Paris Agreement cost of $819–$1,890 billion per year in 2030 would reduce emissions in 1% of what is needed to limit average temperature rise to 1.5C; global costs from extreme weather have declined 26% over the last 28 years

Welfare in the 21st century: Increasing development, reducing inequality, the impact of climate change, and the cost of climate policies. Bjorn Lomborg. Technological Forecasting and Social Change, Volume 156, July 2020, 119981. https://doi.org/10.1016/j.techfore.2020.119981

Abstract

Climate change is real and its impacts are mostly negative, but common portrayals of devastation are unfounded. Scenarios set out under the UN Climate Panel (IPCC) show human welfare will likely increase to 450% of today's welfare over the 21st century. Climate damages will reduce this welfare increase to 434%.

Arguments for devastation typically claim that extreme weather (like droughts, floods, wildfires, and hurricanes) is already worsening because of climate change. This is mostly misleading and inconsistent with the IPCC literature. For instance, the IPCC finds no trend for global hurricane frequency and has low confidence in attribution of changes to human activity, while the US has not seen an increase in landfalling hurricanes since 1900. Global death risk from extreme weather has declined 99% over 100 years and global costs have declined 26% over the last 28 years.

Arguments for devastation typically ignore adaptation, which will reduce vulnerability dramatically. While climate research suggests that fewer but stronger future hurricanes will increase damages, this effect will be countered by richer and more resilient societies. Global cost of hurricanes will likely decline from 0.04% of GDP today to 0.02% in 2100.

Climate-economic research shows that the total cost from untreated climate change is negative but moderate, likely equivalent to a 3.6% reduction in total GDP.

Climate policies also have costs that often vastly outweigh their climate benefits. The Paris Agreement, if fully implemented, will cost $819–$1,890 billion per year in 2030, yet will reduce emissions by just 1% of what is needed to limit average global temperature rise to 1.5°C. Each dollar spent on Paris will likely produce climate benefits worth 11¢.

Long-term impacts of climate policy can cost even more. The IPCC's two best future scenarios are the “sustainable” SSP1 and the “fossil-fuel driven” SSP5. Current climate-focused attitudes suggest we aim for the “sustainable” world, but the higher economic growth in SSP5 actually leads to much greater welfare for humanity. After adjusting for climate damages, SSP5 will on average leave grandchildren of today's poor $48,000 better off every year. It will reduce poverty by 26 million each year until 2050, inequality will be lower, and more than 80 million premature deaths will be avoided.

Using carbon taxes, an optimal realistic climate policy can aggressively reduce emissions and reduce the global temperature increase from 4.1°C in 2100 to 3.75°C. This will cost $18 trillion, but deliver climate benefits worth twice that. The popular 2°C target, in contrast, is unrealistic and would leave the world more than $250 trillion worse off.

The most effective climate policy is increasing investment in green R&D to make future decarbonization much cheaper. This can deliver $11 of climate benefits for each dollar spent.

More effective climate policies can help the world do better. The current climate discourse leads to wasteful climate policies, diverting attention and funds from more effective ways to improve the world.

7. Conclusion

As municipalities, counties, and even countries declare a “climate emergency,” it is apparent that global warming is often being presented as an existential challenge requiring urgent and strong climate policies to avoid devastation.

This article has shown that these claims are misleading and often incorrectly describe the issue and its future. While climate change is real, human caused, and will have a mostly negative impact, it is important to remember that climate policies will likewise have a mostly negative impact. Thus, we must account for the effects of both to find the policies that will achieve the highest welfare gains.

7.1. Baseline welfare keeps increasing

This article first established how the baseline development for the world has improved dramatically and is likely to continue. Welfare has increased and will increase dramatically. While GDP per person is often criticized, it effectively captures some of the most important impacts for humans and the environment: longer life, less child deaths, better education, higher development, lower malnutrition, less poverty, more access to water, sanitation, and electricity, and better environmental performance. Most importantly, it strongly captures the most important welfare indicator, subjective well-being.

Welfare per capita has increased 16-fold from 1800 to today (Fig. 1), and it is likely to increase another 5–10 times by the end of the century. Likewise, the global income gap is closing (Fig. 2) and the world could by 2100 be less unequal than it has been in the last two hundred years (Fig. 3).

One of the main reasons we have become much better off is that we have access to much more energy. From 1800 until today, each person in the world has access to four times as much energy (Fig. 4). Because of efficiency gains, human benefits from energy have increased even more: Each person in Great Britain has obtained 18 times more domestic heating, 170 times more transport, and 21,000 times more light. This trend will continue towards 2100.

While many believe that renewables are slated to take over the world, this is unlikely to happen soon (Fig. 5). Indeed, by mid-century we will likely get less energy from renewables than we did in the last mid-century in 1950. By 2100, in the middle-of-the-road scenario, the world will still get 77% of its energy from fossil fuels.

That is why much of our progress in the 21st century will remain bound to fossil fuels (unless we innovate cheap green energy). Cutting back fossil fuels helps alleviate global warming but at the same time has real costs to human development. Thus, it is crucial to identify the size of the problem of global warming and the effectiveness of its solutions.

7.2. Climate impacts real but often vastly exaggerated

There are two major reasons why most people believe global warming is making things worse, whereas the data shows this mostly to be untrue. First, it is because of the so-called Expanding Bull's-Eye effect (Fig. 7). In just 20 years, the number of exposed houses on floodplains in Atlanta increased by 58% (while becoming more valuable). Not surprisingly, when a flood hits more houses that are each more valuable, damages will go up. But adjusted for wealth, US flooding costs have declined almost tenfold from 0.48% of GDP in 1903 to 0.057% in 2017 (Fig. 10)

Second, adaptation is often ignored and that leads to vastly exaggerated impacts. One good example is coastal flooding, where increasing sea levels might confer costs of up to $100 trillion+ per year, if we do not adapt (Fig. 8). However, if we do adapt, the cost of both flooding and adaptation in percent of GDP will decline.

Globally, climate-related deaths have declined 95% over the past century, while the global population has quadrupled (Fig. 17). When we look at all weather-related catastrophes across the globe, their share of global GDP has not increased, but rather decreased since 1990 (Fig. 18).

7.3. Costs and benefits: Paris agreement

The Paris Agreement will cost between $819 billion–$1,890 billion per year in 2030 (Table 2), most likely towards the upper end. The beneficial impact of the 2016–30 Paris Agreement will be rather small, at 1% of the cuts needed to achieve 1.5°C or an immeasurable 0.03–0.04°C temperature reduction by 2100.

The costs of the Paris Agreement are much larger than its benefits. For every dollar spent on Paris, we will likely avoid 11¢ cents of climate damage (Table 3).

7.4. Costs and benefits: optimal climate policy

Shedding unsubstantiated fears of global warming makes it easier to achieve a rational climate policy, securing the highest possible welfare. Climate decisions need to consider two costs: climate costs and climate policy costs. This paper uses Nordhaus’ DICE model to find the climate policy that realistically will deliver the lowest combined welfare loss. This optimal policy will reach 3.75°C by 2100, still aggressively halving global emissions by 2100 compared to the no-policy scenario, saving about $18 trillion or 0.4% of GDP across the next five centuries (Fig. 26).

Aiming for much stronger climate policies will end up costing humanity much more than the benefits they provide. Trying to reach 2°C, which has become the least-ambitious target discussed internationally, could end up saddling humanity with more than $250 trillion in extra costs. The current level of climate ambition voiced by almost all policymakers and campaigners, while undoubtedly well-intentioned, will in total be hugely detrimental to the world, akin to cutting off one's arm to cure a wrist ache.

7.5. Climate policy in a world of many challenges

Yet, it is often argued that we need to proceed with strong climate policies to help the world and especially its poor. This is mostly bad advice. There are much more deadly environmental problems in the world (Fig. 27): indoor and outdoor air pollution kills almost 5 million people, while global warming kills perhaps 150,000. It is clear that global warming by any comparison is a small issue in a world still beset by problems of air pollution, lack of education, gender inequality, poor health, malnutrition, trade barriers, and international conflicts (Fig. 28). In the biggest UN-led global priority survey, global warming came in last, 16th of 16 priorities, with education, health, jobs, an end to corruption, and nutrition leading the field (Fig. 29).

There are many better ways to help than through traditional climate policies (Fig. 30). For climate, we should invest in green R&D and phase out fossil fuel subsidies. For the world's many other problems, we can do more good by halving coral reef loss, reducing child malnutrition, halving malaria infections, cutting tuberculosis deaths by 95%, expanding immunization, achieving universal access to contraception, and achieving freer trade. For a dollar spent, each of these policies would achieve hundreds or thousands of times more good than Paris.

7.6. The most important future choices

If we look at the future world outlook, we are likely to see a much richer humanity with much less poverty, more nutrition, better education, lower child mortality, longer lives, access to water, sanitation, and electricity, and better environmental performance. It will also be a world that will be less unequal and have much more access to energy.

We can see our choice of futures by looking at the five scenarios from IPCC. If we focus too much on global warming, we are likely to miss the by far most important investments in education and technological R&D to ensure we avoid the relatively poor scenarios of regional rivalry SSP3 or inequal SSP4. But even looking at the two richest scenarios from IPCC––the sustainable SSP1 and the fossil fuel-driven SSP5––an outsized focus on climate will make us choose less well. Aiming for the SSP1 is not bad. But the SSP5 world would be much better on almost all accounts. It would provide more energy, less poverty, less inequality, avoid more than 80 million premature deaths, and leave the average person in the developing world––after correcting for global warming––$48,000 better off each year by 2100. In total, choosing SSP1 in favor of SSP5 would leave the world half as rich, forgoing almost $500 trillion in extra annual welfare.

Global warming is real and long-term has a significant, negative impact on society. Thus, we should weigh policies to make sure we tackle the negative impacts without ending up incurring more costs by engaging in excessively expensive climate policies. We cannot and must not do nothing. But the evidence also manifestly alerts us to the danger that we end up with too ambitious and overly costly climate policies, and a general outlook that puts the world on a growth path that will deliver dramatically less welfare, especially for the world's poorest.