By Peter Coy
There’s a good reason climate change is called the policy problem from hell. Several good reasons, actually, but let’s start with a big one: Fighting climate change forces society to spend real money today to reap benefits that will occur over hundreds or even thousands of years. We’re not set up to be that farsighted, either financially or mentally.
Ideally, we would know precisely how much damage each ton of greenhouse gas emissions does to the environment. (We don’t.) We would know how much each dollar of economic output contributes to emissions, now and in the future. We would know how quickly the population and the economy will grow, including how rich we’ll all be in the future. Does it make sense for us to deprive ourselves today in order to make the planet more habitable for our great-great-grandchildren? If you answer yes, how much should we tighten our belts — a little or a lot?
Trying to answer such questions is “totally ridiculous and no one in their right mind would attempt to do it,” James Stock, a Harvard University economist, said on Sept. 9 at a virtual conference put on by the Brookings Institution.
Ridiculous, yes, but also essential, as Stock recognizes. There is no alternative. Stock moderated a session on a new paper that attempts to calculate the social cost of carbon — that is, the economic harm done by each incremental ton of carbon dioxide. That paper, which draws on the wisdom of the world’s top experts in economics, climatology and other fields, aims to inform the Biden administration, which has promised to announce its own calculation of the social cost of carbon in January.
Real consequences will flow from whatever number the Biden administration chooses. Rules on fuel economy and appliance efficiency, carbon taxes and more are based on it. Around 2010, while working in the White House as chief economist of the Council of Economic Advisers, Michael Greenstone started calling the social cost of carbon “the most important number you’ve never heard of.”
To find out more, this week I interviewed Greenstone, a University of Chicago economist who was a commenter on the paper presented at Brookings, as well as Richard Newell, the president of the economics-oriented environmental group Resources for the Future, who was one of the paper’s 11 authors.
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True, there’s a lot of uncertainty in this sort of science. But Greenstone, the University of Chicago economist, says that’s no reason for complacency. Society should spend now to reduce the risk of unlikely but highly negative outcomes, just as people buy insurance against the unlikely event of a house fire, he told me. He told the Brookings audience, “We’re at the dawn of a new era in understanding climate damages, and this paper is part of that.”