Is avoiding climate change just too expensive?

Answering this question depends very on how much you think climate change itself will cost, and how much you think avoiding climate change will cost -  along with difficult moral and philosophical matters such as concern for future humanity.

One of the best known attempts to quantify this is the Stern Review, which estimated that climate change could end up costing 5 – 20 per cent of global GDP  per year, but would only cost 1 per cent of GDP to avoid (Lord Stern later revised these numbers, saying 2 per cent of GDP is needed to avoid climate change, and without this, the effects could be even worse than he previously thought).

Enter Bjorn Lomborg. Best known as a climate change sceptic, he now says an agreement on climate change at Copenhagen in December is crucial. But he’s not entirely going with the mainstream just yet: he believes the dominant approaches to climate change are too expensive, so the latest project of his Copenhagen Consensus Center is to publish a series of papers on the best ways to spend $2,500bn over the next 10 years, and then ask five leading economists to choose the best option.

The latest of these papers is likely to be one of the most controversial. Richard Tol, an energy economist at Dublin’s Economic and Social Research Institute and a member of the Intergovernmental Panel on Climate Change, estimates that the costs of most climate-change mitigation programmes vastly outweigh the benefits the world would gain.

Tol came up with five scenarios for how to spend that money (some scenarios spent more or less):

Scenarios

Tol came up with five scenarios for spending $2,500bn over 10 years:

1. A $750/tonne carbon tax introduced only in the OECD, over 2010 – 2019. Cost per dollar of benefit: >$100. Carbon concentration: about 875ppm

2. A $250/tonne carbon tax inroduced worldwide, over 2010 – 2019. Cost per dollar: $100 Carbon concentration: about 750ppm

3. As for number 2, but continuing the carbon tax throughout the century (thereby spending far more than the $250bn). Cost per dollar: $50. CO2: 450ppm

4. A $12/tonne carbon tax, the proceeds of which are invested in a trust fund for 10 years, to finance a century-long programme of emission abatement. Cost per dollar: $4. CO2: 650ppm

5. A $2/tonne carbon tax, the proceeds of which are invested in a trust fund as above. This spends only $12.5bn.  Cost per dollar: 66c. CO2: 850ppm.

One important note about the scenarios: apart from scenario 1, they all assume a uniform, worldwide tax on carbon across all sectors. There’s really almost no chance of this happening any time in the foreseeable future, let alone from next year – for anything like this to play out in reality, those costs would have to be concentrated in some countries.