Paris Agreement’s global warming target of 2C works for economy too, argues study

Professor Ben Groom, Dragon Chair of Biodiversity Economics at the University of Exeter Business School, was among an international team of scientists to give economic credibility to the Paris Agreement’s 2100 global warming target of a maximum 2C, while calling for “smart CO2 pricing”.

The 2018 Nobel Prize-winning economist William Nordhaus’ Dynamic Integrated Climate-Economy model (DICE) previously found that 3.5C of warming is optimal to protect both the climate and economies.  

However, the signatories of the Paris Agreement committed to limiting climate change to not more than 2C and preferably towards a 1.5C limit.

The latest study, published in Nature Climate Change, updated the DICE computer simulation model used by Nordhaus with the latest data and insights from climate science and economics.

“We found that results from the updated version are in fact in good agreement with the Paris 2C limit for global warming,” said lead author Professor Martin Haensel, from the Potsdam Institute for Climate Impact Research.

The adjustments included changing the carbon cycle model, a recalibration of the temperature model and an adjustment of the “damage function”, which assesses how heavily future changes in the climate will impact the world economy.

The updated damages are higher than in the standard DICE model. This, say the authors, “is what unfortunately is realistic”.

The study also updated the “social discount rate”, a calculation that strikes a balance between current and future generation’s wellbeing by asking how much we are prepared to pay today for benefits and costs occurring in the future.

The results had a knock-on effect on carbon pricing – the cost applied to CO2 emissions designed to deter polluters – making it rise to around $100 per ton for 2020, a figure higher than what is being implemented in most sectors even in the most ambitious countries. 

“This is one more piece of evidence for how crucial CO2 pricing is in order to meet the UN targets,” said co-author Professor Groom.

“Our study calls for more stringent climate policies to avoid leaving an unfairly high burden of climate impact to our children.”

A commentary on the study is available from the Grantham Research Institute on Climate Change.