How Much Is A Climate Change ‘Solution’ Worth?


Numerous policies are being proposed to combat climate change. The cost of some of these policies are estimated to be in the trillions, tens of trillions and even near 100 trillion dollars. By claiming their policies resolve an “existential” threat, some advocates justify implementation at any cost. Governments would impose these costs on the public, reducing standards of living and quality of life.

But what is the true nature of the presumed threat? Is it existential? If not existential, then what are the potential costs to human welfare, and what is the largest price the public should reasonably be willing to pay to counter the threat?

Public interest in the thesis of climate change (previously termed “global warming” in public discourse) has steadily grown since June 23, 1988, when NASA’s James Hansen gave testimony to the United States Senate’s Committee on Energy and Natural Resources’ Subcommittee on Water and Power, supporting the claim that global climatic effects may result from carbon dioxide (CO2) emitted by combusting fossil fuels for energy. Politicians have since commissioned a plethora of studies to explore the issue.

The Fourth National Climate Assessment (4NCA) is one such recent study published in November 2018, just a few months following the 30-year anniversary of Hansen’s testimony. It makes many predictions that are now quite familiar – the marginal growth in atmospheric CO2 levels caused by combusting fossil fuels will cause temperatures and sea levels to gradually increase over the next 100 years at greater rates than the existing natural trends already in place.

By itself, this information does not suggest any cause for extraordinary action.

Of course this conclusion distinguishes those who may be motivated by a philosophy of disallowing global effects by humans from those who are motivated by interest in human welfare.

In the latter case, a cost-versus-benefit analysis needs to be part of evaluating the best course of action and deciding what level of effort should be expended to prevent or mitigate human-induced climate change. The conclusion will depend on a comparison of the costs of proposed preventive policies with the value of avoiding climate change induced by CO2 emissions from fossil fuel combustion.

The prognostications of the 4NCA includes estimates of the economic effects of climate change. This information can be used to estimate the value of avoiding climate change, thereby setting a maximum value for a climate change “solution.” As a society, we should not want to pursue any solutions whose costs exceed that value.

Before building on information from the 4NCA report, it is important to understand its limitations. Predictions from this, as well as other climate change reports, are based on a pretense of knowledge and understanding of earth’s complex climate system, the many natural systems affecting it, and the resulting effects on human economy and welfare that are sufficiently complete to make century scale forecasts.

Unfortunately, such capability is untested and empirically unproven.

From a scientific point of view, this is a critical flaw. Scientific methodology requires empirical verification. Even Einstein’s work in relativity was not accepted as valid until experiments demonstrated it capable of making more accurate predictions than previously accepted theory. (The year 2019 marks the 100-year anniversary of the first experimental confirmation of Einstein’s relativity.) Experiments compare concepts we imagine to the reality of the physical universe. Our concepts are never complete. Physical reality, particularly under conditions previously unobserved, is routinely found to be much more complicated and surprising than anticipated.

Because underlying capabilities are empirically unproven, long-term climate predictions from the 4NCA and other climate change reports are best understood as hypothesis or conjecture rather than scientific conclusion.

This caveat notwithstanding, one may hypothetically consider a case where predictions made by the 4NCA are assumed to be usefully accurate. In particular, the report’s predictions for global temperature rise and consequential effects on U.S. gross domestic product (GDP) can be used to evaluate the potential value of a climate change solution.

The 4NCA predicts an increase in global average temperatures by 4.2o to 8.5F (2.4o to 4.7C), relative to the 1986-2015 average, for the years around 2090 under the RCP8.5 scenario. The burnt orange shaded area in Figure 1 (taken from the 4NCA) illustrates this prediction. RCP stands for “Representative Concentration Pathways”, and the RCP8.5 scenario is the so-called “worst case” scenario where fossil fuel use continues unimpeded and no extraordinary efforts are made to counter growing CO2 emissions.

Figure 2 (also taken from the 4NCA) shows the percentage loss of U.S. GDP in 2090 (average of 2080 – 2099) as a function of global average temperature change (given in Figure 1). The gray shading represents the 90% confidence interval around the best prediction shown by the black line.

This information tells us that, if we take no action to counter rising CO2 emissions and the use of fossil fuels continues unimpeded, the temperature rise may be as low as 4.2F (2.4 o C), with a corresponding GDP loss in 2090 somewhere between 0.5% and 2.5%, and may be as high as 8.5F (4.7 o C), with a corresponding GDP loss in 2090 of between 2.0% and 6.0%. So, GDP loss in 2090 is predicted to be anywhere between 0.5% and 6.0%.

To help illustrate this prediction, consider the case of 4.0% GDP loss in 2090 corresponding to the best estimate of GDP loss for highest predicted temperature rise of 8.5F. Assuming a constant rate of change in GDP loss between 2018 and 2090, this amounts to a loss rate in GDP increasing by 0.05% every year. (This observation was also made by Steven Koonin in a Wall Street Journal article.)

Keep in mind, the 4NCA report does not try to predict what the economic growth will be over the rest of the century. It only tries to predict what marginal effect climate change may have on economic growth. Though predicting economic growth over the rest of the century is a far simpler problem than predicting the climate, few economists are reckless enough to venture such predictions.

So, an economic growth rate over the rest of the century can only be assumed. Figures 3 and 4 show two prospective futures based on two possible economic growth scenarios and a 4.0% loss in 2090 GDP. The red solid line in figure 3 illustrates 3¼% annual GDP growth as might be realized by a future of pro-growth policies (the historical average for the U. S. is between 3 and 3¼%). From 2018 to 2090, GDP grows from about $20 trillion to about $200 trillion (2019 dollars). The predicted losses due to climate change reduce the 2090 GDP by 4%, to about $192 trillion. This is still an economy nearly 10 times bigger than today!

The blue solid line in figure 4 illustrates 2% annual GDP growth. Rates of growth near this value have been described as “the new normal” by political economists favoring low-growth policies. In this case, GDP grows from about $20 trillion to about $83 trillion. The predicted losses due to climate change reduce the 2090 GDP by 4%, to about $80 trillion. Even this economy is four times bigger than today.

In each case, the GDP after losses due to human induced climate change is shown by the dotted lines of corresponding color. The figures show that GDP loss from human induced climate change is difficult to distinguish under either growth scenario due to its relatively small size. Clearly, the costs due to human induced climate change from CO2 emissions are unimportant compared to other choices between pro-growth and low-growth policies. Pro-growth policies leave our society in 2090 nearly two and a half times wealthier than it would be under slow-growth policies.

What we want to know is the value of recovering that portion of GDP between the solid and dotted lines. For this, the concept of “present value” is needed to account for the time-value of wealth. That is, receiving a dollar today has more value than receiving that dollar (inflation adjusted) 10 years from today. This is extremely important because we are considering value over a period of nearly a century.

To compute present value, an assumption of “annual rate of return” must be made. Typical values used in commercial planning can be around 15%. (That is, a dollar today returns two dollars in five years.) According to a study by the Copenhagen Consensus, it is possible to reach returns of 21% to 30% from public spending on global scale problems by prioritizing 19 (out of the UN’s 169) development goals.

In the interest of understanding a maximum possible value for recapturing lost GDP, a rate of 15% is used for present value calculation. (Higher rates will result in smaller present value results.) In this case, the present value for lost GDP in figure 3 is $0.97 trillion. For figure 4, the present value is only $0.78 trillion.

Imagine it was possible to purchase a climate change solution that would be immediately effective. That is, the solution is purchased today and, the very next day, the climate change solution is immediately 100% effective; meaning there is no longer any net contribution of CO2 to the atmosphere nor any additional human induced effects on climate change. In this case, GDP would grow without damages due to human induced climate change (the solid lines in figures 3 and 4) instead of growing at the slightly slower rates (the dotted lines in figures 3 and 4).

How much would we be willing to pay for this solution? Well, if we pay more than $1 trillion, we are being foolish since the value of the recaptured GDP is less than that. We may not even want to pay the calculated $0.97 trillion since that estimate is based on assumptions favorable to high valuations, such as high-end temperature and GDP loss rate assumptions, high-end GDP growth assumption and relatively small rate of return requirements.

Of course, the existence of such an immediately effective solution is highly unlikely and does not reflect the nature of preventive policies that are being proposed. Many proposals take a more realistic, though still incredibly ambitious, goal of implementing a solution over a period of 10 years. Suppose then that there is a solution that results in net contributions of CO2 to the atmosphere and human-induced climate change ceasing around 2030, and GDP growth returning to an undamaged growth rate beginning around 2030.

The present value of this solution is much smaller due to the delayed effectiveness. In this case, the present value under the same assumptions of 15% return and 3¼% annual GDP growth is only $0.39 trillion. If we raise the rates to the range of the Copenhagen Consensus study, 21% to 30%, the present value for this solution falls between $0.19 trillion and $0.08 trillion.

It is evident that the value of a climate change solution is at most in the tens to hundreds of billions of dollars, and may be considerably less. It is certainly not in the trillions, tens of trillions, or one hundred trillion dollar range. And an existential threat is clearly not indicated.

Of course, this conclusion is based on the findings of climate change reports such as the 4NCA. As we noted, century-scale predictions from these reports are severely limited by the lack of scientific capability and are best understood as conjecture or hypothesis. Nonetheless, if we accept these reports as best available guidance, it is clear that expensive solutions for human-induced climate change are not justified.