Here is one straightforward way to put this in perspective.
1. Let’s start with a very long-term and global perspective of total present value of expected global income over the next several hundred years.
2. Then, estimate the total expected present value of damages expected to be casued by Anthropogenic Global Warming (AGW) over this period.
3. Then, estimate how much of these future warming damages we could avoid at a cost less than the avoided damages, assuming a globally-harmonized, optimally-designed and optimally-executed emissions mitigation program (say, a global carbon tax).
4. Then, subtract the expected costs of this mitigation program from the expected future avoided damages to come up with the bottom-line estimate of the expected net present value of the best-possible emissions mitigation program.
Using Nordhaus’s canonical analysis, here is what these four numbers look like:
The total net expected benefits of the best-imaginable program to combat global warming are about $3.4 trillion. This is about 0.17% of the expected present value of total global income.
Compare the current Waxman-Markey bill to “an optimally-designed and optimally-implemented” carbon tax. Consider what it would be like, in the real world, to cut a global deal. Now consider what it would be like to enforce this for more than a century, not only in Sweden, Japan and Australia, but in China, India and Brazil. Compare this to “a globally-harmonized, optimally-designed and optimally-executed emissions mitigation program.” Do you think the economic drag the real-world deal would create might cause the planet to lose more than 0.17% (or for that matter, 1.7%) of the present value of future income as compared to the case without such a deal? It is extremely likely, in my view.
Numerous very intelligent bloggers have raised the valid point that global GDP, or any measure of money income, is not a comprehensive measure of human well-being. I’ll have a future post on this topic. But it is striking that, at least when looked at in terms of the economy, we should expect the benefits of emissions mitigation to range from losing money (my view) to a positive gain of 0.17%, assuming perfection.
The problem is that we’re putting a global economy with present value of $2,000 trillion at risk to go after less than $4 trillion of expected present value of benefit. The desire to regulate the global economy to avoid the risk of catastrophic climate change is not a one-sided bet.