David Friedman exposes a remarkable (if unrecognized) admission from William Nordhaus – a leading economist who supports action today to combat climate change – that the global cost of delaying action to combat climate change is vanishingly small relative to global GDP. Here are a couple of slices:
His [Nordhaus’s] final, and possibly most important point, is based on his own research, which he complains that the WSJ article is misrepresenting. He starts with a correct point—that it is the difference between benefit and cost, not the ratio, that matters. He goes on to summarize his conclusion:
My research shows that there are indeed substantial net benefits from acting now rather than waiting fifty years. A look at Table 5-1 in my study A Question of Balance (2008) shows that the cost of waiting fifty years to begin reducing CO2 emissions is $2.3 trillion in 2005 prices. If we bring that number to today’s economy and prices, the loss from waiting is $4.1 trillion. Wars have been started over smaller sums.
What he does not mention is that his $4.1 trillion is a cost summed over the entire globe and the rest of the century. Put in annual terms, that come to about $48 billion a year, a less impressive number. Current world GNP is about $85 trillion/year. So the net cost of waiting, on Nordhaus’s own numbers, is about one twentieth of one percent of world GNP. Not precisely a catastrophe.I suggest a simple experiment. Let Nordhaus write a piece explicitly arguing that the net cost of waiting is about .06% of world GNP and see whether it is more popular with the supporters or the critics of his position. I predict that at least one supporter will accuse him of having sold out to big oil.…..In a world of certainty run by benevolent philosopher kings, the fact that the policy has even a relatively modest benefit is a good argument for it, but we do not live in such a world. In practice, policies aimed at reducing warming will be designed not by William Nordhaus but by political actors subject to political incentives. For a sample of what that is likely to produce, I suggest looking at the cap and trade bill that passed the House a few years ago but did not make it through the Senate. The farther the policies are from optimal, the higher the costs and the lower the net benefits.
UPDATE: From the comments on David Friedman’s post, I just noticed this much-earlier EconLog post from David Henderson regarding Bob Murphy’s critique of Nordhaus.