The Damage Costs of Climate Change -- Towards More Comprehensive Calculations

Tol, Richard (1995) The Damage Costs of Climate Change -- Towards More Comprehensive Calculations. Environmental and Resource Economics (5). pp. 353-374. ISSN 0924-6460

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It is argued that estimating the damage costs of a certain benchmark climate change is not sufficient. What is needed are cost functions and confidence intervals. Although these
are contained in the integrated models and their technical manuals, this paper brings them into the open in order to stimulate discussion. After briefly reviewing the benchmark climate change damage costs, region-specific cost functions are presented which distinguish tangible from intangible losses and the losses due to a changing climate from those due to a changed climate.
Furthermore, cost functions are assumed to be quadratic, as an approximation of the unknown but presumably convex functions. Results from the damage module of the integrated climate economy model FUND are presented, Next, uncertainties are incorporated and expected damages
are calculated. It is shown that because of convex loss functions and right-skewed uncertainties, the risk premium is substantial, calling for more action than analysis based on best-guess estimates. The final section explores some needs for further scientific research.

Item Type: Article
Schools and Departments: University of Sussex Business School > Economics
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Depositing User: Richard Tol
Date Deposited: 06 Feb 2012 19:46
Last Modified: 28 Jun 2012 10:30
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