Economic Facts Support United States Action to Curb Global Warming

Published Feb 20, 2009

Urgent Need for Strong Action to Curb Global Warming

In 2007, the Nobel-Prize winning Intergovernmental Panel on Climate Change (IPCC) found that global warming is primarily caused by human activity and, if left unchecked, will threaten communities with worsening heat waves, drought, sea-level rise and extreme weather by the end of the century. A recent UCS report shows that the United States must reduce its greenhouse gas emissions by at least 80 percent below 2000 levels by 2050, even with aggressive action by developing and other industrialized nations. 

Available Solutions Offer Economic Benefits

A recent report by McKinsey & Company, Reducing Greenhouse Gas Emissions: How Much at What Cost?,shows that we can start on the path to the necessary emissions reductions using existing and emerging technologies, even with conservative assumptions about lifestyle changes and new technologies. The report also found that a strong economy-wide emissions reduction program along with the full use of energy efficiency measures is the best way to achieve these reductions at low overall costs. Several analyses of the 2007 Senate climate bill, the Lieberman-Warner Climate Security Act (including studies done by the Department of Energy and the Environmental Protection Agency (pdf)) show that we can cut global warming pollution significantly while maintaining a strong economy and containing energy costs. A comprehensive emissions reduction program will stimulate the economy by spurring investment in low-carbon technologies and creating new business opportunities, as well as provide public health and environmental co-benefits.

The Cost of Necessary Reductions is Small Relative to Scale of Economy

The 2007 IPCC report found that the cost of actions to stabilize concentrations of heat-trapping emissions at a level that gives us a good chance of avoiding dangerous warming would amount to less than a 0.12 percent reduction in average annual global gross domestic product (GDP) growth rate in 2050. A 2007 analysis by Duke University’s Nicholas Institute for Environmental Policy Solutions (based on a U.S. Energy Information Administration model) found that the Lieberman-Warner Climate Security Act (S. 3036) would reduce U.S. GDP growth by less than 0.45 percent by 2015 and only 1.5 percent by 2050.  S. 3036 calls for emissions reductions on the order of 12 to 23 percent below 2000 levels by 2020 and the more modest long-term target of 55 to 66 percent below 2000 levels by 2050. The valuable benefits of public health improvements and growth in the clean technology industry would further offset costs.

Containing the Costs of Emission Reductions

The structure of a climate policy will greatly affect emission reduction costs. An effective policy package would include both market-based policies (such as a cap-and-trade program) and sector-specific policies (such as incentives for efficiency, renewable energy and new technologies). A well-designed cap-and-trade policy should encompass all sources and types of emissions, include deep near-term and long-term reductions, and exclude loopholes that undermine the integrity of the program. Auctioning is the most efficient and fair way to distribute allowances. Regardless of the distribution method, 100 percent of the value of the allowances should benefit the public, through programs that offset costs for low-income communities, invest in renewable energy and energy efficiency, and provide domestic and international climate adaptation assistance.

A cap-and-trade system can also include provisions to reduce compliance costs and control allowance price volatility, such as:

  • Borrowing and banking of allowances, which allow regulated entities temporal flexibility in meeting their pollution reduction requirement;
  • The use of offsets, which allow regulated entities to pay for reductions outside the capped sectors in lieu of reducing their own emissions;
  • Incentives for states and utilities to encourage cost-saving energy efficiency measures; and,
  • Establishment of an oversight board, similar to the Federal Reserve, that would watch market trends and use relief measures as needed while preserving environmental goals.

A Harmful Cost Containment Measure—the "Safety Valve" 

Attempting to limit the costs of a cap-and-trade policy with a carbon price cap or “safety valve” would undermine both the environmental and economic benefits of the program. This or any other “off ramp” from required emissions reductions would severely weaken the market certainty needed to encourage businesses to invest in new energy technologies. The unlimited use of borrowing and offsets also would threaten the integrity of the cap by delaying emissions reductions in major polluting sectors.

The Costs of Inaction are High

Recent studies show that implementing available, affordable solutions will cost far less than inaction.  The Stern Review on the Economics of Climate Change (2006) estimates that the international costs of unabated climate change is already at least five percent of global per capita GDP and will continue at this rate into the future, with estimates rising to 20 percent of GDP or more when accounting for a wider range of impacts. A Tufts University report, The Cost of Climate Change: What We’ll Pay if Global Warming Continues Unchecked, shows that doing nothing on global warming could cost the U.S. economy more than 3.6% of GDP (or $3.8 trillion) annually by 2100. Costs for just four categories of damage cited in the report were: Hurricane damages: $422 billion; Real estate losses: $360 billion; Increased energy costs: $141 billion; and Water Costs: $950 billion. A University of Maryland report, The U.S. Economic Impacts of Climate Change and the Costs of Inaction (2007), shows that unabated global warming could impose high costs across the United States, including the following:

  • Northeast and Mid-Atlantic:$300 million to $8 billion to build sea wall protection along 25 percent of the coastline;
  • Midwest:loss of many of the economically valuable timber species that sustain the $27 billion forestry industry; significant losses for the $5.7 billion dairy industry.
  • The Great Plains:decline in agricultural productivity of 70 percent for soybeans and 10-50 percent for wheat. 
  • Northwest:A rise from $13 million to $79 million in crop losses in the Pacific Northwest by mid-century. In Washington, a 50 percent increase in the cost of suppressing forest fires by the 2020s. In Alaska, $450 million to relocate three vulnerable towns.
  • California:36 percent reduction in agricultural land value; $1.5 billion initial investment plus $152 million in annual maintenance to protect the San Francisco and Santa Barbara coasts from a one meter sea level rise; electricity costs increasing by $1.4 billion under moderate warming scenario; a 55 percent increase in forest fires.
  • Southeast: Enormous increase in damages from extreme weather events, with the region already leading the country in natural disasters.

We Can’t Afford to Delay

Postponing action from 2010 to 2020 would require doubling the emission reduction rate to meet the mid-century goal of an 80 percent reduction, a challenge that could prove technologically and economically infeasible. Implementing a comprehensive, well-designed set of policies without delay would reduce costs by preserving flexibility for the economy.

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