The economics of climate change

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The economics of climate change, like the science of climate change, is becoming clearer.

The scientific evidence is saying that unless we rapidly and significantly reduce our carbon emissions, we face a climate catastrophe.

The economic evidence is also showing that the cost of inaction will far out-weigh the economic costs of action, and more than that: that early action now actually makes good economic sense.

Climate Progress has posted about a report for the Economics for Equity and the Environment Network (E3) found that with investments of 1-3% of global GDP, we could convert the global economy to clean energy, create jobs and stabilise the climate.

The take away message of the report is that we cannot afford to just have a little bit of climate policy.

From the report’s introduction:

Stopping global warming and protecting the earth’s climate is a daunting challenge. To prevent a climate crisis we have to move quickly to transform the ways in which we create and use energy, develop petroleum-free transportation, and much more. These changes will not be free; there is already resistance to paying for the first steps along this road. Some think that reaching for more ambitious mitigation targets, and quicker reductions in emissions, would mean economic disaster. Some economists have become known for advocating only slow and modest responses to climate change, lest the costs of mitigation become too large. This report demonstrates that the ‘go slow’ recommendations are unjustified. A number of economic analyses, informed by recent scientific findings and using reasonable assumptions, suggest that more ambitious targets and quicker action make good economic sense. The warnings about climate change are growing steadily more ominous — but it has not, as a consequence, become impossibly expensive to save the planet. We can still afford a sustainable future.

The bad news about climate change relates mostly to the costs of inaction. As greenhouse gas emissions grow, it is the cost of doing nothing that is becoming unbearable, not the cost of taking action. If there is reason for optimism amidst the dire warnings it is this: the costs of insuring the planet against climate disaster are not prohibitive. The best estimates of the costs of a vigorous, immediate effort to rebuild the world economy around carbon-free technologies are still in the range of one to three percent of world output (GDP) per year, even with the more stringent emissions reduction goals we are supporting. Scientific research continues to yield evidence that climate change is occurring faster, and its consequences could be more severe, than previously expected: the costs of climate inaction, or even of delay in mounting a large-scale response to the climate crisis, are getting worse and worse.

We cannot afford a little climate policy, half-measures that would leave us all vulnerable to the immense risks of an increasingly destructive climate. We need a big initiative, a comprehensive global deal on protecting the earth’s climate by rapidly reducing emissions of greenhouse gases. Because the status quo is not sustainable, the most economical choice is to change, as quickly, cost-effectively, and comprehensively as possible. This study looks at both sides of the equation, beginning with the worsening news about climate risks (i.e., the costs of inaction), then turning to the costs of an adequate response.

This report is primarily looking at the economics of the 350ppm target. However, 350 is now seen as the very least we should be aiming at if we really want to avert dangerous climate change.

Just like no credible scientist is saying that climate change is not real, no credible economist is saying that early action to mitigate and adapt to climate change is worse for the global economy than doing nothing. The risks of doing nothing are simply too great.

What we need now is political leadership, both globally and in Australia.

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