How much damage have we already done?

In a couple of weeks, the Conference of Parties (COP) number 28 will be held again. And to underline what kind of a useless, ineffective, and borderline satirical event this annual show has become, the organisers decided to hold it this year in the United Arab Emirates under the presidency of Sultan Al Jaber, the CEO of the Abu Dhabi National Oil Company.

Seven years after the Paris Agreement, COP has become a palaver club that is unable to deliver on any of the three words in its motto: Unite. Act. Deliver.

To remind readers, climate change watchdogs now think that even if all the net zero plans of countries are followed through and the targets met (and that is a big ‘if’) we have no realistic chance of meeting the 1.5°C goal of the Paris Climate accord. The chart below shows the current estimate for long-term global warning by Climate Action Tracker. Even in their most optimistic scenario, there is a less than 5% chance that we will remain below the Paris climate goals (the coloured bars indicate 90% confidence intervals with 5% probability on either side of each bar). But even if we manage to keep long-term climate change to below 1.5°C, it is more likely than not that we will exceed the limit between today and 2027, as the World Meteorological Association pointed out in May.

The current path of climate change

Source: Climate Action Tracker

In any case, these are projections about the future, but admittedly, we have already caused a lot of damage with the emissions we pumped into the atmosphere so far. How much damage we have done with past emissions of greenhouse gases is hard to calculate but Marshall Burke and his colleagues have decided to give it a shot.

The idea is that if we can calculate the cost of past emissions to society, we can combine this with the social cost of carbon as an estimate of the future cost of emissions in order to come up with an estimate of the total cost of climate change.

What the research team has done is to develop a discounted cash flow model for the damages caused by greenhouse gas emissions in the past. Unlike future emissions, which are largely a matter of conjecture, past emissions are known. Plus, we can estimate the actual costs of climate change through extreme weather events damage to the health of people, etc. quite well and compare these costs to a hypothetical world where such climate change events did not become more prevalent (i.e. a world without climate change).

Long story short, the chart below shows an estimate of the damages caused by past emissions according to this study. The bars show the costs to the economy from emission to today in dark blue and the estimated future costs into 2100 in light blue.

Estimated net present value of past emissions

Source: Burke et al. (2023)

Panel a) shows the estimated damage done for individual behaviours. For example, taking an additional transcontinental flight of 8,000km each year for the last decade has caused damages of $20 so far. That is not a lot, but if that CO2 remains in the atmosphere, it will create additional damages to the economy of $5,490 by the year 2100. Note that these are only economic damages and do not count the indirect costs of climate change, for example in the form of higher heat-related mortality rates.

Panel b), meanwhile, shows the total estimated net present value of the emissions caused by prominent people taking private jets in 2022. The flights Bill Gates took in 2022 alone will cause a total economic damage of $400,000 in today’s money by 2100.

Finally, panel c) shows the estimated economic damage caused by oil majors with their emissions from 1988 to 2015. The cumulated emissions of Exxon, for example (scope 1 and scope 3, i.e. production of oil and gas as well as the use of these products) is $120bn so far, or about one quarter of the company’s market cap. By 2100, if nothing changes, the damages caused by these past emissions alone (i.e. ignoring all future emissions) will amount to $5,920bn or roughly two months’ worth of the economic output of the United States.

The reason why I mention all this is simple. Emitting greenhouse gases is similar to selling tobacco. There are huge costs associated with it that the polluters have never had to pay for. Instead, private business reaped the profits and socialised the costs. In the end, tobacco companies had to pay billions after successful class action lawsuits were filed against them and I think it is just a matter of time until class action lawsuits will be filed against oil majors based on research like this. These lawsuits may not be successful and in any case, they may be years away, but that is certainly a risk that is not priced in the shares of oil & gas majors.

But there is also another lesson to be learned from this. And that is that removing one ton of carbon from the atmosphere is not the same as emitting one ton of carbon. I have written before about how removing one ton of carbon from the atmosphere is not the same as emitting one ton because of nonlinear effects on the climate.

This analysis shows that carbon that remains in the atmosphere increases the cost to the global economy every day it stays in there. And the sooner we can remove that carbon again, the lower the costs will be. Obviously, reducing our emissions is the best way forward, but from an economics perspective, this study makes a powerful case for putting as much money to work in developing and building carbon capture and storage facilities. The faster we get these facilities up and running at large scale, the lower the costs of climate change will be, even if we account only for the greenhouse gases we have already emitted in the past.