Are the economic costs of stabilising the atmosphere prohibitive?

Abstract

Macro economic studies of the costs of reducing CO 2 emissions generally estimate the global cost of stabilising the atmospheric concentrations of CO 2 in the range 350–550 ppm in trillions of USD. This creates the impression that the cost of CO 2 reductions is so large that it threatens economic development. But, presented in another way, a completely different picture emerges. There is widespread agreement amongst the more pessimistic macro economic studies that stringent carbon controls are compatible with a significant increase in global and regional economic welfare. Even if the cost of CO 2 abatement rises to 5% of global income per year by the end of this century, this reduction is minor compared with the tenfold increase in global income that is expected. Since income is assumed to grow by a couple of percent per year, the trillion USD cost could also be expressed as a few years delay in achieving an order of magnitude higher income levels. Similar observations can also be made as regards near-term abatement targets such as the Kyoto protocol. A more widespread recognition of the fact that carbon abatement policies will only marginally affect economic growth is likely to increase the willingness to introduce carbon abatement policies.