A Cure Worse Than the Disease: Global Economic Impact of Global Warming Policy

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Heritage.org

 

David W. Kreutzer, Ph.D.

5/28/13

 

Abstract

Adopting carbon restrictions of the magnitude mandated by the LiebermanWarner and WaxmanMarkey cap-and-trade bills or the BoxerSanders carbon-tax bill would harm the U.S. and global economies. By 2100, the global economy would lose more than $100 trillion. Analysis suggests that countries with stronger economies can overcome the challenges posed by warming. Indeed, faster growth would insulate the economy from the negative impacts of global warming.

How would adopting a global-warming policy affect world income?

 

Adopting carbon restrictions of the magnitude found in the LiebermanWarner cap-and-trade bil[1] would actually reduce worldwide income, even after accounting for the economic benefits of moderated warming. The costs would exceed the benefits by more than $100 trillion over the remainder of the 21st century. The perverse impact of climate policy would be even worse if the major developed countries join the U.S. in implementing an equivalent policy to restrict carbon emissions. Further, the net negative impact would grow exponentially, causing those working in the last two decades of this century to suffer annual income losses that would be hundreds of times greater than those suffered in the early years of the climate policy.

 

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Conclusion

 

Warming of the world may have economic costs that exceed benefits, but cutting CO2 emissions will not necessarily improve matters. Warming alone may have net negative impacts. However, warming caused by human activity cannot be divorced from the benefits that human activity generates. Cutting CO2 emissions will have clear economic costs.

 

The question for policymakers is how the costs of cutting CO2 compare with the benefits. We find that the costs vastly exceed the benefits. In particular, we analyzed a regime to reduce CO2 emissions of the magnitude found in the BoxerSanders carbon-tax bill and the LiebermanWarner and WaxmanMarkey cap-and-trade bills. These reductions would have a decidedly negative economic impact on both the U.S. and the world as a whole, with net losses reaching hundreds of trillions of dollars by the centurys end. On the other hand, faster growth could insulate the economy from the impacts of global warming.

David W. Kreutzer, PhD, is Research Fellow in Energy Economics and Climate Change in the Center for Data Analysis at The Heritage Foundation. The author would like to thank Robert Murphy and Roy Spencer for comments made on an earlier draft. Of course, this does not imply any endorsement on their behalf. Any errors are the authors responsibility.