INTACT Working Group Policy Papers

Controlling the Costs of Transatlantic Climate Change Policies

This is one of four papers prepared for the US-EU High-Level Dialogue on Climate Change sponsored by the Brookings Institution, the German Institute for Security Affairs (SWP) and the German Marshall Fund of the United States, held at Villa Vigoni, Italy, October 2003. This paper builds on a forthcoming publication by Joseph Aldy, Richard Baron and Ms. Tubiana prepared under the auspices of the Pew Center on Global Climate Change for its 'Beyond Kyoto' series.

Uncertainty

Our understanding of climate change and the costs or benefits of various policy responses is imperfect. Today's models provide only crude estimates about the economic consequences of alternative global warming scenarios. Judgments about the benefits of climate policies rest on uncertain predictions about the adverse regional effects of global warming. Likewise, estimates about their costs rely on potentially shaky assumptions about the rate of technology change, innovation and social adaptation. With such uncertainty it is no wonder that differences of opinion exist.

The question for policy makers is how to deal with this uncertainty. Some maintain that uncertainty argues for delaying costly action to spare the economy until more is known. Others argue that the risk of irreversible and possibly catastrophic climate change more than justifies decisive action as an insurance against the unknown. The reasonable middle ground on which most Americans and Europeans agree is that the risk of dangerous climate change is real enough to warrant genuine action now that can be pursued without unduly harming the economy.

Controlling the cost of fighting climate change, therefore, is of critical political, economic and environmental importance. Keeping the cost low is key to securing the broadest possible political acceptance, both at home and abroad. A high cost approach, in addition, would detract from the pursuit of other important priorities, such as health care, job creation, education and national security. Cost-effective climate strategies, moreover, are needed to ensure that any resources devoted to climate policy actually achieve the maximum environmental benefits.

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