Costs and Benefits of the Paris Climate Targets

TL;DR

Achieving the Paris climate targets requires rapid emission reductions and atmospheric carbon removal, with high costs and uncertain benefits, making the cost-benefit balance unfavorable under typical assumptions.

Contribution

This paper quantifies the costs and benefits of meeting Paris climate targets, highlighting the high costs, uncertain benefits, and the importance of risk and discount rates.

Findings

Costs estimated at 3.8-5.6% of GDP in 2100.

Benefits estimated at 2.8-3.2% of GDP.

Benefits uncertainty exceeds costs uncertainty.

Abstract

The temperature targets in the Paris Agreement cannot be met without very rapid reduction of greenhouse gas emissions and removal of carbon dioxide from the atmosphere. The latter requires large, perhaps prohibitively large subsidies. The central estimate of the costs of climate policy, unrealistically assuming least-cost implementation, is 3.8-5.6\% of GDP in 2100. The central estimate of the benefits of climate policy, unrealistically assuming constant vulnerability, is 2.8-3.2\% of GDP. The uncertainty about the benefits is larger than the uncertainty about the costs. The Paris targets do not pass the cost-benefit test unless risk aversion is high and discount rate low.