Fat tails, exponents, extreme uncertainty: Simulating catastrophe in DICE

Ackerman, Frank; Stanton, Elizabeth A.; Bueno, Ramón

doi:10.1016/j.ecolecon.2010.03.013

Cited by 145 publications

(88 citation statements)

References 10 publications

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“…The short answer is a great deal (see also Ackerman, Stanton et al 2009), but not to the exclusion of other factors that we already know to be very important, in particular the discount rate. Inputting fat-tailed distributions for two key parameters in the analysis, namely the climate sensitivity and the curvature of the damage function, I find that a catastrophe is possible in the integrated assessment model PAGE, both under business-as-usual emissions and even stabilising the atmospheric stock of greenhouse gases at nearly 550 ppm.…”

Section: Discussionmentioning

confidence: 99%

High impact, low probability? An empirical analysis of risk in the economics of climate change

Dietz

2010

Climatic Change

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To what extent does economic analysis of climate change depend on low-probability, high-impact events? This question has received a great deal of attention lately, with the contention increasingly made that climate damage could be so large that societal willingness to pay to avoid extreme outcomes should overwhelm other seemingly important assumptions, notably on time preference. This paper provides an empirical examination of some key theoretical points, using a probabilistic integrated assessment model. New, fat-tailed distributions are inputted for key parameters representing climate sensitivity and economic costs. It is found that welfare estimates do strongly depend on tail risks, but for a set of plausible assumptions time preference can still matter.

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Section: Discussionmentioning

confidence: 99%

High impact, low probability? An empirical analysis of risk in the economics of climate change

Dietz

2010

Climatic Change

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“…Going from the thinnest (IPCC) to the fattest tail (Roe & Baker) increases the economic value of the policy by only 0.04 percentage points. But these results are for Nordhaus' specification of the damage function, which has been criticized for being too sanguine about the economic impact of extreme warming (Weitzman 2012;Ackerman et al 2010), the very scenario that interests us most. The damage function is an especially disputed and speculative element of any IAM because there are no data to constrain it at high temperatures.…”

Section: The Economics Of Extreme Warmingmentioning

confidence: 99%

“…In Nordhaus' specification, climate change damages increase as a quadratic function of temperature. To account for the potentially catastrophic consequences of extreme warming, others have suggested employing a more convex damage function (Weitzman 2012;Ackerman et al 2010). We achieved this by adding a higher-order term, which returns very similar results to Nordhaus' damage function for small temperature increases but much higher damages for large temperature changes.…”

Section: The Economics Of Extreme Warmingmentioning

confidence: 99%

“…We must face up to this fact if the probability of extreme warming can overwhelm economic evaluation of climate policies. The existing IAM literature arguably fails to do this, tending to work with a single fat-tailed climate sensitivity distribution (Ackerman et al 2010;Dietz 2011;Hope 2011). An alternative approach, suggested by Weitzman (2012), would be to stress-test IAMs by comparing multiple fat-tailed distributions.…”

Section: Introductionmentioning

confidence: 99%

“…The significance of this result has been debated but the implications for integrated assessment modeling are clear; that the possibility of extreme warming should be accounted for. A number of IAM studies have pursued this issue (Ackerman et al 2010;Dietz 2011;Pycroft et al 2011).…”

Section: Introductionmentioning

confidence: 99%

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Tall tales and fat tails: the science and economics of extreme warming

2013

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It has recently been highlighted that the economic value of climate change mitigation depends sensitively on the slim possibility of extreme warming. This insight has been obtained through a focus on the fat upper tail of the climate sensitivity probability distribution. However, while climate sensitivity is undoubtedly important, what ultimately matters is transient temperature change. A focus on transient temperature change stresses the interplay of climate sensitivity with other physical uncertainties, notably effective heat capacity. In this paper we present a conceptual analysis of the physical uncertainties in economic models of climate mitigation, leading to an empirical application of the DICE model, which investigates the interaction of uncertainty in climate sensitivity and the effective heat capacity. We expand on previous results exploring the sensitivity of economic evaluations to the tail of the climate sensitivity distribution alone, and demonstrate that uncertainty about the system's effective heat capacity also plays a very important role. We go on to discuss complementary avenues of economic and scientific research that may help provide a better combined understanding of the physical and economic processes associated with a rapidly warming world.

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Mitigation implications of an ice‐free summer in the Arctic Ocean

et al. 2017

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The rapid loss of sea ice in the Arctic is one of the most striking manifestations of climate change. As sea ice melts, more open water is exposed to solar radiation, absorbing heat and generating a sea ice-albedo feedback that reinforces Arctic warming. Recent studies stress the significance of this feedback mechanism and suggest that ice-free summer conditions in the Arctic Ocean may occur faster than previously expected, even under low-emissions pathways. Here, we use an integrated assessment model to explore the implications of a potentially rapid sea ice-loss process. We consider a scenario leading to a full month free of sea ice in September 2050, followed by three potential scenarios afterward: partial recovery, stabilization, and continued loss of sea ice. We analyze how these scenarios affect the mitigation efforts to keep global temperature increase below 2 ∘ C. Our results show that sea-ice melting in the Arctic requires more stringent mitigation efforts globally. We find that global CO 2 emissions would need to reach zero levels 5-15 years earlier and that the carbon budget would need to be reduced by 20-51% to offset this additional source of warming. The extra mitigation effort would imply an 18-59% higher mitigation cost to society. Our results also show that to achieve the 1.5 ∘ C target in the presence of ice-free summers, negative emissions would be needed. This study highlights the need for a better understanding of how the rapid changes observed in the Arctic may impact our society.

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Fat tails, exponents, extreme uncertainty: Simulating catastrophe in DICE

Cited by 145 publications

References 10 publications

High impact, low probability? An empirical analysis of risk in the economics of climate change

High impact, low probability? An empirical analysis of risk in the economics of climate change

Tall tales and fat tails: the science and economics of extreme warming

Mitigation implications of an ice‐free summer in the Arctic Ocean

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