Prerequisites and limits for economic modelling of climate change impacts and adaptation

There is demand for qualitative and quantitative economic analysis on the optimum degree of climate change mitigation and adaptation, the optimal timing of such actions, and their optimum distribution between countries and sectors. This paper discusses what is possible for economic modelling in this field and what is not, with specific reference the paper by Bosello, Carraro and de Cian (2009) as well as Tol (2009). Integrated assessment modelling can provide powerful qualitative insights, for example about the need for both mitigation and adaptation and the interactions between the two, or the need for both individual and policy-driven adaptation. However, the more detailed quantitative results from such studies are subject to such strong limitations, and in many cases are virtually irrelevant as a guide to policy. Three important features are needed in economic models of climate change in order for these models to be useful representations of reality: representation of uncertainty about impacts, in particular the risk of abrupt climate change; fuller representation of economic impacts from climate change and inclusion of non-market impacts; and modelling of equity dimensions. These features are absent in many model currently used, and as a result quantitative results tend to be biased against mitigation as an option to address climate change, and in favour of other adaptation.