Which Costs More: Preventing Climate Change or Dealing With Its Effects?

Which Costs More: Preventing Climate Change or Dealing With Its Effects?

When the presidential debates ended last week, many commentators noted climate change has been a topic of debate in every election since 1988--except for this one.

The biggest recession since the Great Depression has put a damper on the momentum to stop what is arguably one of the greatest threats to humanity. (We say humanity because stopping climate change isn't about saving the planet; Earth will remain no matter how the climate changes. The issue is about keeping the climate optimal for human life--not for dinosaurs or some other species.)

The omission of climate change from the debates was put in stark relief this week when Hurricane Sandy tore through the Eastern U.S., causing more than 80 deaths as of this writing and leaving more than 8 million people/homes without power. The estimated cost of cleaning up the aftermath is up to $60 billion.

What Caused Sandy to Wreak Havoc?

Although weather and atmospheric events are very complex and climate scientists can't yet say whether global warming contributed to Sandy, what they can say so far is that the type of destruction wrought by Sandy is in line with the kind of effects they would expect to see given the record ice loss in the Arctic and the facts that the Atlantic Ocean is two degrees warmer than it was 100 years ago and the water level around New York City is a foot higher then a century ago.

The probability of a connection between climate change and Sandy even prompted New York City Mayor Michael Bloomberg to unexpectedly endorse President Barack Obama, saying he was a candidate better suited to tackle the challenge of climate change.

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And Sandy is the only latest reminder of the dangers of climate change, with wildfires, drought and polar ice loss at record highs in recent years. Even the number of record-high temperatures is at a record high, with this year producing about seven record highs for every record low, whereas through most of the 20th century, the number of record highs and record lows were about even.

With the election coming up next week, but both presidential candidates mum on the subject of climate change, we want to ask: What is more expensive--trying to prevent climate change or living with its consequences?

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The Do-Nothing Scenario

The main cause of climate change is an increase in greenhouse gases in the atmosphere (just as the phrase suggests, these gases trap heat in the atmosphere). The biggest culprit behind that increase? The burning of fossil fuels (coal, oil, natural gas) for energy--and on average, the amount of fossil fuels burned grows yearly. (In the 2000s, it grew about 3% a year, and in the 1990s, at about 1% a year.)

So, just how will climate change cost us? If we don't do anything about it, then what will happen and what will we be paying for? In the U.S., the major costs will be:

  • Increased hurricane damages: Hurricanes will be, on average, wetter and more severe. As we saw in Sandy, hurricane effects such as storm surges and flooding can harm infrastructure.
  • Real estate losses: Warmer ocean water will swell, causing sea levels to rise and damaging beachfront homes.
  • Increased energy costs: Since the climate will get even warmer, we'll pay even more to cool our homes, offices and other buildings during the summer. Our reduced need for heat in the winter won't offset the rise in these expenses.
  • Less water, more work delivering water: More frequent and more severe droughts in the West and Southeast will mean more expensive water.

And in other parts of the world, the effects will be different. For instance, in developing countries, climate change will cause losses in farming and spread mosquito-borne diseases such as malaria and dengue fever. (Even the U.S. is starting to see the encroachment of tropical diseases: Florida experienced a dengue fever outbreak in 2009.)

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The Do-Something Scenarios

Climate change prevention, technically called climate change mitigation, is usually focused on decreasing greenhouse gas emissions into the atmosphere in order to reduce the severity of global warming. While there are many proposals on how to do this, including some far-out methods like geoengineering (taking human action to engineer the climate ourselves), here are the more common and feasible proposals, which, with the exception of cap and trade and the carbon tax, aren't mutually exclusive.

Energy Efficiency Projects

Making all our energy-consuming appliances and vehicles more efficient (like the now-ubiquitous CFL), and reducing energy by sealing up drafty windows and doors in our homes, for example, are the fastest, easiest ways to mitigate climate change--and they will save us money. A 2009 report by the consulting firm McKinsey said investing $520 billion in energy efficiency measures could save the U.S. $1.2 trillion by 2020 and cut projected energy use by almost a quarter.

Cap and Trade

This system, which died a political death in 2010, proposed to set a limit on the amount of carbon dioxide that a corporation could put into the atmosphere every year. (Why carbon dioxide? Because it is the greenhouse gas most present in the atmosphere and causes the greatest amount of warming, not per molecule, but as a whole.) Companies would each then have a limit on the amount of carbon dioxide they could emit. Any company that produced less than its limit could sell a carbon credit to a company that could not stay within its limit. (This diagram shows how it would work.)


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Because producing carbon would cost money, the theory was that cap and trade would have incentivized companies to produce less carbon by becoming more efficient or switching to cleaner energy. (Plus, companies who did so could make money by selling carbon credits.) The cap would have been gradually lowered, actually decreasing the amount of carbon being put into the atmosphere annually.

While the federal government did not adopt this scheme, California will launch a cap and trade program on January 1. The second-largest in the world, it will likely be closely watched to see how it might work on a larger scale.

Carbon Tax

Similar to a cap-and-trade scheme, a carbon tax would straight-up tax emissions. According to this idea since climate change is already costing society, let's make people aware of the cost by taxing "dirty" energy. This recent New York Times Op-Ed proposes a tax of $300 per ton of carbon dioxide emissions. Any goods that had fossil fuels in them, such as gasoline, would be more expensive. (We can already see how behavior would change based on the fact that drivers in European countries, which charge higher taxes on gasoline, drive much more efficient cars.)

Switching to Alternative Energy

Think of all the coal plants, oil refineries and natural gas drilling across the country--and replace at least some of them with "clean" forms of energy that don't emit greenhouse gases, such as wind, hydroelectric, solar, geothermal, and nuclear.

For all these types of energy, with the exception of nuclear, the resource being tapped--the wind, the flow of water, the sun, the Earth's heat--costs nothing once you build the infrastructure to obtain the energy. The main drawbacks are that wind and solar are only available when the wind blows and the sun shines; at the moment, there aren't efficient ways to save the energy for later.

So, Which Is Cheaper?

The Do-Nothing Price Tag

So now that we've seen what a do-nothing scenario would look like and what some do-something scenarios would look like, how much will each cost?

Let's start with the do-nothing scenario. Given what we've already put in the atmosphere and what we are projected to put into it, how much will climate change cost us?

While this is a highly complicated calculation, one of the most highly cited reports on this subject, the 2006 Stern Review on the Economics of Climate Change, by British economist Nicholas Stern, estimated that not acting on climate change will cost about 5% of global GDP each year "now and forever." He added, "If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more."

Gross World Product was $69.99 trillion in 2011, so the 5%-20% range is anywhere from $3.5 trillion to about $14 trillion each year "now and forever."

Given that U.S. GDP per capita in 2011 was $49,000, that means your portion would be anywhere from $2,450 a year to $9,800 a year to pay for climate change if we don't do anything about it. Which works out to $204 to $817 a month.

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The Do-Something Price Tag

Given that the do-something scenarios are all hypothetical, it's hard to say how much any given project will cost. Plus, the most likely thing that would occur if we decide to act is a hodge-podge of actions ranging from a cap and trade scheme in one place and a carbon tax in another, mixed in with energy efficiency projects in many places.

However, there is a good precedent for cap and trade that shows how that type of scheme might play out: the program that reduced acid rain. The 1990 Clean Air Act capped the sulfur emissions that were creating acid rain, and allowed each company to decide how to lower their emissions. The result? What the Economist called, in 2001, "the greatest environmental success story of the past decade." Emissions were lowered faster and more than expected, and at one-quarter of the projected cost. This suggests that such a scheme, if implemented correctly could also mitigate climate change faster and more cheaply than projected.

Stern also looked into the cost of reducing greenhouse gases in order to prevent the bad effects of climate change. He initially calculated that doing so would cost about 1% of global GDP each year, and then in 2008, he increased that estimate to 2% because of how quickly the concentration of greenhouse gases in the atmosphere is increasing.

Going by the 2% rate, paying upfront to reduce greenhouse gas emissions and prevent further climate change would cost the world about $14 trillion a year.

Your portion? $980 a year. Which works out to $82 a month.

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Back to the Election ...

It looks like the way this debate has been framed--act on climate change or help the economy--is a false choice. We're already paying lots of money not to do anything about climate change. If we invested a small bit of that money upfront to work to mitigate climate change, we wouldn't have to waste so much money cleaning up its damages. And if the acid rain example is any guide, it may be even cheaper to do so than we anticipate. Hopefully, the next president will think of Sandy's $60 billion price tag and realize the cost of inaction is too high.


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