Working Paper Series,
Norwegian University of Life Sciences, School of Economics and Business

Abstract: Climate change will have a major impact on global biodiversity. However, these changes – and their economic value– is inadequately captured in the existing Integrated Assessment Models (IAMs). We provide improved damage cost estimates based on a recent biophysical assessment of impact on species loss from increased global mean temperature, and value transfer from a recent global Delphi Contingent Valuation (CV) study of households´ willingness-to-pay (WTP) to avoid species loss due to deforestation of the Amazon rainforest. This is implemented in the FUND (Climate Framework for Uncertainty, Negotiation and Distribution) IAM. The numerical simulations suggest that the global species loss is lower than the original FUND model predicted. However, the economic valuation of the species loss is larger, resulting in higher aggregate biodiversity damage cost. Moreover, depending on the assumed marginal utility of consumption in the regions and discount rate used, the global Social Cost of Carbon Dioxide (SCCO2) could be more than seven times higher than in the original FUND 3.9 IAM. This indicate that IAMs with incomplete assessment and valuation of species loss could greatly underestimate SC-CO2; and thus lead to underinvestment in greenhouse gas mitigation measures.

Keywords: Integrated Assessment Models; Climate change; Ecosystem services; Species loss; Social Costs of Carbon Dioxide

JEL-codes: Q54

27 pages, April 23, 2018

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