U.S. climate bill “would probably mean more investment over all.”
Still, should we be starting a project like this when the economy is depressed? Yes, we should “” in fact, this is an especially good time to act, because the prospect of climate-change legislation could spur more investment spending.
Consider, for example, the case of investment in office buildings. Right now, with vacancy rates soaring and rents plunging, there’s not much reason to start new buildings. But suppose that a corporation that already owns buildings learns that over the next few years there will be growing incentives to make those buildings more energy-efficient. Then it might well decide to start the retrofitting now, when construction workers are easy to find and material prices are low.
The same logic would apply to many parts of the economy, so that climate change legislation would probably mean more investment over all. And more investment spending is exactly what the economy needs.
So let’s hope my optimism about Copenhagen is justified. A deal there would save the planet at a price we can easily afford “” and it would actually help us in our current economic predicament.
So Paul Krugman wrote in his NYT column today, “An Affordable Truth.” He has been at the forefront of those explaining why domestic climate action won’t hurt the economy in the long term and is likely to boost it in the near term (see Krugman offers Climate Economics 101, “claims of immense economic damage from climate legislation are as bogus, in their own way, as climate-change denial” and Krugman : Climate action “now might actually help the economy recover from its current slump” by giving “businesses a reason to invest in new equipment and facilities”).
Here’s more from The Nobel laureate in economics, first on the emails:
Of course, if things go well in Copenhagen, the usual suspects will go wild. We’ll hear cries that the whole notion of global warming is a hoax perpetrated by a vast scientific conspiracy, as demonstrated by stolen e-mail messages that show “” well, actually all they show is that scientists are human, but never mind.
And he still explains better than most the benefits of a market-based approach:
The truth, however, is that cutting greenhouse gas emissions is affordable as well as essential. Serious studies say that we can achieve sharp reductions in emissions with only a small impact on the economy’s growth. And the depressed economy is no reason to wait “” on the contrary, an agreement in Copenhagen would probably help the economy recover. Why should you believe that cutting emissions is affordable? First, because financial incentives work.
Action on climate, if it happens, will take the form of “cap and trade”: businesses won’t be told what to produce or how, but they will have to buy permits to cover their emissions of carbon dioxide and other greenhouse gases. So they’ll be able to increase their profits if they can burn less carbon “” and there’s every reason to believe that they’ll be clever and creative about finding ways to do just that.
As a recent study by McKinsey & Company showed, there are many ways to reduce emissions at relatively low cost: improved insulation; more efficient appliances; more fuel-efficient cars and trucks; greater use of solar, wind and nuclear power; and much, much more. And you can be sure that given the right incentives, people would find many tricks the study missed.
For more on McKinsey’s work, see “McKinsey must-read: U.S. can meet entire 2020 emissions target with efficiency and cogeneration while lowering the nation’s energy bill $700 billion!” and “McKinsey 2008 Research in Review: Stabilizing at 450 ppm has a net cost near zero.”
The truth is that conservatives who predict economic doom if we try to fight climate change are betraying their own principles. They claim to believe that capitalism is infinitely adaptable, that the magic of the marketplace can deal with any problem. But for some reason they insist that cap and trade “” a system specifically designed to bring the power of market incentives to bear on environmental problems “” can’t work.
Well, they’re wrong “” again. For we’ve been here before.
The acid rain controversy of the 1980s was in many respects a dress rehearsal for today’s fight over climate change. Then as now, right-wing ideologues denied the science. Then as now, industry groups claimed that any attempt to limit emissions would inflict grievous economic harm.
But in 1990 the United States went ahead anyway with a cap-and-trade system for sulfur dioxide. And guess what. It worked, delivering a sharp reduction in pollution at lower-than-predicted cost.
Curbing greenhouse gases will be a much bigger and more complex task “” but we’re likely to be surprised at how easy it is once we get started.
The Congressional Budget Office has estimated that by 2050 the emissions limits in recent proposed legislation would reduce real G.D.P. by between 1 percent and 3.5 percent from what it would otherwise have been. If we split the difference, that says that emissions limits would slow the economy’s annual growth over the next 40 years by around one-twentieth of a percentage point “” from 2.37 percent to 2.32 percent.
And that is precisely what the rest of the economic literature says, as I discussed here: “Introduction to climate economics: Why even strong climate action has such a low total cost — one tenth of a penny on the dollar.”
That’s not much. Yet if the acid rain experience is any guide, the true cost is likely to be even lower.
You don’t need a Nobel Prize to know that, do you?
Related Posts:
- Krugman strongly endorses Waxman-Markey: “The claim that carbon taxes are better than cap and trade is, in my view, just wrong.”
- Krugman slams Reaganite Feldstein on global warming economics
- Krugman takes on the “fantasists” of the “burn-baby-burn crowd” for opposing climate action that costs Americans 18 cents a day
- Krugman: Fear of carbon markets and speculation is “99% wrong and bad for the planet”
- Krugman calls climate science denial by House conservatives “a form of treason “” treason against the planet”
- Krugman eviscerates macroeconomics
Previous in TP Climate Progress
Language Intelligence: Lessons on persuasion from Jesus, Shakespeare, Lincoln, and Lady Gaga
Once again, we see the clash of familiar forces in politics, particularly in the US.
Myopia vs. vision.
Greed and selfishness vs. enlightened self-interest and altruism.
The toxic alloy of ignorance and arrogance vs. the nurturing mix of knowledge and humility about our place in the universe.
I’ve given up trying to predict how this vast drama will play out in the coming days and months and years, except to say that it will be a lot of things, and boring ain’t on the list.
Joe – Bill McKibben has a pretty pessimistic expectation of the Copenhagen talks:
http://www.salon.com/news/global_warming/index.html?story=/opinion/feature/2009/12/07/copenhagen
I tend to agree that “negotiating” our response to climate change in the typical political manner will produce (is producing) too little, too late.
Is there anything that can be done to kick-start our climate saving response?
It basically boils down to — “Action on climate, if it happens, will take the form of “cap and trade”: businesses won’t be told what to produce or how, but they will have to buy permits to cover their emissions of carbon dioxide and other greenhouse gases. So they’ll be able to increase their profits if they can burn less carbon”
Is he really trying to sell the economic benefits of cap & trade based on that line of logic?
If I point a gun at Krugman and demand his wallet, take all his money, then decide to give him half his money back, I guess he wouldn’t call the police because he increased his profits.
No, Mark H, what it basically boils down to is this choice: Either we take action to control greenhouse gases now, or we wait and force drastic action to be taken in the future.
There are grounds for disagreement about exactly how much warmer the world will get, and how much the impact of that will cost. But one thing is clear to almost everyone: Acting now will cost less than acting later.
When it is claimed that GDP will be reduced x% from “what it would otherwise have been”, what exactly is the baseline case that is being used for comparison? Is it simply a model using some historical average real GDP growth rate and projecting steady growth out to 2050? If so, that seems to me to be completely unreasonable. We know that there will be significant economic impacts from climate change by 2050.
This would be like trying to decide whether or not it’s a good idea to spend money on auto insurance while making the dubious assumption that your risk of being involved in an accident is 0.0000000%
The idea that ceasing contamination of the public and larger ecosphere due to conversion of material resources into dispersed poisons (for example: mercury, soot, sulfur dioxide, “nuclear waste,” and carbonic acid gas) will be a cost is economic fraud. (Cost: a loss or penalty; detriment) Transition to a clean energy and sustainable economy will create public benefits and dispersed profits. The much discussed costs are primarily to entrenched invested special interests, such as those fossil, fissile and financial transnationals that have substantially captured British and American government. These costs are universally manifested in such perverse impoverishments as war economies and public treasury bankruptcies.
The true identifiable costs of setting a gallon of gasoline on fire is about $15 per gallon, assuming $3 at the pump. This type of economic fraud continues through the entire present energy economy, which is based on a federalized economic philosophy encouraging mining of hydrocarbons and uranium. World subsidies are some quarter trillion dollars per year, not including weapon systems that are based on these materials. Some costs and liabilities associated with “mining as energy” are unquantified due to their dispersion and permanence, such as “nuclear waste” and climate crisis. Yet they are capable of bankrupting an “economy.”
Thank you Mr. Krugman for your insites. I believe they could be even more strongly stated. Poison or public clean energy profit, clearly a difficult choice for a substantially corrupt upper house of congress. And by the way, please don’t nuke the climate with the most expensive “energy” technology ever invented: atomic fission. It is an economic bomb (and arguably unconstitutional due to indemnification).
It is very much like changing from a Qwerty keyboard to a better layout: everybody is just raging about the transition costs, but once these costs are made, the economy will run more smoothly, without the “arab tax” and with a better quality of life. The added value of the increased quality of life is never calculated.
I opine that rather drastic action is needed right now!