Calculating Global Warming Costs and Benefits

If asked how much is a human life, alleviating human suffering, or a child’s well-being is worth, most of us would rightly wince at the thought of placing any monetary value on these. We are instinctively moved to devote whatever resources are necessary to protect even a single human life, ease human suffering, or help a child. This natural and appropriate human response, however, does not alleviate us of the moral responsibility for proper stewardship of finite resources. Resources are always finite. If we spend too much to save a particular life, we may consume resources that if more judiciously applied could save many lives. While it may be distasteful to assert that a life is worth a specific number of dollars, we can say that protecting many lives deserves a higher priority than saving one life. Sometimes dollars provide a convenient mechanism for computing the number of lives that may be saved. Using such an approach we often find that it is more efficient to apply resources to preventative care than enormous resources at the end of life that may add only a few days of life. The scary part is that if we move to a socialized health care system, we find that it is government rather than individuals who balancing resources against lives. This, however, is another story.

Here we suggest the necessity of performing a similar cost-benefits analysis on dealing with the prospect of climate change. As much as we might wish to anything possible to alleviate the effects of climate change, This is an approach recently suggested by the “skeptical environmentalist” Bjorn Lomborg. While we may wish to do whatever we can to reduce climate change and its effects, since resources are finite, reason compels us to ask how best to use these resources.

What are the costs of proceeding along the same course we are currently pursuing versus the costs of attempting to abate climate change? Of course the specific answer depends on who you ask and what part of the world you are concerned about. In a recent paper, “The Distributional Impact of Climate Change on Rich and Poor Countries,” published in Environmental and Development Economics, Robert Mendelsohn, Ariel Dinar, and Larry Williams attempt to bound the problem. They use the predictions of three climate models spanning the range of conventional predictions. The models predict a global increase in temperatures by 2100 ranging from 2.5 degrees C to 5.2 degrees C. The predicted precipitation changes range from a 15.5 increase to a 5.6% decrease. The increases in sea level range from 0.3 to 0.9 m. Local changes in different continents, though less certain, show far more variability.

The authors then couple the local climate change predictions with the local economies to determine the effect of climate on global and regional gross national product. On balance, the tropical countries, that are already warm, suffer the most. As one might expect, poorer countries, both because they tend to be nearer the equator and have a larger fraction of their GDPs linked to agriculture, suffer typically experience the largest negative impact.

Globally the effect of climate change on GDP by 2100, depending on both the climate and economic model ranges from a positive 0.10% to a negative 0.13%. Since the world economy will be substantially larger than by 2100, a 0.13% reduction will be a lot of money but the per capita effect would seem to be small, perhaps even a net positive. This would suggest that only we should accept only tiny changes on GDP as a cost of climate change reduction. This conclusion is especially true if we cannot eliminate, but only modestly reduce the effects of climate change. Of course, this calculus would be different for certain areas that would be more severely impacted.

Resources devoted to climate change abatement should also be balanced against other uses of the same resources, including providing clean water and medical resources to impoverished areas.

The work by Mendelsohn et al. is by no means a conclusive assessment of the economic effects of climate change and there is always the small but non-negligible possibility that climate change could be dramatically greater than the current best estimates. Nonetheless, the balance of the costs and benefits of climate change abatement against other possible uses of finite resources constitutes the only rational terms defining the debate.

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