How much would it cost

Given the fear of economic damage from measures to reduce greenhouse gas emissions—anxieties ceaselessly stoked by newspaper headlines emphasising the financial burden of tackling climate change—we would expect that economic analysis aimed at estimating those costs would generate some scary numbers. Yet—and this is perhaps the most astonishing fact about the debate over what to do about global warming—the opposite is the case. Economic analysis has repeatedly concluded that the costs would be tiny. What is going on?

In 2007 the IPCC updated its assessment of the economic costs of emission abatement by bringing together and assessing the results of a wide range of economic models.29 What did it show? To be fair, let's consider the worst case for the economy, which is usually the best case for the climate. The most stringent target assessed involves cutting emissions to ensure that greenhouse gases in the atmosphere are stabilised at 450 ppm CO2-e in 2050. The economic model showing the highest cost of reaching this target estimates that pursuing it would cause a reduction of global GDP of 5.5 per cent in 2050.30 Most models show lower costs. At first blush—and most politicians and journalists never get beyond first blush—this might seem like a sizeable number. In fact, it is minuscule. It means that aiming for 450 ppm would decrease global GDP by 5.5 per cent below the level it would otherwise reach in 2050.31 The average annual growth rate of global GDP between 1950 and 2000 was 3.9 per cent.32 Once the world recovers from the current recession, it is expected to average around 2.5 per cent over the next decades.33 At that rate, real global GDP will increase 2.9 times, from US$54.3 trillion in 2007 to US$157 trillion in 2050.34 If the world aimed to stabilise emissions at 450 ppm then the model indicates that global GDP in 2050 would be 5.5 per cent lower and would 'only' reach US$150 trillion.

Bearing in mind that world income will be very unevenly distributed, what would that mean to the typical individual? Global population is expected to increase from 6.7 billion people in 2007 to 9.2 billion in 2050.35 If incomes grow at the anticipated 1.75 per cent each year, average incomes will double by 2047. If we took stringent measures to restrict greenhouse gas emissions so that they stabilise at 450 ppm then, according to the models that show the greatest economic damage, at most the effect on the world economy would be such that the doubling of average incomes would be held up until 2050, a delay of three years. I have selected the most pessimistic numbers. A more typical estimate of the cost to GDP is 2 per cent, which would mean the loss of only one year's income growth between now and 2050. A one-year delay in the doubling of average incomes is the basis for the belief that pursuing a safe level of climate protection would be too expensive.

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