Pollution is not the solution.

Paul Krugman’s column in The New York Times Thursday laments one of the many ironies of our time: Politicians in Washington are finally talking about job creation, but Republicans (and some Democrats, I’m sure) pin their hopes for employment on environmental deregulation. As Krugman points out, “Serious economic analysis actually says that we need more protection, not less.”

By serious economic analysis, Krugman means peer-reviewed articles published in academic journals over the last few decades that have probed the relationship between environmental regulations, employment, and economic growth. He doesn’t mean the American Petroleum Institute’s latest report that purports to show job growth potential through … wait for it … relaxing restrictions on oil and gas extraction. He means the latest findings by Yale University economist William Nordhaus, published in the American Economic Review [PDF], the top-ranked journal in economics, that finds that the economic cost of air pollution exceeds the value added of coal-fired electric generation by a factor of nearly six to one. And this estimate doesn’t include the economic damages from climate change. Pollution-related costs impede productivity and growth in the U.S. economy. Imposing more of these costs on society through deregulation is not only undesirable, it is bad economic policy.

So let’s review what economists do know [PDF] about the relationship between environmental regulation and jobs. The oft-cited concern is that environmental regulations will increase production costs, raising product prices and decreasing the quantity of goods and services demanded. The good news, however, is that empirical evidence finds little support for wide-scale job losses or relocations arising from strengthening of environmental policies in the U.S.

The economics research on this topic extends back over the last few decades. The Clean Air Act Amendments of 1990 marked the last significant package of environmental regulation passed in the U.S., and the creation of NAFTA in 1994 presented new opportunities for U.S. firms to relocate abroad to avoid environmental regulations. Thus, there is extensive literature that covers a long time period that evaluates how environmental regulations impact businesses, employment, and income.

The economics literature covering this history supports three conclusions. The first conclusion is that businesses are unlikely to relocate to avoid compliance with environmental regulations. The empirical evidence shows that there has been little movement by U.S. firms to other countries to escape environmental regulatory burdens. Nor has there been a migration of new investment in dirty industries to developing countries with lax regulations, the so-called “pollution havens”. Over the last few decades of the neoliberal era, both dirty and clean industries have relocated outside of the U.S., but that movement has been driven mostly by the pursuit of lower wage and benefit costs (especially health costs), which comprise a much higher percentage of their total costs (Goodstein 1999; Gallagher 2006 [PDF]). What the research has found is that environmental compliance costs are generally below 2 percent of total business costs (Jaffe et al. 1995 [PDF]); the potential savings are just not large enough to compel relocation to escape environmental regulations alone. Economists searching for evidence of widespread flight of polluting industries to different countries or different states within the U.S. have yet to uncover evidence of a trend. (This is not to say that firms that leave the U.S. in pursuit of lower labor costs behave as good environmental citizens abroad).

The second major conclusion economists have drawn from studies examining the impacts of regulations on businesses and competitiveness at the national or regional level is that that plant closings and layoffs as a result of environmental regulations are actually rare. Numerous independent studies show this. Layoffs that can be attributed to environmental regulations account for only one-tenth of 1 percent of all mass layoffs (of over 50 employees) nationwide. This is equivalent to roughly 1,000 to 3,000 jobs per year across the entire country. For example, less than 7,000 jobs were lost between 1990 and 1997 as a direct result of the Clean Air Act Amendments. Over that same period, 10 million U.S. workers were laid off for non-environmental reasons (Goodstein 1999). Among the reasons for major layoffs, as reported by the Bureau of Labor Statistics, environmental and safety-related shutdowns are among the least common, accounting for about 0.1 percent of job losses (Goodstein 1999). A study of the heavily regulated steel, petroleum, plastics, and pulp and paper industries concluded that, “while environmental spending clearly has consequences for business and labor, the hypothesis that such spending significantly reduces employment in heavily polluting industries is not supported by the data” (Morgenstern et al., 2002, p. 25).

The third major conclusion is that at the economy-wide level, there seems to be no real trade-off between environmental regulation and growth. Environmental regulation leads to a very slow shift in the composition of spending: Jobs are gained as workers produce, install, and maintain cleanup equipment and engage in retrofits, and are lost as firms pass on those cost increases to consumers, who have to cut back their purchase of goods and services from that sector. Environmental regulation begins a slow shift away from the products of dirty industry. An example would be the shift into new recycling jobs and out of waste disposal jobs, as the percentage of waste recycled in the U.S. rose significantly in the 1990s.

While job loss can be catastrophic to an individual worker, net job loss (or gain) is the variable that should drive public policy. Small job loss in a particular plant or industry because of a change in regulatory environment is just noise against the backdrop of the millions of employed and unemployed in the U.S. economy. And, the handful of job losses has to be compared to the jobs gained elsewhere in the economy as a result of the new regulations. For example, a recent report finds that coal ash regulations can create as many as 28,000 jobs.

As with all public policy, changes in environmental regulations create winners and losers. Specific businesses or industries may be disproportionately impacted (for example, the coal workers from national carbon legislation). Labor market conditions in the U.S. will continue to be more heavily influenced by larger structural changes in the U.S. and global economy than any proposed regulatory changes. If we want to get to the heart of the unemployment proble
m in the U.S., we need to explore these structural issues. Exploiting the public’s deep need for job creation to promote an anti-regulatory agenda is dishonest and dangerous.

The Economics for Equity and the Environment Network convened a recent meeting of economists [PDF] at the Pocantico Center of the Rockefeller Brothers Fund to discuss the role of economics in building support for climate action in the U.S.

The economists who convened view climate change as a civilizational challenge that demands immediate action to protect the quality of human life today and in the future. They recognize that conventional economic thinking has failed to envision a way through the climate crisis, but believe firmly that economics can and must provide critical skills and insights. These economists take as their starting points:

• The role of economics is not to determine the optimal level of emissions reduction. Emissions goals should be informed by the best and latest scientific information and motivated by our moral obligations to future generations.
• The tools and insights of economics are most appropriate to the complex and intellectually challenging tasks of determining least-cost strategies for achieving those targets, designing policies that effectively and with confidence meet those targets, identifying the potential economic impacts of failing to meet those targets and sharing responsibility fairly for the costs, and implementation of that strategy.
• Economic analysis of climate change and solutions necessarily intertwines scientific fact and values. Economists should be open and explicit about the viewpoints and values underlying their analysis.

The meeting identified areas where new research and better outreach by economists can provide the new ideas, analyses, and compelling arguments to mobilize support for climate protection measures in the U.S. In this post, we present a broad research and communications agenda we believe economists can pursue to help build the case for climate action.

Rebutting anti-climate, anti-regulatory economics: The debate about climate change and climate policy has not ended; it has just moved out of the legislature and into the broader policy arena. In these new arenas, emissions reduction efforts will continue to confront narrow, out-of-date economic models that encourage fears about losing jobs, incomes, and competitiveness.

These models, based on ad-hoc assumptions about climate change damages, high-discount rates that disregard impacts on future generations, and pessimistic forecasts of technological progress, purport to show that the benefits of emissions reductions at the scales recommended by climate scientists are not sufficient to warrant the costs. This disconnect between climate science and economics is not purely academic; these models dominate public policy decisions about climate change, including recent efforts by the Environmental Protection Agency and other agencies. Engaging the details of the anti-regulatory arguments and climate models central to these debates and exposing the fallacies embedded in them is critically important. Decision makers and the media need to understand that the technical and normative aspects of these models are debated by economists. Different models based on different underlying assumptions have reached very different conclusions about the benefits and costs of climate action.

At the same time, it is important to communicate the limitations of using economics to address climate change. Stabilizing the Earth’s climate system is as much a scientific and moral issue as it is an economic issue. There are limits to applying cost-benefit analysis to climate change when the damages accrue to future generations and involve consequences for human lives and ecosystems that are virtually incalculable. Moreover, the most significant damages from climate change are likely to be associated with extreme events. Risk assessment and risk management are more appropriate frames for evaluating climate policy for these reasons. 

Improving economic modeling and communication of climate change impacts at all scale: Persuading the public and decision makers that climate change warrants immediate, aggressive mitigation actions will require improvements in how economists model the economic damages from climate change. We need updated economic models that better reflect recent scientific understanding and advancements in how economists treat risk and uncertainty. The economics literature and policy discussions are still dominated by earlier modeling efforts and relatively few voices within the profession. We need to widen the participation of economists in modeling climate change impacts and more effectively communicate those findings.

Improved economic modeling of climate change demands that more attention be given to disaggregating the impacts of climate change at regional and local scales. Describing climate change in terms of an average temperature increase disguises some of the more serious impacts that will be observed in regions of the U.S. Building that heterogeneity into climate models increases estimates of economic damages of climate change significantly. Though it may be impossible to downscale the analysis for all of the U.S., some very detailed local case studies can shed important light on the magnitude of potential damages nationwide.

The economic impacts of climate change for the U.S. are still not well understood, especially by the public. While it is most accurate to describe climate change as a global externality with diverse impacts and action to mitigate climate change as a global public good, it is difficult to motivate and coordinate action on this scale. Mitigation may be global, but impacts and adaptation are local. Successful adaptation to climate change requires more detailed knowledge about how climate change will affect local communities and regions.

Stakeholders need to be aroused; stories about potential local impacts can motivate better than projections of temperature and precipitation changes. There is a real need for economists to translate global climate model projections into the things that people relate to and care about: health, energy, water supplies, food systems, storms, floods, and ecosystems. Economists can begin by translating well-accepted scientific facts (e.g. diminished snow pack) into local resource effects (e.g. reduced stream flow) and economic impacts (e.g. percentage change in crop yields).

Building the clean energy economy: Proponents of the clean energy economy promise new jobs and efficiency gains. A major challenge to building support for the green energy economy is persuading politicians and their constituents that smart regulations are not job killers [PDF]; effective regulation and public policy inducements can stimulate employment and income growth. In the case of clean energy, net employment gains can be attributed to replacing imported fossil fuels with domestically produced efficiency or renewables; and expenditures on labor-intensive activities such as weatherization and building green energy infrastructure. Building the clean energy economy is also an effective platform for supporting a broad-based economic growth and development strategy. The engines of potential green growth include export promotion (rewiring the world with clean energy), natural amenity based growth, counter-cyclical investment spending, and the multiplier effects from expenditures on labor-intensive green initiatives.

To satisfy employment and equity concerns and build support for the clean energy economy, we need more detailed economic analyses of how to transition the economy from fossil fuels and how policy mechanisms can address the real costs of that transition. It also involves in-depth case studies of successful policy interventions to develop new industries, such as wind, solar thermal, and solid waste recycling; and of clean energy transitions underway in states like California or Oregon. Lessons can also be drawn from examples where businesses are moving ahead of state and federal emissions regulations to improve their energy efficiency, lessen their dependence on fossil fuels, and reduce their vulnerability to climate change impacts. Given that this may be a more feasible path to emissions reduction in the immediate political climate, economists can prioritize research that provides the information businesses need to carry this momentum forward. Demonstrating how the federal lag on policy is actually slowing the growth of green industries and new markets should help build support for a federal clean energy policy.

Economists also have to address a deeply ingrained suspicion amongst decision-makers, media, and the public that higher fossil fuel prices are necessarily bad for the economy. Economists can better communicate how higher prices for fossil fuels can improve economic outcomes over time, by encouraging efficiency improvements, energy conservation, and the transition to fuels with lower attendant social and environmental costs. Economists can also explain that the impact of higher fuel prices on households depends crucially on the fate of the money: If carbon revenues are recycled as dividends to individuals or public goods to communities, the impact is radically different than that of price hikes that go to oil-exporters or energy corporations. The demise of cap-and-trade legislation has unfortunately encouraged many to believe that the transition from fossil fuels can be achieved through research and development alone without a carbon price; yet almost all economists recommend a combined approach, in which a carbon price and other market building strategies (e.g. portfolio standards, subsidies) play a central role.

Engaging the U.S. in global climate efforts: The unwillingness of the U.S. to accept binding emissions limits as part of a global climate change treaty signifies the lack of domestic support for building a clean energy economy, the complacency of the U.S. populace in the face of an emerging global crisis, and the unwillingness of the U.S. to accept responsibility for global emissions reduction. As emphasis and resources shift inward toward building support for domestic climate action, the importance of linking our domestic actions to our global responsibilities should not be forgotten. We need detailed analyses that can demonstrate how to better integrate the following components into U.S. energy and climate policies: international investments; climate aid; technology transfers; realistically achievable international agreements on emissions reductions; and global cooperation. 

International negotiations on climate change have historically favored the distribution of global emissions rights as the mechanism for addressing equity in global climate control. That framework, however, assumes a global agreement that creates, limits, and distributes emissions rights. The absence of clearly defined emissions rights post-2012 has elevated the importance of adaptation and technology assistance as vehicles for addressing climate justice. More research will facilitate the design of programs that can affect these transfers. Economists can compare the transfers involved in these forms of assistance to transfers implicit in proposed emissions allocation schemes (e.g. Kyoto targets, Greenhouse Development Rights Framework, etc.).

Whether the issue is U.S. emissions reduction, technology transfer, or adaptation assistance, the important question still remains: what will induce the U.S. to act? The climate crisis begs the issue of our moral obligations to future generations and the global community. Many will argue that, at its core, the climate crisis is about ethics, rights, and responsibilities. But the drivers of, and solutions to, climate change are economic and political. Economics is often ill-suited to dealing with ethical issues; the positive aspirations of the science and the belief in rational self-interested behavior bias almost all economic analysis. An overly economistic approach to climate action — one that emphasizes U.S. gains and avoided damages — may fail to motivate the behavioral and policy changes we seek. On the other hand, it is in the long-run interest of the United States, and indeed of all the nations of the world, to avoid the disasters that may occur if climate change continues unabated. Economics can serve us all by emphasizing this underlying truth. 

Much can be learned by examining past examples of effective U.S. responses to global public goods. The Montreal Protocol is an instructive case study, as it was also premised on the notion of differentiated responsibilities for rich and poor nations, but induced participation by major emitters. Economics interprets the public goods dilemma as one of free-riding. Implicit in this view, however, is the assumption that no country finds it in its own self-interest to reduce emissions. But this view of the rewards to climate action is increasingly at odds with climate science and the perceived threat to national and economic security posed by climate change. As countries come to view climate change as an existential threat, the incentives to cooperate with other countries to forge a solution increase.

Economists, therefore, can contribute to the global effort to mitigate climate change by: translating the climate science into economic impacts; designing policies to stimulate the transition to greater energy efficiency and clean energy; demonstrating the benefits of building a clean energy economy; documenting the costs of alternative paths in the transition to clean energy; and informing equitable public policy interventions to distribute transition costs fairly. These actions can move the U.S. toward domestic emissions reduction, a necessary component of any effective global response to climate change. More research on how to successfully transfer new technologies and invest in adaptation abroad can fulfill some (but not all) of our responsibilities to poor nations, and can provide a sound intellectual foundation for meaningful U.S. participation in a global climate agreement.

Economics can play an important role in building support for climate action, especially if more economists are willing to engage the issues directly; in language that is clear, accessible, and compelling; and in collaboration with stakeholders, NGOs, and others. To participate most successfully in climate change solutions, economists must be willing to acknowledge the limits of conventional economic analysis as applied to climate change and embrace the normative dimensions of the climate crisis. With greater humility and a willingness to think beyond the traditional confines of the discipline, economists can help forge equitable and effective climate solutions.

It’s hard to see how the West will benefit from, say, more floods.Photo: NZRico

Estimates of lost world product due to climate change are moderate because the poor have so little to lose. More than a billion people, maybe 2 billion, are estimated to live on less than the equivalent of $2 per day. If a billion of those poorest people lost half their income, it would be an overwhelming tragedy, a true catastrophe, worse than all the earthquakes, floods, tsunamis, landslides, and fires of the past decade happening every year. But those billion people together would lose only $365 billion per year. That is less than 1 percent of world income! They have so little to begin with that what they can lose doesn’t amount to much of a statistic. But they can lose tragically.

Schelling’s quote is a telling example of why GDP is a flawed metric for communicating the risks of climate change. In a world characterized by gross income disparities, treating a dollar’s worth of impact in a poor country the same as a dollar’s worth of impact in a rich country is a surefire way to mask the real impacts of climate change. Yet, this is what almost all economic models of climate change do, and many economists think it is necessary to avoid value-laden comparisons. Attaching greater weight to impacts in poor countries would cause global estimates of the economic damages of climate change to rise substantially.

There is little doubt that poor countries are the most vulnerable to the impacts of climate change. This is one of the cruelest ironies of climate change — the countries most responsible for greenhouse-gas pollution will be the least affected.

Schelling warns that food production in the developing world will be hardest hit by climate change. Soaring food prices worldwide in the wake of record-breaking droughts and floods are a sobering reminder of worse yet to come. But I disagree with Schelling when he surmises that “nearly all the rest of Western income is substantially impervious to climate, or may benefit slightly from warming” because agriculture comprises less than 5 percent of GDP in the U.S. and Europe.

Agriculture in the U.S. is not immune to the effects of climate change. Any near term potential benefits from longer growing seasons and increased CO2 fertilization are now expected to decline as temperatures rise steadily later in the century; as weeds, pests, and diseases flourish under the new climate conditions; and as the incidence of extreme weather events rises. The most recent national assessment of climate impacts by the U.S. Global Change and Research Program warns that even moderate increases in temperatures can decrease yields of wheat, corn, sorghum, beans, rice, cotton, and peanuts.

If we assume a worst case scenario where climate change greatly impairs U.S. agricultural productivity, the effects would surely be felt economy-wide. Rising food prices would drive inflation, reducing both consumer and investment spending. Social unrest resulting from food shortages worldwide could disrupt global commerce. Agriculture is a small component of GDP, but it is vital. The U.S. may be better able to adapt to changed growing conditions than most poor countries, which is one of Schelling’s points, but this assumes we acknowledge the risks and meet them head-on.

Schelling suggests that Western income may actually benefit from warming. He may be referring to some climate economic models that include dubious benefits from warming in the near term, such as longer growing seasons, subjective preferences for warmer climates, an increase in summer recreational activities, and a decline in cold-related deaths. These same models heavily discount future climate damages and ignore the potential for catastrophic impacts. The problems with these models, which lead to vastly different conclusions than climate science, are known and debated — it is not universally accepted in economics that the U.S. benefits from climate change.

Schelling concludes that we face a major problem solving climate change until we can “persuade the non-poor in the developed world to take the problem seriously.” I agree and would add economists to the list of those who still need to be persuaded.

Might large-scale investment in clean energy have the same levelling effect as taxes on fossil fuels?Photo: Kevin Dooley

Not surprisingly, given the enormity of the failure, there is no shortage of blame going around. The Obama administration blames the environmental community for failing to bring Republicans to the table. The environmental community faults Obama for not getting as firmly behind cap-and-trade as he did his signature healthcare reform bill. The science community blames conservative economists for discounting the future risks of climate change and proffering go-slow recommendations for emissions reductions. Other economists criticize economic skeptics who allege that a carbon cap will ruin the economy. Conservatives chide liberals for proposing climate solutions that depend too heavily on the public sector. The left condemns neoliberals for supporting market-friendly reforms. Progressives chastise cap-and-trade proposals for doing too little to protect vulnerable households from higher energy prices. The renewables sector cites too much policy emphasis on a carbon price at the expense of R&D investment. Environmentalists blame climate science denialists for providing coverage to the fossil fuel industry. The fossil fuel industry cites rising energy demand as the reason why the world can’t afford to wean itself off of coal and oil. 

All the while, Rome is literally burning …

I am not inclined to defend the cap-and-trade proposals that made their way through Congress in 2010.  Suffice it to say, at this point in history and in this political climate, there is no such thing as a perfect bill; any climate bill would have disappointed for good reasons. Whether or not cap-and-trade deserves a second chance is also beyond the point. Almost all hope of Congress passing a national carbon cap (or tax) is all but dead for the foreseeable future. But whereas several years ago a defeat of this magnitude may have signified the demise of the climate protection movement, the progression of time and accumulated evidence of global warming finds us still committed to forging solutions — albeit, different ones.

From the ruin of cap-and-trade a new model is emerging: technology-first. This is the gist of a new proposal by the conservative American Enterprise Institute and Brookings to increase federal spending on clean energy innovation to $25 billion a year. It is also favored by some scientists — who were skeptical of the economistic approach to climate change reflected in cap-and-trade — as well as by technology optimists, and now it seems, some traditional supporters of cap-and-trade, including Al Gore and John Podesta.

The essence of the technology-first approach is: build it and they shall come. Rather than force a decline in fossil fuel consumption through higher carbon prices and rigid caps, this approach favors more carrot, and less stick. The goal is straightforward: transform the U.S. (and global) energy system away from fossil fuels through massive investment in renewables and energy efficiency. With sufficient investment, we can move renewable technologies along the cost-curve to the point where they can actually compete with (heavily-subsidized) fossil fuels. Once renewable energies and energy efficiency improvements become more affordable relative to fossil energies, households and businesses will reduce their carbon footprints. In the process, the U.S. develops home-grown energy sources that lessen our dependence on fossil fuel imports, creates new clean energy sector jobs, reaps the savings of improved energy efficiency, and recaptures its technological competitiveness in the global economy. Who can argue with a proposal like that?

No one, except for the fossil fuel industry, climate change skeptics who still do not see the need for new energy technologies, and fiscal conservatives who claim we simply cannot afford them. But amongst independent experts who accept climate science and who still support a vibrant public sector, I have yet to read a single opinion opposed to large-scale government expenditure on clean energy and energy efficiency. It is one of the truly win-win solutions.

But is it a solution to climate change?

Proponents of carbon pricing, whether a carbon cap or carbon tax, were never opposed to investment in renewables and energy efficiency. The R&D component was always the intended complement to a carbon price. If a carbon price is what provides incentives to buy goods and services that are less carbon-intensive, the development of clean energy technologies is what provides the options for carbon savings.

In a perfect world, U.S. solutions to climate change would be coordinated within a larger global response. In a perfect world, a U.S. climate bill would cap carbon emissions at the levels recommended by science, auction emissions rights, and allocate the resulting carbon revenues in the public interest. Ideally, this would include rebates to lower-income households to offset the impacts of higher energy costs and public investment in energy efficiency and renewables. But the revenue pool generated by allowance sales cannot fully fund both, especially if the pool is diminished by giveaways to special interests as part of the bargaining to bring the legislation to the table. Even if a cap-and-trade bill had made its way out of the Senate this summer, we would still have needed additional expenditures on R&D to facilitate the transition from fossil fuels.

A carbon price and clean energy investment are not either-or proposals. We shouldn’t feel forced to choose sides between supporting clean energy and imposing a carbon price when both are absolutely necessary. But the collapse of cap-and-trade now means that clean energy is the only game in town. In the world of second best solutions, do we lose anything by pursuing technology-first?

The efficacy of a technology-driven solution to climate change has been long debated. Some naysayers question whether the technologies represent good investment opportunities. If the technologies can be profitable, why haven’t they been implemented? When was the last time anyone saw a fifty-dollar bill lying on the sidewalk?

To respond to these critics, clean energy supporters have detailed the numerous structural and behavioral barriers that impede adoption of money-saving innovations. There are innovations proven to be cost-effective that we have failed to implement. These barriers are not insurmountable, but they will have to be addressed if a technology driven approach is to succeed.

The most significant hurdles to wide-scale adoption of clean technologies, however, stem from the cost-differentials between clean and fossil energies and the high start-up costs of large-scale energy efficiency improvements. To overcome these hurdles and drive costs down, investment will have to be much larger than it is at present. Given the scale of the investment in public goods needed, we cannot rely on the private sector alone to get the job done.  

Recent proposals to push technology in the absence of a carbo
n price understand this; the aim is to make clean energy affordable. The logic is similar to that of a carbon price: we need to change the relative cost of fossil fuels. The carbon price achieves this directly by raising the costs of fossil fuels. Clean energy subsidies and investments achieve this indirectly, by lowering the cost of fossil fuel alternatives. Is either approach superior?

Existing public subsidies to fossil fuels distort the effectiveness of both a carbon price and clean energy subsidy and investment. According to a recent study, federal subsidies for fossil fuels between 2002-2008 topped $72 billion, $43 billion more than renewables received in subsidies over the same period. Removing taxpayer-supported subsidies to the fossil fuel industry could help level the playing field for clean technologies and reduce the amount of public investment needed to render these technologies cost-competitive. Having the government subsidize fossil fuels and clean energy simultaneously is an awful lot like treading water. Federal subsidies to fossil fuels, however, are not likely to go away anytime soon, and a carbon price could counter the effects of the subsidies. Couple the carbon price with large-scale public investment and we have a winning formula for making clean technologies affordable.

Most importantly, a carbon price is the public’s best option for forcing the fossil fuel industry to pay for at least some of the transition costs to a clean energy economy. What we lose by abandoning a carbon price is the opportunity to have polluters pay. Those who celebrate the demise of cap-and-trade yet support solutions to climate change sometimes overlook this fact. With a carbon price, the public at least shares some of cost of developing the clean economy with the fossil fuel industry itself.

Important questions still remain about how to best use public policy to drive innovation at such a massive scale. Do we need a Manhattan Project for clean energy or “a thousand points of light”? A disadvantage of the technology-driven approach is that it leaves the timing and total amount of emissions reduction dependent on the pace of technological change. Despite their faults, the cap-and-trade proposals before Congress this year would have capped U.S. emissions and achieved emissions reduction with certainty.

For these reasons, I remain skeptical that technology alone can and should solve the climate problem. And I am not quite ready to abandon a carbon price and let the fossil fuel industry off of the hook. But rather than despair the demise of cap-and-trade, I’ll have to hope to be proven wrong instead.

With the nation’s unemployment hovering near 10 percent, can we afford aggressive measures to reduce greenhouse gas emissions?

Proponents of Proposition 23 in California claim no. They claim that California should suspend its landmark climate and energy policy (AB 32) until its unemployment rate drops to 5.5 percent. Setting aside scientists’ warnings that we’re running out of time to address climate change, and setting aside the fact that the oil company funders of Proposition 23 also opposed AB 32 when it was passed in 2006, when California’s unemployment rate was lower than 5.5 percent, is there anything to be said for waiting until the employment picture looks less bleak?

Based on what economists have established about the relationship between climate policy and jobs, the answer is a resounding NO. There is surprising consensus among economists around the world (excepting those who work for right wing think tanks) on two main points:

1. Addressing climate change can lead to net job growth in the United States

With the U.S. likely facing high unemployment in coming years, green investments will create more jobs then other types of investment.

• Reduced oil imports would create jobs. Reducing oil imports can save hundreds of billions of dollars each year on imported oil. Rather than send this money abroad, it can be spent at home, creating jobs. A quick, back-of-the-envelope calculation [PDF] suggests that we have the potential to create 900,000 new jobs in the U.S. for every $100 billion decrease in oil imports.

• Carbon solutions invest in labor intensive domestic jobs and domestic resources. The solutions to climate change-ranging from renewable energy, to high-speed rail, to smart-grid investments, to sustainable biofuels-depend more on domestic resources, and also use more labor per dollar invested, than do fossil fuel alternatives. One recent study suggested that a switch towards carbon-reducing investment could create 1.7 million near term jobs.

• The United States can create jobs by re-assuming technology leadership. China is moving aggressively to capture leadership in solar, wind, high-speed rail, and other key clean energy solutions. But as recently as 1995, the U.S. was the technology leader in wind and ‘baseload solar’ — solar thermal. U.S. utilities today are purchasing these technologies from China, Denmark, and Spain. By reassuming technology leadership, and adopting a policy framework to support clean, homegrown energy industries, the U.S. can create new jobs by selling into an emerging, massive global market. Portugal’s recent success creating jobs by growing its own renewable energy industry demonstrates the tremendous possibilities.

• Investment in clean energy can mobilize capital to end the recession. The current downturn, resulting from the collapse of an asset bubble, is the hardest type from which to recover. In these types of recessions, self-corrective mechanisms are weak. Concerned about lack of future demand, businesses scale back investment, which has a multiplier effect, holding back recovery. A sustained national effort to rewire the country with clean energy, including a cap and trade system as a central driver, could mobilize large-scale private sector investment and initiate a positive feedback process whereby investment leads to jobs, which create higher income and demand, thereby generating greater investment, job creation, and economic growth over time. The case that carbon legislation can help end the recession was made recently by Economics Nobel Prize winner Paul Krugman.

2. Addressing climate change will not result in significant job loss

In spite of heated rhetoric claiming that past episodes of environmental regulation have been ‘job-killers,’ numerous independent studies show:

• Plant closings and layoffs as a result of environmental regulation are very rare. Repeated studies show that layoffs attributable to environmental regulations account for only 1/10th of 1 percent of all layoffs nationwide: around 1,000-3,000 jobs per year across the entire United States. For example, less than 7000 jobs were lost between 1990-1997 as a direct result of the Clean Air Act Amendments taking effect. Over that same period, 10 million U.S. workers were laid off for non-environmental reasons.

• Proposed climate legislation will not be costly and will have little overall negative impact on employment through 2030. In sharp contrast to the “sky-will-fall” claims of industry trade groups, independent academic and government studies of U.S. climate legislation, from MIT; Harvard’s Dale Jorgensen; the Energy Information Administration; The Research Triangle Institute; and the Department of Energy’s Pacific Northwest National Lab, see very low short-term costs and negligible impacts [PDF] on long-run job growth.

• Environmental spending creates jobs that offset losses. Compared to overall spending in the economy, on a per dollar basis, spending on environmental protection and clean-up employs twice as many workers in construction (11 versus 4 percent) and 25 percent more in manufacturing (20 versus 16 percent). A study [PDF] by Resources For the Future’s Morgenstern of the heavily regulated steel, petroleum, plastics, and pulp and paper industries concluded: “While environmental spending clearly has consequences for business and labor, the hypothesis that such spending significantly reduces employment in heavily polluting industries is not supported by the data.”

• Few firms flee the United States to “pollution havens” in poor countries. Environmental costs are generally below 2 percent [PDF] of total business costs. Firms that do leave the U.S. generally do so in pursuit of lower labor and health costs, expenditures forming a much higher percentage of their total costs. Economists searching for evidence [PDF] supporting widespread flight of polluting industries have not found significant effects. In the climate-change case, the handful of energy intensive industries that might be subject to competitive pressure from abroad can be shielded with World Trade Organization-sanctioned import tariffs.

• Climate action will heavily impact one group of workers: coal miners. With or without greenhouse gas controls, coal industry employment is predicted to fall significantly by 2025 as a result of mechanization. If carbon emissions are restricted, we are likely to see a further decline of jobs of about 1,500 per year. The nation has a clear obligation to invest heavily in adjustment assistance to help miners who lose from climate stabilization efforts.

Prop 23 is allegedly about saving jobs. But several decades of economic research have kicked the props out from under that argument. The facts are that climate investments will create green jobs, and lead to very small job losses in affect
ed industries.

There is good news on the climate policy front. The Europeans have ratcheted down their emission targets; the Chinese are getting serious about solar power and energy efficiency; and Washington, after opening a multi-billion dollar stimulus spicket for clean energy, is lumbering towards a carbon cap. 

This is progress-inadequate, but still important progress — towards what many of us used to think we had to do: cut global warming pollution 80 percent by 2050. These cuts would stabilize the thickness of the heat-trapping carbon dioxide blanket surrounding the earth at 450 ppm (parts per million) and, we thought, provide insurance that the global average temperature increase would not exceed 2 degrees Celsius from 1990 levels.

But 450ppm, it turns out, is so 2005.

In the last 4 years, climate scientists, lead by NASA’s James Hansen, have dramatically altered the bar. To avoid global warming catastrophe-collapse of the continental ice-sheets and sea level rise of dozens of feet — many scientists are now telling us we have to get down to 350 ppm, and quickly.  

And so, what four years ago was a heroic target of 450 ppm has suddenly become a mind-boggling target of 350 ppm. Instead of global emissions cuts of 80 percent from 1990 levels by 2050, 350 requires 97 percent reductions: a complete conversion to renewable energy systems by mid-century, with the world economy virtually free of carbon emissions. This is a far more demanding goal than any of the leading policy proposals under discussion today.

Game over?

No. Just time to adjust our thinking about what is possible.

We, along with four other authors, recently completed a report [PDF] for Economics for Equity and the Environment Network (E3), surveying the economic studies informed by recent science. The report found that quicker action aimed at more ambitious targets makes good economic sense. The report outlines what it will take to achieve 350 and finds that a comprehensive global strategy is still well-within the range of what most reasonable people are willing to pay today to avoid far greater damages from climate change down the road. With likely investments of about 1-3 percent of global GDP, we could rewire the planet with clean energy, rebuild global forests to trap billions of tons of carbon, create jobs, and stabilize the climate. And depending on factors such as the price of oil, these investments might actually save us money.

The bad news on the climate front is NOT that the costs of preventing climate change are becoming too expensive. Estimates of the costs have remained relatively stable, while estimates of the likely costs of inaction are becoming unbearable. Whether the final number is 450 or 350, we face no insoluble technical or economic challenges. This is still a problem we can afford to solve. Stopping global warming remains fundamentally a problem of political will.

Why 350?

At the Rio Earth Summit in 1990, the international community agreed to work to prevent “dangerous anthropogenic interference” with the global climate. This statement solidified into a goal of holding further warming to no more than 2 degrees C (3.6 degrees F) above 1990 levels; operationally, this suggested that we needed to stabilize CO2 concentrations in the atmosphere at below 450 ppm.

So for the past few years, 450 has been the number.  And it is a daunting one: at current rates of emissions, we will blow past 450 ppm in less than 30 years. Stabilizing at 450 ppm requires rich countries to immediately cap carbon and begin steep cuts. By 2025, the 450 ppm goal means that emissions have to be falling across the entire planet. Yet now, in 2009, governments and businesses are just beginning to come to grips with 450. In the developed world, the architecture for a multi-decadal cap-and-cut system is emerging, and in China there is a growing commitment to clean energy technology, and an inching towards the acceptance of carbon cuts. 

But now the scientists have stepped back in.

Even if we achieve 450 ppm CO2, according to the Stern Review, we still face a 70 percent chance that the globe will heat up more than 2.4 degrees C.  The last time the earth was that hot sea levels were 75 feet higher.

On top of this, increasing evidence suggests that the earth’s climate system is much more sensitive to the build-up of C02 than conventional wisdom would have it. Initial warming appears more and more likely to trigger processes that will lead to additional warming: methane released from thawing tundra and drying arctic wetlands; carbon emitted from burning forests and drying soils.

Given this new evidence, Hansen and others have argued that to avoid triggering the collapse of the ice-sheets, and eventual flooding of the great coastal cities of the world, we have to  hold warming to less than 2 degrees C. 

And so, in the year 2007, the new number arrived: 350.

Is 350 Possible?

Hansen (Figure 1) described a detailed scenario for reducing greenhouse gas emissions with the goal of reaching 350 ppm CO2 by 2100. It included phasing out coal completely (or achieving 100% carbon capture) by 2030, along with a combination of large-scale reforestation, avoided deforestation and carbon capture and storage to withdraw huge quantities of CO2 from the atmosphere. To reach the 350 target by 2100, the world would have to quickly go beyond reductions to achieve net negative emissions-removing more greenhouse gases from the atmosphere than are emitted each year.

Our report for the E3 Network contrasts Hansen’s scenario with a less demanding but still quite ambitious trajectory which does not require the world to achieve negative net emissions. In this scenario, the world reaches 350 ppm CO2 by 2200. Emissions are reduced to 54 percent of 1990 emissions by 2020 and 3 percent by 2050, and then zero out, but do not go negative.

The bottom-line on the technical side: Decarbonizing by 2050 is possible with, roughly, the suite of technologies now available or on the near-term horizon. Very aggressive policy, however, will still be required very soon to drive down the costs of renewables, to redesign cities, reimagine transport and agricultural systems, and insure that all efficiencies are captured. Doing all this gets the world to 350 by 2200. Taking the additional steps to achieve  negative emissions (and 350 by 2100) would require the development of large-scale, cost-effective sequestration technologies that go well beyond reforestation.

Figure 1: Comparing cumulative emissions for a 350 ppm CO2 trajectory Source: Ackerman et al. 2009. 

The Economics of 350

What will it cost to get to 350? Business lobbies have argued that even the moderate reductions called for in recent U.S. legislation would cripple the economy. In fact, there is a large body of research projecting that recent U.S. legislative proposals would have very little economic impact, and that the much more ambitious emission reductions required to reach 450 and 350 ppm respectively, will have moderate net costs.

At least four research groups have modeled global scenarios that lead to 350 ppm CO2. One finds that in a world with unemployed labor and other resources, the stimulus from new climate investments might accelerate economic growth. The other three groups find net annual costs that are generally between 1 percent and 3 percent of world output. These studies are consistent with the Stern Review, the reports by McKinsey, and others, suggesting that achieving 450 ppm would cost around 1 percent or less of global GDP. 

Both of these targets, 350 or 450, become a lot cheaper if oil prices return soon to $150 a barrel. If peak oil drives prices that high in the coming decade, then decarbonizing at a pace to hit 350 could lead to economic gains. 

At first glance, 1-3 percent of global output may seem too high a price to pay, but if examined in its proper context, the initial sticker shock fades. Suppose, for instance, that the cost of climate protection turns out to be 2.5 percent of global GDP. In an economy like the U.S. that is growing at 2.5 percent per year, spending 2.5 percent of GDP on climate protection each year would be equivalent to skipping one year’s growth, and then resuming.  Put another way, if climate policy is at the high end in terms of cost, Americans in 2050 would have to wait one additional year, until 2051, to be as rich as they otherwise would have been had they not been steadily investing in the transition to clean energy.

Or consider another comparison. Military spending is greater than 4 percent of GDP in both the United States and China. On the strength of a different narrative about potential future dangers, both countries are already diverting from annual consumption, year after year,  more than the high end estimates of what it would take to stop global warming.

350 and the Bottom Line

Dropping the global climate target from 450 ppm to 350 ppm of atmospheric CO2 may appear to present an impossible task. In fact, it leaves us with qualitatively the same challenge. Achieving 350 simply requires accelerating a global technology revolution that will yield many benefits — in terms of climate stability, energy security, and economic payback. And estimates of the scale of the investment needed to complete that revolution — and complete it on time — are affordable.

Our report for E3 Network is notable for what it didn’t find. There are no reasonable studies that say that a 350 ppm stabilization target will destroy the economy; there are no studies that claim that it is desirable to wait before taking action on climate protection. On the contrary, there is strong, widespread endorsement for policies to promote energy conservation, development of new energy technologies, and price incentives and policies that will redirect the world economy onto a low-carbon path to sustainability.

The constraints on allowable CO2 emissions, for stabilization at a level as low as 350 ppm, are painfully tight. A realistic policy scenario, therefore, demands not only maximum progress in pursuing energy efficiency and promoting renewable energy, but also for measures that remove carbon from the atmosphere. Many of the technologies that will be needed for large-scale sequestration do not yet exist in mass-produced, commercially available forms, if at all.

What are the limits to what we can achieve through energy efficiency, solar power, carbon capture and storage, and other new technologies? This is a question about an unknowable future: a century ago, just before the outbreak of  World War I, who could have anticipated mobile phones, laptop computers, and the internet? It is, however, clear that the pace of the clean energy revolution will determine whether we hit a concentration target of 350, 450, or fail to do so. It is also clear that failure to stop global warming will impose very high costs on our children and grandchildren. The world is taking important initial steps toward addressing the climate crisis, with increasingly widespread acceptance of the need to avoid 2 degrees C of warming, and a carbon target of 450 ppm.  It now appears that avoiding dangerous climate change will require us to do better than that. The best available estimates suggest that we can, indeed, afford the economics of 350. What we cannot afford is too little climate policy, too late.