There are costs for climate change whether leaders take action or not
Much of the public debate over climate change policy focuses on the cost of reducing emissions, deploying green energy, or building adaptations. A point often lost is that whatever we do, we pay for climate change, even if we do nothing. For officials to arrive at effective solutions, they must know both the cost of the policy options and the cost of inaction.
As an economist, not a climate scientist, I measure the impact of climate change as such and by many estimates, climate change has a great cost. Absent a meaningful policy intervention, output in the United States will be 1 percent lower in 2050 thanks to climate change, the Congressional Budget Office finds. That means output produced annually by American workers will be lower for that year and every year after by this figure. As reference, 1 percent of output today is around $230 billion.
Moreover, the cost will not be distributed uniformly across the economy. For some industries and in some communities, the impact will be much larger. It is important to note here that the Congressional Budget Office estimates are “subject to a great deal of uncertainty” but well below the estimates by other trusted researchers in the field. In other words, even moderate estimates demonstrate the cost to be significant.
Reduced economic output is not the only cost associated with unchecked climate change. There is of course environmental damage and declines in health and wellness. The Environmental Protection Agency estimates that the value of economic damage, as opposed to the change in output, from climate change will be a half percent of gross domestic product for 2050. Other government estimates project the cost to be hundreds of billions of dollars a year for climate change by the end of the century.
However, just because inaction will cost a lot does not mean officials have to pursue any and every single policy response. The efficiency and cost of any policy matters. The climate portion of the Green New Deal, minus the unrelated aspects such as universal health care, may cost up to $12 trillion over a decade, according to the American Action Forum. This alone could double the federal deficit for that time, absent tax hikes or spending cuts. At a time when the federal government is on an unsustainable fiscal road, the cost of any new initiatives must be carefully considered.
In other cases, the cost of policy can be hidden from the public. State or federal mandates for certain fuel types in electricity generation may shift the cost but are not directly observable like federal spending. It is critical to distinguish between a low cost policy and a policy with a hidden cost, which may insulate politicians from voter disapproval, but the economic impact is just as real. Research by Michael Greenstone and Ishan Nath at the University of Chicago saw that state renewable fuel standards raised electricity prices by more than 10 percent on average. Carbon emissions went down as a result, but at a cost of more than $100 a ton.
Bad climate policy comes in several forms. Federal regulations can lack durability, as one administration could undo the agenda of the previous administration. Narrowly crafted policy is often inefficient or ineffective. Lots of climate proposals do not consider the unintended impact on the economy. They also fail to harness the real power of the market, instead counting on “command and control” strategies with regulators dictating standards and limits. Policy that harnesses market forces is difficult over political reasons, but it carries several practical advantages.
First, it captures the ability of consumers to make choices based on price signals. Second, it aligns the incentives of emitters with the main societal objective of environmental stewardship by altering demand. Third, broad market strategies that can address climate change encourage innovators to create new products and technology to increase our energy efficiency and decrease our reliance on the carbon intensive products.
So as President Biden pivots from the pandemic response to other issues, climate change will become a key focus of the administration. Critics will jump at an opportunity to call out lofty new proposals on clean energy or climate change. While some of the criticisms may be fair, we must always remember that inaction carries a major cost that we should work to avoid, and the relevant reference to any climate policy is not zero dollars but the cost of an alternative solution to achieve the very same goal.
Alex Brill is a resident fellow in economics at American Enterprise Institute.
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