Still, should we be starting a project like this when the economy is depressed? Yes, we should — in fact, this is an especially good time to act, because the prospect of climate-change legislation could spur more investment spending.
Consider, for example, the case of investment in office buildings. Right now, with vacancy rates soaring and rents plunging, there’s not much reason to start new buildings. But suppose that a corporation that already owns buildings learns that over the next few years there will be growing incentives to make those buildings more energy-efficient. Then it might well decide to start the retrofitting now, when construction workers are easy to find and material prices are low.
The same logic would apply to many parts of the economy, so that climate change legislation would probably mean more investment over all. And more investment spending is exactly what the economy needs.
So let’s hope my optimism about Copenhagen is justified. A deal there would save the planet at a price we can easily afford — and it would actually help us in our current economic predicament.
So Paul Krugman wrote in his NYT column today, “An Affordable Truth.” He has been at the forefront of those explaining why domestic climate action won’t hurt the economy in the long term and is likely to boost it in the near term (see Krugman offers Climate Economics 101, “claims of immense economic damage from climate legislation are as bogus, in their own way, as climate-change denial” and Krugman : Climate action “now might actually help the economy recover from its current slump” by giving “businesses a reason to invest in new equipment and facilities”).
Here’s more from The Nobel laureate in economics, first on the emails:
Of course, if things go well in Copenhagen, the usual suspects will go wild. We’ll hear cries that the whole notion of global warming is a hoax perpetrated by a vast scientific conspiracy, as demonstrated by stolen e-mail messages that show — well, actually all they show is that scientists are human, but never mind.
And he still explains better than most the benefits of a market-based approach:
The truth, however, is that cutting greenhouse gas emissions is affordable as well as essential. Serious studies say that we can achieve sharp reductions in emissions with only a small impact on the economy’s growth. And the depressed economy is no reason to wait — on the contrary, an agreement in Copenhagen would probably help the economy recover. Why should you believe that cutting emissions is affordable? First, because financial incentives work.
Action on climate, if it happens, will take the form of “cap and trade”: businesses won’t be told what to produce or how, but they will have to buy permits to cover their emissions of carbon dioxide and other greenhouse gases. So they’ll be able to increase their profits if they can burn less carbon — and there’s every reason to believe that they’ll be clever and creative about finding ways to do just that.
As a recent study by McKinsey & Company showed, there are many ways to reduce emissions at relatively low cost: improved insulation; more efficient appliances; more fuel-efficient cars and trucks; greater use of solar, wind and nuclear power; and much, much more. And you can be sure that given the right incentives, people would find many tricks the study missed.
For more on McKinsey’s work, see “McKinsey must-read: U.S. can meet entire 2020 emissions target with efficiency and cogeneration while lowering the nation’s energy bill $700 billion!” and “McKinsey 2008 Research in Review: Stabilizing at 450 ppm has a net cost near zero.”
The truth is that conservatives who predict economic doom if we try to fight climate change are betraying their own principles. They claim to believe that capitalism is infinitely adaptable, that the magic of the marketplace can deal with any problem. But for some reason they insist that cap and trade — a system specifically designed to bring the power of market incentives to bear on environmental problems — can’t work.
Well, they’re wrong — again. For we’ve been here before.
The acid rain controversy of the 1980s was in many respects a dress rehearsal for today’s fight over climate change. Then as now, right-wing ideologues denied the science. Then as now, industry groups claimed that any attempt to limit emissions would inflict grievous economic harm.
But in 1990 the United States went ahead anyway with a cap-and-trade system for sulfur dioxide. And guess what. It worked, delivering a sharp reduction in pollution at lower-than-predicted cost.
Curbing greenhouse gases will be a much bigger and more complex task — but we’re likely to be surprised at how easy it is once we get started.
The Congressional Budget Office has estimated that by 2050 the emissions limits in recent proposed legislation would reduce real G.D.P. by between 1 percent and 3.5 percent from what it would otherwise have been. If we split the difference, that says that emissions limits would slow the economy’s annual growth over the next 40 years by around one-twentieth of a percentage point — from 2.37 percent to 2.32 percent.
And that is precisely what the rest of the economic literature says, as I discussed here: “Introduction to climate economics: Why even strong climate action has such a low total cost — one tenth of a penny on the dollar.”
That’s not much. Yet if the acid rain experience is any guide, the true cost is likely to be even lower.
You don’t need a Nobel Prize to know that, do you?
- Krugman strongly endorses Waxman-Markey: “The claim that carbon taxes are better than cap and trade is, in my view, just wrong.”
- Krugman slams Reaganite Feldstein on global warming economics
- Krugman takes on the “fantasists” of the “burn-baby-burn crowd” for opposing climate action that costs Americans 18 cents a day
- Krugman: Fear of carbon markets and speculation is “99% wrong and bad for the planet”
- Krugman calls climate science denial by House conservatives “a form of treason — treason against the planet”
- Krugman eviscerates macroeconomics