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Economic Impacts of Climate Change

In the last several decades, the issue of climate change has appeared on the radar screen of almost every individual in the developed world. The arguments that result over why, when, and if climate change is occurring can often seem tiresome and meaningless, but their eruption undoubtedly stems from a concern over the potential ramifications a change in the earth’s temperature could have for society. These ramifications are often classified as the “economic” impacts of climate change.

The economic impacts of climate change vary greatly, but are generally tied to the severe weather that experts believe climate change promises. Examples of this severe weather include increased heat, hurricanes, and floods. Concerned climate scientists predict that these conditions could hinder effective crop growth, which would subsequently harm the agricultural industry and adversely affect the population dependent on its food supply. Additionally, climate scientists imply that these conditions promise to damage property, increase death tolls, hurt the tourism industry, and generally deteriorate many environmental assets that we have come to rely upon.

Adverse economic effects such as the aforementioned are often advanced in highly visible writings such as the IPCC reports on climate change and the famous British climate report known as the Stern review. The latter report especially advances a bleak economic picture by suggesting that climate change and its effects, if unchecked, “would cost at least five per cent - and possibl[y] as much as 20% - of the world’s output.”

Furthermore, reports such as the Stern review also suggest that “climate change is an example of market failure involving externalities and public goods,” and therefore, the problem of greenhouse gas emissions cannot be solved effectively through the free market. Instead, it is argued that the global community must combat the social injustice of climate change problems for developing countries and future generations through a variety of regulatory policies which discourage the release of man-made pollutants into the air.

Other examples of economic literature, however, disagree with Stern’s alarming assessment that climate change could pose exorbitant costs to future global GDP. A variety of economists point out that Stern uses a much lower “discount rate” than is normally accepted, and because of this low discount rate, Stern’s work suggests that climate change impacts will be severe and current mitigation costs will be a worthwhile investment. According to the normally accepted, higher discount rates, however, climate change impacts appear to be less problematic, and therefore, mitigation investments seem to offer a much smaller rate of return. Given this low rate of return, it is believed that the economic and physical well-being of current and future generations would be better served by allowing the market and human innovation to remain freely unhindered by government greenhouse gas regulation.  

Indeed, it is argued that government regulation of such things as greenhouse gases can actually add to the undesirable economic impacts of climate change. These undesirable impacts are often seen through Cap and Trade legislation like the American Clean Energy and Security Act of 2009, a bill which sought to reduce American carbon emissions through increased taxation of various industries, most notably the energy industry. Although this bill failed to become law, its potential effects were heavily examined by public policy analysts and economists. They determined that its heavy taxation on the energy industry would cause increased unemployment and financial difficulties for American families, which would in turn severely cripple the United States’ economy.

The speculation about the economic impacts of climate change is admittedly vast and varied. In order to help readers sort through the variety of viewpoints on this issue, this topic presents the potential economic costs and benefits of climate change. Additionally, this topic examines the effects that increased climate change regulation can have on the global economy today and in the future.

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Quotes on the environmental impact of climate change from leading experts, scientists, economists, and politicians.

Commentary or Blog Post

"A half mile below the ground at Prudhoe Bay, above the vast oil field that helped trigger construction of the trans-Alaska pipeline, a drill rig has tapped what researchers think could be the next big energy source."

The question policymakers should be asking is how aggressive do policies need to be in the near term. Society needs to weigh a number of alternatives besides just stabilizing concentrations at 550 ppm.

As with all policy decisions, the choice between combating climate change or continuing the current greenhouse gas emissions trend is a choice between different sets of risks, costs, and benefits.

"A half mile below the ground at Prudhoe Bay, above the vast oil field that helped trigger construction of the trans-Alaska pipeline, a drill rig has tapped what might one day be the next big energy source."

According to present scientific calculations, environmental damage from global warming at current rates of carbon dioxide emissions will be extensive, especially in the latter half of this century and throughout the next few centuries. Because the effects would take so long to appear, there is great uncertainty about their extent.

the expression ‘climate change will be worse for the poor’ amounts to a much stronger argument for creating wealth than it does for the abolition of climate change.

In a recent article in the Wall Street Journal, Alan Blinder listed numerous alleged benefits of a phased-in carbon tax. ... A more balanced assessment shows that a carbon tax presents very real dangers, even if we rely on the same economic analysis that so enthralled Blinder.

So it is with global-warming legislation and the economy. Government-forced cuts in energy use, whether by cap and trade or by a clean-energy standard, would cut incomes and destroy jobs.

A House-passed bill that targets climate change through a cap-and-trade system of pollution credits would slow the nation's economic growth slightly over the next few decades and would create 'significant' job losses ...

With each passing year, it’s clear that international climate change talks are less about climate and more about wealth redistribution.

As Congress considers far-reaching federal climate-change legislation, there has been far too little discussion on the economic costs such policies would impose at the state, local and household levels.

"The Arctic will retain its power to amaze for a long time. Yet it is now changing beyond the usual regional and annual variations in sea-ice formation, glacier melt and so forth. The Arctic is clearly melting. Its floating ice cap is shrinking and thinning and its glaciers are retreating. By the end of this century, maybe much sooner, there will be frequent Arctic summers with almost no sea...

The Stern Review recommended urgent, immediate, and sharp reductions in greenhouse-gas emissions. These findings differ markedly from economic models that calculate least-cost emissions paths to stabilize concentrations or paths that balance the costs and benefits of emissions reductions.

But the economic reality is that PHEVs are not ready for primetime, and the best indicator for when they will be is when the government stops using taxpayer dollars to subsidize their production and consumption.

One such favourite claim states that climate change will lead to the rapid spread of vector-borne diseases, such as malaria, yellow fever and dengue, to new areas. This claim, however, slithers through scientific fact.

Almost all the increase in energy demand and emissions will come from developing countries, where a quarter of the global population lacks any access to electricity.

"Late for a party? Miss a meeting? Forget to pay your rent? Blame climate change; everyone else is doing it. From an increase in severe acne to all societal collapses since the beginning of time, just about everything gone wrong in the world today can be attributed to climate change. Here’s a list of 100 storylines blaming climate change as the problem."

The optimal way to deal with potential climate change is not to embark on a futile attempt to prevent it but to promote growth and prosperity so that people will have the resources to deal with the normal set of natural disasters.

Will government solutions to global warming be worse than global warming itself? Remember that man-made global warming is a negative externality that occurs when burning fossil fuels release carbon dioxide into the atmosphere.

A lot of businesses, convinced that the federal government will somehow raise the price of using fossil fuels, are investing in developing green technologies because they believe that the market for them is bound to grow.

"The world's governments are beginning to come to grips with the reality that crude oil is a finite resource."

Many people often assume that one of the negative impacts of climate change will be a decrease in crop production. In this piece, however, Ron Bailey cites a few studies suggesting that increased temperatures could actually increase production.

"When Energy Secretary Stephen Chu announced a half-billion dollars in federal stimulus loans to solar panel maker Solyndra, he called the move part of an aggressive effort to put more Americans to work and end U.S. dependence on foreign oil. But nearly two years to the day later, the bankrupt Solyndra needs help just to keep it own electricity service from being shut off."

The Lancet report details at length how warmer temperatures will lead to so-called tropical diseases such as malaria moving northwards and to higher altitudes. But this ignores the vast range of human and ecological factors that surround disease.

An open question: is global warming worse than what governments might try to do about it? Ronald Bailey reviews the Stern Report, which makes an economic argument in favor of immediate, extraordinary action to stop climate change.

What is this miraculous policy? It's called a carbon tax—really, a carbon dioxide tax—but one that starts at zero and ramps up gradually over time.

As it gears up for a battle over cap-and-trade, the Obama administration is painting a dire picture of the potential effects of global climate change on the American economy.

This piece briefly breaks down the scientific studies available on the economic impacts of climate change.

what we need to do is weigh the risks of global warming against the risks of global warming policy. We don’t want to do more economic harm than environmental good.

The real costs Americans will face if they are to meet President Bush's recently stated goal of stopping the growth of the U.S.'s greenhouse gas emissions by 2025. He also explains why none of the policies proposed by the three presidential candidates are economically feasible.

Reducing Greenhouse Gas Emissions: What are the Real Economic Costs?
Margo Thorning
Center of the American Experiment Forum
March 6, 2008

"Whatever one thinks or fears about global warming -- how significant or hyped it might be, how dangerous or inconsequential it might be, or...

Global Warming: Risks and Consequences
A "Reason in DC" discussion featuring Lynne Kiesling, Ronald Bailey, and Fred L. Smith

"Few topics generate more heat than global warming and possible policy solutions to increases in the average global temperatures. Indeed, the options bandied about range from doing nothing to...

Chart or Graph

Emissions of CO2, which accounts for the largest share of greenhouse gases, grew at an average annual rate of around 2½% between 1950 and 2000.

The excessive projections of the Stern Review derive from ignoring hard data on concentration trends, and instead using carbon cycle models to predict concentrations from projected emissions.

CBO estimates that households in the lowest income quintile in 2020 would see an average gain in purchasing power of 0.7 percent of after-tax income, or about $125 measured at 2010 income levels.

If we substitute the Stern Review’s assumptions about time discounting and the consumption elasticity into the DICE model, the calculated optimal carbon tax is much higher and rises much more rapidly.

The horizontal axis of Figure 1 shows the increase in average global temperature. The vertical index shows the central estimate of welfare impact.

In the optimistic cases, commodity prices decline, as there are benefits from warming in all areas, with the exception of electricity-based space cooling, under each of the climate change scenarios.

For the pessimistic cases, ... mechanisms reverse and climate change leads to higher unit costs and prices.

The effect on global emissions of the decrease in global energy intensity during 1970 to 2004 has been smaller than the combined effect of global per capita income growth and global population growth.

Table 3 provides summary estimates of the direct effects of climate change on specific market sectors. Here, positive effects represent market benefits while negative effects signal economic costs.

The real, observed concentration of methane has not increased for the last 7 years, contrary to all IPCC modelling and scenarios.

The allowances created by Waxman-Markey to restrain CO2 emissions do not create economic value, which is another way of saying that the allowances do not improve the material well-being of Americans.

The legislation would increase unemployment levels for every year: 1.9 million fewer jobs in 2012, and an average of 1.14 million fewer jobs from 2012 through 2035.

The legislation would reduce the economy by no less than $120 billion in any year, with an average loss of $314 billion from 2012 to 2035 and cumulative losses exceeding $9.4 trillion.

Analysis Report White Paper

"This book reports on a completely revised version of earlier models developed by the author and collaborators to understand the economic and environmental dynamics of alternative approaches to slowing global warming."

Heritage Foundation energy policy experts explain why an imposed national RES would be bad for families, bad for business, and bad for the economy.

The Review’s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today’s marketplace real interest rates and savings rates.

"The Intergovernmental Panel on Climate Change projects that temperatures in the major grain-growing areas of North America will rise by 3–4 °C by 2100. Such abrupt changes will create major challenges, significantly altering the area suitable for wheat."

Some of the most important disagreements about how aggressively to respond to the threat of climate change turn on the choice of the discount rate.

How sensitive are intensively-managed and lightly-impacted ecosystems to different levels of climate change?

United States has relatively less to lose from climate change. In these circumstances, what does justice require the United States to do?

The welfare theory is developed in the context of three empirical studies on the economics of global climate change. I argue that the theoretical foundations of intergenerational welfare economics are still unsettled even in deterministic models.

We study the economic impacts of climate-change-induced change in human health, viz. cardiovascular and respiratory disorders, diarrhoea, malaria, dengue fever and schistosomiasis.

While this study does find the possibility of agricultural losses under models that assume the largest temperature increases, it generally concludes that the world will be able to continue feeding itself over the next century, despite global warming.

"The only consensus over the threat of climate change that seems to exist these days is that there is no consensus. The much-heralded 2007 United Nations report on greenhouse gas emissions has served as a catalyst for lawmakers to burden traditional energy sources with regulations in favor of so-called clean energy."

"The evidence for global warming's being relatively benign is overwhelming. Historical data show that climate has always fluctuated but that warmer climates were better for plants and animals, including humans; statistics demonstrate that warm weather and hot climates reduce mortality and morbidity...."

Climate change is mainly projected to add to existing problems, rather than create new ones. Of particular significance are four categories of hazards to human health and safety which have frequently been cited as major reasons for controlling greenhouse gas emissions.

This paper explores a range of methodological issues surrounding projecting greenhouse emissions over the next century, including an evaluation of the Castles and Henderson critique.

This study finds that the impacts from global warming are likely to be quite modest for the next century.

An article attempting to place a positive economic spin on environmentalism. It hopes to turn the typically dour business opinion of it into a new way to create profit and capital in the world.

Despite using many good references, the Stern Review on the Economics of Climate Change is selective and its conclusion flawed. Its fear-mongering arguments have been sensationalized, which is ultimately only likely to make the world worse off.

Climate change presents a unique challenge for economics: it is the greatest example of market failure we have ever seen.

Three strategies, stimulating technological change, sustainable economic growth and free, unsubsidized trade, to enhance future adaptability to global change and develop social, legal and economic frameworks necessary to effect these strategies.

The present study uses the tools of economics and mathematical modeling to analyze efficient and inefficient approaches to slowing global warming.

Since energy is the lifeblood of the American economy, 85 percent of which comes from CO2-emitting fossil fuels, the Waxman-Markey bill represents an extraordinary level of economic interference by the federal government.

In this essay, I begin with a review of the estimates of the total economic effects of climate change. I then focus on marginal cost estimates, which are especially important for economists thinking about policy design.

The present note investigates alternative approaches to estimating the economic impact of abrupt climate change. A number of different approaches are reviewed: surveys, time-series methods, sectoral studies, capital-stockdepreciation estimates, and threshold analyses.

"The economics of climate change uses economic theory and computer models to study the interactions among government policies, the climate system, and the economy. In this article, I survey the field and some of its major controversies."

The year 2005 brought record numbers of hurricanes and storm damages to the United States. Was this a foretaste of increasingly destructive hurricanes in an era of global warming? This study examines the economic impacts of U.S. hurricanes.

"[N]ew research suggests that climate warming will not be as harmful as we once thought it might be. Climate scientists have reduced the magnitude of predicted warming, suggesting milder future climate scenarios."

The shadow price of carbon is an important indicator of the global incremental damage done by emitting greenhouse gases today. Cost-benefit analysis would set the optimal amount of greenhouse-gas-emission reduction.

Two extensive critiques of the Stern Review by various economic and climate change experts.

This report presents a review of economic studies for the United States and relates them to predicted impacts of climate change.

In this report, a team of authors led by Dale Jorgenson of Harvard University developed an integrated assessment of the potential impacts of climate change on the U.S. market economy through the year 2100.

This analysis provides an excellent overview of a variety of issues surrounding climate change and concludes the best way for the world to "combat" climate change is, "...by reducing present-day vulnerabilities to climate-sensitive problems that could be exacerbated by climate change rather than through overly aggressive GHG reductions.

Video/Podcast/Media

A panel of experts recently took on these questions in an Oxford-style debate. The motion for the Jan. 13 debate, part of the Intelligence Squared U.S. series, was: 'Major Reductions in Carbon Emissions Are Not Worth the Money.'

In this podcast, Patrick J. Michaels discusses the 2009 G20 summit and the worldwide struggle over climate change and emission issues.

Economist Margo Thorning discusses the likely consequences of Minnesota's proposed Climate Mitigation Action Plan on employment, household income, and new investments in the state. She also talks about the likely economic and environmental effects of bills currently before Congress, including the Lieberman-Warner Climate Security Act.

In two of his recent op-eds for the New York Times, Nobel laureate Paul Krugman has challenged critics of the government's intentions to regulate carbon dioxide emissions, and he has even specifically endorsed the pending Waxman-Markey bill which includes a 'cap-and-trade' program.

Economist Frank Ackerman argues that the standard economic models used to calculate the global cost of protection, versus the cost of destruction of the planet, focus on an incomplete cost-benefit analysis.

In this clip, Al Gore ... [compares] skeptics of climate change to racists during the Civil Rights Movement. Gore was sitting down for an interview with Alex Bogusky of the Climate Reality Project, and suggested that young people today whose parents do not believe in climate change are asking the same questions now that race-conscious young people in the 60s asked their parents.

Few topics generate more heat than global warming and possible policy solutions to increases in the average global temperatures. Indeed, the options bandied about range from doing nothing to applying planet-wide restrictions on all aspects of energy consumption and technology.

"Competitive Enterprise Institute Senior Fellow Marlo Lewis discusses the United Nations global warming negotiations in Poznan, Poland and how the current economic crisis will affect future environmental policies."

This video features a debate on fossil fuels and their effect on the environment. Patrick Michaels argues that implementing a carbon tax in order to save the environment would be deadly, but his discussion partners disagree.

In his first address to the United Nations as Commander-in- Chief, President Obama addresses the pressing issue of climate change. The one-day UN summit brought together delegations from 90 nations.

A dedicated, unabashed, free market capitalist, T. J. Rodgers takes a businessman's and engineer's view of global warming.

This film by the documentary-maker Martin Durkin presents the arguments of scientists and commentators who don't believe that CO2 produced by human activity is the main cause of climate change.

"Competitive Enterprise Institute Senior Fellow Marlo Lewis explains the truth about global warming in his film Policy Peril: Why Global Warming Policies Are More Dangerous Than Global Warming Itself. The movie includes cameos from Heritage’s Ben Lieberman and David Kreuzter and is full of talking points to debunk the common catastrophic global warming stories you always hear."

Primary Document

Popularly known as the Waxman-Markey bill, this document sought "To create clean energy jobs, achieve energy independence, reduce global warming pollution and transition to a clean energy economy." Highly contentious, the bill failed to pass before the end of the 111th Congress.

In order to create a clean energy economy that will increase our Nation's prosperity, promote energy security, protect the interests of taxpayers, and safeguard the health of our environment, the Federal Government must lead by example.

We are back here at Georgetown today because global climate change clearly is one of the most important of those challenges and also one of the most complex, crossing the disciplines of environmental science, economics ... and global diplomacy...

Produced by the English Parliament, this piece of climate change legislation seeks, among other things, "to set a target for the year 2050 for the reduction of targeted greenhouse gas emissions; to provide for a system of carbon budgeting; to establish a Committee on Climate Change; [and] to confer powers to establish trading schemes for the purpose of limiting greenhouse gas emissions or encouraging activities that reduce such emissions or remove greenhouse gas from the atmosphere...."

To move the United States toward greater energy independence and security....

I see this Conference helping to accelerate the IPCC's agenda as it searches for understanding of some very critical questions, broadening the dialog by exploring the link between scientific research and economic analysis in the study of global change.

The recommendations that this distinguished organization makes can have a profound effect on the world's environmental and economic policy. By being here today, I hope to underscore my country's and my own personal concern about your work, about environmental stewardship, and to reaffirm our commitment to finding responsible solutions. It's both an honor and a pleasure to be the first American President to speak to this organization, as its work takes shape.

Thank you for your letter of March 6, 2001, asking for the Administration's views on global climate change, in particular the Kyoto Protocol and efforts to regulate carbon dioxide under the Clean Air Act.

This report summarizes the science of climate change and the impacts of climate change on the United States, now and in the future.

When the savings of new, more energy efficient technologies exceed the costs of adopting those technologies, markets have the incentive to adopt them. Indeed the difference between the savings and the costs is the measure of the increased value the economy generates.

On December 2, 2009, Congressman Tim Holden ... held a hearing to review economic analyses that consider the potential economic impacts of climate change on the farm sector.

The main activity of the IPCC is to provide at regular intervals Assessment Reports of the state of knowledge on climate change. The latest one is "Climate Change 2007", the IPCC Fourth Assessment Report.

Under a regime that taxes CO2 directly, the transfer of revenue is not the immediate source of economic damage. The damage is a result of the behavioral changes brought about by the tax.

"The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change. The major feature of the Kyoto Protocol is that it sets binding targets for 37 industrialized countries and the European community for reducing greenhouse gas (GHG) emissions. These amount to an average of five per cent against 1990 levels over the five-year period 2008-2012."

[W]hat the Stern Review shows is how the economic benefits of strong early action easily outweighs any costs.

The analysis draws from numerous published sources to summarize the current state of climate science and provide a conceptual framework for addressing climate change as an economic concern.

The economic impacts of climate change on the farm sector are broad, complex and will evolve slowly over the next decades.

Global climate change poses one of the nation’s most significant long-term policy challenges.

An overview of issues related to climate change, focusing primarily on its economic aspects. The study draws from published sources to summarize the state of climate science and provide a framework for addressing climate change as an economic problem.

I cannot think of a business that will be more directly and profoundly impacted by global warming than the ski business.

The aim [of this document] is to give a new as yet unnamed U.N. body the power to directly intervene in the financial, economic, tax and environmental affairs of all the nations that sign the Copenhagen treaty.

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In the land of the free and the home of the brave, speech codes are a particularly odious example of politically correct repression on many a college campus. In some ways, college campuses are the least free places for thinking and speech in America. Your best friend for fighting your school's repressive speech codes is the Foundation for Individual Rights in Education (FIRE). Here's a short clip...
Running for Student Government
Running for office isn't easy, even in college. Not everyone is cut out for it, either. For those of you who are, this completely non-partisan section is for you. If you are inclined to pursue student government, we're not going to spend time on telling you how to get elected. A good place to go for ideas and training is CampusReform.org. Rather, we want to help you in office, as a believer in...