Despite intense, sometimes contentious negotiations — most recently at a meeting of world leaders in Denmark — the likelihood of a binding deal on global carbon emissions appears remote. Virtually all nations agree about the potential severity of climate change, but tremendous apprehension remains about how best to fight global warming.
A quick look at the economics of climate change reveals why. Most climate economists believe that unregulated emissions of carbon dioxide and other greenhouse gases pose significant risks. But the economic costs of many of the strategies for combating climate change tend to far outweigh the environmental benefits.
This is certainly true of the legislative remedies under consideration in Congress, like the Waxman-Markey climate bill, which narrowly passed the House last year, and the companion Kerry-Boxer measure in the Senate.
Both bills propose cutting emissions, relative to the 2005 base level, by a whopping 83 percent by 2050. If that target were achieved through actual emissions cuts — versus “offsets” like planting trees in Brazil — then per-capita U.S. emissions would revert to their levels of the year 1875, according to calculations by Steven Hayward.
Such steep emission cuts come at a high price. Yet the public has heard very modest figures, which supposedly work out to only “a postage stamp a day.” These innocuous impacts estimate the effect of Waxman-Markey in the year 2020 — when the emissions cuts will only be 17 percent below baseline. By the year 2050, when the full brunt of the emissions cuts kick in, the Environmental Protection Agency says the average household will lose almost $1,100 per year in consumption, even after adjusting for inflation.
The Congressional Budget Office surveyed studies of the economic impacts of Waxman-Markey and concluded that its cap-and-trade program would cost the United States 1.1 percent to 3.4 percent of GDP by 2050. Yet in a peer-reviewed survey article last spring, economist Richard Tol found that of the eleven comprehensive estimates of the dangers of global warming published since 1995, the worst figure is a best-guess global GDP loss of 1.9 percent sometime near the end of the 21st century. That means the leading economic analyses are saying it would probably be cheaper to do nothing than to implement the climate bills pending in Congress.
Most climate scientists believe that human activity is contributing to the warming of the globe, and that this trend — if unchecked — will eventually cause significant problems. Yet it is equally true that standard cost-benefit tests cannot justify the extreme emissions targets contained in the pending climate bills. An analogy from medicine will help clarify the issue.
Thousands of physicians, epidemiologists, and other experts believe swine flu poses serious health risks. But suppose the U.S. government pointed to this consensus in order to justify vaccinating every American against H1N1 three times a month until 2050, at a cost of multiple trillions of dollars.
Regardless of medical opinions on the dangers of swine flu, this proposed government “solution” would be the proverbial cure worse than the disease, because the total cost of the overkill measures would far exceed the benefits.
The same reasoning holds when it comes to the pending climate bills: Even though the threat from climate change may be significant, the steep emissions targets will impose even greater damages.
Some economists argue that standard cost-benefit models are inappropriate when it comes to climate change because the potential risks are so severe and our knowledge is so limited. Even if one accepts climate-change orthodoxy, however, average Americans need to realize just how high the true costs are — and how low the potential benefits may be — before they can responsibly judge the merits of Congress’s proposed climate bills.
The typical media treatment suggests that these bills are a “no-brainer” because of the perils of global warming. There is room for honest skepticism on the scientific front. But on economic grounds, the case for strict and immediate action is dubious.
Robert P. Murphy is a Senior Fellow in Business and Economic Studies at the California-based Pacific Research Institute
