Fixing Global Warming: Cheap But Not Easy

The Economist reports on a study by the Intergovernmental Panel on Climate Change (IPCC):

Burning fossil fuels imposes a cost to society that is not reflected in their price. Economics says that it should be; and if it were, the price of using fossil fuels would rise in relation to the price of using renewable energy...

And what is the right price? The report says that to stabilise greenhouse-gas concentrations at 550 parts per million (a level most scientists think safeish) would require a price of $20-50 per tonne of carbon by 2020-30. That is along the lines of the carbon price established the European Emissions-Trading Scheme, which varied between $6 and $40 in 2005-06. It has not bankrupted the European economy so far. The IPCC’s economic models reckon, on average, that if the world adopted such a price the global economy would be 1.3% smaller than it otherwise would have been by 2050; or, put another way, global economic growth would be 0.1% a year lower than it otherwise would have been.

So, the costs of dealing with the problem are modest, and yet action may not be forthcoming because of a global public good problem:

The world would barely notice such figures; so one might think that climate change can be easily sorted. The problem, of course, is that the numbers work only if they are applied globally. If a few countries—even a few big countries—adopt a carbon price, it will make little difference. All the world’s big emitters need to do it. Which brings the world straight back to the problem that sank Kyoto. No country alone can make a difference, and it is in every country’s interest to ensure that everybody else bears the burden. As the IPCC report convincingly argues, the technology and the economics of this problem are easily soluble. It is the politics that is so difficult.

On a related note, Lawrence Summers once famously offended many people by suggesting that rich countries should pay poor countries to take their pollution. The International Herald Tribune's Daniel Altman observed that the credit trading under the Kyoto accord has had the opposite result (see also this subsequent post). Of course, Summers, now the former president of Harvard, was just getting started.