The researchers at the University of Potsdam have claimed that the climate costs are likely to be less if the temperature increase because of global warming is limited to two degrees Celsius.

In their latest study, the researchers at the university have found that the politically charged Paris Agreement is an economically sensible move. Using computer simulations, they studied climate changes from increasing weather extremes or decreasing labor productivity against the costs of cutting greenhouse emissions by phasing out coal and oil.

Considering all the factors, the researchers came out with the conclusion that the economically cost-efficient level of global warming turns out to be the one that more than 190 countries signed as the Paris Climate Agreement.

However, the study warned that the reduction in CO2 emissions, as promised by the nations worldwide, is insufficient to meet the goal.

“To secure economic welfare for all people in these times of global warming, we need to balance the costs of climate change damages and those of climate change mitigation. Now our team found what we should aim for,” says Anders Levermann from the Potsdam Institute for Climate Impact Research (PIK) and head of the team conducting the study.

“We did a lot of thorough testing with our computers. And we have been amazed to find that limiting the global temperature increase to two degrees Celsius, as agreed in the science-based but the highly political process leading towards the 2015 Paris Agreement, indeed emerges as economically optimal,” he adds.

There are many aspects to this study as the researchers have found out that replacing coal-fired power projects with renewable energy like solar and wind or the introduction of CO2 pricing have economic costs, and the same holds true for climate damages. Cutting down on greenhouse emissions clearly reduces the damages but the economic cost of temperature-induced losses has not been accounted for. The researchers at the Potsdam University did just that and came out with the conclusion using the Dynamic Integrated Climate-Economy (DICE) model developed by Nobel laureate for economics, William Nordhaus.

“It is remarkable how robustly reasonable the temperature limit of more or less 2°C is, standing out in almost all the cost-curves we’ve produced,” says Sven Willner, also from PIK and an author of the study.

According to the study, the Paris Climate Agreement aims to keep temperature rise well below 2 °C. This implies mitigation costs as well as avoided climate damages. The target of 2 °C represents the cost-benefit optimal temperature for the base calibration. This calibration involves the best estimate of the temperature–economic growth relation in the past and the original equilibrium climate sensitivity (ECS) value in DICE-2013 of 2.9 °C, which is at the center of estimates for several decades.

The researchers noted that the leeway to reach the 2 °C target is considerably constrained by ruling out negative emissions in this century. Nonetheless, if future damages follow the same temperature dependence as historically observed, the overall damage costs will reach a level that renders 2 °C cost-benefit optimal.

Recently, the McKinsey Global Institute (MGI) released a report titled “Climate Risk and Response,” which focuses on understanding the nature and extent of physical risk from climate change over the next three decades. The report focuses on the physical risk, i.e., the risk from the physical effects of climate change, including the potential impact on people, communities, natural and physical capital, economic activity, and the implications for companies, governments, financial institutions, and individuals.

In December last year, a report published by the Unfriend Coal campaign, which is now in its third year, highlighted how the insurance companies are exiting the coal sector because of the growing risk of unmanageable climate breakdown. The report shows the growing mobilization of public pressure on the fossil fuel industry and how it is having an impact on the future of fossil fuels.