A panel of economics experts surveyed by the U.S. Government Accountability Office concluded that estimates of the costs of climate change programs is more useful to policy makers than estimates of the potential benefits.  This is because policy costs would occur immediately, but the benefits–if any–would occur decades in the future.

In the past year, a variety of studies by organizations supportive of aggressive climate change policies have attempted to calculate the additional annual expenditures in renewable energy generation and energy efficiency necessary to meet greenhouse gas reduction goals.

One problem: No one knows how much spending is needed

And the guesses are all over the place.

In the past year, four separate studies came up with a wide range of cost estimates for climate policies. Most recently, a report issued by the World Economic Forum in Davos, Switzerland summarizes three studies. The Forum says between $150 billion and $313 billion in additional spending is needed each year between now and 2030 too reduce carbon emissions to levels deemed sustainable by the Intergovernmental Panel on Climate Change (IPCC).

Earlier this month McKinsey & Company said the additional costs would range begin at $475 billion a year and rise to $1.2 trillion a year through 2030, with an average additional cost of $846 billion a year.

A range as big as the Dutch economy

No wonder policy makers are confused. The additional costs across four studies range from $150 billion a year to $846 billion a year.  That is a $696 billion range.  That is a swing that is bigger than the economy of the Netherlands ($650 billion). It is impossible to design effective policies when the cost estimates have a margin of error that is as big as the 20th largest economy in world.

Citations:

Dinkel, J., Enkvist, P.-A., Nauclér, T., and Pestiaux, J. (2009). Pathways to a low-carbon economy: Version 2 of the global greenhouse gas abatement cost curve. McKinsey & Company.

Liebreich, M., Greenwood, C., von Bismarck, M., and Gurung, A. (2009). Green investing: Towards a clean energy infrastructure. World Economic Forum and New Energy Finance.

United States Government Accountability Office (2008). Climate change: Expert opinion on the economics of policy options to address climate change. GAO-08-605.

This entry was posted on Monday, February 2nd, 2009 at 10:14 am and is filed under Economy, Energy, Environment. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.