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It’s the economics stupid!

Sometime in the past few years the battle over the science of climate change was won. A few contrarian dead-enders remain but the world (read: the US) now accepts that climate change is real, is happening, and is a serious threat to the planet. Despite dire warnings from the scientific community there remains significant political resistance to climate action. Today, the debate over climate change policy is all about economics. Many industry leaders, academics, and politicians claim that the costs are simply too high, that economic logic can only support a minimum level of action.

In his sweeping 131-page work, Can We Afford the Future? Frank Ackerman pulls no punches attacking the use of traditional economic analysis for climate policy. The work reads like a handbook designed for policy-oriented climate change advocates and must be considered required reading for anyone remotely interested in climate change policy. From choosing an appropriate discount rate, accounting for risk and uncertainty, to calculating damages and costs, Ackerman argues that traditional economic analysis has no place in informing climate policy.

Ackerman neatly presents the various economic debates over climate change policy in an accessible and compelling format, breaking the most essential arguments down to bumper sticker slogans:

“Your grandchildren’s lives are important.”

“We need to buy insurance for the planet.”

“Climate Costs are too valuable to have prices.”

“Some costs are better than others.”

In economic parlance, we first must rethink how we calculate the discount rate for climate accounting – weighted toward intergenerational equality. Next, we must reconsider how we evaluate risks. Rather than basing climate policy on average likely outcomes we must use worst-case scenarios as the basis for climate policy. Also, we must distance ourselves from the economic obsession of quantifying costs and benefits – how much is a life worth? An ecosystem? A species? Many of the most important costs associated with climate change simply cannot be quantified. Finally, upfront costs such as constructing levees have initial benefits (job creation) and avoid future costs, much of which is unrecoverable (lives).

Although Ackerman’s argument against economics may border on the edge of academic discourse his ideas seem remarkably sensible, at least from a theoretical perspective. It remains to be seem if his arguments will carry much weight in policy circles closely tied to conventional wisdom. For example, Ackerman suggests that the US government should shift much of its’ military expenditures to pay for climate change action, but is this a likely prospect? Is it in the realm of possibility that the US would shift its’ entire economic focus to address climate change?

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