Bloomberg Law
March 3, 2022, 9:00 AM

Sensible Climate Targets Must Consider Costs as Well as Benefits

Wake Smith
Wake Smith
Yale University

On Feb. 28, the Intergovernmental Panel on Climate Change (IPCC) issued another landmark report surveying the likely damages to societies and ecosystems that will result from ongoing climate change. It was not pretty—an “atlas of human suffering” in the words of U.N. Secretary General António Guterres..

All the fearsome horsemen of the clime-pocalypse were paraded through the public square as a warning about the consequences of continued climate inaction. The sober scientific appraisal of the Working Group II (WGII) contribution to the IPCC’s Sixth Assessment Report was accompanied by the nudge that losses would be much reduced were we to limit the rise in temperature to no more than 1.5°C. This refers to one of the temperature anomaly targets enshrined in the Paris Agreement, along with the more permissive 2°C.

To be clear, there is little science behind these threshold choices, which is why they are such round numbers. They were instead chosen by policy makers trying to evince urgent action from a reluctant world. There is no clear threshold beyond which the dangers are reliably known to be unacceptable.

Rather, the problem is that we are sailing off the edge of the map into uncharted climate waters, and if there are monsters there, we are unlikely to avoid them. Straying less far from the historical climate would clearly be a safer choice for both ecosystems and societies.

Cost Tempers Climate Actions

Climate activitsts who will use the WGII report as a prod to swifter climate action will presumably be well intentioned, and the climate impacts of which they will seek to forewarn us are indeed potentially dire, but there is a force that tempers our climate action that is seldom openly acknowledged when discussing climate goals, and that force is money.

The simple fact is that limiting climate change to 1.5°C (2.7 degrees Fahrenheit) by mid-century would be hugely expensive. McKinsey just estimated the cost at $9.2 trillion annually, every year between now and 2050. That is more than 10% of gross world output and would constitute an industrial undertaking roughly twice the size of the entire fossil fuel industry.

Much of that expenditure would result from the fact that we would need to force a premature migration away from cheap, “dispatchable” fossil fuels in favor of renewable forms of energy that are increasingly economical to produce but require much more extensive and expensive storage and transmission infrastructure.

We would compel such a transition in part by internalizing the “mother of all externalities” and imposing a direct or indirect tax on carbon emissions. This would make most everything more expensive, but would provide a financial incentive to move away from high emissions lifestyles, processes, and energy sources. It would retard economic growth and make everyone a little poorer.

None of that is meant to argue that this might not be the right choice, either economically or ethically. Our greenhouse gas emissions will present real costs and damages to people—a little bit in the near future, but a lot more in the farther future. But as with many things, ambitious climate goals would confer a benefit, but at a cost.

Most climate discussion in the popular press assumes that the best climate target is the lowest one, because that will minimize climate damages. That is sound insofar as it goes, but it ignores the fact that the lowest targets entail the highest transitional costs. Allowing temperatures to rise to 3°C or more above the late 19th century baseline would require very little economic sacrifice in the near term, but may ruin the environment for future generations.

Limiting climate change to 1.5°C would likely preserve an acceptable environment, but at a near term cost that the world has thus far refused to undertake. As Nobel Prize winner William Nordhaus famously described it, the dilemma is between “wrecking the economy and wrecking the world.”

This dilemma is all the more vexing because of the intergenerational disconnect it encompasses. It is ethically untenable to luxuriate in a high consumption lifestyle today knowing that we will export the environmental consequences of the related emissions to future generations.

But it has also proven very difficult to convince the living to sacrifice meaningfully for the benefit of the unborn. Our successors on this planet would undoubtedly urge us to undertake economic sacrifices for their subsequent benefit, but such sacrifice brings unwanted consequences to the present.

Financial Burdens Must Be Considered

None of the above is meant to imply skepticism either about climate science or the work products of the IPCC. Runaway climate change is a grave danger to humanity and the natural world on which we depend—all the more so as we try by century’s end to cram more than 10 billion souls on a planet that had less than 10% that number in 1800.

The IPCC is the gold standard of climate science, and the dangerous future impacts that it has yet again vividly portrayed should be regarded with great trepidation.

But in seeking to articulate sensible climate targets, it is not merely the benefits of radical action that need to be considered but also the costs, and the financial burden on the current generation of limiting climate change to 1.5°C would be enormous. This is why, despite the urging of climate scolds (myself included) that we need faster action on climate, the revealed preference of humanity when it is asked how much climate change it wants has thus far always been—“more.”

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Wake Smith is a lecturer at Yale University where he teaches a world-leading undergraduate course on climate intervention, the syllabus of which forms the basis of his book “Pandora’s Toolbox: The Hopes and Hazards of Climate Intervention.”