There’s yet another report telling us how much damage climate change is going to do. This one is from the Union of Concerned Scientists, telling us how many coastal properties are going to be somewhere between flooded often and destroyed. This is an excellent example of how to do the economic analysis of climate change wrong, on the entirely reasonable basis that they’ve entirely ignored economics when constructing their estimates.
Some 300,000 homes will flood regularly in 30 years’ time, apparently. Unsurprisingly, given that most of the state is hardly above high tide right now, Florida will be worst affected. The scientists, inevitably, start from an overestimate of future emissions, for quite obviously they would assume that nothing we’ve done already will have any effect. A 6.5 foot sea level rise by 2100 is assuming that low-price solar and wind power just isn’t going to have any effect at all.
But it’s the economics which is really wrong here. They tell us that these homes are worth $120 billion, that is the value at risk. This simply isn’t true. The median lifespan of a home today is some 35 years meaning that, given the sort of accuracy we’re talking about here, we expect half of those to be flooded homes to be torn down over the next 30 years anyway. We’re also given that big scary number of 300,000 homes destroyed, but with 126 million homes in the U.S., that’s 0.2 percent of the current stock. Putting 0.006 percent of the national stock of anything at risk each year is not normally regarded as a big thing.
What’s worse, though, is what these numbers will be used to do. Given the size of these damages, we supposedly must do just about anything to avoid climate change. This is exactly not what economists have been saying about the subject. Instead, whatever the level of damages we insist upon is an argument to be willing to spend up to that amount, and no more, to avoid those damages. If damages are to be $120 billion, then we should be willing to spend $119 billion to avoid them. Spending $121 billion would make us poorer and worse off.
Quite obviously this damage to coastal housing isn’t the only damage that might or will be done. But economists, Lord Stern among them along with many others, have calculated what the total damages might or are likely to be. They then insist that we should even think of only spending up to that amount to avert them, most certainly no more. And that is the constraint upon what we do about climate change. Not that we can’t find more if we wish, or that we’d prefer not to spend anything because we just want to see nature drown. But because it doesn’t make sense to spend more to avert damage than the costs of that damage to be averted.
Thus the truth is (and this is something that pleases pretty much no one with a dog in this fight) that we probably should be spending merely modest amounts to head off climate change at the pass — emphasis on modest.
For example, here we have $120 billion of damage claimed over the next 30 years. We should be willing to pay perhaps up to $4 billion a year to avert that over that period of time. Certainly no more than that, a sum very much less than the normal sort of boondoggles proposed to deal with climate change.
Another way to put the correct economists’ view here is that sure, climate change will cause damage. So, we should do the cheap things to avert what we can, but the expensive stuff we’ll forget about and just suffer the damage instead.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at The Continental Telegraph.
