Costs of Climate Change

As the impacts of climate change are beginning to become visible, there is growing concern about the possible costs of inaction. However, before adequate assessments of the costs of climate change impacts can be made, there are various methodological questions to consider. As part of Ecologic’s framework contract with the EEA on environmental-economic activities, FEEM, IVM and Ecologic perform a review of studies on the costs of climate change impacts and give methodological recommendations for future evaluations.

Assessing the likely costs of climate change impacts remains a challenging task. Next to the uncertainty that is inherent in long-term prediction and valuation, this is also due to a lack of clarity about terms and definitions used and the methodologies to employ. Questions include:

• what is the appropriate scope of the analysis – which costs should be considered among the “cost of climate change impact“ or the “cost of inaction”,
• what time horizon and what discount rate applies, and
• which role should equity issues and the valuation of non-market impacts play?

To address these and other questions, the project’s objectives are:

1. to give a description of the subject by presenting the terminology used in official documents and research reports, and by clarifying the used terms;
2. to take stock of main research programmes and projects at the global and EU level, and selected national initiatives,
3. to review empirical results, and the results of survey publications, and to describe the methodologies used;
4. to make an overview and assessment of the main methodological problems found in empirical assessments of the costs of climate change impact, in terms of assumptions and methods chosen, and of the way these have been treated;
5. to evaluate methodologies applied and to describe “best practice”, for example regarding discount rates chosen, methods of assessing external costs, etc.;
6. to provide recommendations for future methodological and empirical work by the EEA in this area, particularly with regard to the most crucial issues involved in the assessment of the costs of climate change impacts.

This project is the second specific agreement under the Framework Contract for European Economic Environmental Activities (3EA), carried out for the European Environment Agency by a consortium under the lead of Ecologic.