Global Warming Economics FAQs

Why is economics important to the study of global warming?

• Predictions of global warming catastrophe are based on models that rely on economics as much as on science. If the science of greenhouse theory is right, then we can only assess its consequences by estimating future production of greenhouse gases from estimates of economic activity.

Is there anything wrong with the economics underlying warming projections?

• The economic modeling by the U.N. Intergovernmental Panel on Climate Change is seriously flawed (The Economist called it "dangerously incompetent"), relying on economic forecasts that show much faster growth rates for developing countries than is justified. The IPCC economic scenarios show significantly greater economic growth globally than do other recognized, comparable scenarios.

What will the Kyoto Protocol do to reduce warming?

• The Kyoto Protocol, most observers agree, will have virtually no effect on temperature increase, as it imposes no restrictions on greenhouse gas emissions upon major developing nations like China and India. These nations have publicly refused to accept any restrictions now or in the future.

Can’t we reduce emissions without affecting the economy?

• Greenhouse gas emissions derive from energy use which in turn derives from economic growth. Therefore, nations that restrict emissions are almost certain to reduce their rate of economic growth.

Isn’t global warming all cost and no benefit?

• No. Even substantial global warming is likely to be of benefit to the United States. As eminent Yale Professor Robert Mendehlson testified before the Senate in 2000, "Climate change is likely to result in small net benefits for the United States over the next century. The primary sector that will benefit is agriculture. The large gains in this sector will more than compensate for damages expected in the coastal, energy, and water sectors, unless warming is unexpectedly severe. Forestry is also expected to enjoy small gains. Added together, the United States will likely enjoy small benefits of between $14 and $23 billion a year and will only suffer damages in the neighborhood of $13 billion if warming reaches 5°C over the next century. Recent predictions of warming by 2100 suggest temperature increases of between 1.5°C and 4°C, suggesting that impacts are likely to be beneficial in the U.S."

Haven’t economic models predicted no effect of reducing emissions on growth?

• European models of the effect of greenhouse gas emission restrictions (such as PRIMES) are sectoral models that look at the effects on only one economic sector and therefore badly underestimate the negative effects of emission restrictions throughout the economy. General equilibrium models, which take into account the effects of emissions restrictions on other economic sectors, show much greater negative economic effects than do sectoral models.

What do the better economic models say Kyoto will do?

• Recent research from general equilibrium models suggests strongly negative impacts on European economies from adopting Kyoto targets (or going beyond the targets, as in the case of the United Kingdom). One model shows the economic effects by 2010 of adopting Kyoto targets as follows (remember that the Protocol achieves virtually nothing in reducing global temperature):

  Germany -5.2% GDP -1,800,000 jobs
  Spain -5.0% GDP -1,000,000 jobs
  United Kingdom -4.5% GDP -1,000,000 jobs
  Netherlands -3.8% GDP -240,000 jobs

Isn’t Europe on track to meet its Kyoto targets?

• Kyoto targets are unrealistic. Regardless of announced targets, 11 of the 15 pre-enlargement EU countries are on course to increase their greenhouse gas emissions well beyond their individual Kyoto targets.

Specific Economic Issues

Isn’t President Bush to blame for holding up Kyoto?

• It is not the case that President Bush has unilaterally held up ratification of the Kyoto treaty. The United States Senate must ratify any treaty signed by a President. In 1997, during Bill Clinton’s presidency, the Senate (including recent Democratic presidential candidate John Kerry) voted 95-0 not to accept any Kyoto-style treaty that would significantly harm the U. S. economy and did not include participation by major developing countries. The U.S. President has no power to impose Kyoto, or any other treaty, on an unwilling Senate.

Doesn’t Russia’s participation demonstrate the appeal of Kyoto?

• Russia agreed to ratify the Kyoto Protocol only after being pressured by the European Union, which held out the prospect of endorsing Russia’s entry into the World Trade Organization. Both the Russian Academy of Sciences and several Duma committees reported that Kyoto has no scientific substantiation and may harm Russia’s economy.

Isn’t global warming a worse threat than terrorism?

• The charge that global warming is worse than terrorism in terms of damage to the world is hyperbole. The implausible and unsubstantiable claim of many deaths each year—the figure is often put at 150,000—owing to global warming ignores the fact that most of those alleged deaths are due to diseases such as malaria, which have historically existed even in cold climates and could easily be controlled if the environmental lobby dropped its opposition to the use of DDT. Moreover, that number is itself dwarfed by the number killed by poverty, which will be increased if the world decides to suppress the use of energy.

Can’t we replace fossil fuels cheaply and effectively with renewable energy?

• Alternative sources of energy such as wind and solar are not yet cost-effective and come with environmental costs of their own (the veteran British environmentalist David Bellamy is leading opposition to wind farms). The only currently cost-effective alternative to fossil fuel use is nuclear power, which produces nearly no emissions, but which environmental activists continue to oppose in direct contradiction to their assertions that global warming is the gravest danger the planet faces.

Aren’t market-based solutions the way to reduce emissions?

• "Cap and Trade" schemes that allow firms and governments to trade the right to emit greenhouse gases up to certain limits are not economically efficient. By creating rent-seeking opportunities, they promote the development of a carbon cartel seeking to exploit the system to make profits. The recent collapse of the carbon market in Europe shows how dependent such markets are on political considerations. A simple carbon tax would be much more economically efficient, although likely to prove unattractive to voters in democracies.

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