|The Costs of Climate Protection: A Guide for the Perplexed (WRI, 1997, 60 pages)|
Nations that have signed the Global Climate Convention are negotiating commitments to stabilize and then reduce emissions of greenhouse gases, which will otherwise continue to build up in the atmosphere and alter global climate. An agreement with binding limitations is essential, since experience in the United States and many other countries over the past five years shows that the purely voluntary efforts pledged in Rio de Janeiro at the Earth Summit are insufficient.
Since the Framework Convention on Climate Change was concluded in 1992, global emissions have continued to rise despite increasing evidence that human activity is having a discernible effect on world climate. The most recent scientific assessment by the Intergovernmental Panel on Climate Change emphasized that the continued buildup of greenhouse gases could have long-lasting climatic effects, some of which would impose significant economic burdens on nations and vulnerable populations.
Before the United States commits itself to specific restrictions on carbon dioxide emissions and timetables for implementation, it is essential that the economic consequences be thoroughly understood. Limiting carbon dioxide emissions will mean significant changes in energy use and energy sources, probably changing energy costs substantially. Household budgets and business profits will be affected. These impacts may affect inflation, international trade, patterns of investment, and thus the macro-economy.
Whether the United States makes these changes unilaterally or in concert with other nations, whether it makes them in a cost-effective way using market-friendly policy instruments, and whether it implements them with adequate time and flexibility for economic adjustments to occur will all affect the macroeconomic impacts.
As the discussion of mandatory policies to reduce greenhouse gas emissions has accelerated, efforts to understand the economic implications of those policies have become intense. More than a dozen economic models have been used to generate simulations of different abatement targets and implementation policies. Not surprisingly, all this activity has produced little apparent consensus: economists derive markedly different predictions from their models about the likely impacts of achieving any specific abatement goal. Various interest groups have seized on particular predictions to support their own policy conclusions.
To sort out the resulting confusion, World Resources Institute vice president and senior economist Robert Repetto and his colleague Duncan Austin explain why different economic models reach different conclusions - because they start from different assumptions. This report, The Costs of Climate Protection: A Guide for the Perplexed, provides an overview of 16 leading economic simulation models. According to the report, under a reasonable set of common assumptions, models indicate that the macroeconomic impacts of stabilizing green- house gas emissions are likely to be modest and, if the environmental benefits are factored in, are likely to be beneficial. Repetto and Austin identify which assumptions are crucial. Their report will help readers form their own judgment about the likely impact of climate protection on the economy.
Building on the findings of earlier reports, including The Right Climate for Carbon Taxes: Creating Economic Incentives to Protect the Atmosphere; Green Fees: How a Tax Shift Can Work for the Economy and the Environment; and Breathing Easier: Taking Action on Climate Change, Air Pollution and Energy Insecurity, WRI continues to explore constructive ways to resolve the climate problem without undermining economic prosperity. We are committed to working with the private and public sectors in the United States and abroad to achieve this goal.
We would like to thank the MacArthur Foundation, the W. Alton Jones Foundation, the Nathan Cummings Foundation, The Energy Foundation, and the U.S. Environmental Protection Agency for providing generous financial support for the work underlying this report.
World Resources Institute