Just imagine the infomercial: Have I got a deal for you! You may not know it, but your house is leaking energy, which means that you are the victim of colossal waste. In fact, your waste of energy will cost you a total of $22,000 over the rest of your life. But I’ve got a package of home improvements we can install to slash that to a mere $10,000. What? The cost of these improvements? It’s a pittance really — a mere $34,000.
Sound implausible? It should, but that’s exactly the sales pitch — minus admission of the actual cost — that Al Gore, Sir Nicholas Stern of the U.K. Treasury, and a host of climate doomsayers are pushing on governments around the world.
The significant problems that might be caused by global warming are indisputable; all the major figures in climate economics agree. Yet they also, with the exception of Sir Nicholas, agree that drastic action now would be even more costly.
That, for instance, is the conclusion of William Nordhaus of Yale University. Dr. Nordhaus could be considered the doyen of global warming economists; he has been estimating the economic costs of climate change since the 1970s. In his latest estimate, he assesses the costs of unmitigated global warming of 3°C at about $22 trillion. That is indeed a lot of money.
Yet Nordhaus, like most economists, considers the mitigation measures proposed by Al Gore and Sir Nicholas too costly. These measures concentrate on making energy use more expensive — which in turn imposes costs of its own — slows economic growth in the developing world, and imposes significant additional costs on developed economies.
In fact, the costs of the Gore and Stern policy packages are far more expensive in total than the global warming they’re meant to fix. Gore’s package, Nordhaus finds, reduces the costs of global warming to $10 trillion, but at a cost of $34 trillion. Thus the world is left $44 trillion worse off at the end of the 21st century, which is double the cost of doing nothing. The Stern figures are similar: Sir Nicholas’s package would reduce global-warming damage to $9 trillion, at a cost of $27 trillion, for a total cost to the world of $36 trillion — 50-percent more expensive than doing nothing about global warming.
All of this is not merely an abstraction; the costs are very real. They represent a reduction in welfare in money available to fight diseases and keep hospitals running, to provide drinking water and food, and to educate our children and keep them safe. If global warming is a catastrophe, what do you call a politician who advocates something twice as damaging?
Doomsayers reply that this is nonsense, arguing that Sir Nicholas’s work has shown his plans to be very cost-effective, reducing the costs of climate change by 20 times the cost of the policies. Yet Sir Nicholas’s results depart radically from the basic economics. As Nordhaus says, they are not based on any new economics, science, or modeling, but on a radical new way of treating the present valuation of future costs. In that model, costs that occur after 2800 weigh heavily on us today, whereas in accepted economics, they would be insignificant. Nordhaus does not mince words; he describes Sir Nicholas’s report as having been rushed, lacking elementary sensitivity tests, and designed to appeal to politicians.
Another climate economist, Dr. Richard Tol of the University of Hamburg, recently reassessed the economic literature on the costs of global warming, and finds that the likely actual lifetime cost to the world of each ton of carbon dioxide released is very small, about $5 per ton a vastly lower sum than Sir Nicholas’s figure of $86 per ton.
Unfortunately, as Dr. Tol points out, there is little funding support for this research because the results are unpopular with climate policymakers. And this, of course, is no wonder; climate policymakers are stand to benefit from selling some very expensive snake oil.
— Iain Murray is senior fellow in Science, Technology & Medicine at the Competitive Enterprise Institute