Economic Consequences of Climate Change Policies

According to The Growing Benefits of a Warmer World by the NCPA, global warming has many tangible benefits to the economy. Supplementing the argument, many negative economic consequences exist from climate change policy. Thus, a two-fold offensive argument exists: global warming helps the economy and policies to curb warming hurt the economy.

A study conducted by the Heritage Foundation found that carbon policies with very lofty targets and goals, such as the Waxman-Markey legislation (an 80 percent cut in CO2 emissions by 2050) passed by the House of Representatives in 2009, would have long-term detrimental economic effects:

  • An aggregate income loss to the U.S. of $207.8 trillion by 2100.
  • An aggregate income loss worldwide of $109.6 trillion by 2100.
  • A one-year worldwide loss of $3.5 trillion in 2100, equivalent to 4.75 percent of U.S. Gross Domestic Product.
  • Adverse impacts, on net, in every year of implementation.

Even more startling, these numbers assume that the U.S. is the only country to enact a carbon policy. The numbers skyrocket when including the rest of the world implementing similar policies. As such, while these policies may address environmental degradation, the negative economic effects greatly outweigh the positive results in all aspects of the “cost-benefit analysis.” In fact, having a stronger economy will help society to overcome the negative effects of climate change. Stronger economies have much easier accessibility to and flexibility with adaptation strategies.

Additionally, taken from a report by the Council on Foreign Relations,

Lawmakers and industry leaders worry that such greenhouse-gas caps in the United States will reduce the ability of U.S. companies to compete with foreign imports, leading U.S. companies to move to countries without greenhouse-gas restrictions, which is often termed ‘leakage’.

This same report offers many solutions to these qualms, but concludes that attempts to offset economic harm would pose a number of hurdles. While the end of this report also suggests economic benefits for these policies, the increased cost of domestic energy offsets any potential benefits.

Thus, instead of having the federal government apply more regulations and issue further policies to curb carbon emissions, the United States should encourage more private sector development to adapt to and mitigate the effects of impending climate change.

The U.S. should actually follow the example set forth by the United Nations via its Private Sector Initiative. By allowing for a unified database of case studies, companies all over the world can view actions implemented by other companies to reduce risks to their business operations. Many of these case studies also offer strategies for investing in adaptation action in vulnerable regions in a sustainable and profitable manner. This model for preventative and adaptive action is exactly what the U.S. should follow, as it filters and disperses innovative ideas throughout the private sector at a time when the federal government remains inefficient in addressing these issues.

Tanner Davis is a research associate at the National Center for Policy Analysis.

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  1. Joe Barnett says:

    “An aggregate income loss to the U.S. of $207.8 trillion by 2100” — we’re going to need that money to pay the $200 trillion in unfunded liabilities for federal transfers we already face! Welcome to the 22nd century!