Climate Economics

Overview

The scientific evidence for climate change is ominous and compelling, but conventional economic analysis has fueled new arguments against vigorous, near-term climate policy initiatives. A handful of widely cited economic models and analyses assert that climate-change mitigation would be impossibly expensive, reinforcing widespread cynicism about the cost of government initiatives. Our own research implies that some of those models are deeply flawed and built on questionable assumptions – but there's a need for a robust body of work to counter them. Alternative economic analyses can also add new perspectives, considering equity questions, for example, that are often ignored in conventional economic models. This is the focus of our research.

The Climate Economics Group at SEI-US plays a unique role in the analysis of climate change and the development of climate policy. Our goal is to create a rigorous, science-based, and accessible economic analysis that demonstrates the urgency and feasibility of large-scale solutions to the climate crisis. This broad objective defines our role within the climate change community in two fundamental respects:

• We are addressing the economics, not the science, of climate change. The denial of climate science has been soundly defeated on its merits, although it has made a comeback in American politics of late. We are challenging a more insidious obstacle to progress: the widespread belief that climate policy would be ruinously expensive, potentially worse than the impacts of climate change itself. Sound, science-based economics suggests that the truth is the opposite: unchecked climate change would threaten ways of life and standards of living, while the costs of stabilizing the climate are relatively modest.
• We are developing tools for use by policymakers, advocates, and teachers; we are not ourselves in the business of proposing specific policies, organizing coalitions, or lobbying for change. Our popular reports examine the cost of taking action; our academic publications help ensure that a diversity of views can be found in peer-reviewed economics research; and our reframing and reconstruction of climate economics are relevant to teaching and research in many venues.

Our current research focuses on three key areas:

Visualizing climate impacts

BAHIA DE LAS AGUILAS, DOMINICAN REPUBLIC / FLICKR-MATT HINTSA

The basic message of climate science is that the status quo is unsustainable: do nothing, and the Earth's climate will become much worse for human beings and other species. This message is hard to communicate; perhaps inevitably, most people tend to imagine that the status quo will continue, with only minor perturbations. A status-quo bias also permeates economics, where cost-benefit analysis implicitly assumes that there is no loss associated with rejecting a proposal for change.

An important part of our work is to help create a picture of climate impacts and their economic meaning, in terms the public can understand. Our research on the costs of inaction, from our report on Florida in 2007 through our study of the Southwestern water crisis released in early 2011, offers a broad picture of climate impacts, including both qualitative description and quantitative estimates of the value of selected major categories of damages.

Click on the links below to read about new and ongoing projects in this field:
Climate Impact Equity Lens (CIEL)
How Much are the Oceans Worth?

Understanding climate policy

Recent debates over U.S. cap-and-trade proposals have revealed fundamental misunderstandings of the economics of climate policy, with advocates and opponents alike overestimating the likely effects. Regulation of emissions, whether by U.S. Environmental Protection Agency or by state agencies, has been met with the predictable claims that regulations are disastrously expensive, and would flatten the economy. The need for a sensible economic analysis pervades the debate.

Our past work has modeled the economics of cap-and-trade programs, rebutted the claims of huge costs from regulation, and explored the potential of other policy initiatives. A major ongoing project looks at the "social cost of carbon" (SCC), defined as the estimated price of the damages caused by each additional ton of CO₂ released into the atmosphere, and flaws in how its value has been set in the United States. Future projects will explore interstate differences in emissions, building on our past research, as well as the so-called "rebound effect," which is increasingly being cited as an argument against promoting energy efficiency.

Sharing climate costs

OIL RIG AND WIND FARM IN TEXAS / FLICKR-BBCWORLDSERVICE

Climate policy is the ultimate public good: everyone is affected by emissions worldwide, not just by individual or local actions; everyone benefits from actions anywhere in the world to reduce emissions. Yet climate change occurs in a world of extreme inequality: Individuals and nations differ widely in the severity of climate impacts they will experience, in the degree of responsibility they bear for emissions, and in the resources they can contribute to solving the problem. Ethical principles and beliefs about equity are thus inseparable from the economic analysis.

Our work makes questions of equity central to climate economics, challenging the narrow, traditional notion that equity and efficiency can each be analyzed in isolation. Along with the CIEL model (see above), we have two major, ongoing modeling efforts which are centrally concerned with the distribution of climate costs. Click on the links below to learn more:
Consumption-Based Emissions Inventory (CBEI)
Climate and Regional Economics of Development (CRED)

Contact

Frank Ackerman heads the Climate Economics Group. Other members of the team include:
Elizabeth A. Stanton
Ramón Bueno
Marion Davis