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The issue of climate change has changed the way economists think about and treat sustainable development issues (i.e. ecological economics) as we can see that economic analysis has become increasingly central to the climate policy debate. The global annual average temperature is expected to be 2°C above pre-industrial levels by 2050. A 2°C warmer world will experience more intense rainfall and more frequent and more intense droughts, floods, heat waves, and other extreme weather events. Studies to date have provided only a wide range of estimates, from $4 billion to $109 billion a year for climate change adaptation, but adapt we must.

Therefore, in the current climate economists’ view, firstly, mitigation - taking strong action to reduce emissions, must be viewed as an investment, a cost incurred now and in the coming few decades to avoid the risks of very severe consequences in the future. A strong mitigation policy can be achieved at a far lower cost than those calculated for the impacts. In this sense, mitigation is a highly productive investment. Secondly, adaptation - crucial for dealing with the unavoidable impacts of climate change - but under-emphasised in many countries - is the only response available for the impacts that will occur over the next several decades before mitigation measures can have an effect, and in most cases will provide local benefits and co-benefits, realised without long lead times.

However, the models and assumptions of climate economics often lag far behind the latest developments in this fast-moving field. This problem must be corrected and areas where substantially more research must be done have to be identified. Innovations in the economic theory and analysis of climate change have emerged such as new approaches to uncertainty; new developments in the longstanding debate over discount rates and intergenerational economic analysis, and approaches to international equity. Research on mitigation and adaptation has sprung such as cost projections for various mitigation scenarios, such as those that aim to keep warming below 2°C, and the cost implications of different policy choices – as well as the nascent field of economics of adaptation, where data remain scarce. This is a fast moving field, so all those interested should follow the debate closely.

References: The World Bank's Economics of Adaptation to Climate Change, The Stern Review , Stockholm Environment Institute’s report, Climate Economics: The State of the Art