Climate change is sometimes called humanity’s biggest problem. Ban Ki-moon, Christine Lagarde, and John Kerry have all said as much recently. The mainstream Western media often discuss climate change in catastrophic, or even apocalyptic, terms. Indeed, if you take newspaper headlines seriously, the Fifth Assessment Report of Working Group II of the Intergovernmental Panel on Climate Change came accompanied by the Four Horsemen of the Apocalypse; predictions of famine, pestilence, war, and death proliferated hither and yon. Conversely, when, on November 11, 2014, the United States and China inked an agreement on climate whose actual consequences are at best liable to be indistinct, banner headlines broke out, as though messianic times were nigh.Assuming it falls somewhat short of the Four Horsemen of the Apocalypse, how serious will the impact of climate change be really? How much do we know about these impacts? What are the implications for policy?It’s helpful to recall here that climate change means a lot more than just different temperatures. It means more or less rain, snow, wind, and clouds in various places. It means different outcomes for plants, whether direct or, since plants compete for resources, indirect. It means changes for the animals that eat those plants. And this includes changes for everything that hitches a ride on those plants and animals, and hence changes for all sorts of pathogens. Nature, agriculture, forestry, and health will all be different in the future. The seas will rise as water expands and glacial ice melts, affecting coastlines and everyone and everything that resides there. Water supplies will be affected by changing rainfall patterns, but water demand will also be altered by changing temperatures. Energy demands will change, too; there may be less need to heat houses in winter and perhaps greater need to cool them in summer. Traffic, transport, building, recreation, and tourism, too, will all feel the impact of a changing climate.For some, the mere fact of these impacts is reason enough for governments, businesses, and individuals to exert themselves to reduce greenhouse gases to minimize the change. That is strange logic, however. Change, after all, can be for the better or the worse, and at any rate it is inevitable; there has never been a lengthy period of climate stasis.Just as there is no logical or scientific basis for thinking that climate change is new, there is no self-evident reason to assume that the climate of the past is “better” than the climate of the future. With just as little logic, we might assume that women’s rights, health care, or education were necessarily better in the past. Any such judgment also contradicts Hume’s Law and, perhaps worse, is grounded in a fallacious appeal to nature understood in a very slanted way. There is no prima facie reason to assume that any given past climate was better than the prospective one. The climate of the 21st century may well be unprecedented in the history of human civilization; the number of people living in countries with free and fair elections is unprecedented, too. So what? “Unprecedented” is not a synonym for “bad.”Others argue that the impacts of climate change are largely unknown but may be catastrophic. The precautionary principle thus enjoins that we should work hard, if not do our utmost, to avoid even the slim possibility of catastrophe. This logic works fine for one-sided risks: We ban carcinogenic material in toys because we do not want our kids to get cancer. Safe materials are only slightly more expensive, and there is no likely or even imaginable “upside” to children having cancer. Climate policy, on the other hand, is about balancing risks, and there are risks to climate policies as well as risks caused by climate change. Sharp increases in energy prices have caused devastating economic recessions in the past, for example. Cheap energy fueled the industrial revolution, and lack of access to reliable energy is one factor holding back economic growth in most developing countries. In the short run, we rely on fossil fuels to keep us warm and keep the lights on, to grow our food, and to purify our drinking water. So there is a cost to human well-being in constraining fossil fuel use.What this means is that, instead of assuming the worst, we should study the impacts of climate change and seek to balance them against the negative effects of climate policy. This is what climatologists and economists actually have done for years, but their efforts have been overshadowed by the hysteria of the Greens and the Left, and the more subtle lobbying of companies yearning for renewables subsidies and other government hand-outs. It is especially important to maintain an objective attitude toward the tradeoff between possible dangers and the costs of policy, because estimating the impacts of climate change has proven to be remarkably hard. Past climate change is not much of a guide. The climate supposedly changed much less over the previous century than it is projected to do over the current one, but global mean surface air temperature has barely moved over the past two decades—and this is the period with the best data, in which almost all climate change impact studies have been done.Besides, the faint signal of past climate change is drowned out by all the other things that have changed. If one tries to study the impacts of climate change on crops, for example, one must factor in the impact of new seeds, fertilizers, pesticides, and a host of other confounding variables such as air pollution and atmospheric deposition of nutrients. If one is interested in commercial agriculture, one needs to consider subsidies and international trade. If one studies the impacts of climate change on health, one needs to control for progress in medical technology, different diets, changes in work and leisure, aging, migration, and so on and so forth. If one studies the impacts of sea-level rise, one needs to cope with subsidence and tectonic movements, changing land use, shifting priorities in coastal zone management, eutrophication, and more besides. The same is true for all past climate change impacts: Many things are changing, often much faster than the climate, and in ways that confound all unifactoral explanations potentially relevant to policy.The same is true for the impacts of future climate change. The confounding factors will not go away. In academic papers, we typically do the scientifically respectable thing and change one variable at a time. Controlled experiments make great science—even if done in silico—and since we cannot observe the future, experiments with computer models are the only option available to study the impacts of climate change. Controlled experiments make for poor predictions, however. The future is not ceteris paribus. It’s ceteris imparibus. Change happens, pretty much all the time.We know a lot about some of the impacts of climate change, such as those on agriculture, human health, and coastal zones. Other impacts are not as well understood even to the point of opacity, such as those on transport, production, and water resources. This partly reflects the differences in the complexity of the impact. Projections of future sea-level rise agree on the direction of the change and its order of magnitude. Projections of future rainfall, however, are all over the place. But our differential knowledge also reflects variations in attention. Academic incentives do not help. It is much easier to publish a paper in a good journal if it improves on a previous one. It is much easier to get funding if you have a track record on a particular subject. Papers or proposals that are genuinely new are often ill-regarded. This implies that some impacts of climate change have been extensively studied whereas other impacts have been largely ignored.Impacts of climate change are so many and so diverse, varying over space, over time, between impacts, and across scenarios, that it makes no sense to speak of “the” impact of climate change. People have tended to produce two solutions for this problem. Some just write about their favorite impact (or perhaps about the impact that supports their political position), pretending that this impact is somehow representative of all other impacts. Others add up impacts. This exercise is just as fraught as adding up all those proverbial apples and oranges, but it at least reflects the sum total of our knowledge, and the inescapably subjective elements in aggregation are well understood. (Below I use human welfare to add up impacts.)Understanding what the science of climate does and does not enable us to do readily in a policy vein is hard enough for some people. If one adds to that a requirement to know some basic economics, a good number of deeply concerned people appear to be rendered completely incapable of anything we should wish to bless with the term “thought.” And indeed, many an otherwise intelligent economist has lost his marbles when confronted with global warming.In a barter economy, one needs to know the price of everything relative to everything else. How many eggs for a liter of milk? How many slices of bread for a liter of beer? How many iPads for a yacht? In a monetary economy, however, one needs to know the price of everything in money only. In a barter economy, there are n2-2n prices (with n being the number of goods and services for sale). In a monetary economy, there are only n prices. That is why, at some time in the deep past, many human civilizations of diverse origins independently invented money.If one knows the prices of the things one wishes to buy, and one knows one’s own budget, informed trade-offs become possible. Most of us have to make choices. We cannot go on expensive holidays, send our kids to posh schools, drive fancy cars, and quit work all at the same time. In our daily life, we constantly choose among things that are otherwise incomparable. We may choose to pay more for a product because it says on the tin that it is good for the environment. We may opt to buy products that we think are good for our health. The same is true in the public domain. We vote for politicians who promise to do more (or less) for environmental protection and health care. From this, we can deduce our willingness to pay for a better environment or a healthier life. We can then apply these “prices” to the impacts of climate change.Studies, assessed by the Intergovernmental Panel on Climate Change in its latest report, that have used such methods find that the initial, net impacts of climate change are small (about 1 percent of income) and may even be positive. Many people, including supposedly objective academics, find it hard to admit that climate change can have positive impacts. But, as already noted, warmer winters mean less money spent on heating. They also mean fewer people dying prematurely of cold. Carbon dioxide makes plants grow, and makes them more drought-tolerant, a boon particularly to poorer countries. In the short run, these positive impacts may well be larger than the negative impacts.In the long run, however, negative impacts may surge ahead of positive ones. The positive impacts saturate quickly; one cannot save more on winter heating than one spends. The negative impacts do not saturate quickly; air conditioning bills will keep rising as summers get hotter. The long-run impacts are what matter most for policy. The climate responds only slowly to changes in emissions, and emissions respond only slowly to changes in policy. The climate of the next few decades is therefore largely beyond our control. It is only in the longer term that our choices affect climate change, and by then its impacts are likely to be negative on net. This implies that climate change is an economic problem, and that if economics could be rid of politics, greenhouse gas emissions should be taxed.The economic case for emission reduction is thus remarkably simple and robust. We only need to argue that in the long run unabated climate change will do more harm than good. If so, we need to start moving away from using fossil fuels. The question is therefore not whether there is an economic case for climate policy; it’s how much emission reduction can be justified at given losses to social welfare. To answer that question, we need to understand the size of the impacts of climate change. The current evidence, weak and incomplete as it may be, as summarized by the Intergovernmental Panel on Climate Change, suggests that moderate warming—say, what we might expect around the year 2075—would make the average person feel as if she had lost 0.2 to 2.0 percent of her income. In other words, a century worth of climate change is about as bad as losing a year of economic growth.Larger climate change would have more profound impacts. Negative surprises are more likely than positive surprises. But even if we take this into account, a century of climate change is not worse than losing a decade of growth. So if, as Bjørn Lomborg has been at pains to point out, we “spend” the equivalent of a decade of growth or more trying to mitigate climate change, we will not have spent wisely.Climate change is a problem, but at least as an economics problem, it is certainly not the biggest problem humankind faces. The euro crisis knocked off a third of the income of the people in Greece in five years’ time. Climate change does not even come close. And the people of Syria wish their problems were as trivial as those of the Greeks. Climate change is not even that large compared to other environmental problems. Urban air pollution kills millions of people per year in Asia. Indoor air pollution kills millions of people per year in Africa. The health problems related to climate change are unlikely to cause similar carnage before the end of the century.The estimates of the total impact of climate change call for a modest tax on greenhouse gas emissions—or perhaps a cap-and-trade system with a generous allocation of emission permits. The best course of action is to slowly but surely move away from fossil fuels, and in that, as usual, both markets and the parameters governments invariably set for markets to function have roles to play.Many disagree with this plan of action, of course, calling for a rapid retirement of fossil fuel use. Economically, their justification rests on assuming that we should care more about the future than we do in contexts other than climate change, that we should care more about small risks than we do, or that we should care more about poor people than we do. These justifications rest in politics or raw moral logic, not economics. Each of these arguments would affect not just climate policy but other areas, too. If one argues we should care more about the future, one argues not just for increased investment in greenhouse gas-emission reduction, but also, logically, in pensions, in education, in health care, and so on. If one argues we should be more wary of risk, one argues not only for increased investment in greenhouse gas-emission reduction, but also in road safety, in food safety, in meteorite detection, and whatnot. Ditto for concern about the poor.Speaking of the poor: Poorer countries are notably more vulnerable to climate change than richer ones. They tend to have a larger share of their economic activity in areas that are directly exposed to the weather, particularly agriculture. Poorer countries often lack access to modern technology and institutions that can protect against the weather; for example, air conditioning, malaria medicine, crop insurance. Poorer countries may lack the ability, and sometimes the political will, to mobilize the resources for large-scale infrastructure—irrigation and coastal protection, for example.Bangladesh and the Netherlands are two densely populated, low-lying countries at risk from flooding by river and sea. Bangladesh is generally seen to be very vulnerable to climate change, whereas most think that the Netherlands will be able to cope; the Netherlands is famous for thriving below sea level, after all. The Netherlands started its modern, large-scale dike building program only in 1850. Before that, dike building was local, primitive, and not very effective: The country was regularly plagued by devastating floods. In 1850, the Netherlands was only slightly richer than Bangladesh is now, but Bangladesh now of course has access to much better technology than the Netherlands did then.However, the main difference between the Netherlands in 1850 and Bangladesh in 2014 is political. In response to the European Spring of 1848, the Netherlands adopted a new constitution in 1849 that introduced a powerful central government broadly representative of the population (or rather, the male Protestant part of the population). The new Dutch government promptly went after public enemy number one: floods.Bangladesh is one of the most corrupt countries in the world, and its political elite is more interested in partisan fights and self-enrichment than in the well-being of its citizens. Floods primarily hurt the poor, who live near the river and the coastal flats where land is cheap. There is no political reason to protect them; after all, floods are thought to be an act of Allah rather than a consequence of decisions made or not made by incompetent and indifferent politicians. As long as this is the case, Bangladesh will be vulnerable to climate change.The disproportionate exposure to climate change of those most vulnerable is a good reason to be cautious about greenhouse gas emissions. The case has been exaggerated, however. It is peculiar to express great concern about the plight of the poor when it comes to climate but not in other policy domains. Levels of charitable giving and official development aid suggest that we are actually not that bothered. Our trade and migration policies would even suggest that we like to see them suffer. More importantly, there are two ways to mitigate the excessive impact of climate change on the poor: Reduce climate change, and reduce poverty.In the worst projections, climate change could cut crop yields in Africa by half. At present, subsistence farmers often get no more from their land than one-tenth of what is achieved at model farms working the same soil in the same climate. The immediate reason for the so-called yield gap is a lack of access to high-quality seeds, pesticides, fertilizers, tools, and things like that. The underlying causes include a lack of access to capital and product markets due to poor roads and insecure land tenure. Closing the yield gap would do more good sooner than climate change would do harm later. If one really wants to spend money to help farmers in Africa, one should invest in the land registry rather than in solar power.Indeed, modernizing agriculture in Africa would also make it less vulnerable to climate change. African farming is particularly vulnerable, because isolated, undercapitalized farmers struggle to cope with any change, climatic or otherwise. Infectious diseases illustrate the same point. There were outbreaks of malaria in Murmansk until the 1920s. Sweden suffered malaria epidemics in the 1870s, and the disease was endemic in Stockholm. George Washington did not want the new capital to be built in the estuary of the Potomac because of the malaria risk. Nowadays, malaria only occasionally returns to these places by plane, and it rarely kills.Largely as a consequence, malaria has become a tropical disease. Many fear that climate change would spread malaria because the parasite is more vigorous in hot weather and mosquitoes thrive in hotter and wetter places. However, in the rich world, habitat reduction, mosquito control, and medicine long ago tamed malaria. Mosquitoes need warm, still-standing water to breed. As we roofed houses, paved roads, and drained wetlands, their habitats disappeared. Clouds of DDT helped bring about the demise of the mosquito as well. Malaria medicine stops one from getting (seriously) ill, and from infecting others.These things cost money. A dose of malaria medicine costs $100—small change in the United States but a fortune in South Sudan. Therefore, malaria is first and foremost a disease of poverty. We can spend our money on combatting greenhouse gas emissions, reducing malaria risks for future generations. We can also spend our money on insecticides and bed nets, reducing malaria risks today. We can also invest in medical research. A malaria vaccine holds the prospect of a world free of this awful disease, regardless of climate. If our resources were unlimited, we could do all things worthwhile. With a limited budget, we should focus on those investments with the greatest return.These three examples—of coastal protection, agriculture, and malaria—show that development and vulnerability to climate change are closely intertwined. Slowing economic growth to reduce climate change may therefore do more harm than good. Concentrating the reduction of greenhouse gas emissions in rich countries will not solve the climate problem. And slower growth in rich countries means less export from and investment in poor countries.There is an even more direct link between climate policy and development. Cheap and abundant energy fueled the industrial revolution. Sudden increases in the price of oil caused many of the economic recessions since World War II. Lack of (reliable) electricity retards growth in poor countries, not just today through its effect on production, but also in the future, as electric light allows kids to do their homework after sunset.A fifth of official development aid is now diverted to climate policy. Money that used to be spent on strengthening the rule of law, better education for girls, and improved health care, for instance, is now used to plug methane leaks and destroy hydrofluorocarbons. Some donors no longer support the use of coal, by far the cheapest way to generate electricity. Instead, poor people are offered intermittent wind power and biomass energy, which drives up the price of food. But the self-satisfaction environmentalists derive from these programs does not put food on poor peoples’ tables.In sum, while climate change is a problem that must be tackled, we should not lose our sense of proportion or advocate solutions that would do more harm than good. Unfortunately, common sense is sometimes hard to find in the climate debate. Desmond Tutu recently compared climate change to apartheid.1 Climate experts Michael Mann and Daniel Kammen compared it to the “gathering storm” of Nazism in Europe before World War II.2 That sort of nonsense just gets in the way of a rational discussion about what climate policy we should pursue, and how vigorously we should pursue it.
1Tutu, “We Fought Apartheid. Now Climate Change Is Our Global Enemy”, Guardian, September 20, 2014.2Mann and Kammen, “The Gathering Storm”, Huffington Post, September 19, 2014.