The economic impact of extreme sea-level rise: Ice sheet vulnerability and the social cost of carbon dioxide § Jonathan Pycroft a, *, Lucia Vergano a,1 , Chris Hope b a Economics of Climate Change, Energy and Transport Unit, Institute for Prospective Technological Studies, Joint Research Centre, European Commission, Edificio EXPO, C/Inca Garcilaso, 3, 41092 Seville, Spain b Cambridge Judge Business School, University of Cambridge, Trumpington Street, Cambridge CB2 1AG, UK 1. Introduction Sea-level rise and its consequences are of great concern for climate change impact assessment. The response of ice sheets to climate change is perhaps the key factor determining whether extreme sea-level rise will occur, and as such is receiving growing attention in the literature. Typically, integrated assessment models do not explicitly incorporate the extent of sea-level rise that would occur were there to be a major melting or collapse of major ice sheets. Among integrated assessment models, the standard PAGE09 model indirectly includes the possibility of major ice sheet melting or collapse as one of the potential sources of extensive costs due to discontinuity damages. This damage category is intended to account for the impacts of catastrophic events, which might have high economic consequences. As suggested by Weitzman (2010), an alternative method of incorporating catastrophic events into integrated assessment models is to introduce fat tails to the probability distribution functions of relevant parameters. Such tails allow for the possibility that the physical consequences of greenhouse gases and/or the consequent economic damages might be very high. The approach of adding tails to the probability distribution functions, in place of discontinuity damages, is taken in Pycroft et al. (2011). In that paper, the physical consequences of greenhouse gases are adjusted by incorporating the possibility of high climate sensitivity and, hence, high temperature rise from a given level of greenhouse gases emissions (in line with what is discussed in Weitzman, 2010). In the model used, PAGE09, this has a small effect on sea-level rise, as higher temperatures cause somewhat higher sea level. However, the possibility of extreme sea-level rise is not explicitly incorporated. One major challenge to the incorporation of relatively rapid ice sheet melting or collapse is the difficulty in quantifying its likelihood. This is due inter alia to challenges in modelling the underlying processes (Kriegler et al., 2009). Nevertheless, current Global Environmental Change 24 (2014) 99–107 A R T I C L E I N F O Article history: Received 5 November 2012 Received in revised form 20 August 2013 Accepted 24 August 2013 Keywords: Climate change Integrated assessment models Social cost of carbon dioxide Sea-level rise A B S T R A C T The possibility of extreme sea-level rise is one of the commonly cited reasons for concern about climate change. Major increases in sea level would likely be driven by the melting or collapse of major ice sheets. This possibility has implications for the social cost of carbon dioxide, which is a key policy value as well as a useful summary measure of damage caused by greenhouse gas emissions. This paper extends earlier work on the importance of low-probability, high-impact events for the social cost of carbon dioxide to incorporate the possibility of extreme sea-level rise. To estimate its impact, an integrated assessment model is used, which allows a probabilistic assessment of climate change damages based on the linkages between the economic and climate systems. In the model, the generic discontinuity damage is replaced with the possibility of large-scale damage from factors that are taken to be correlated with temperature rise and, crucially for this paper, explicit consideration of extreme sea-level rise. Estimates of the amount of increase in the social cost of carbon dioxide that can be expected from incorporating extreme sea-level rise show that the increase is significant, though not especially large in percentage terms. The paper contributes to the literature of how to represent uncertain climate impacts in integrated assessment models and the associated estimation of the social cost of carbon dioxide. ß 2013 Elsevier Ltd. All rights reserved. § The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission. * Corresponding author. Tel.: +34 954488266. E-mail address: jonathan.pycroft@oxon.org (J. Pycroft). 1 Present address: European Training Foundation, Villa Gualino, Viale Settimio Severo 65, I - 10133 Torino, Italy. Contents lists available at ScienceDirect Global Environmental Change jo ur n al h o mep ag e: www .elsevier .co m /loc ate/g lo envc h a 0959-3780/$ – see front matter ß 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.gloenvcha.2013.08.017