Higher productivity and lower health costs outweigh additional spending
Grist has discussed the consensus among most economists that the net cost of solving the climate crisis will be around 1 percent of gross domestic product (GDP). Basically this consensus says that total expenditures in various greenhouse gas emitting sectors will increase by 1 percent for the same economic output if emissions are controlled.
To be fair to economists, these estimates are based on studies that include substantial increases in energy efficiency — even count some of the maintenance and capital savings. They are actually taking a stab at following Amory Lovins’ dictum to count all costs and benefits.
Nonetheless, I think there are some good reasons why the consensus is wrong about there being a net cost at all. I think the overwhelming evidence is that a climate-stable future will have a higher GDP, even before avoided climate disruption is counted.
The main extra benefits economists overlook are the helpful side effects other than mitigating the climate crisis — “positive externalities,” in economic jargon.
For example, about half of all economic activity takes place in climate-conditioned buildings. Greening these buildings could increase[PDF] productivity [PDF] by around 10 percent. Similarly, switching most long-haul freight trucking miles to long-haul freight rail would increase productivity in transportation. Many energy-saving practices in industry, such as reducing scrapping and reducing spills and other types of emitting stoppages, would increase productivity as well. A switch to wind and solar would reduce labor productivity in the electricity sector; the conventional wisdom is that a switch to organic agriculture would do the same in that sector, though I think this is much less certain that people think. At any rate, sectors where productivity would rise greatly outnumber the tiny sectors where it might fall — resulting in a huge net increase, probably greater than 5 percent for the economy as a whole.
Another example would be huge benefits to health. Eliminating or greatly reducing the use of fossil fuels would reduce air pollution, water pollution, and exposure to toxics. A switch to organic and low input agriculture would decrease direct ingestion of toxics, and increase available vitamins and minerals in food. Whether such a switch alone would encourage a switch to healthy increase in the consumption of non-starchy vegetables and fresh fruits I don’t know, but it certainly could be part of policy that accomplished this. Overall, I think it is almost impossible that switching from fossil fuels to renewables and efficiency, that switching from toxic soil-consuming agriculture to non-toxic soil building agriculture, from unsustainable to sustainable forestry, would not increase GDP.
Two last points.
First: Joe Romm, David Roberts, and I all tend to agree (from differing perspectives) that conventional economics tends to greatly underestimate efficiency potential. But I think this is trivial compared to the paybacks from increased labor productivity and better health. In human terms, the latter is more important. But if you are looking at pure money paybacks, the productivity increase from green buildings is really stunning. People who produce literature surveys tend to look over the ranges of productivity increase, shake their heads in disbelief, and use the low end estimates to be on the safe side. But the low end estimates tend to focus on productivity from just one type of improvement. The median productivity estimate is 10 percent; but if you include only estimates that include productivity increases from better lighting and better ventilation and better temperature comfort, 10 percent ends up towards the low end.
My take is that a 10 percent increase for economic activity within green buildings is a 5 percent increase for the economy as a whole, and that productivity improvements in manufacturing and transport more than cancel any productivity losses in electricity and agriculture.
Second, these external benefits end up producing a net increase in GDP even though the conventional consensus underestimates gross costs. I think the gross cost of 1 percent of GDP is low by half. Almost all estimates under the economic consensus used old estimates for speed and intensity of reductions that are now widely agreed to be too low. The one conventional estimate I know of which takes the accelerating rate of climate change into account ends up estimating a need to spend about 2 percent of GDP. But once we take external benefits of phasing out emissions (other than the mitigation of climate change) into account, the effect on GDP still ends up positive — even before we consider that efficiency potential is usually underestimated.
[Update] Minor edits made for clarity.