At the Wall Street Journal today, Greg Ip is selling “an insurance policy” on climate change. It’s not much of a pitch.
“Even if you’re unconvinced by the scientific consensus on climate change,” he writes, you should acknowledge the “risk of serious economic damage.” He believes a carbon tax mitigates that risk at reasonable cost. One proposal he highlights would “reduce annual economic growth by a barely perceptible 0.06 percentage points per year” through 2030. “If the proof of damaging climate change has become incontrovertible,” he promises, “you’ll be glad action was taken.”
I am convinced by the scientific consensus on climate change, but I would still slam the door in the face of anyone who came to me with that offer. If an insurance salesman promises his policy is not-too-expensive but tells you nothing concrete about the benefits, walk away quickly. If Ip wants us to believe “you’ll be glad action was taken,” he would need to show (a) how much climate change would cost if not mitigated, and (b) how much mitigation his policy achieves. He doesn’t, because he can’t.
First, the forecasted costs of climate change are actually lower than Ip’s “barely perceptible” forecasted costs of action. For instance, Bill Nordhaus’s DICE model (which, of the models used by the Obama administration, has the highest forecasted cost for climate change) estimates that climate change will slow economic growth through 2030 by less than 0.02 percentage points per year. In other words, even if the U.S. carbon tax could halt global climate change entirely, the expected cost would still be three times higher than the expected benefit.
Even looking all the way out to 2100, Nordhaus forecasts climate change to reduce annual growth by less than 0.05 percentage points per year. Again, these are not estimates from skeptics, they are the high end of the estimates used by the Obama administration. If Ip believes the cost of his policy is “barely perceptible,” what does he think about the scale of the climate threat?
Second, a U.S. carbon tax does not take the cost of climate change from “full expected impact” to zero. To the contrary, it barely moves the needle. Proponents of U.S. action will typically acknowledge this but argue that it can instead have impact by showing “leadership.”
Ip actually takes the opposite side. In his view: “Even if the U.S. takes no action on climate change, other countries increasingly will.” I don’t think that’s right—I think it’s more likely that other countries take no action regardless of what the U.S. does. But if Ip thinks other countries are going to act on their own, the value of his U.S.-only insurance policy drops much further. Not only does the insurance cost more than the insurable event, it turns out the insurer doesn’t pay out on claims if disaster strikes.
If you do like the sound of Ip’s policy, give me a call—I have several other insurance policies to sell you. They won’t help you, but I promise they’re all quite affordable.