Vox-aggerating Climate Change

by Patrick Brennan

Vox has an interesting take on a recent set of documents released by the Organization for Economic Cooperation and Development, a club of industrialized nations, projecting the performance of the world economy over the fifty years from 2010.

Their first takeaway: “Growth is going to slow down.” Yes, somewhat steadily after 2030:

Their second takeaway: “Climate change will pay a big part in dragging down growth.” Whoa now — that’s interesting, will it really? Here’s the OECD chart they cite:

Spoiler alert: This chart may look dramatic, but it doesn’t show climate change playing a big part in dragging down growth. It shows climate change being about 5 percent of the explanation for slower growth.

Here’s why: Vox is implicitly comparing one value — the size of the world economy — with a mathematical derivative of it — the rate at which the economy is growing at any given time. I can’t tell if the writer understands the problem here or not, but the climate-change chart explains almost none of the drop in the growth-rate chart — just about 5.2 percent of it, in fact.

What’s shown in the second chart is not the change in the growth rate of the economy over the next 50 years caused by climate change. Instead, it’s the change in the size of the world economy over that period of time caused by climate change.​

“By 2060, climate change will drag on GDP growth anywhere from 0.6 percent to nearly 2.5 percent,” Vox says. No, it will drag down GDP by that amount. “Ironically, the climate change brought about by economic growth is set to be a major drag on the global economy for decades to come,” the post says.

Just how wrong is this? Well, if you take out the effects of climate change, the OECD thinks that the global economy in 2060 will be 4.38 times the size it was in 2010. In other words, if the GDP of the world economy were 100 dollars in 2010, in 2060 it’d be 439 dollars.

But how much is that going to be dragged down when we take into account climate change? Let’s be pessimistic, and assume the OECD’s worst-case environmental scenario. If that holds true and we do nothing about climate change, in 2060 world GDP will be just . . . 428 dollars.

Yes, those 11 dollars we missed out on — or $6.58 under the most likely scenario — weren’t nothing.

But are they “a big part” of slowing growth? Nope. To be precise, what Vox says will play a “big part” in slower growth will account for 5 percent of said slower growth, according to the OECD’s central projection. (My detailed calculations are here.)

If growth rates remain until 2060 what they have been this decade, the world economy would be worth $126 dollars more than it would be under the OECD’s central projection for the world after climate change. Climate change accounts for just $6.58 of that.

(Of course, these projections are highly uncertain — climate change could be much more costly than the OECD thinks, growth could slow more, whatever. But their projections for now suggest that climate change is basically, for the world — even more so for the U.S., actually — just one economic problem in a much larger slowdown. If we think we can mitigate those relatively insignificant economic costs in a way that’s a net economic benefit, okay, something that produces a 1 or 2 percent bigger economy decades from now is a great policy. But that requires cost-benefit analyses — saying climate change is such a big part of slowing growth implies that it would be worth doing a great deal to stop it.)

UPDATE: The author has kindly amended her piece to reflect the points I’ve raised here. The wording now — “Climate change will play a part in dragging down growth” — is accurate. Like I said, climate change isn’t irrelevant; we consider policies, like fundamental tax reform, that may just result in a 1 or 2 percent bigger economy in the future well wiorth considering as a political matter. An intervention like fundamental tax reform, though, I’d note, is always assessed on its net economic benefits — policies to avert the 1 or 2 percent of GDP losses caused by climate change, if such policies are practically possible, will probably come with substantial economic costs that might well outweigh the benefits of avoiding the environmental costs the OECD projects.