Economic models used for global climate policy are structurally blind to the most catastrophic risks identified by Earth scientists.
April 25, 2026
Original Paper
Expert elicitation of climate scientists on climate-economic damage functions
SSRN · 6637701
The Takeaway
The financial tools used to predict climate costs fail to account for nonlinear thresholds where the environment changes permanently and rapidly. Most models assume a smooth and predictable increase in damages as the planet warms. This approach ignores the reality of tipping points that could lead to sudden and total economic collapse. Policy makers are currently making massive decisions based on spreadsheets that ignore the biggest threats. We are essentially driving toward a cliff while looking at a map that doesn't show the drop. Managing climate risk requires a fundamental update to how we value the planet's stability.
From the abstract
Effective climate risk management depends critically on accurate characterisation of the magnitude and structure of climate-related damages. Yet the damage functions embedded in the integrated assessment models (IAMs) that underpin climate scenarios used across financial regulation, stress testing, pension fund valuations, and national adaptation planning have attracted sustained methodological criticism. A central challenge is that these models are calibrated to historical climate variability a