Weighing the Costs

I’ve already mentioned my preference for considering the implications of proposed policy over debating the science when discussing global warming and climate change and this post by Ron Bailey is a good start at doing just that (hat tip: Steve Verdon).

In the post Ron considers the work of William Nordhaus in evaluating the costs and benefits of various different plans. Dr. Nordhaus’s work suggests that the Gore plan

would reduce climate change damages by $12 trillion, but at a cost of nearly $34 trillion.

and proposes the following as the optimal policy:

Nordhaus reckons that the optimal policy would impose a carbon tax of $34 per metric ton carbon in 2010, with the tax increases gradually reaching $42 per ton in 2015, $90 per ton in 2050, and $207 per ton of carbon in 2100. A $20 per metric ton carbon tax will raise coal prices by $10 per ton, which is about a 40 percent increase over the current price of $25 per ton. A $10 per ton carbon tax translates into a 4 cent per gallon increase in gasoline. A $300 per ton carbon tax would raise gasoline prices by $1.20 per gallon.

Following this optimal trajectory would cost $2.2 trillion and reduce climate change damage by $5.2 trillion over the next century. “The net present-value global benefit of the optimal policy is $3.4 trillion relative to no controls,” writes Nordhaus. “While this is a large number absolutely, it is a small fraction, about 0.17 percent, of the discounted value of total future income.” Keep in mind that in this optimal scenario climate change damages would still accumulate to $17 trillion (lower than $22.6 trillion in the baseline case), but they are not abated because to do so would cost more than the benefits obtained.

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