Recognizing the Costs and Benefits of Climate Change Policy

Posted by Jeffrey Brown on Nov 4, 2009

Filed Under (Environmental Policy, Uncategorized)

I am posting a day later than usual this week because I spent a good part of yesterday participating in a fascinating discussion about U.S. policy towards climate changes sponsored by the Center for Business and Public Policy, the Institute for Government and Public Affairs, and the Environmental Change Institute (all at the University of Illinois).  Three highly accomplished experts on climate change (Charlie Kolstad, Don Fullerton, and Nat Keohane) discussed the various approaches to tackling this global policy priority.  The conversation was refreshing for its analytical clarity, its recognition of both the benefits and costs of alternative policies, and for the fact that it was good economics set against a backdrop of political realism.  It left me wishing that more of our policymakers in Washington would have such high quality conversations when making their decisions.   


In preparing my own thoughts for this event, I read through some of the material from two of the many “sides” in the debate over climate policy legislation – the views of the U.S. Chamber of Commerce and the views of the Obama Administration.  Doing so brought back memories of my own days in the White House (in 2001-02 under President Bush).  Specifically, it made me remember the constant struggle between the economists and policy wonks who want to have honest and nuanced discussions about complex issues, and the “spin masters” whose job it is to effectively communicate to the public in a simple way.  I understand the value of simplicity for communication, but all-too-often, the truth gets “simplified away.”


Economics is fundamentally about trade-offs.  Perhaps no phrase is more famous for capturing this idea than “there’s no such thing as a free lunch.”  But to listen to the opponents and proponents of climate change legislation – at least after they have been filtered through the communications shops – one could be forgiven for thinking that our policy makers do not understand this.    


Let me give two examples – one from each side.


The U.S. Chamber of Commerce has an official position on climate policy that states:


“Our position is simple: There should be a comprehensive legislative solution that does not harm the economy, …”


What is remarkable about this statement is that they do not say that the legislative solution should be one in which “the benefits clearly outweigh the costs.”  Rather, they are imposing a truly impossible standard – that the solution “does not harm the economy.”  The most straightforward interpretation of this is that they are unwilling to accept any cost or slowdown in economic growth in order to reduce emissions.  Unless you believe that there are no costs to climate change and/or no benefit to any solution, this cannot possibly be an optimal – or even rational – policy.  


Proponents of climate change often make equally vacuous statements.  To hear many in the Obama Administration speak of climate change, you would think that environmental regulation is good for the economy rather than a cost.  They focus their attention on the number of “green jobs” that will be created, while largely ignoring the large number of jobs in other industries that will be destroyed.  I’ve yet to see a single study showing that environmental regulation is a NET positive for economic growth or job creation in the U.S. 


What we need – on this and so many other issues – is a “grown-up conversation” about the costs and benefits.  Of course we know that reducing emissions levels will be costly.  Of course we know that it will require changes in the way we consume and produce energy.  The question is not whether climate policy can be done at no harm to the economy or can even benefit the economy – the question is whether the benefits of reducing emissions is worth the cost. 


Fortunately, even if the “talking heads” are not having these discussions, serious thought leaders like those at our forum yesterday are.  Let’s just hope that policymakers listen.











4 Responses to “Recognizing the Costs and Benefits of Climate Change Policy”

  • Puneit Dua says:

    Climate change is a serious problem, but cap and trade is too simplistic a solution.
    The increasing might of the emerging economies will prohibit any policy that constrains their growth.
    As pointed out above any viable solution will have to justify the cost and unless the benefits outweigh costs, any unilateral policy will be unsustainable.

  • Michael Yam says:

    I agree that the U.S. Chamber of Commerce has an unrealistic stance towards climate change. It’s actually very shocking to me. There are always costs towards something and anyone who knows remotely anything about climate change would know that if we want to fix this problem, some people like the oil industry are going to need to make some changes that will require money to do.
    I believe that the cost and benefit analysis mainly revolves around one question: What is the worst case scenario if we do not act on climate change? If the scientists are telling the truth and that if we continue to do what we do now and that in 50 years or so New York or Louisiana will be underwater, I think that would justify us to act now. But if what they are telling us is simply theory and a little bit guesswork, then what they need to do is truly dish out the hard facts so that we will know what we are dealing with. Are emissions the true cause of climate change or is it simply an inevitable natural occurrence?
    Going to the cost benefit analysis, if the signs point to emissions being the main culprit for climate change then I would view this as a situation for the greater good. If environmental regulation helps save our nation while costing some people their jobs, I would favor it for the greater good.

  • Jeffrey Brown says:

    Thanks for your comment, and sorry for the long delay in my own response. You may be right that we should act now if there is even a small probability of a catastrophic event. That is good risk management. But I think it is also important to consider an additional factor, namely, that we should not assume that today’s technology is stagnant. Perhaps rather than incurring enormous economic costs to reduce carbon emissions using current technology, we should instead invest that money in R&D to find more efficient ways of reducing emissions, recapturing carbon, etc.
    Food for thought?

  • Yuan Zhang says:

    “Climate change…is a matter of urgency and national security, and it has to be dealt with in a serious way” said President Obama last December when met former vice president Al Gore. Facing the climate change, what the people all around the world doing now is not to improve but to compensate. In this case, we are not allow to bargain with the climate. We have no options of not to do, but to do.
    There are unpredictable possibilities for benefit and loss brought by those policies. But the sustainable development in the long run do overweight the current economics loss. As long as there is a chance to win, why don’t we take the risk?
    On the ancient Mongolia grassland, people treat the wolves as totem. Although wolves killed thousands of sheeps, horses and cows every year, they kept the ecological balance of the grassland. Nowadays, people killed wolves and raised more sheeps. And now the sheeps are biting our earth. To save the earth, we need the wolves.