McCourt School assistant professor Raphael Calel has been awarded the 2021 Lloyd’s Science of Risk prize for his work on the economic impacts of climate change.
The study, published in October 2020, showed that current economic forecasting models fail to account for unpredictable variations in global temperatures, rather than the more predictable rising temperatures themselves.
The paper was coauthored by Sandra C. Chapman from the University of Warwick, David A. Stainforth of the same department and also the London School of Economics and Political Science, and Nicholas W. Watkins from the London School of Economics and Warwick University as well as Open University in the UK.
Costly Fluctuations
The award recognizes the paper, “Temperature variability implies greater economic damages from climate change,” published in Nature Communications.
“Our study identified a new category of economic costs – those arising from the unpredictable, but unavoidable fluctuations in global climate that we’re bound to face,” says Calel, an economist. “To prevent these losses, we need a more diverse set of policy responses with increased investment in adaptation and resilience.”
The United States, for example, relies on a forecasting model developed by Yale economist William Nordhaus, for which he was awarded the Nobel Prize in 2018, as well two other forecasting models that descended from Nordhaus’ work.
But Calel says that these models fail to take into account the unpredictable fluctuations in global temperatures observed year after year.
“This may seem like a small oversight, but our study showed these fluctuations will create trillions of dollars of additional economic damages,” Calel notes. “Previous work uses a well-known procedure for estimating global mean temperature changes, and the economic damages that follow. In our study, we amend this procedure to capture the variability in global temperatures as well.”
The extra damages – anywhere from $10 trillion to $50 trillion over the next 200 years when measured in today’s dollars, according to the study – show us that the cost of inaction is substantially higher than previously believed, he says.
Rewarding Innovation
The Science of Risk prize, awarded by Lloyd’s Lab, is designed to identify published research that can contribute to innovation and better understanding of risk in insurance.
In addition to climate change, this year the award was also given in the topics of cyber and pandemics.