Friday, August 18, 2006

Economics of Climate Change

In an opinion piece in today's Washington Post, Cass Sunstein poses the question of why industrial nations have failed to act despite the compelling evidence for global warming. Her answer is that the biggest polluters, the United States and China, have little incentive to do so. Together the U.S. and China account for about 36 percent of greenhouse gas emissions, and their contribution is increasing rapidly. Under most projections, the two countries would suffer far less from climate change than those nearer to the equator.

By contrast, the biggest losers from greenhouse gas pollution are likely to be India and Africa. Some of the most detailed, careful and influential projections have been made by Yale University's William Nordhaus and Joseph Boyer. Nordhaus and Boyer show that in terms of human health and agricultural loss, India and Africa are by far the most vulnerable regions on Earth. Because of an anticipated increase in malaria, Africa will probably be hit especially hard, and India is expected to suffer a large increase in premature deaths as well....

[The United States and China] are expected to suffer some losses in terms of human health, but compared with projections for other countries those losses will be disproportionately small. A key reason is that the United States and China are not expected to be highly vulnerable to increases in malaria and other climate-related diseases.

In terms of percentage reductions in gross domestic product, India and Africa together are expected to lose about 10 times more from climate change than the United States -- and about 20 times more than China.
Her solution to the problem boils down to a form of moral persuasion.
First, they might find a way to convince the United States and China that they have a moral obligation to protect the planet's most vulnerable people. The United States has long benefited from technologies that, while promoting its economic growth, are imposing serious risks on disadvantaged people in India, Africa and elsewhere.

Second, the world's nations might try to convince these two countries that emissions reductions are less expensive, and more beneficial for their own citizens, than the recent projections suggest. Environmentally friendly innovations have often turned out to be far less costly than anticipated. (And if persuasive evidence is found that indicates greater losses for both nations from global warming, there will be a stronger incentive to try to innovate.)
Unfortunately moral persuasion has not worked well in the past when it comes to encouraging action from our business and political leaders. Major change in the United States is not likely to happen without a substantial groundswell from the electorate. Even with one, there are still political obstacles, particularly key committee chairs who deny the evidence for climate change projections. (I suppose these are not among Sunstein's "sensible people.")

China represents its own set of problems, with a growing industrial economy and a poltical system not particularly responsive to public opinion.

While the United States could go it alone and unilaterally enact reforms, these two countries will need to reach a mutual agreement for substantial greenhouse gas reductions to occur. There is too much economic competition for one to risk sacrificing profits while the other blithely goes ahead as usual. Such an agreement will require serious diplomacy based on mutual respect, without the usual macho posturing. This, too, is an obstacle in the way of near-term change.

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