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Climate-change affordability: Economic study

Posted in Research by Kate Archdeacon on November 19th, 2009

Source: Environmental Research Web

Image: D Sharon Pruitt via flickr CC

From “Climate-change policy is affordable after allby Liz Kalaugher

Climate policy is cheaper than most economic studies have suggested. Indeed it is affordable without causing any disastrous effects on our economies. That’s according to Jeroen van den Bergh of the Universitat Autònoma de Barcelona, Spain, and Vrije Universiteit, Amsterdam, the Netherlands.  “I wasn’t satisfied with the dominant economic approaches, notably cost-benefit analysis of climate policy,” van den Bergh told environmentalresearchweb. “In addition, I had the feeling that many important arguments, including very down-to-earth ones, were being left out of the debate on climate policy. I decided therefore to list all the relevant alternative perspectives on the cost of climate policy I could come up with in a single paper.”

Writing in Climatic Change, van den Bergh details twelve new angles on climate policy cost that haven’t received any attention so far. He believes that cost-benefit analysis isn’t appropriate for climate change policies as it’s hard to be certain about the costs of climate damage, to put a cost on the value of a human life, or to handle scenarios that have a small probability of taking place but would have a high impact, including irreversible changes such as a slow-down of the global thermohaline circulation, or the collapse of the Greenland and West Antarctic ice sheets.  The studies tend also to neglect the impact of climate change on human conflict, biodiversity, economic development and human populations. Cost-benefit analyses carried out to date have come up with a wide range of estimates for climate costs. Instead van den Bergh prefers to assess the cost of a reasonably safe climate policy.

“If it can be argued that a safe climate policy means considerably lower net costs than the absence of such a policy, it is rational to be in favour of such a policy,” he writes. “This represents a kind of cost-effectiveness combined with precaution, given the uncertainties involved, aimed at avoiding extreme damage costs due to climate change.”

The Stern Review of the economics of climate change found that extreme climate change could cause damage costing around 20% of GDP, whereas the IPCC report estimates that climate policy could cost 1–4% of global GDP. “Safe climate policy is clearly seen to be socially efficient,” writes van den Bergh. “The slogan used by some environmental NGOs is surprisingly appropriate: ‘the most expensive climate policy is doing nothing’.”

Van den Bergh evaluates climate policy from the perspective of happiness or subjective well-being, rather than from the angle of a reduced rate of GDP growth. “Elaborating the line of research on happiness effects of climate change and climate policy offers much more insight into the real social costs than the current economic approaches,” he said. Now he is exploring these aspects in more detail, together with a colleague.

The study also compares the $0.7–2.7 trillion estimated costs of climate-change policy with the roughly $5 trillion cost of the Iraq war, the $2 trillion spent by governments on the current economic crisis, the $150 bn allocated to weapons R&D each year, and the $1 trillion subsidies over five years to the agriculture, energy and transport sectors worldwide. Van den Bergh believes that energy is currently cheap compared to historical levels relative to household incomes, so that there is “much room” for raising energy prices via climate policy.

“Our global society can afford to invest in a safe climate policy,” he writes. “This should serve as relevant information for all politicians who fear severe economic consequences from stringent regulation of greenhouse gas emissions.”

Source: Environmental Research Web

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