Taking Exception

The Cost of Climate Change Inaction

By Kristen Sheeran and Mindy Lubber
Wednesday, May 6, 2009

Robert J. Samuelson's April 27 op-ed, "Selling the Green Economy," was way off the mark on the economics of tackling climate change. It was a call to bury our collective heads in the sand simply because the future involves uncertainty -- exactly the opposite of what we need to do.

Samuelson argued that the cost of moving to a clean-energy economy is higher than advocates expect and that transition can't happen nearly fast enough to meet the ambitious goals proposed in the climate and energy bill sponsored by Reps. Henry Waxman (D-Calif.) and Edward Markey (D-Mass.).

But this assumes that all costs involved in mitigating climate change -- and there will be costs -- represent new costs, without acknowledging the massive error in our market system that equates the price of carbon emissions to zero. This fundamental error skews everything that follows, because if emitting carbon costs nothing on a balance sheet, all steps to reduce pollution count as "new costs."

The real cost of carbon emissions is far from zero. Each new scientific report brings proof of a changing climate that promises to disrupt agricultural patterns, set off a scramble for dwindling resources, raise sea levels, propel population shifts and require massive emergency spending as we try to react to the growing crises. These are the costs of inaction.

A smart climate policy can create a mechanism to put the right price on carbon, and rapid economic change will follow that firm price signal, along with reduced climate risks. Our work with more than 100 economists nationwide and at RealClimateEconomics.org demonstrates the weight of economic analysis supporting this point.

The failure to put a real price on carbon emissions also undermines Samuelson's second point, that we cannot switch to clean energy technologies quickly. Many claim that these technologies will not work, at least in a cost-effective way, because we would already be using them if they did.

But we are not using them enough now because we have set the price of carbon pollution at zero and have devoted most of our financial incentives to fossil fuel production to gas up our vehicles, heat our homes and power our factories. Acknowledging the climate crisis and pricing its risks correctly, instead of passing them on to our children, would produce an amazingly quick shift to new technologies and behaviors. We change habits when it makes economic sense to do so. Price matters.

Ultimately, households and businesses care more about their total energy bill than costs per gallon or per kilowatt hour. Gas at $4 per gallon is cheaper in a car that gets 40 miles per gallon than $3-a-gallon gas in a clunker that gets 20 mpg. American entrepreneurial and research genius can move us to far greater energy efficiency quickly, using mostly existing technologies, when a carbon price rewards the effort.

The economic impacts on households, then, may not be as dramatic as some warn. We can mobilize the political will for clean technologies and emissions reduction when, as economic research demonstrates, there is a visible payoff in jobs and strides in international competitiveness from these technologies.

And none of this is in conflict with the business community. Quite the contrary. Consider Business for Innovative Climate and Energy Policy (BICEP), a coalition of nationally and globally known companies including Nike, Starbucks, Sun Microsystems, Timberland and Levi Strauss that the investor coalition Ceres coordinates. The heads of these companies believe that passing strong climate and energy legislation this year is in the interests of both the planet and their businesses.

Some BICEP businesses already see climate change affecting their supply chains, manufacturing and international markets. Those are costs. These companies see strong climate and energy policy as pro-business because increased energy efficiency saves them money and clear price signals on carbon help them plan competitive strategies on a more level playing field.

The cost of inaction is high and could be catastrophic. But, contrary to claims, the cost of switching to cleaner energy and dramatically lower emissions will spur competitive gains, cost far less and come much more quickly once we have set our goals, adjusted our incentives and corrected the market's false signals.

History shows that big changes often come in a rush, unforeseen by the critics of the day. We believe that honest accounting for the reality of climate change will bring a convergence of effort and interests, triggering change on a scale that will, once again, alter the course of history.

Kristen Sheeran is executive director of the Economics for Equity and the Environment Network, a nationwide group of economists focused on environmental policy. Mindy Lubber is president of Ceres, a national coalition of investors, environmentalists and public interest groups working with companies to address sustainability challenges.

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