We live in a greenhouse world; without such gases Earth would be too cold to sustain life as we know it. Water vapor, the principal molecule that keeps us warm, accounts for almost all (98 percent) of the natural heating of the world. Other gases, such as carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O), also contribute to a warmer world. Over the last three hundred years, as the world has industrialized and become more and more dependent on fossil fuels, the concentration of CO2 in the atmosphere has increased by more than 30 percent while methane concentrations, mainly from agriculture, have increased by about 150 percent. Atmospheric scientists have predicted that increases in those greenhouse gases will lead to, or are already producing, a warmer world. The Intergovernmental Panel on Climate Change (IPCC, a UN body tasked with the science of global warming) believes that if nothing is done to slow global warming, the amount of CO2 will have doubled by the year 2060, causing the world’s temperature to rise by about 2.5°C (4.5°F).

Interestingly, Swedish scientist Svante Arrhenius, the first to predict global warming (1896), believed that it would be beneficial, especially for northern countries. In 1992, however, the fear of harm from global warming led most of the world’s national governments, including the U.S. government, to sign the United Nations Framework Convention on Climate Change at the Earth Summit in Rio de Janeiro. These governments pledged to take voluntary steps to cap carbon emissions at 1990 levels by the year 2000. The U.S. Senate ratified that treaty later in 1992. International activity continued with a subsequent meeting in Berlin (1995), followed by the meeting in Kyoto (1997) that negotiated a protocol mandating emission reductions by the advanced countries of the world but exempting the rest of the globe. The Clinton administration signed the protocol, knowing that with large countries like China and India excluded, the Senate would be unlikely to ratify it. Indeed, President Clinton refused to send the protocol to the Senate for ratification, and the Senate voted 95–0 against any treaty that excluded some countries. Shortly after taking office, George W. Bush announced that the United States was withdrawing from the treaty on the grounds that the costs to the U.S. economy would be too high.

What are the likely consequences of global warming? Are they wholly bad, or are some bad effects offset by good results? Economists as well as scientists, it turns out, have a lot to contribute to this discussion.

The Pros and Cons of Global Warming

The media and many others have attributed to global warming every possible weather, from more to less climate variability, from more rainfall to more drought, and from more violent winter storms to fewer and weaker cold weather surges. But an examination of its likely effects suggests little basis for that gloomy view. According to the IPCC, global warming would warm winters more than summers, would produce more precipitation, and would lead to more of an increase in temperatures at higher latitudes—that is, in already cold regions—than at the equator.

How would climate affect economies? Climate affects principally agriculture, forestry, and fishing. For the United States, these three total less than 2 percent of the GDP. Manufacturing, most service industries, and nearly all extractive industries are immune to direct impacts from climate shifts. Factories can be built practically anywhere—in northern Sweden or in Canada, in Texas, Central America, or Mexico. Banking, insurance, medical services, retailing, education, and a wide variety of other services can prosper as well in warm climates (with air-conditioning) as in cold (with central heating). A warmer climate will lower transportation costs: less snow and ice will torment truckers and automobile drivers; fewer winter storms will disrupt air travel; bad weather in the summer has fewer disruptive effects and passes quickly; a lower incidence of storms and less fog will make shipping less risky. Higher temperatures will leave mining and the extractive industries largely unaffected; oil drilling in the northern seas and mining in the mountains might even benefit.

A few services, such as tourism, may be more susceptible to weather. A warmer climate would likely change the nature and location of pleasure trips. Many ski resorts, for example, might face less reliably cold weather and shorter seasons. Warmer conditions might also mean that fewer northerners would feel the need to vacation in Florida or the Caribbean. At the same time, new tourist opportunities might develop in Alaska, northern Canada, and other locales at higher latitudes or upper elevations. Shorter winters would benefit most outdoor recreation, such as golf, hiking, tennis, and picnicking.

In many parts of the world, warmer weather should mean longer growing seasons. If the world were to warm, the hotter climate would enhance evaporation from the seas and, in all probability, lead to more precipitation worldwide. Moreover, the enrichment of the atmosphere with CO2 would fertilize plants, making for more vigorous growth. The IPCC assessment of warming is that “a few degrees of projected warming will lead to general increases in temperate crop yields, with some regional variation” (IPCC 2001, p. 32). Bjørn Lomborg, a Danish environmentalist and statistician, reported that with moderate adaptation by farmers, warming would boost cereal production in richer countries by 4–14 percent, while cutting them in poorer countries by 6–7 percent (2001, p. 288). The U.S. Department of Agriculture, in a cautious report, reviewed the likely influence of global warming and concluded that the overall effect on world food production would be slightly positive and that, therefore, agricultural prices would probably decrease (Kane et al. 1991).

Global warming could melt glaciers and thus cause rising sea levels, which would flood low-lying regions, including a number of islands and delta areas. The high-end estimate by the IPCC of the rise in the sea level by the year 2100 is three feet. Economists such as William Cline, William Nordhaus, and Richard Morgenstern, starting with this three-foot assumption, have estimated the costs of building dikes and levees and of the loss of land for the United States at $7–$10.6 billion annually, or about 0.1 percent of America’s GDP. For some small low-lying island nations, the problems would be much more severe; in some cases they might even be completely submerged.

The Dollar Costs of Climate Change

William Cline and William Nordhaus, separately, have estimated the cost of warming of 2.5°C (4.5°F) to be about 1 percent of the U.S. GDP. Actually, though, Nordhaus calculated the cost at only 0.25 percent and then guessed, on the basis of unmeasured sectors, that the total might be as high as 1 or 2 percent. Interestingly, both Cline and Nordhaus explicitly ignored potential benefits from a warmer climate. Other economists agree that the benefits, at least to the United States and probably to most northern countries, outweigh the costs. Robert Mendelsohn of Yale University and his colleague James Neumann found that, on net, the United States would gain around 0.1–0.2 percent in GDP for the moderate warming (2.5°C) likely to occur by 2060. Even their numbers underestimate the benefits by failing to include the gain to people from enjoying warm-weather recreation.

The American public prefers warm weather to cold, a benefit generally overlooked. Thomas Moore (1998) measured Americans’ preferences for climate by examining wage rates in various U.S. cities. He also looked at how death rates and hospital visits varied with climate. He found not only that people prefer warmer climates, but also that death rates and health care costs are lower in warmer climates. Based on these estimates, he concluded that the net benefits to the United States of a warmer climate could be as high as 1 percent of the GDP.

Unfortunately, some of the rest of the world, especially poor agricultural regions and those subject to flooding from rising sea levels, will suffer more from global warming. Interestingly, though, virtually all published estimates based on careful research put the cost to the world of a doubling of CO2 at less than or equal to 1.5 percent of world income. The IPCC’s Working Group III in its report to policymakers quoted estimates of the total cost from a doubling of CO2 as “a few percent of world GDP.”

Although many agree that the cost of warming, after adjustment, may be small, some observers have worried that the speed of climate change will be unprecedented, making adjustment difficult and costly. Ice core researchers have shown, however, that climate has shifted in the past as rapidly as, or more rapidly than, is predicted over the next century. In addition, the IPCC has reduced the temperature increase forecast over the next century from 5.8°F in 1990 to 3.6°F in 1995, sharply slicing the rate of change of climate. In short, there is little to fear from global warming and possibly something to gain; even the need for a “no regrets policy”—a policy with little cost but some reduction in greenhouse gases—seems negligible.

The Cost of Kyoto and of Stopping Warming

As mentioned above, most of the participating nations’ governments signed the 1997 Kyoto protocol pledging that the major countries would reduce their emissions of greenhouse gases by 5 percent from their 1990 levels. Under this agreement, the United States would have had to cut its emissions by 7 percent from the 1990 levels, or about 30 percent of the emission likely by 2010, when those cuts were to be fully in place. While this treaty would have cost the United States around 3 percent of its GDP, or $300 billion, it would have had a negligible effect on slowing climate change.

Bert Bolin, former chairman of the IPCC, notes that if Kyoto were fully implemented, twenty-five years later the global temperature would be cut “by less than 0.1 degree C, which would not be detectable.” Lomborg estimates that the world climate will increase by 1.92°C by 2094 if nothing is done. If Kyoto is fully followed, it will take six more years to reach the same temperature. In other words, Kyoto will neither stop nor seriously slow climate change. We would need many times Kyoto to stabilize greenhouse gas concentrations in the atmosphere.

Thus, it would cost several times Kyoto, more than 10 percent of our GDP, to stop the buildup of CO2 while, at the outside, climate change would cost only about 1 percent of U.S. income and could be beneficial.

About the Author

Thomas Gale Moore is a senior fellow at the Hoover Institution at Stanford University. Between 1985 and 1989 he was a member of President Reagan’s Council of Economic Advisers.

Further Reading

Cline, William R. The Economics of Climate Change. Washington, D.C.: Institute for International Economics, 1992.
IPCC Working Group II. Climate Change 2001, Impacts, Adaptation, and Vulnerability. Cambridge: Cambridge University Press 2001.
IPCC Working Group III. “Summary for Policymakers: The Economic and Social Dimensions of Climate Change.”1995.
Kane, Sally, John Reilly, and James Tobey. Climate Change: Economic Implications for World Agriculture. Agricultural Economics Report no. 647, Resources and Technology Division, Economic Research Service. Washington, D.C.: U.S. Department of Agriculture, 1991.
Lomborg, Bjørn. The Skeptical Environmentalist: Measuring the Real State of the World. Cambridge: Cambridge University Press, 2001.
Mendelsohn, Robert, and James E. Neumann. The Impact of Climate Change on the United States Economy. Cambridge: Cambridge University Press, 1999.
Morgenstern, Richard. “Towards a Comprehensive Approach to Global Climate Change Mitigation.” American Economic Review 81 (May 1991): 140–145.
Moore, Thomas Gale. Climate of Fear: Why We Shouldnt Worry About Global Warming. Washington, D.C.: Cato Institute, 1998.
Moore, Thomas Gale. “Health and Amenity Effects of Global Warming.” Economic Inquiry 36 (July 1998): 471–488.
Nordhaus, William D. Managing the Global Commons. Cambridge: MIT Press, 1994.
Nordhaus, William D. “To Slow or Not to Slow: The Economics of the Greenhouse Effect.” Economic Journal 101 (July 1991): 920–937.
Nordhaus, William D., and Joseph Boyer. Warming the World: Economic Models of Global Warming. Cambridge: MIT Press, 2000.
Schelling, Thomas. “Some Economics of Global Warming.” American Economic Review 82 (March 1992): 1–14.

Relevant Web Sites

http://www.enviroliteracy.org/. Provides excellent information and links to solid information on a variety of environmental areas, including climate change. Although intended for high school teachers, it provides material at various levels.
http://yosemite.epa.gov/oar/globalwarming.nsf/content/index.html. The official Environmental Protection Agency site. It provides charts and thumbnail coverage of various aspects of climate change.
http://www.ipcc.ch/. The official Web site of the Intergovernmental Panel on Climate Change with their reports.
http://www.globalwarming.org/. The site of the Cooler Heads Coalition, an industry-funded group that is skeptical about the significance of the issue.