19.3.2.3 Aggregate market impacts

The total economic impacts from climate change are highly uncertain. Depending upon the assumptions used (e.g., climate sensitivity, discount rate and regional aggregation) total economic impacts are typically estimated to be in the range of a few percent of gross world product for a few degrees of warming (see Chapter 20). Some estimates suggest that gross world product could increase up to about 1-3°C warming, largely because of estimated direct CO₂ effects on agriculture, but such estimates carry only low confidence. Even the direction of gross world product change with this level of warming is highly uncertain. Above the 1-3°C level of warming, available studies indicate that gross world product could decrease (•). For example, Tol (2002a) estimates net positive global market impacts at 1°C when weighting by economic output, but finds much smaller positive impacts when equity-weighted. Nordhaus (2006) uses a geographically based method and finds more negative economic impacts than previous studies, although still in the range of a few percent of gross world product.

Studies of aggregate market impacts tend to rely on scenarios of average changes in climate and focus on direct economic effects alone. Potential damages from increased severity of extreme climate events are often not included. The damages from an increase in extreme events could substantially increase market damages, especially at larger magnitudes of climate change (*). Also, recent studies draw attention to indirect effects of climate change on the economy (e.g., on capital accumulation and investment, on savings rate); although there is debate about methods, the studies agree that such effects could be significant and warrant further attention (see Section 19.3.7; Fankhauser and Tol, 2005; Kemfert, 2006; Roson and Tol, 2006; Fisher et al., 2007).