Can the Economy Afford NOT To Fight Climate Change?

Yves here. If humans are fortunate enough merely to suffer a Jackpot rather than a full-bore collapse, perhaps future historians will try to make sense of why individuals and governments did pretty much squat to prevent climate change even when they recognized it really was well underway and would produce very bad outcomes. I imagine that one of those things that they will find unfathomable, being on the other side of the climate disaster, is the ability to rationalize inaction. A big aid in this “apres moi, le deluge” behavior is how businesses and governments analyze investment returns, specifically net present value analysis. For the 2007 IPCC report, economist Nicholas Stern was tasked with estimating the economic impact of climate change. Stern concluded that major action had to be taken then, and had to use a discount rate of 0.5% to justify that, since any cost more than 30 years out is discounted to pretty much zero if you use a “reasonable” interest rate. Stern was also criticized for exaggerating the cost of climate change.

However, investment was the wrong way to look at this problem. We have only one biosphere. The better model would have been insurance, since consumers expect to overpay for the “average” risk rather than and be exposed to the hit of worst outcomes.

By Dana Nuccitelli, research coordinator for the nonprofit Citizens’ Climate Lobby, an environmental scientist, writer, and author of ‘Climatology versus Pseudoscience,’ published in 2015. He has published 10 peer-reviewed studies related to climate change and has been writing about the subject since 2010 for outlets including Skeptical Science and The Guardian. Originally published at Yale Climate Connections

Those opposing a fast transition to renewable energy and other aggressive action to fight catastrophic climate change often argue that the economic costs would be too great.  Now, with the proliferation of extreme hurricanes, droughts, floods, wildfires, and other disasters linked to a changing climate, it has grown more apparent that the status quo also carries a cost – defined as the “social cost” of carbon.  But recent research indicates existing economic models may have low-balled those potential social costs by trillions of dollars.

Papers accounting for the value of nature and heat-related mortality conclude that the social cost of carbon is in the hundreds of dollars per ton of carbon dioxide pollution.  A new study published in Environmental Research Letters (ERL) also finds that the cost of doing nothing could be 15 times greater yet. The trillion-dollar question for climate economists is: will climate damages have persistent effects that result in slower economic growth?

“Climate change makes detrimental events like the recent heat wave in North America and the floods in Europe much more likely,” noted the new study’s co-author Chris Brierley of the University College London. “If we stop assuming that economies recover from such events within months, the costs of warming look much higher than usually stated. We still need a better understanding of how climate alters economic growth, but even in the presence of small long-term effects, cutting emissions becomes much more urgent.”

That insight has important repercussions for federal climate rules. In adopting new regulations, federal agencies are required to weigh the resulting costs and benefits to American taxpayers. Experts estimate how much a ton of carbon dioxide pollution costs society as a result of the climate change damages it causes. This “social cost” of carbon is notoriously difficult to pin down. Wild cards include uncertainties about the magnitude of climate damages and about the resulting economic costs, and subjective judgments about how much governments value or discount the wellbeing of future generations.

From Obama’s $50 per Ton, to Trump’s Near-Zero, to Biden’s TBD – To Be Determined

The Obama administration pegged the social cost of carbon at about $50 per ton, but the Trump administration reduced the federal social cost of carbon estimate to near zeroby heavily discounting the value of future generations and entirely disregarding the wellbeing of humans beyond U.S. borders. The Biden administration reversed those changes by restoring the Obama administration estimate and now is in the process of incorporating the latest research to further update the value.

In a separate but relevant new report, the World Meteorological Organization has found that over the past five decades, the number of extreme weather disasters has increased fivefold globally and associated costs have increased sevenfold. More than half of those costs have been borne by the United States, largely because of damages resulting from extreme Atlantic hurricanes like Katrina in 2005, Harvey, Maria, and Irma in 2017, Sandy in 2012, and Andrew in 1992. Damages from these storms totaled almost $500 billion (nearly $1.2 trillion when adjusted for inflation). This year’s Hurricane Ida is expected to add $95 billion to that total. And as the latest IPCC report concluded, hotter global temperatures and ocean waters will cause a greater proportion of tropical cyclones to rapidly intensify and become dangerous Category 4 and 5 hurricanes.

Slower Growth Means Compounded Costs

Many climate-economics models have assumed the global economy will keep growing at a steady rate no matter how much the climate changes. Over the past decade, more and more climate economists have questioned this assumption, noting that economies will increasingly struggle to fully recover from persistent and worsening climate damages.

UC Davis climate economist Frances Moore, who was not involved in the new ERL study, said the novel part of its approach involves figuring in the possibility of “partial persistence” of damages from climate change.  “This is probably a more realistic representation of what is really going on” as opposed to previous studies that either chalked up damages as permanent “or not persistent at all.”

The ERL study concluded that if just 10% of economic damages from climate change were to persist and reduce economic growth, the social cost of carbon would increase by a factor of 15, into the thousands of dollars per ton. Moreover, the authors found that these adverse economic impacts would be heavily borne by countries in Africa, South Asia, and Latin America: developing countries that have contributed the least to the climate crisis, but which are the most vulnerable to its impacts as a result of  their already hot climates and lack of resources available for adaptation efforts.

The study authors also investigated the possibility that countries could reinforce their resilience to persistent climate damages through adaptation measures. They concluded that keeping the social cost of carbon below $600 per ton “would require lowering the persistence of temperature-related economic impacts by half within less than 25 years.” Such an approach would require immense investments in climate adaptation that would be especially difficult for poorer countries to afford.

Efforts to quantify the economic costs of climate change often overlook its human toll. For example, in just the summer of 2021 alone, Hurricane Ida claimed at least 82 lives, 242 died in the European floods, and likely over 1,000 were killed in the Pacific Northwest heat wave. The economic benefits of policies to curb climate change usually will outweigh the associated costs, especially if persistent climate damages slow economic growth. But the non-economic benefits stemming from avoided deaths and the improved well being of future generations make the climate policy cost-benefit analysis more compelling yet.

On a more positive note, deaths caused by extreme weather events have declined since the 1970s thanks largely to improved hurricane and weather emergency early warning systems. However, more than 90% of the deaths related to weather disasters have occurred in developing countries, once again highlighting the inequity in climate change impacts. For example, droughts in Ethiopia, Sudan, and Mozambique accounted for the most such deaths, at over 650,000 in total.

The results of this new research strengthen the case for ambitious climate policies. “The risk of costs being even higher than previously assumed reaffirms the urgency for fast and strong mitigation,” said ERL study co-author Paul Waidelich of ETH Zürich. “It shows that choosing to not reduce greenhouse gas emissions is an extremely risky economic strategy.”

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  1. PlutoniumKun

    As Stern pointed out (and was severely criticised for at the time), discount rates are a major reason why we don’t correctly calculate the costs/benefits of energy saving and renewables. Anything that provides a benefit beyond around 20 years becomes pretty much irrelevant using standard accounting techniques. Its also imo one reason why power companies worldwide have tended to favour gas over renewable/nuclear despite the high cost of natural gas and its uncertain longer term supply.

    Its also often forgotten that the costs can be largely neutral if replacement technology follows the normal replacement lifespan. This is one reason why the longer we delay the decision to rapidly shut down fossil fuel use, the more expensive it will be. Replacing systems over their normal replacement lifespan is far cheaper than replacing functional plant. This is why the failure to act back in the 1990’s was such a tragedy for the world – a slow and steady plan back then would have cost far less than the rapid shock plan that is now absolutely essential.

    1. Bijou

      Also, some things should not be for sale (are priceless, cannot be risked). The monetary costs here are irrelevant. It is going to only and always be a question of whether we have the real resources to mitigate disaster at any given time after delays.

      1. Ian Perkins

        No doubt future generations will be gratified to learn their lives were discounted away on balance sheets.

    2. amused_in_sf

      It’a really an absurd valuation technique. As if the economic value of major parts of the ecosystem wouldn’t grow at least as fast as global GDP, which would make future losses seem *bigger* if you use a standard discount rate!

  2. Ian Perkins

    More than half of those costs have been borne by the United States, largely because of damages resulting from extreme Atlantic hurricanes

    How much of that is because the weather was so severe, and how much because the US has more to lose in terms of dollars? For example, Mozambique was struck by two cyclones in 2019, causing widespread flooding and many deaths, but does that matter less to some because much of what was destroyed was dirt roads and crude huts?

  3. Rod

    Yves says this, which is irrefutable:

    We have only one biosphere.

    I guess if you’re going to argue with the Devil/Reaper you need a good Economic Analysis paper, or three, to reference your points.

    I get that some Powerful People/Entities need stuff like this paper to nudge their incrementalism along to the next level.

    This is the Nug for me:
    From the Paper and seems the rationale.

    But the non-economic benefits stemming from avoided deaths and the improved well being of future generations make the climate policy cost-benefit analysis more compelling yet.

    From Oct 11-14, in Washington DC, the People will be presenting a different case.
    All are welcome to join.

  4. Glossolalia

    Here in the US, half the country will start mocking, laughing, and deriding at any mention of climate change because we’re conditioned to immediately strongly disagree with something that’s part of the platform of the “other” side. Can non-American readers tell us if that’s the case in other countries when it comes to climate change?

    1. fjallstrom

      In Sweden, the existence of climate change is pretty widely acknowledged. Last week the conservatives here tried to re-brand themselves as “the new environmental party”. The content was the same politics they always have, but now arguing that it is “for the climate!”. Twenty years ago they would have argued that we couldn’t know that climate change will happen, etc.

      My impression is that situations are similar in other countries in Europe. Note though that this is a far cry from doing enough.

      1. drumlin woodchuckles

        At least you don’t have an organized Drill Baby Drill death cult numbering 50 million or so people.

  5. Robert Hahl

    “Those opposing a fast transition to renewable energy…” implies that this will help avoid mass extinctions. If you believe that, I have some carbon offset credits to sell you.

  6. Jackman

    “We have only one biosphere”. Somehow it feels like the moment you step outside the simplicity of this statement to engage in complex calculations of value, you’ve completely lost the argument. Until Business Schools and Economics Departments are burned to the ground along with their finely honed accounting notions of growth and value and efficiency that openly ignore the complexities of the biosphere, we will continue to engage in a conversation of polite insanity, as the waters rise and the fires get hotter.
    I wouldn’t pretend to know what a better strategy is, but somehow engaging the machinery of intellectual chatter within academic fields that are joined at the hip with a predatory business community feels like the pointless enterprise that the corporate world is only too happy to engage. Economics as its presently practiced and understood is simply garbage through and through, an ideology that has driven us to this edge of this existential cliff and is still actively pushing us off, and until we say that in a bold and dismissive way, I fear we’re only nipping at the edges.

    1. Susan the other

      “Predatory business communities” are just in denial. They want to think they make the world go round. When in fact they are just taking a free ride. The entire economy is a subsidy. If we want to have an “economy” we have to subsidize it. If we decide to subsidize it we need to have a goal and a long term plan. One that precludes a “free market to exploit the environment and provide profits for all.” Because that’s a disaster – as we have witnessed for almost all of the last century – that goal was global capitalism. Which was a fantasy – as we can now see. But the point is, we subsidize global capitalism constantly. (With… money; hilarious really, but we can see that when you withdraw the “money” capitalism fails.) We now have to calm down, stop pretending that capitalism is the thing that makes the world turn when in fact it is the world subsidizing capitalism that makes the world turn. We could probably think of terms and conditions that make it look like capitalism is still the captain, just to save face – but making an economy out of nothing is really a human specialty. If we want to stop burning up and polluting the planet all we have to do is subsidize an economy that does something else. We might really go through an existential crisis when we all have to realize that it is the subsidy that keeps the economy going. All those famous profits and investments for high returns will be (are already) pure nonsense.

      1. Left in Wisconsin

        I agree that this is the only plausible way forward, though I would argue that it is just as important to emphasize the non-monetary social subsidies to capitalist production – property rights, legal systems, product standards, the vast array of non-paid work necessary maintaining a society that capitalists can then exploit, etc. – as the monetary ones such as direct subsidies and central banking.

  7. Don W.

    I have a silly question. What does it mean that the “the economic costs would be too great” to aggressively fight climate change?

    If we aggressively fight climate change will there not enough labor and materials to also feed, cloth, and shelter everyone? Rationing of entertainment? Restaurants will be fewer and packed because so many people are working on climate change? Health care will be rationed for the same reason? Jobs will be lost because de-carbonizing is less labor intensive than existing carbon based industry, and no one will do anything about that? Vacations will suck because hotels and other vacation businesses will be unable to find labor?

    That doesn’t even get into if the economy shrinks because we should be making and consuming less “stuff”, do we have to be less happy?

    I do admit that existing free market, capitalist ideology very likely makes policy choices that would make people less happy. I think that is a choice not an inevitable outcome.

  8. Telee

    In spite of what his speeches say, Biden is leasing more access to drilling on federal lands, and supporting the line 3 pipeline. Another words he is committing to another 30 to 50 years of increased fossil fuel production in spite of scientific consensus and IPCC dire warnings on the consequences of climate change. This is just like the presidencies of Obama, Trump, Bush etc. The biggest priority is to due what the corporations want. Nothing is more important even it means the destruction of the environment and the end of civilization as we know it. This is not a democracy. It is a dictatorship of the Plutocrats. The government, Supreme Court and regulatory agencies have been captured. Nothing can change without the approval of the corporations and special interests. We are in deep trouble.

  9. Synoia

    What does it mean that the “the economic costs would be too great” to aggressively fight climate change?

    All you poors: die quickly.

  10. Felix_47

    Biden is a politician. He knows that a gas tax is the third rail for his party. He has tried to get the gas price lowered. A national speed limit of 45 would be a start and would let the nation know it is serious. He needs congress for neither. Unbridled population growth…a root cause…is not appropriate to discuss publicly. The finance and legal elites have hijacked the governments. None of our politicians believe global warming will be catastrophic or their actions would be different. And the US is not alone. Here in Germany the number of people using public transit or biking to work drops every year. Now it is in the range of only 10%. Even 30 years ago when I was young most everyone here took public transit or rode a bike. My wife says that she and her acquaintances do not feel safe any more in the cities or in public transit. I have heard the same thing from Americans in the US. Everyone is moving out of the cities into suburban developments and driving in big SUVs now, isolated and sitting high above the masses of migrants. We used to let the children walk to school. Now they are driven in big SUVs to schools far from the steaming masses…my wife is no different and she admits that it is fear. The fear of the mothers is all present. And the powers that be use fear to control us. Fear of nuclear (although far more people die from climate change and France is 70% nuclear), fear of migrants, fear of global warming, fear of economic collapse and on and on. The changes in the last 30 years are breathtaking and all in the wrong direction regarding the climate. My hope is that China takes the lead and shows the world how to do it. The western societies are just drifting on past accomplishments and seem incapable of dealing with global warming. My sense is that homogeneous societies like China may be better able to achieve universal consensus. The contrast of China vs. India in the last 40 years is striking despite the trauma of the great leap forward.

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