Economic Analysis of the Kyoto Protocol

Before discussing the likely cost of U.S. efforts to avert climate change, it is important to recognize the costs and risks facing our nation should we fail to act. Current concentrations of greenhouse gases have reached levels well above those of preindustrial times. As a consequence, the Intergovernmental Panel on Climate Change estimates that global temperatures will increase by between 2 to 6 degrees Fahrenheit in the next 100 years, with a best guess of about 3.5 degrees Fahrenheit. The IPCC reports that a doubling of carbon dioxide levels would lead to approximately 10,000 additional deaths per year for the current U.S. population from higher summer temperatures, even after netting out the effects of warmer winters and acclimatization. The IPCC also predicts sea level increases of about 20 inches by 2100, with greater increases in subsequent years. Despite the difficulties of deriving quantitative assessments of the damages from climate change, researchers have nonetheless developed monetary estimates of damages that prompt substantial concern, and range in the tens of billions of dollars per year for temperature changes projected to occur in the next century. If left uncontrolled, disruption of the Earth’s climate may thus pose substantial costs in terms of harm to commerce and the environment alike. These costs--and they are significant--provide the primary motivation for actions to reduce greenhouse gas emissions. Moreover, these estimates do not, and cannot, accurately reflect the value of reducing the unknown risk of large-scale and potentially irreversible events with potentially catastrophic consequences. There is a strong argument for the Kyoto Protocol as a form of insurance against a serious environmental threat.