The Benefit to the Economy of Early Climate Change Action

By Preston, Benjamin; Jones, Roger | Ecos, June-July 2007 | Go to article overview

The Benefit to the Economy of Early Climate Change Action


Preston, Benjamin, Jones, Roger, Ecos


For years economic rationalists have warned that the costs of reducing greenhouse gas (GHG) emissions will undermine not only Australia's economy but also the world's. In short, argue the rationalists, GHG mitigation is a bad investment, the consequences of which are disproportionately large relative to the potential benefits in avoiding climate change damages.

Rather than walk down the mitigation road, the rationalists have adopted the principles of the late Julian Simon-resurrected in the current century by Denmark's Bjorn Lomborg (1)--namely, that the betterment of the environment and the human condition can collectively be pursued through the growth of market economies.

The foundation of this argument rests on two assumptions. The first is that the costs of GHG mitigation are sufficiently large to raise concerns about economic recession. Yet for several years now, the exact opposite message has been emerging from the offices of economists. Stanford University's eminent Stephen Schneider (2) in conjunction with Goteborg University's Christian Azar found that even with pessimistic assumptions about the costs of mitigation, the ultimate impact on the global economy was effectively negligible--delaying the time required for a 10-fold increase in global wealth by just two years.

More recently, the UK's Stern Review (3) estimated the costs of GHG mitigation to be on the order of 1 per cent of global GDP by 2050--granted, billions of dollars, but in the context of the size of the world's economy, a sum that poses no barrier to sustained global economic growth.

These findings have held at the national scale as well. As discussed in an earlier article by Steve Hatfield Dodds in Ecos, (4) economic modelling for Australia has consistently found the costs of mitigation to be no threat to the long-term growth of the nation's economy. It appears that the economic bogey man of mitigation that has caused so many to not only live in fear, but spread that fear to the general public, is dying a slow death.

So what about the second assumption? For any rational economic argument, one needs to know not only the costs of a policy action, but also the benefits--and there's the rub. Even if one accepts that the costs of GHG mitigation are not prohibitively high, the question remains whether such mitigation represents a good investment. Are the benefits of avoided climate change damages sufficiently large to offset the costs? Making such a determination requires knowing something about the costs of climate damages in the absence of efforts to control GHGs.

As it turns out, this may be one of the most uncertain elements of climate policy analysis.

Assessing climate damage

At the broadest level, the concern about unmitigated GHG emissions is that they will cause 'dangerous anthropogenic interference with the climate system', a concept encapsulated within the 1992 United Nations Framework Convention on Climate Change (UNFCCC). (5) The UNFCCC suggested that 'dangerous interference' refers to things such as threats to ecosystems, food security and economic development.

O'Neill and Oppenheimer (6) proposed more specific criteria, such as the collapse of the oceanic thermohaline circulation system, the loss of the world's great ice sheets of Greenland and West Antarctica and the destruction of coral reef ecosystems.

Yet this is certainly not a comprehensive listing. There are many other damages that may be construed as dangerous--for example, significant declines in rice yields in Asia, sea-level rise in Bangladesh or reduced inflows into Australian water storages.

Despite the varying definitions of 'dangerous interference,' it is clear that potentially dangerous climate consequences are a likely outcome of continued climate change. Global warming thresholds function as indices of such consequences. In a review of 'dangerous' global warming thresholds conducted for the Australian Climate Change and Business Roundtable, CSIRO researchers found estimates ranging from 1.

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