The IPCC report in March used an economic model developed by Yale Professor Bill Nordhaus in 1991. It ignores how climate change damages capital, considering only effects on output. It's so bad that it estimates an 18°C rise, which would practically sterilize Earth's surface, would only halve the GDP.
Dr Dietz said the overly simplified formula used by the standard model “implausibly” indicates global GDP would only be halved if average temperatures rose 18 degrees “even though such warming would likely render the Earth uninhabitable for most species, including humans”.
The revised model by Dr Dietz and Professor Stern takes into account the likelihood that the ability to generate new wealth would be affected by extreme weather and other impacts from climate change, such as the destruction of coastal or water infrastructure.
The risks are in fact likely to be so large that a globally coordinated carbon price of $US32-$US103 ($34-$110) per tonne of emissions is needed as soon as 2015 to prevent the temperature increase from exceeding 2 degrees of pre-industrial age levels, said Lord Stern and co-author Simon Dietz, from the UK’s Grantham Research Institute.
Within two decades, the carbon price will need to almost triple in real terms to $US82-$US260 a tonne, ...
Professor John Quiggin from the University of Queensland welcomed the report: “I have long been concerned that the (existing) model greatly underestimates the costs of extreme global warming of 4 degrees or more, which remains likely unless stronger global action is taken to reduce CO2 emissions.” [emphasis mine]