking. Under this scenario, people in developing countries will be 70 times richer around 2100 than they are today – their average yearly income would rise to $70,000. The reason is that global investment in technological change and economic improvement could make everyone financially far better off.

The worst case scenario is known as RCP 8.5. Roger Pielke, Jr. reports that the recent IPCC AR6 Working Group I (physical sciences) report sees this as a low likelihood. https://rogerpielkejr.substack.com/p/how-to-understand-the-new-ipcc-report

If McKitrick is right, by 2010 every development problem known to humanity will be solved. Deaths from malaria, diarrhea, dengue fever and other tropical diseases will be eliminated. With higher incomes would come much increased abilities to deal with all environmental problems either by reducing pollution or by adapting to minimize the unavoidable effects. This is exactly what happened in North America over the period 1900 to 2008.

More recent studies have used a different model, called the “FUND” model, to assess the economic effects of climate change. An important feature of this model is that its takes greater account of the potential beneficial effects on the world economy (and especially on agriculture) of the carbon dioxide fertilization effects on plant growth. On a global basis, FUND projects that a 3 degrees C. temperature rise would reduce wealth (i.e. income by 2100) by 1.59% considering only the energy costs associated with space heating and cooling. Even more recent studies, based on empirical studies of the actual effects of increased carbon dioxide concentrations in the atmosphere, have shown that the beneficial effects of carbon dioxide fertilization are even higher and any adverse economic effects lower.

What about the costs of reducing emissions? From 2010 to 2018, governments spent $3.7 trillion to reduce emissions. The International Energy Agency estimates that the costs to attain “Net-Zero” emissions by 2050 will be about $40 trillion. Others who have examined just the costs to completely eliminate electricity generation by coal and natural gas in the United States estimate this could be over $400 trillion. Again, no one knows for sure, but the number is very large. Similarly, and contrary to what most people read, the likely adverse effects of increasing carbon dioxide concentrations in the atmosphere remain largely unknown and difficult to quantify.

What is clear is that the costs of current plans to virtually eliminate emissions in the wealthier countries will be immense. Yet the benefits, both in environmental and economic terms, are still highly debatable. There is even a chance that the world may actually be better off with higher carbon dioxide concentrations than with lower ones. Remember this the next time someone says that the “climate crisis” demands that we sacrifice our living standards today.

1 Comment

  1. Fran Manns

    Arrhenius wrote two papers (1896, 1906). The first is quoted by alarmists and the second, a toned-down partial retraction, is forgotten. He estimated global temperature as 14.7 C in the 1906 paper. This is interesting because NASA now states global T as ~ 15 C. Is this evidence that global warming is ‘de minimis’ or was Arrhenius mistaken?

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