The Center for European Policy Studies (CEPS) has released a report looking at various cost estimates associated with an EU response to climate change, concluding

“the EU may be required to contribute at least €60 billion annually to global climate change mitigation and adaptation efforts.”

The CEPS study relies on cost estimates from the IPCC, Stern, UNDP, World Bank, and Oxfam (on adaptation). As we have argued here previously, all such studies of the costs of mitigation are highly dependent upon assumptions of future emissions:

All assessments of the costs of stabilizing concentrations of carbon dioxide start with a baseline trajectory of future emissions. The costs of mitigation are calculated with respect to reductions from this baseline. In the Pielke, Wigley, and Green commentary in Nature (PDF) we argued that such baselines typically assume very large, spontaneous decreases in energy intensity (energy per unit GDP). The effect of these assumptions is to decrease the trajectory of the baseline, making the challenge of mitigation much smaller than it would be with assumptions of smaller decreases in energy intensity (and a higher baseline trajectory). Obviously, the smaller the gap between the baseline scenario and the mitigation scenario, the smaller the projected costs of mitigation.

The assumptions in such studies are often difficult to see. They are all but impossible to see when taken in review fashion as done by the CEPS. The bottom line is that the €60 billion annual cost reported by CEPS is misleadingly precise and only a single point in a wide distribution of possible costs. This distribution plausibly includes values an order of magnitude larger. Policy making is likely to suffer if uncertainties in economics are not treated seriously. Here is how I concluded our earlier discussion of costs estimates of mitigation:

What does this exercise tell us about costs estimates of mitigation?

1. They are highly sensitive to assumptions.

2. Depending on assumptions, cost estimates could vary by more than an order of magnitude.

3. We won’t know the actual costs of mitigation until action is taken and costs are observed. Arguments about assumptions are unresolvable.

Meantime, it will be easy to cherrypick a cost for mitigation — low or high — that suits the argument that you’d like to make.

Anyone telling you that they have certainty about the future costs of mitigation — whether that certainty is about high costs or low costs — is not reflecting the actual uncertainty. Action on mitigation will have to take place before such certainty is achieved, and modified based on what we learn.

 Source