Price tags for fixing global warming

February 20, 2007

The dollars-and-cents of global warming is now a welcomed topic among economists and governments. One can thank Sir Nicholas Stern for that. Last October, his report put a price tag on what must be done. Since then, others have chewed over his numbers.

As head of Britain's Government Economic Service, Dr. Stern led a team that estimated a cost to the task of cutting greenhouse-gas emissions by a necessary 80 percent (to settle at about twice their preindustrial concentrations) by 2100: The world's economic growth rate would be shaved about 1 percentage point a year if all the necessary regulations, taxes, and carbon-trading schemes were in place.

Stern's team also calculated the cost of not taking action. If the world conducted business as usual, the effects of warming could cut GDP growth rates by at least 5 percent and as much as 20 percent a year indefinitely. The trade-off seemed clear: Taking action is less expensive than neglect.

But wait. Despite its high profile, the study is hardly the final word – a point Sir Nicholas himself makes clear. Last week, he made the rounds in Washington to talk up his report and then went to Yale University to present his work to a group of fellow economists and endure the closest thing to peer review his report has yet received.

Some challenged its conclusions as too stark or not stark enough; others praised it. But in the end nearly everyone agreed it provides a valuable point of departure for a deeper look at the economic choices. As one panelist put it, the report is a "full-employment act" for economists, who aim to shore up what they see as its shortcomings or to take it in directions Stern didn't have time for.

Meanwhile, the Electric Power Research Institute (EPRI) last week outlined a course US utilities could take to drop their emissions to 1990 levels by 2030. For the industry, that would represent a more aggressive timetable than Stern's. In the process, the EPRI report suggests tacking a surcharge onto electric bills to help fund research into carbon-dioxide-light energy sources. EPRI estimates the surcharge would amount to an extra 47 cents on the average monthly electric bill. That would bring an additional $2 billion to the $3 billion the federal government now spends on energy research.

Details matter. The Yale panel noted that Stern's estimates for the cost of inaction were higher than many economists project. One big difference was in formulas that guess how much sacrifice one generation might make for future generations, or rich countries for poor ones. (One EPRI solution is to add 50 nuclear power plants, an uncertain prospect.)

Tone matters as well. The rock-solid certainty often heard in sound bites from environmentalists such as Al Gore and right-wing think tanks often lack serious discussions about the economics of global warming. Assertion should yield to humility about the scale, complexity, and duration of the problem. People need realistic costs to accept the sacrifice.

If nothing else, when a consensus emerges among economists, it should help correct naive assertions about the coming changes to everyday life in cutting emissions, paying for alternative energies, and adapting to the effects of warming. The doomsday rhetoric needs a reality check.