Costs of Decarbonization Greater Than Costs of Climate Change
Climate Change Weekly #267
In response to a request by members of the U.S. Senate, the Government Accountability Office produced a report, Information on Potential Economic Effects Could Help Guide Federal Efforts to Reduce Fiscal Exposure.
According to the report, between 2007 and 2017 to date, the national government has incurred direct costs of more than $350 billion because of extreme weather and fire events. The GAO did not conduct original research but rather relied on a few reports, and climate models referenced in those reports, to conclude the impacts and costs of extreme events—such as floods, drought, fire, crop losses, and hurricanes—will increase in frequency and severity as a result of human-caused climate change.
By how much? To answer that question, GAO relied on a range of cost estimates contained in a November 2016 analysis of an Office of Management and Budget and Council of Economic Advisers report. That analysis estimated the federal government will likely incur, as a result of human-caused climate change, average annual costs between $12 billion and $35 billion per year by mid-century and $34 billion to $112 billion per year by late century, the equivalent of $9 billion to $28 billion per year in today’s economy.
The new GAO report is filled with so many uncertainties, and its cost projections built upon so many flawed assumptions, it is virtually useless for guiding climate change responses. GAO itself notes, “Methods used to estimate the potential economic effects of climate change in the United States … produce imprecise results because of modeling and other limitations … [stemming from] (1) climate modeling uncertainty; (2) limited information on which to base models for specific economic sectors; (3) incomplete coverage of sectors, interactions among sectors, and climate change impacts; and (4) challenges of modeling over long time frames.”
Examining just a few of the flawed assumptions shows just how massive the problems are with basing policies on these estimates.
First, the complex climate models referenced in the literature cited by GAO grossly overstate the amount of warming we have actually experienced as greenhouse gas emissions have risen. Actual measurements indicate Earth has warmed about one degree Fahrenheit over the past 150 years, but according to the models Earth should have experienced at least twice that much warming based on carbon dioxide emissions and feedbacks. GAO acknowledges this problem, stating, “… another key source of uncertainty is how much global temperatures will rise in response to a change in carbon dioxide concentrations, a factor known as climate sensitivity.”
If the complex climate models don’t accurately reflect present or past temperatures without scientists forcing them to fit through various adjustments, why should we trust their projections of future temperatures? Simpler climate models, such as those run by Christopher Monckton, Willie Soon, David R. Legates, and William M. Briggs, more closely match measured temperatures and predict much less warming from increases in carbon dioxide, yet these more accurate models are eschewed in the reports referenced by GAO.
Predictions made by complex climate models concerning increasing rates of global sea-level rise, increasing numbers of more powerful hurricanes, and droughts and flooding events of increasing intensity, length, and frequency, have not been borne out by the actual climate data either. Category 3 and above hurricanes have not increased in number or strength. Droughts and extreme rainfall events are not occurring more frequently, nor have they been more severe when they have occurred during the recent period of warming. Yet GAO’s report accepts the cost projections of these studies despite the fact they consistently fail to reflect actual climate conditions. This is a case of Garbage In, Garbage Out.
GAO also admits the studies they reference cannot account for technological changes, policy changes, and demographic responses over time in response to changing climate conditions. Nor do the studies they rely on account for the extent current policies, including subsidized hurricane, flood, and crop insurance, contribute to the present costs of extreme weather events. For instance, most of the costs related to current crop insurance are not the result of crop failures due to extreme weather events, but rather the result of payments to large farmers when crop prices fall below a government-established benchmark. In addition, subsidized flood and hurricane insurance have contributed to a building boom in disaster-prone areas along rivers and coasts.
Quite frankly, even for present climate conditions, much less in future projections, neither climate models nor climate researchers can separate the modest anthropogenic contribution (if any) to changing climate conditions like sea-level rise and hurricane strength from natural factors driving these events throughout history. As a result, there is no way to realistically apportion a share of the costs government incurs from extreme weather events to human greenhouse gas emissions as opposed to natural factors that drive these events.
Leaving aside all the questions of science, an economic analysis of any issue the government is trying to understand, and the possible responses to the issue if it should prove to be a problem, should weigh not just the costs but also the potential benefits resulting from the current state of things, the projected state of things should no policy changes be imposed, and the benefits and costs from any policy changes implemented.
GAO entirely ignores the tremendous benefits flowing from the use of fossil fuels. Not just the poverty-reducing, life-span-lengthening, and welfare-enhancing benefits resulting from modern power systems, refrigeration, rapid transportation, and abundant nutritious food, but more directly, the greening of the Earth, which is reclaiming desert, expanding forests, and improving crop yields from increased carbon dioxide in the atmosphere. These benefits are virtually incalculable, vastly outweighing any purported costs resulting from extreme weather events.
And when you get down to weighing costs and benefits, you must do so honestly, in part by calculating the net present value (NPV) of actions to prevent climate change. David Middleton notes GAO says its study doesn’t estimate the potential costs of significant global action to reduce greenhouse gas emissions. Middleton made that calculation, using figures from the International Energy Agency (IEA) and the BP statistical review.
Middleton determined decarbonizing over the short-term, described by IEA as “deep decarbonization,” would cost the United States $7.5 trillion now to prevent $161 trillion in damages by 2100. Middleton asks, “Would it make sense to spend $7.5 trillion now (or in the near future) if it averted $161 trillion worth of damages over the next 83 years?”
NPV is “the difference between the present value of cash inflows and the present value of cash outflows,” writes Middleton. An investment with a positive NPV will be a profitable one, and an investment with a negative NPV will result in a net loss.
By Middleton’s calculations and regardless of the discount rate chosen, the NPV of ending or sharply restricting the use of fossil fuels in the near term is a negative, meaning it would amount to a loss in value for the United States. In the best-case scenario for decarbonization, using a discount rate of 0.25 percent (an absurdly low figure since the typical discount rate used to calculate the potential returns from capital investments is 7 percent), Middleton found decarbonization had an approximate negative NPV of more than $331.2 billion. Using a 3 percent discount rate, the NPV loss from deep decarbonization tops $5.135 trillion, and using a more realistic 7 percent discount rate, the NPV loss is $6.595 trillion.
So decarbonizing to fight climate change would cost present and future generations as much as $6.6 trillion in lost economic gains. In a world where 1.2 billion people suffer from energy poverty and more than 700 million go hungry every day, can we really afford to write off that much economic growth in the vain hope of controlling the weather based on climate models that fail to accurately portray present conditions much less predict future ones?
— H. Sterling Burnett
IN THIS ISSUE …
LAST CHANCE TO REGISTER FOR AMERICA FIRST ENERGY CONFERENCE
You still have time—but not much!—to register for The Heartland Institute’s America First Energy Conference, being held in Houston, Texas on November 9 at the JW Marriott Galleria. I’m on the program, along with Heartland’s new president, former Congressman Tim Huelskamp; University of Delaware climate scientist David Legates; Louisiana Attorney General Jeff Landry; and many more. You can register for the event at http://americafirstenergy.org/register/. I hope to see you there!
On October 13, at the World Bank’s annual summit in Washington, DC, its president Jim Yong Kim discussed the organization’s shift from helping reduce poverty in general to promoting green policies and fighting climate change. Kim estimated by 2020, more than a quarter of his budget will be linked to climate change.
If that’s the case, the World Bank may be headed for a budget cut. President Donald Trump has joined representatives from Australia, China, Ghana, India, Nigeria, and Zimbabwe in demanding the bank get back to its core mission of helping impoverished countries develop, instead of funding the climate concerns of wealthy western nations.
Halfway through the summit, the Global Warming Policy Foundation issued a report by the World Bank’s former head of research arguing the bank should be closed because it has ceased to serve the poor—the very reason for its existence. The report, “The Anti-Development Bank,” quoted Indian government minister Piyush Goyal saying, “The people of India want a certain way of life. They want jobs for their children, schools and colleges, hospitals with uninterrupted power.” According to the study, Goyal complained about the World Bank’s attempt to push solar power instead of coal for India. “We need a very large amount of baseload power and this can only come from coal. They’re saying to us, ‘we’re sorry but you Indians can only have power for eight hours a day. The rest of the time you must live in darkness.’”
The Zimbabwean reports Nigerian finance minister Kemi Adeosun shared Goyal’s concern.
“We want to build a coal power plant,” the Zimbabwean quotes Adeosun saying. “However, we are being blocked from doing so, because it is not green. This is not fair because they have an entire western industrialisation that was built on coal-fired energy. They suggest that we use solar and wind, which is more expensive.”
Trump may have something to say about the World Bank’s direction. America provides the most funds to the bank, and as the Zimbabwean points out, he pulled the United States from both the Paris climate accord and UNESCO. Trump has called for the World Bank to be more accountable, having the costs of projects weighed against concrete benefits and having its board of directors held accountable when cost overruns occur or when projects’ predicted benefits fail to materialize.
SOURCE: The Zimbabwean
A new Policy Brief by Roger Bezdek, Ph.D., published by the Nongovernmental International Panel on Climate Change, shows flooding problems in Maryland and Virginia’s Chesapeake Bay region are due to changes in local land use that are causing the land to subside, not sea-level rise from supposed human-caused climate change as climate alarmists claim. Bezdek writes flooding and water intrusion will continue to plague Norfolk and the Chesapeake Bay region irrespective of sea-level changes, unless the region halts or slows the rate at which it withdraws groundwater form local aquifers—the primary cause of subsidence and thus the flooding.
SOURCE: The Heartland Institute