William Nordhaus released a new study (huge pdf) measuing the costs and benefits of environmental economic policies to stop global warming. It’s too long for me to read through right now, much less dissect. Reason magazine summarized his findings though.

This is the baseline for the costs of global warming if we take literally no action at all.

Nordhaus and his colleagues have developed a small but comprehensive model that combines interactions between the economy and climate called DICE-2007, short for Dynamic Integrated model of Climate and the Economy. Nordhaus first computes a baseline that assumes that humanity does essentially nothing to limit its output of carbon dioxide. By 2100 CO2 atmospheric concentrations would rise from the pre-industrial level 280 parts per million (ppm), to 380 ppm today, to 685 ppm in 2100. Global average temperature would rise by 2.4 degrees Celsius by 2100. In this baseline scenario, the DICE-2007 model estimates that the present value of climatic damages is $22.6 trillion. DICE-2007 includes damage to major sectors such as agriculture, sea-level rise, health, and non-market damages.

$22.6 trillion is not much, given what the production levels of the world economy today, much less in 100 years.

This model isn’t entirely accurate since there will be some amount of carbon reduction through new technology and greater efficiency even if there’s no deliberate collective action.

Nordhaus uses this to test the cost-effectiveness of various collective action plans, namely the Stern plan, the Gore plan, and Nordhaus’ suggestion.

the Stern proposal for rapid deep cuts in greenhouse gas emissions would reduce the future damage from global warming by $13 trillion, but at a cost of $27 trillion dollars. That’s not a good deal. For an even worse deal, the DICE-2007 model estimates that the Gore proposal would reduce climate change damages by $12 trillion, but at a cost of nearly $34 trillion. As Nordhaus notes, both proposals imply carbon taxes rising to around $300 per ton carbon in the next two decades, and to the $600-$800 per ton range by 2050. A $700 carbon tax would increase the price of coal-fired electricity in the U.S. by about 150 percent, and would impose a tax bill of $1.2 trillion on the U.S. economy.

Al Gore’s economic plan would damage the world economy $44 trillion, almost twice the damage of unmanaged global warming. Simply put, these economic policies would be more harmful than doing nothing.

Nordhaus offers a better idea.

The optimal policy? Nordhaus reckons that the optimal policy would impose a carbon tax of $34 per metric ton carbon in 2010, with the tax increases gradually reaching $42 per ton in 2015, $90 per ton in 2050, and $207 per ton of carbon in 2100. A $20 per metric ton carbon tax will raise coal prices by $10 per ton, which is about a 40 percent increase over the current price of $25 per ton. A $10 per ton carbon tax translates into a 4 cent per gallon increase in gasoline. A $300 per ton carbon tax would raise gasoline prices by $1.20 per gallon.

Following this optimal trajectory would cost $2.2 trillion and reduce climate change damage by $5.2 trillion over the next century.

This will at least reduce overall damage, if not completely nullify it.

The trick is to get Congress to pass any Carbon Tax at all. Congressman Dingle suggested exactly such a tax, and at the optimum level, but environmentalists denounce him instead.

I remain skeptical about the ability of climate models to measure economic damage. People will adapt to environmental changes and new technologies will develop. These factors are the greatest variables into the real-world economy, but they cannot be accurately modeled.

It’s looking like adaptation to global warming is our most economically sound option. Carbon taxes will encourage new technologies and conservation, while people will take proactive steps to avoid regions which will be most afflicted by damaging weather. This will help minimize global warming to some extent. The real objective is adapting to environmental change (and possibly benefitting from changes).

Most of the problems climate change will cause are just variations of problems we face today (disease, storms, droughts, floods). Wealthier countries overcome these problems more effectively than poorer countries through adaptation and technology. One goal should be to raise the wealth of poorer countries so they can better adapt to environmental changes in the future.

Some problems are overcome by technology. For instance, droughts can be fought through irrigation and desalination plants. Most problems have “simple” solutions that require money which poor countries lack. In fact, Africa will suffer the most from Global Warming, while the United States could actually benefit.

Sometimes the solution is altering insurance rates to affect migration. Here’s a simple example for adapting to hurricanes. We should raise insurance rates for those living on coastlines in the path of hurricanes. In recent years, there’s been an increased concentration of population in the path of hurrican destruction. Why? End government relief and subsidies which encourage people to live in unnecessarily risky homes. If they want to live in foolish areas, they should pay the price on their own.

This is ultimately an economics problem, so this is how we should approach the issue.

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