Costs and benefits matter in the climate debate

Dealing with climate change involves recognizing what is practical instead of what is ideal

By Bjorn Lomborg  / 

Sun, Aug 23, 2009 - Page 9

At its heart, much of the debate over climate change deals with just one divisive and vexing question: How big should cuts in carbon emissions be?

This narrow focus makes the debate unconstructive. Everybody wants to prevent global warming, and the real question is: How can we do that best?

We should be open to other ways to stop warming — such as cutting carbon emissions in the future instead of now, or focusing on reducing emissions of other greenhouse gases. Global warming will create significant problems, so carbon reductions offer significant benefits. Cutting carbon emissions, however, requires a reduction in the basic energy use that underpins modern society, so it will also mean significant costs.

Prominent climate economist Richard Tol of Hamburg University has analyzed the benefits and costs of cutting carbon now versus cutting it in the future. Cutting early will cost US$17.8 trillion, whereas cutting later will cost just US$2 trillion.

Nonetheless, the reduction in carbon dioxide concentration — and hence temperature — in 2100 will be greater from the future reductions. Cutting emissions now is much more expensive, because there are few, expensive alternatives to fossil fuels. Our money simply doesn’t buy as much as it will when green energy sources are more cost-efficient.

Tol strikingly shows that grand promises of drastic, immediate carbon cuts — reminiscent of the call for 80 percent reductions by mid-century that some politicians and lobbyists make — are an incredibly expensive way of doing very little good. All the academic models show that, even if possible, limiting the increase in global temperature to 2ºC, as promised by the EU and the G8, would cost a phenomenal 12.9 percent of GDP by the end of the century. This would be the equivalent of imposing a cost of more than US$4,000 on each inhabitant every year, by the end of the century. Yet the damage avoided would likely amount to only US$700 per inhabitant.

The real cost of ambitious, early and large carbon-cutting programs would be a reduction in growth — particularly damaging to the world’s poor — to the tune of around US$40 trillion a year. The costs would also come much sooner than the benefits and persist much longer. For every dollar that the world spends on this grand plan, the avoided climate damage would only be worth two cents.

It would be smarter to act cautiously by implementing a low carbon tax of about US$0.5 per tonne and increase it gradually through the century. This would not cut carbon emissions spectacularly, but nor would it be a spectacular waste of public funds. Each dollar would avoid US$1.51 of global warming damage — a respectable outcome.

Taxing fossil fuels to reduce carbon emissions is a sensible part of the solution to climate change, but it is not the only or best way to prevent warming. There are other ways to cut carbon from the atmosphere. One of these is protecting forests, since deforestation accounts for 17 percent of emissions. If we are serious about grand promises to keep global temperature rises below 2ºC, we obviously need to find ways of making this cheaper. Brent Sohngen at Ohio State University points out that forests could be important: Including forestry in the control of greenhouse gases could reduce costs somewhat.

Moreover, although politicians focus nearly exclusively on cutting carbon emissions, carbon dioxide is not the only gas that causes warming. The second-biggest culprit is methane.

Cutting methane is cheaper than cutting carbon. And because methane is a much shorter-lived gas than carbon dioxide, we can prevent some of the worst of short-term warming through its mitigation. Agricultural production accounts for half of anthropogenic methane, but wastewater systems, landfills and coal mining also create the gas. Professor Claudia Kemfert of the German Institute for Economic Research argues that spending US$14 billion to US$30 billion to reduce methane would create benefits — from the reduction in warming — between 1.4 and three times higher.

We could also place a bigger focus on reducing black carbon, considered responsible for as much as 40 percent of current net warming and one-third of Arctic melting. Black carbon is essentially the soot produced by diesel emissions and — in developing countries — the burning of organic matter to cook food and stay warm. It can be eliminated with cleaner fuels and new cooking technologies.

Doing so would yield other benefits as well. Sooty pollution from indoor fires claims several million lives each year, so reducing black carbon would be a lifesaver. A team of economists led by David Montgomery estimates that spending US$359 million could realistically slash 19 percent of black carbon emissions. This would have a significant cooling impact on the planet, and would save 200,000 lives from pollution. The net annual benefits would run into several billion US dollars, which equates to US$3.60 in avoided climate damage for each dollar spent.

Costs and benefits matter. The best solution to climate change achieves the most good for the lowest cost. With this as our starting point, it is clear that a narrow focus on short-term carbon emission cuts is flawed. The most pertinent question of all is: Why don’t we choose a solution to global warming that will actually work?

Bjorn Lomborg is director of the Copenhagen Consensus Center and an adjunct professor at Copenhagen Business School.