Big bucks for global warming: the scientific debate seems to be over. Discussion of costs is just beginning.

• Author: Mastel, Greg

For the most part, the scientific debate on global warming seems to be over. As the United Nations working group on climate change (officially the Intergovernmental Panel on Climate Change) said, the evidence of global warming is now "unequivocal," the potential impacts are significant, and there is little doubt that human activities--mainly the burning of fossil fuels--have contributed importantly to warming.

There is less consensus though on the appropriate policy responses to global warming. The Kyoto Protocol set out an international understanding to reduce emissions of greenhouse gases--chiefly carbon dioxide. The unwillingness of the United States to join is a widely recognized shortcoming of the Kyoto regime, but it is not the only question. Although most major developing countries joined in Kyoto, notably including China, developing countries did not shoulder the burden of reducing greenhouse gas emissions under the treaty.

In the United States, the political debate has largely moved on to a discussion of possible approaches to lowering greenhouse gas emissions. The so-called Lieberman-Warner legislation--named for the lead sponsors Senator Joseph Lieberman (ID-CT) and John Warner (R-VA)--is now being considered in the Congress and could even be approved in 2008. That legislation creates a cap-and-trade system which is designed to reduce greenhouse gas emissions from a baseline period by allowing greenhouse gas-emitting companies to either reduce or purchase emission credits from a government-sponsored market. After eight years, this Lieberman-Warner system could be applied to imports as well as domestic production. Among advocates of pollution/emission control, the cap-and-trade system is widely seen as a flexible yet effective approach to implementing pollution reduction policies. But employed on this scale it raises a number of complex international competitiveness and international trade issues.

ECONOMIC IMPACTS

There is much debate and disagreement on the economic impacts of policies reducing greenhouse gas emissions. Required controls on the burning of fossil fuels would certainly have considerable economic costs. At recent congressional hearings, business-friendly sources put the U.S. economy-wide cost of implementing the Lieberman-Warner legislation at $4-$7 trillion from 2010-2050. The UN climate working group reviewed a number of estimates of the likely impact of a global policy and pegged the total cost to the world economy at between a 1 percent gain and a 5.5 percent loss by 2050.

Some have argued--notably a widely discussed report by Nicholas Stern--that the costs of not acting to address climate change, such as rising sea levels, decreased agricultural production, and related problems, would be as large as the costs of carbon dioxide emission control strategies and that the cost of mitigation could rise sharply if action to control greenhouse gas emissions is not taken soon. The UN climate working group generally endorsed this perspective. Others have noted that a global emphasis on controlling greenhouse gas emissions would benefit some sectors, for example, renewable energy sources.

These arguments may be true, but the net benefits of a greenhouse gas emission control strategy do not mean that there are not real short-term costs to controlling emissions. Unquestionably, a reduction in greenhouse gas emissions from the burning of fossil fuels would require heavy investments in technology, infrastructure, and new power plants to either capture carbon emissions or create alternative energy sources.

Here again, there is debate on the estimates, but Europe's experiment with cap-and-trade was associated with increased energy prices. The Lieberman-Warner legislation authorizes a number of free credits, puts price-setting on credits in the hands of a new government board, and allows "off-ramps" (essentially safeguards) to address unforeseen economic problems. These provisions make it difficult to predict price changes resulting from the legislation, but there can be little doubt that the cost of fossil fuel-based energy would rise under the...