Cost/Benefit Analysis Cannot Justify Waxman-Markey's Aggressive Targets
Chip Knappenberger was perhaps the first analyst to demonstrate the negligible impact on global temperatures that would result from unilateral U.S. adoption of the pending Waxman-Markey bill. Knappenberger showed that even if the U.S. cut its emissions by 83% (of the 2005 level) by the year 2050, and then capped them at that level indefinitely, the schedule of global temperature increases would only be postponed by about five years.
Naturally, supporters of strong government action argued that the whole point of Waxman-Markey was to give American negotiators credibility when they demanded reciprocal action from other countries; Paul Krugman says as much in a recent blog post. Yet this leads to the next major problem: If the whole world adopted the stringent emission cutbacks in Waxman-Markey, then the costs to the global economy would far outweigh any reasonable estimate of the benefits (measured in avoided climate damage).
I explained this point in a previous post, but since then Resources for the Future (RFF) has released an excellent primer on climate mitigation policies. Even though two of the papers’ authors now work for the Obama administration, it too agrees with me: Standard economic analyses cannot justify the sharp emission cuts laid out in Waxman-Markey. Its costs far outweigh its benefits, as a simple perusal of the “consensus” models will show.
The RFF paper discusses its results in terms of modeled impacts from two different atmospheric concentration targets, namely, limiting the CO2 concentration to 550 ppm or adopting a more stringent ceiling of 450 ppm. In order to gauge the likely impacts of worldwide adoption of Waxman-Markey, we have to translate Waxman-Markey’s emission targets into the appropriate atmospheric concentrations.
Fortunately, the RFF paper makes such a link. The authors find (on page 5) that across the models and stabilization scenarios they lay out in their Table 1, stabilizing concentrations at 550 ppm means that global emissions can rise only 15 to 55 percent above 2000 levels by 2050. In contrast, to stabilize concentrations at the more stringent ceiling of 450 ppm, global emissions must fall 35 to 50 percent below 2000 levels, by the year 2050.
Recall that Waxman-Markey mandates an 83 percent reduction in emissions by 2050, relative to the year 2005 levels. Clearly, of the two scenarios studied by the RFF paper, the more stringent policy–limiting atmospheric concentrations to 450 ppm–comes closest to what “worldwide adoption of Waxman-Markey” would mean. So what does the RFF paper have to say about the costs of such an aggressive target?
Under the 450 ppm CO2 target, cumulative GDP losses are about 1.0 – 2.5 percent and 1.5 – 5.5 percent in 2025 and 2050, respectively, or about $8 – $43 trillion in present value from 2010 to 2050. (p. 5)
So the next time Joe Romm or Paul Krugman tells you that “the science” says aggressive climate action is cheap, point them to this RFF study, which says the cumulative cost through 2050, expressed today in present-value terms, is up to $43 trillion worldwide.
If we assume the U.S. would suffer a quarter of these global damages, it means the present-value estimate of lost American output (just through 2050, mind you) works out to a range of $2 trillion to $11 trillion (page 6). If proponents of aggressive government measures want to say the benefits justify such costs, fair enough; but let’s not kid ourselves that this is going to be cheap.
Later in the paper, the authors discuss the possible benefits of aggressive mitigation policies. But as I explained in my earlier post, the aggressive emission cutbacks of Waxman-Markey cannot be justified. Standard cost/benefit analyses show that more reasonable targets–such as a concentration of 550 ppm–are the obvious policy responses to the IPCC forecasts of climate damage. It is only by making fairly ad hoc assumptions that one can inflate present-value estimates of future climate impacts, to the point where a 450 ppm stabilization target is more efficient than a looser target.
Chip Knappenberger has shown that unilateral adoption of Waxman-Markey will impose large costs on the U.S. economy with no appreciable climate benefits. Yet mainstream models of the global economy and climate system show that worldwide adoption of Waxman-Markey would be foolish as well. It takes heroic assumptions both of lurking climate catastrophes and of international dipomacy to justify support for the current bill.