Be Not Afraid of Estimates of Climate Change Impacts

Jim Manzi
Jim Manzi Former Brookings Expert, Founder and Chairman - Applied Predictive Technologies (APT)

June 10, 2014

Ross DouthatAndrew Sullivan, and others point to a recent article in which Ezra Klein describes a global nightmare that is being created as the irresistible force of climate change meets the immovable object of the dysfunctional American political system. His tone is somewhat apocalyptic. Here is his opening:

If you were going to weaponize an issue to take advantage of the weak points in the American political system—to highlight all the blind spots, dysfunctions, and irrationalities—you would create climate change. And then you would stand back and watch the world burn.

Klein asserts that there is universal expert agreement that any warming greater than 2 degrees Celsius will be catastrophic, and that the world is clearly headed past this benchmark. He thinks that we are on track for 4 degrees Celsius of warming, because the world cannot get an enforceable agreement to limit emissions. 

I think that there are two huge problems with this argument.

First, the basic premise that disaster follows once global warming hits a 2C threshold is unsupported. Expected economic damages from warming at (and well above) 2C have been consistently estimated at a few percent of global economic output.

The United Nations Intergovernmental Panel on Climate Change (IPCC) has the task of integrating the best available knowledge on technical questions relating to climate change. Roughly every five years, the IPCC issues a comprehensive set of reports, called Assessment Reports. They are organized by Working Groups on various topics. Working Group 2 (WG2) has tasks that include estimating economic impacts of climate change. The most recent assessment was released this year, and is the fifth in the series (referenced as AR5). The prior assessment report, AR4, was issued in 2007. AR3 was issued in 2001.

AR5 estimates that “global annual economic losses for additional temperature increases of ≈2C are between 0.2 and 2.0% of income” (WG2 Summary for Policymakers, page 19). So, the central estimate for losses from 2C of additional warming is about 1 percent of income. 

What about impacts of increases beyond 2C? The full AR5 WG2 report provides a list (Table 10.B.1) of the studies used to estimate economic impacts. There are nine studies that estimate the global GDP impact of 2.5C of warming (this is widely studied as a benchmark, since it is in the rough range of expected warming over the rest of the century). The median expected impact across these nine studies is that 2.5C of warming would reduce global GDP by 1.4 percent. There are six estimates for expected impacts of warming at 3C or above, with a median estimated impact of a 3.6 percent reduction in global GDP for 3–4.9C of warming.    

This is broadly consistent with the prior AR4 estimate that a 4C increase in global temperatures should cause a reduction of 1 to 5 percent in global economic output (WG2 Summary for Policymakers, page 17). As stated in AR4, this earlier estimate “confirms” similar estimates from the yet earlier AR3 of 2001. These estimates have stable for more than a decade.

A few percent of GDP is a big deal, and money isn’t everything, but this is hardly what I would mean in normal speech as “the world burning.” 

This is the root reason why fair-minded cost/benefit analyses show that various global carbon-rationing proposals that would reduce economic growth rates in return for lower emissions — whether mechanically structured as a carbon tax, a cap-and-trade system or direct regulation — have real-world costs in excess of expected benefits.

Note that these are estimates for global economic impacts. As Klein’s article indicates, the U.S. is much better positioned with respect to climate change than is the world on average. This is why potential U.S. carbon-rationing proposals such as the 2009 Waxman-Markey cap-and-trade plan or the current EPA power-plantproposal consistently fail fair-minded cost/benefit analyses spectacularly – with expected costs that on the order of 10 or 20 times larger than expected benefits for Americans.

This introduces the second problem with Klein’s analysis: The indictment of the American political system’s response to the issue. Klein is ignoring the facts on the ground. Rejecting such deals is a sign of political rationality, not dysfunction. And the American approach to the interrelated issues of energy and climate has been, in terms of results rather than rhetoric, the most successful in the world.

American political economy has for centuries managed to combine an almost ruthless pragmatism in doing what it takes to improve the lives of electorate with an orientation toward positive-sum solutions. These tend to improve the world as a whole, but also to improve America’s relative place within this rising world. This is happening right now with respect to climate change, and Klein’s proposals cut directly against the drivers of this positive change.

As the previous estimates for economic impact indicated, treating climate change as one long-term risk among many others, rather than as the moral and political trump card of Klein’s imagination, has been intelligent. More prosaically, implementing any actual carbon rationing proposals that have been put forward would have been enormously expensive and provided very small benefits.

Instead, America has created a technology-led energy revolution, which has successfully: reduced emissions more than any other major country in the world since 2006; achieved a permanently lower absolute emissions level than the benchmark year of 2005; increased economic growth and jobs; and improved the balance of trade. North America is now projected to achieve effective energy independence by 2030.

None of this was anticipated by national or international authorities as recently as 2008. I described this process in detail, and set it in the context of deep American attitudes and capabilities, in the current National Affairs. But in summary, it was enabled by policies very different than carbon rationing advocates would want to impose: a foundation of freer markets and stronger property rights than other major economies; the new-economy innovation paradigm of entrepreneurial start-ups with independent financing and competitive-cooperative relationships with industry leaders; and support by direct government technology investments.

We should be reinforcing each of these strengths, not despairing over our imagined helplessness.