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ECONOMIC ANALYSIS: Why it's tough to get our arms around global warming

June 16, 2008

Congress is set to begin a debate on regulation designed to halt global warming. The question is whether and how we might limit greenhouse gases. Costs and benefits will be the central issue. So, despite what many would wish, this is primarily an economic debate. Below are the issues in a nutshell.

There is strong scientific evidence that the Earth's temperature is warming. Even so, there are a significant number of serious climate scientists who doubt this. And there is significant doubt among serious researchers as to the role human activity plays in warming the environment. One undisputed fact is that at least a Ph.D. in these fields as well as years of research is necessary to really understand the evidence.

However, you could be a global warming skeptic and still support policies to reduce greenhouse gases. Or you could be a true believer and oppose these same policies. That's because it's so hard to get a handle of the cost of action or the cost of inaction.

The cost of inaction might be profound. Averting global warming could save tens of millions of lives that would be otherwise lost to starvation, disease and displacement. It could crush economies and liberty in places where it is weak. Or we as humans might effortlessly adapt over the next century. Similarly, the cost of reducing greenhouse gases could be huge. The shrinking of national and world economies could lead to pestilence, hunger and war. It could crush economies, slow the spread of democracy and double the price of gas. Or it could be a benign and gradual adjustment. The only thing we know for sure is there is no free lunch to be had. Big changes will require big sacrifices, and small changes small sacrifices (and bad policy could give us big sacrifices and small changes).

The problem is further exacerbated by two other considerations. First, the impact of limiting greenhouse gases will vary by geographic region. The United States could dramatically cut emissions, but see those reductions more than offset by increased emissions from the Third World. We Americans have the luxury of caring about climate change. An Indian worker whose family is living on $5 a day does not. Even within the United States, the impact will be uneven. Second, the costs of fixing global warming will be borne by today's generations, while the benefits accrue to future generations. These future generations will be richer, healthier and have better technology than we do. In both cases, costs and benefits are borne by different folks.

In the end, over the next several decades, we will be forced to make big decisions about the appropriate public policy that affects the lives of hundreds of millions of people. All of this is based on a scientific matter that not one in 100,000 citizens can really understand.

Whatever else the global warming debate may be, it isn't an easy one.



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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