Economic analysis of climate change

An economic analysis of climate change uses economic tools and models to calculate the magnitude and distribution of damages caused by climate change. It can also give guidance for the best policies for mitigation and adaptation to climate change from an economic perspective. There are many economic models and frameworks. For example, in a cost–benefit analysis, the trade offs between climate change impacts, adaptation, and mitigation are made explicit. For this kind of analysis, integrated assessment models (IAMs) are useful. Those models link main features of society and economy with the biosphere and atmosphere into one modelling framework.^[2] The total economic impacts from climate change are difficult to estimate. In general, they increase the more the global surface temperature increases (see climate change scenarios).^[3]

Many effects of climate change are linked to market transactions and therefore directly affect metrics like GDP or inflation.^{[4]: 936–941} However, there are also non-market impacts which are harder to translate into economic costs. These include the impacts of climate change on human health, biomes and ecosystem services. Economic analysis of climate change is challenging as climate change is a long-term problem. Furthermore, there is still a lot of uncertainty about the exact impacts of climate change and the associated damages to be expected. Future policy responses and socioeconomic development are also uncertain.

Economic analysis also looks at the economics of climate change mitigation and the cost of climate adaptation. Mitigation costs will vary according to how and when emissions are cut. Early, well-planned action will minimize the costs.^[5] Globally, the benefits of keeping warming under 2 °C exceed the costs.^[6] Cost estimates for mitigation for specific regions depend on the quantity of emissions allowed for that region in future, as well as the timing of interventions.^[7]: 90 Economists estimate the cost of climate change mitigation at between 1% and 2% of GDP.^[8] The costs of planning, preparing for, facilitating and implementing adaptation are also difficult to estimate, depending on different factors. Across all developing countries, they have been estimated to be about USD 215 billion per year up to 2030, and are expected to be higher in the following years.^{[9]: 35–36}