As part of the Obama administration’s all-hands roll-out of the Environmental Protection Agency’s new power plant rules, the White House Council of Economic Advisers just released a report arguing that delaying comprehensive action to tackle climate change would cost significantly more than acting immediately.
“The Cost of Delaying Action to Stem Climate Change” looks at recent research trying to model the economic costs of different emissions mitigation pathways—how far and how fast we can achieve reductions in carbon dioxide concentrating in the atmosphere. The important topline finding is that every potential climate change policy in existence imposes costs.
Doing nothing will increase the costs of dealing with climate related disruptions—floods, drought, days of extreme heat. Waiting to act until some more optimal time in the future will avoid some immediate pain, but will result in more pain later—any future climate policy will have to be much more stringent in order to equal the reductions that a policy started now would achieve.
The dollar values of predicted climate change damage are quite stark. A 2-degree Celsius increase above pre-industrial levels would cost the U.S. economy $150 billion per year. A 3-degree Celsius raises the total annual cost to $200 billion. (A 2-degree increase is the limit established by the international community in setting goals for emissions reduction.)
The Case for Carbon Pricing
The report makes two additional points worth emphasizing. First, it contradicts an assertion made by some conservative policy analysts, who have written that the federal government’s emissions reductions goals are unnecessary to achieve climate goals.
For example, Jim Manzi has argued, a technology-centric policy, without a strict regulatory framework handed down from Washington, DC. would be sufficient. According to Manzi, if markets were allowed to work on their own, with only some direct investment by the federal government, we could achieve more economically appropriate carbon emissions reductions.
Leaving aside whether one should be satisfied with more modest climate goals, the report reiterates a point made often by economists interested in how to design climate policy: the need for a carbon tax.
Currently, the market places no price on carbon dioxide emissions, meaning that power plants that produce them do not have to pay for the damage they will cause in the future (those economically devastating climate disruptions). In order to make the kinds of changes necessary to price-in that climate damage, the government has to impose some cost signal. Only then will profit-maximizing companies seek the kinds of investments that will have benefits both to the climate and large and their bottom lines. As the report states:
Public policies that set out a clear and ongoing mitigation path providethat [market] confidence. Simply waiting for a technological solution, but not providing any reason for the private sector to create that solution [through a regulation or tax that imposes a cost on carbon dioxide emissions], not an effective policy.
Waiting Increases Costs
The second point the report underscores is that waiting too long for an international consensus before acting also imposes costs. No one is saying that United States should go it alone without expecting other nations to take steps. But it’s equally sub-optimal to wait for universal buy-in before acting.
Not only would action by the United States set an example for both developed and developing world nations to follow, it also would reduce costs over the long-term. According to the research compiled in the report’s analysis, unilateral action is less costly than doing nothing, even assuming there is a delay in other nations coming onboard.
And, as I wrote recently in The Week, recent polling suggest the American people understand this, and would be on board with unilateral American action as a start.
Reasoning with the Unreasonable
Whether this report will change any minds on Capitol Hill is an open question. Rational persuasion isn’t a live option for U.S. representatives who compare EPA pollution rules to economic terrorism.
As a Bloomberg editorial lauding the report makes clear, the uncertainty behind many of the assumptions of economic cost should give people enough intellectual ammunition to argue that we should start doing something now, for the sake of both cost efficiency and risk management. That very same uncertainty, however, means that is easy for dyed-in-the-wool skeptics to dismiss those very estimates as guesswork.
The path forward, then, is greatly dependent on the outcome of the EPA’s rules-making process, which is currently in its public comment period. The EPA has promised to work with states and grant them the greatest possible flexibility to meet their emissions reductions target, an attitude consistent with cost-effectiveness.
The framework of the new rules will no doubt face legislative and judicial challenges by vested interests in the forty-nine states to which they apply, whose focus on their immediate costs apparently outweighs any conceivable benefit. Today’s report makes clear that in the long-run, this attitude is fiscally insane.