Economists have made major efforts to include these uncertainties in their models. However, other uncertainties have proven much more resistant. The first is a set of threats from climate change to the “world’s cultural and natural treasures” (to cite the words of the UNESCO World Heritage Convention), among them major glaciers, marine and terrestrial biodiversity, archaeological sites, and historical cities and settlements. For example, with respect to sea-level rise, there are major threats to the cities of London and Venice and to several low-lying coastal ecosystems.g Ecologists and economists have been unable to find reliable ways of incorporating these threats into economic models.
A second and even more dangerous uncertainty is caused by “tipping points” in the earth system. Among the global-scale tipping points identified by earth scientists are the collapse of large ice sheets in Greenland and Antarctica, changes in ocean circulation, feedback processes by which warming triggers more warming, and the acidification of the ocean.h
The thrust of CHL’s argument is that the uncertainties are likely to resolve in favor of inaction rather than strong action to slow climate change policies, and in any case, they argue, policies are unimportant given the size of the uncertainties.
Are the uncertainties likely to be resolved in favor of inaction? Of course, if we knew the answer, we would not be uncertain. However, the economic models have attempted to reflect the state of scientific knowledge and uncertainty as it is reflected in the best unbiased assessments. In the one area that has been around long enough to judge—the impact on climate of rising concentrations of CO2—the interesting finding is that assessments of the uncertainties have changed little since the first major review in 1979.
However, the major problem with the conclusions of CHL is that they ignore the perils of the climate-change uncertainties. To illustrate, think of the issues as if we are playing roulette in a Climate Casino. Each time the roulette wheel stops, we resolve one of the uncertainties. Our best guess is that CO2 doubling will increase temperatures by 3°C, but if the ball lands on black it will be 2°C while a ball on red will produce 4°C. Similarly, a ball in a black pocket will lead to minimal damages from a certain amount of warming, while a ball in a red pocket will lead to much larger warming than we anticipate. On the next spin, a ball in the black will produce low growth and slow growth in emissions, while a ball in the red will produce rapid growth in CO2 emissions. And so forth.
But, in the Climate Casino, the ball also might land on zero or double-zero. If it lands on zero, we find significant loss of species, ecosystems, and cultural landmarks like Venice. If it lands on double-zero, we find an unanticipated shift in the earth’s climate system, such as a rapid disintegration of the West Antarctic Ice Sheet.
CHL suggest in effect that the ball will always land in the black pocket. We might hope that all the balls land to our advantage on black, but the odds of that outcome on five spins of the wheel are only 1 in 50.i Moreover, when the different uncertainties interact, the outcomes are likely to be even more costly because of nonlinearities in the physical system. For example, assume that the climate uncertainties are larger than we thought and that the impacts were much more damaging than we projected. This would lead to disproportionately larger damages than in the “best-guess” case.
The point is that CHL have the impact of uncertainty exactly backward. A sensible policy would pay a premium to avoid the roulette wheel in a Climate Casino. This means that the economic model estimates of the cost of doing nothing for fifty years are understated because they cannot incorporate all the uncertainties—not just the obvious ones such as climate sensitivity but also the zero and double-zero uncertainties such as tipping points, including ones that are yet undiscovered.
