Introduction

It is well documented that the increasing levels of carbon dioxide and other greenhouse gases are likely to change future climates across the planet (IPCC, 2001a). The Third Assessment Report (TAR) of the Intergovernmental Panel on Climate Change (IPCC) has synthesized many studies describing the qualitative market and non-market impacts of climate change (IPCC, 2001b). However, quantitative estimates of impacts are rare. Most economic impact analyses of climate have focused on comparative equilibrium analyses. They have explored the difference between current conditions and what would occur if greenhouse gases doubled (see Pearce et al., 1996). Economists have rarely tackled the more difficult task of forecasting how impacts might unfold over the century. In this paper, we combine the power of the most sophisticated climate models with recent economic research to predict the path of climate impacts over time.

The modeling begins with forecasts of greenhouse gas emissions in the absence of mitigation. These emissions, in turn, lead to projections of increasing greenhouse gas concentrations in the atmosphere (IPCC, 2001a). We then use the climate predictions of six dynamic atmosphere–ocean general circulation models (AOGCMs) based on these concentrations. We combine these forecasts with two climate response functions: a relatively pessimistic experimental and a relatively optimistic cross-sectional model (Mendelsohn and Schlesinger, 1999; Mendelsohn and Neumann 1999; Mendelsohn, 2001).