Economic Damages from Climate Change: A Review of Modeling Approaches

This report elucidates one aspect of economic IAMs: the damage function. Damage functions map environmental changes (primarily mean temperature increases) to economic impacts. This crucial step in the determination of SCC appears in very different form in the leading economic IAMs. Through sections 3, 4, and 5 we review, in turn, the damage functions of the Dynamic Integrated Model of Climate and the Economy (DICE), the Framework for Uncertainty, Negotiation and Distribution (FUND) and the Policy Analysis of the Greenhouse Effect (PAGE). Section 6 discusses some empirical, programmatic and conceptual limitations of these three IAMs. Section 7 concludes. We begin, however, by providing a brief elaboration on integrated assessment modelling practices used by the IPCC. Readers familiar with IAMs and the IPCC's recent work may wish to skip this review.