Fixing Climate Change Will Never Be Free

From Megan McArdle.

"Is fixing climate change free? That’s the suggestion of an international blue-ribbon panel in a new report, which has been enthusiastically embraced by people who would like to fix climate change. “This may sound too good to be true, but it isn’t," Paul Krugman says. "These are serious, careful analyses.”

I hate to be the person to pour cold water on this, but I happen to have this bucket right here …

The details are a bit fuzzy so far (the report promises more in a forthcoming technical appendix). But most of the benefit seems to come from reducing respiratory diseases in the developing world and ending fossil-fuel subsidies, which are, no matter what you may have heard on the Internet, also concentrated in the developing world, not the U.S. tax code.

Essentially, if developing countries stop selling artificially cheap gas, replace their coal plants with a combination of nuclear, solar and wind power, and get people to use gas or electricity for cooking and heating instead of wood, dung or coal, we can go a long way toward reducing total greenhouse-gas emissions. Further benefits come from building more compact cities (they’re looking at you, America) and better conservation of rural land.

These things may be splendid ideas. But as the New York Times suggests, it may be a bit optimistic to think that they will actually leave us with more cash in our hands. And getting the developing world to go along may be a bit tricky.

For example, I am sure that China would be a much healthier nation if it used more clean renewable energy instead of dirty coal plants. I can even believe that switching to clean renewable energy would generate enough savings in the future to cover the cost of the fix. Still, I have some questions.

The first, most obvious question: How much money would the Chinese would save on medical bills by switching to renewable power, compared with, say, installing stack scrubbers and other fixes to clean up particulate emissions from the plants they have? The second, perhaps less obvious, question: How far in the future will those benefits arrive -- in five years? Or are we saying that China should stop building coal plants now, build more expensive nuclear plants while hoping that solar and wind come to cost parity, and thus deliver to their grandchildren a cleaner country and a better budget picture?

Intertemporal comparisons of this sort get really tricky in a developing country. Poverty has an urgency that overrides other considerations, which is why so many people have migrated from pristine countryside to squalid city. This sort of cost benefit is relatively easy in America -- but it’s also not money-saving, because we already made war on our particulate emissions.

There are also political considerations. It’s easy to say that poor countries should get rid of their fuel subsidies -- I mean, there, I just said it, and it’s absolutely true, they should! On the other hand, I am not attempting to hold onto power in a country that has built all of its economic activity around absurdly cheap oil.¹ The transition costs away from fuel subsidies are high, and they are difficult to make in an economy where lots of people are subsisting close to the poverty line.

Noneconomic costs are always hard to factor into these sorts of calculations. But they need to be brought up, because they will factor heavily in any analysis of the political feasibility of your proposal. For example, they point out that Atlantans could save a lot of money on transportation if their city had the petite footprint of Barcelona. But said Atlantans would have to live in tiny apartments rather than large single-family homes with yards. They might not like that. Especially because the mini-Atlanta would have much less charm than Barcelona, its residents having lacked the foresight to build their city on a lovely beach in a long-declining European power.

This is not to say that the report is wrong. But many of the people who read it seem to have come away saying, “OK, great, it’s free, why can’t we do it?” Even if this is a free lunch over the long term, it is not a free lunch right now to the people who would need to make major changes in their lives. No matter how long you point to the equations, they will resist.

I’m a pessimist on the prospect of collective action on climate change, but I’m a mild optimist on the technological frontier, because human beings are endlessly creative, and so far, they’ve ultimately done what they needed to, though they might kick and scream along the way. I think that some combination of nuclear, solar and wind, plus adaptation and maybe geoengineering, are going to keep climate change from being catastrophic. But I doubt it will be free, and I’m quite sure it won’t feel that way to many of the people who are affected by whatever changes we do end up making.

¹ I know you think that America’s price is absurdly low, because negative externalities. But we’re not in the same class as Venezuela, which has long kept gasoline practically free."