Climate Economics: The State of the Art

The report argues that climate economics lags behind climate science, often relying on outdated data and simplified cost-benefit frameworks. It advocates for a shift toward precautionary, standards-based decision-making to avoid catastrophic tipping points, such as the collapse of the Amazon rain forest or large-scale methane release. The authors recommend that economic models incorporate up-to-date probability distributions for climate sensitivity, account for regional vulnerabilities, and use endogenous technological change to model abatement costs. The report emphasizes that limiting warming to 2°C requires immediate, large-scale emissions reductions, as current international commitments are insufficient.

• Climate economics frequently fails to keep pace with climate science, often using simplified or outdated representations of scientific knowledge and relying on a traditional cost-benefit framework that overlooks deep uncertainty and intergenerational impacts.
• Recent scientific evidence suggests that global average temperatures will not decline immediately after greenhouse gas emissions are reduced, but will instead remain at peak levels for centuries or millennia due to mechanisms like the gradual release of CO2 from oceans.
• There are critical tipping points for irreversible catastrophes that could occur at warming levels as low as 2°C to 4°C, including the collapse of the Amazon rain forest, the loss of major ice sheets, and the large-scale release of methane from tundra and deep-sea deposits.
• The 'Dismal Theorem' by Martin Weitzman posits that if climate uncertainty is 'fat-tailed' and extreme outcomes could endanger human survival, the marginal benefit of reducing emissions is theoretically infinite.
• To keep global warming below the widely accepted 2°C threshold, global emissions must be reduced to less than 20 percent of 2005 levels by 2050, requiring emissions to peak by 2020 at the latest.
• The report recommends replacing welfare-maximization models with a standards-based approach that focuses on cost minimization to achieve specific climate outcomes, such as keeping temperature increases below 2°C.
• Economic modeling of mitigation should treat technological change as endogenous—driven by learning and investment—rather than as a constant function of time, and should account for the fact that higher fossil fuel prices reduce the net cost of mitigation.
• While 'rebound effects' (where efficiency gains lead to increased energy use) typically range from 10 to 30 percent, there is no empirical evidence for 'backfire,' where efficiency gains are entirely erased.

APA

Ackerman, F., & Stanton, E. A. (2011). Climate Economics: The State of the Art. Stockholm Environment Institute. https://www.sei.org/mediamanager/documents/Publications/Climate-mitigation-adaptation/Economics_of_climate_policy/sei-climateeconomics-state-of-art-2011-es.pdf

Chicago

Ackerman, Frank, and Elizabeth A. Stanton. Climate Economics: The State of the Art. Stockholm Environment Institute, 2011. https://www.sei.org/mediamanager/documents/Publications/Climate-mitigation-adaptation/Economics_of_climate_policy/sei-climateeconomics-state-of-art-2011-es.pdf.

Wikipedia

{{cite report |last1=Ackerman |first1=Frank |last2=Stanton |first2=Elizabeth A. |title=Climate Economics: The State of the Art |publisher=Stockholm Environment Institute |date=November 2011 |url=https://www.sei.org/mediamanager/documents/Publications/Climate-mitigation-adaptation/Economics_of_climate_policy/sei-climateeconomics-state-of-art-2011-es.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{ackerman2011climate, author = {Ackerman, Frank and Stanton, Elizabeth A.}, title = {{Climate Economics: The State of the Art}}, institution = {Stockholm Environment Institute}, year = {2011}, month = nov, url = {https://www.sei.org/mediamanager/documents/Publications/Climate-mitigation-adaptation/Economics_of_climate_policy/sei-climateeconomics-state-of-art-2011-es.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }