Governments often have to perform cost-benefit analyses to determine which is the best climate policy. For instance, a more stringent fuel-efficiency target may cost car companies money to implement today, but that must be weighed up against the potential environmental damage, in terms of cost, that higher emissions would generate in the future. Such costs cannot be known for certain; they always have a degree of uncertainty.

Unfortunately, this uncertainty is often complex. For example, sea ice melts when heated, leaving less reflective ocean water in its place. Melting sea ice "non-linearly" translates into a large temperature increase because the water left absorbs more heat, creating more warming and thereby melting more sea ice.

Now economist Derek Lemoine at the University of Arizona and climate scientist Haewon McJeon at Pacific Northwest National Laboratory have investigated how nonlinear climate and economic uncertainties interact with one another, to affect the costs of different climate policies.

The pair began with a model of the energy system and the economy, and input 380 different technology scenarios – for instance, where there is a breakthrough in renewable energy or in nuclear power. For each of these scenarios, they figured out the best way, or policy, to keep carbon dioxide emissions beneath a certain concentration. This defined the cost of the policy, so that the researchers could then determine how much damage climate change would have to inflict to make that policy more economically sensible than doing nothing.

One result was that, under a wide range of scenarios, a carbon dioxide target of 500 parts per million (ppm) was most sensible; a lower target of 450 ppm was cost-effective only if the future sees major breakthroughs in low-carbon technology, or if high warming causes exceptional damage. (The current carbon dioxide concentration in the atmosphere is just over 400 ppm.)

By doing their analysis, however, Lemoine and McJeon could see which assumptions most strongly affected whether or not a policy was economically sensible. Contrary to popular belief, they found that the uncertainty in future technology, and the uncertainty in damage caused by warming, are more important economic parameters than the uncertainty in the amount of predicted warming.

Lemoine believes it is "crucial" that scientists better understand these technology and climate-damage uncertainties, about which very little is currently known. "We will never know either of these factors perfectly in advance, but the damages have, to date, been essentially pure assumptions," he said. "And we have shown that these assumptions matter a lot. Finding some way to at least narrow the range of plausible damages assumptions should be a high priority."

The study is published in Environmental Research Letters (ERL).

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