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Published on June 8th, 2014 | by Rocky Mountain Institute

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US Climate Action “Costs” Illuminated

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June 8th, 2014 by  

Originally published on Rocky Mountain Institute.
By Jules Kortenhorst

Earlier this week, the United States Environmental Protection Agency announced new guidelines under the Clean Air Act limiting carbon dioxide emissions from existing power plants. The move comes in the wake of the federal government’s Third National Climate Assessment, exposing the serious risk climate change poses to the nation’s economy and security. Applauded by environmentalists, the EPA move was quick to draw the ire of climate change skeptics and myopic economists who fail to see the forest for the smog-obscured trees.

Critics say that limiting carbon emissions from existing power plants in the name of combatting climate change will undermine the U.S. economy and hurt the American people. But more than half a century’s worth of data from the Energy Information Administration shows that the United States’ GDP grew by more than 720% between 1950 and 2013, while energy consumption per dollar of GDP declined by more than 60% during the same period. The U.S. has retained its place as one of the most robust economies in the world while steadily decreasing the energy and carbon intensity of that economy. Lately this has been especially true of electricity: in 2012 alone, weather-adjusted electricity used per dollar of GDP fell by 3.4%.

But we must do better, the new EPA regulations take us an important step in that direction, and other countries show that we can do better without sacrificing our economy in the process. For example, among the U.S., Germany, and Japan—three of the world’s top four economies—Germany and Japan’s CO2 emissions per capita are nearly identical, while per capita emissions in the U.S. are an unconscionable 93% higher.

The United States’ own economic, energy, and carbon trajectories, and the even more impressive trajectories of some of our peer nations, show that addressing climate change is very unlikely to incur the economic costs fear-mongering critics say they would.

The loudest such critic of late has undoubtedly been the U.S. Chamber of Commerce. In a report released last week, the group attempted to strike fear in the hearts of Americans, claiming that the EPA’s new carbon emissions regulations would cost the U.S. economy $51 billion per year. As many have noted, the Chamber’s report grossly overstates the potential costs, for example by assuming exceedingly high per capita energy demand growth, when in fact stagnant annual nationwide electricity consumption has proved itself the new norm. (Electricity use has in fact been driving down ever since 2007 even as the economy rebounded.) But even if we take the Chamber’s outsized numbers at face value, they fail to hold weight.

Simply consider the economic impact of the severe weather the U.S. can expect to get worse under continued global warming. Eight of the ten most expensive hurricanes in U.S. history have occurred in the past decade. They include Katrina ($148 billion) and Sandy ($71 billion) and a long list of others that make $51 billion a year to stop loading the dice in favor of superstorms seem like a drop in the bucket, which it is.

As Paul Krugman noted in a New York Times op-ed last week, the U.S. boasts a $17 trillion economy, so $51 billion amounts to one-third of one percent. Against the sheer size of the U.S. economy, it’s nothing more than a decimal place rounding error to take meaningful action against one of the greatest threats to the nation’s people, environment, and economy.

In fact, upon closer scrutiny, we discover there isn’t a cost at all, but rather an opportunity. The prevailing attitude suggests that we cannot afford not to spend the requisite, substantial money fighting climate change. However, fighting climate change actually turns out to be not just exceedingly cheap but economically profitable, even if its avoided costs, like storm damage and underwater coastal real estate, were worth zero. That’s right: the Chamber of Commerce, purportedly the voice of American business, got the sign wrong, representing a profit as if it were a cost.

Indeed, RMI’s own rigorous analysis, Reinventing Fire, found the U.S. could transition to a 2050 economy energized by tripled efficiency and 75% renewables for a $5 trillion net-present-value savings—not net cost—while supporting a 158% bigger U.S. economy and slashing carbon emissions to 82–86%below 2000 levels. (This conservatively values climate change and all other hidden or “external” costs at zero.) That economically robust, climate-friendly future for the United States includes building a new electricity system powered 80% by renewables, half of them distributed on places like homeowners’ rooftops, and highly resilient against cascading blackouts—for essentially the same cost as simply maintaining the dirty, insecure, fossil-fuel-burning electricity system we have today.

Equally importantly, it positions the U.S. economy much better for a new reality where competitiveness does not come from burning coal, oil, or gas with a multitude of health, resilience, and environmental downsides, but instead from building on the rapidly increasing competitiveness of solar, wind, battery, and efficiency technologies that all create jobs and prosperity. In this energy revolution that is already well on its way, the U.S. stands much to gain from being at the leading edge, rather than denying or thwarting it.

With the EPA’s new carbon emissions regulations, the U.S. at last takes meaningful action to tackle the root causes of climate change. Let’s not get distracted by those who’d have us believe this move will harm Americans’ wallets and pocketbooks. The question we should be debating is: who will seize the biggest piece of this tremendous opportunity? As Rocky Mountain Institute co-founder and chief scientist Amory Lovins wrote in a 1997 paper on climate change economics, “What costs? The interesting thing is who should get the profits!”

Image courtesy of Shutterstock.

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About the Author

Since 1982, Rocky Mountain Institute has advanced market-based solutions that transform global energy use to create a clean, prosperous and secure future. An independent, nonprofit think-and-do tank, RMI engages with businesses, communities and institutions to accelerate and scale replicable solutions that drive the cost-effective shift from fossil fuels to efficiency and renewables. Please visit http://www.rmi.org for more information.



  • JamesWimberley

    RMI: “.. the EPA move was quick to draw the ire of climate change skeptics and myopic economists …”

    Which myopic economists? There was a time when you could find serious economists like Yale’s William Nordhaus (link) who used to give room to the argument that it would be worthwhile to delay forceful action on climate change, and leave it to a richer and more knowledgeable future to deal with. Nordhaus, being a professional not an ideologue, has reexamined the data and shifted his position. The probable costs of action keep dropping, The costs of inaction keep rising. He now supports immediate forceful action. The academic camp of delayers is pretty empty today.

  • Ross

    The U.S. Chamber of Commerce is obviously completely in the pocket of oil, gas, coal and nuclear industries. Narrow vested interests that will damage the U.S. economy. Have a look at their energy page on their website.

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