<a href="http://www.greenlifestylemag.com.au/blogs/leon#">The Business of Green</a>

The Business of Green

Money matters in the green world, by Leon Gettler.

How much will global warming cost?


Credit: iStockphoto

- Advertisement -

The cost of global warming is a critical question. The Gillard government’s carbon price of $23 a tonne might be under-estimating the cost.

Two years ago, the cost of adjusting to global warming was put at $600 billion a year. Now a new UN report has more than tripled that number to $1.9 trillion per year for 40 years. Just do the numbers: it comes out to a grand total of $76 trillion, over 40 years. That’s more than five times the entire Gross Domestic Product of the United States at $14.66 trillion a year.
It’s a massive amount of money and it tells us that climate change could be a lot more costly than governments estimate.

Governments need to approach climate change by using cost-benefit analysis: How much should we spend to fix the problem? How much will it cost us if we don’t?

A new peer reviewed report Climate Risk and Carbon Prices: Revising the Social Cost of Carbon tells us governments have severely underestimated how much climate change will cost us. Economist Frank Ackerman and Elisabeth Stanton say it is much higher than the $21 per tonne estimated by the US Environment Protection Agency and Gillard’s $23 a tonne.

How do they arrive at that conclusion? There are four reasons. First, scientists are uncertain about how quickly climate change will progress. There is a big risk that it could happen a lot faster than what they anticipate. Second, economists are uncertain about the severity of the damages. No one, for example, predicted that Australia’s GDP would be hit by the flooding in Queensland which took out the coal industry. Third, economists have little information about damages at much higher temperatures that will result from unchecked climate change. And finally, there is no consensus on how we value the costs and benefits of climate change.

Using all four factors, they estimate the cost of carbon can come out anywhere from $28 a tonne to a whopping $893 a tonne. Think of what that would do to fuel and electricity prices. Once it gets to that level, it becomes too expensive to own a machine or drive a car. And it actually gets more complicated because emissions that occur later will do more damage.

Their research suggests that if the damages from carbon dioxide are so high, then almost anything that reduces emissions is worth doing.

Prime Minister Gillard has told Australia that a carbon tax, while assessed on big companies, ultimately will be
felt by everyone. “Some of the cost paid by big polluters will be passed through to the prices of the goods you buy. The price impact will be modest but I know family budgets are always tight. So I have decided most of the money raised from the carbon price will be used to fund tax cuts, pension increases and higher family payments.”

But if Ackerman and Stanton are right, the price will be too low. It’s just a step in the right direction. Chances are that future governments will have to go back and set a new carbon price.