White House examines Cost of Delayed Action on Climate Change

The White House has released a new report from the Council of Economic Advisers that examines the economic consequences of delaying action to stem climate change. The report finds that delaying policy actions by a decade increases total mitigation costs by approximately 40 percent, and failing to take any action would risk substantial economic damage. These findings emphasize the need for policy action today.

The Executive Summary is reproduced below:

Executive Summary

The signs of climate change are all around us. The average temperature in the United States
during the past decade was 0.8° Celsius (1.5° Fahrenheit) warmer than the 1901-1960 average,
and the last decade was the warmest on record both in the United States and globally. Global sea
levels are currently rising at approximately 1.25 inches per decade, and the rate of increase
appears to be accelerating. Climate change is having different impacts across regions within the
United States. In the West, heat waves have become more frequent and more intense, while
heavy downpours are increasing throughout the lower 48 States and Alaska, especially in the
Midwest and Northeast. 1 The scientific consensus is that these changes, and many others, are
largely consequences of anthropogenic emissions of greenhouse gases. 2

The emission of greenhouse gases such as carbon dioxide (CO 2 ) harms others in a way that is not
reflected in the price of carbon-based energy, that is, CO 2 emissions create a negative externality.
Because the price of carbon-based energy does not reflect the full costs, or economic damages,
of CO 2 emissions, market forces result in a level of CO 2 emissions that is too high. Because of this
market failure, public policies are needed to reduce CO 2 emissions and thereby to limit the
damage to economies and the natural world from further climate change.

There is a vigorous public debate over whether to act now to stem climate change or instead to
delay implementing mitigation policies until a future date. This report examines the economic
consequences of delaying implementing such policies and reaches two main conclusions, both of
which point to the benefits of implementing mitigation policies now and to the net costs of
delaying taking such actions.

First, although delaying action can reduce costs in the short run, on net, delaying action to limit
the effects of climate change is costly. Because CO 2 accumulates in the atmosphere, delaying
action  increases  CO 2 concentrations.  Thus,  if  a  policy  delay  leads  to  higher  ultimate  CO 2
concentrations,  that  delay  produces  persistent  economic  damages  that  arise  from  higher
temperatures and higher CO 2 concentrations. Alternatively, if a delayed policy still aims to hit a
given climate target, such as limiting CO 2 concentration to given level, then that delay means that
the policy, when implemented, must be more stringent and thus more costly in subsequent years.
In either case, delay is costly.

These costs will take the form of either greater damages from climate change or higher costs
associated with implementing more rapid reductions in greenhouse gas emissions. In practice,
delay could result in both types of costs. These costs can be large:

  • Based on a leading aggregate damage estimate in the climate economics literature, a
    delay that results in warming of 3° Celsius above preindustrial levels, instead of 2°, could
    increase economic damages by approximately 0.9 percent of global output. To put this
    percentage in perspective, 0.9 percent of estimated 2014 U.S. Gross Domestic Product
    (GDP)  is approximately $150 billion. The incremental  cost of an additional  degree of
    warming beyond 3° Celsius would be even greater. Moreover, these costs are not one-
    time, but are rather incurred year after year because of the permanent damage caused
    by increased climate change resulting from the delay.
  • An analysis of research on the cost of delay for hitting a specified climate target (typically,
    a given concentration of greenhouse gases) suggests that net mitigation costs increase,
    on average, by approximately 40 percent for each decade of delay. These costs are higher
    for more aggressive climate goals: each year of delay means more CO 2 emissions, so it
    becomes increasingly difficult, or even infeasible, to hit a climate target that is likely to
    yield only moderate temperature increases.

Second, climate policy can be thought of as “climate insurance” taken out against the most severe
and irreversible potential consequences of climate change. Events such as the rapid melting of
ice sheets and the consequent increase of global sea levels, or temperature increases on the
higher end of the range of scientific uncertainty, could pose such severe economic consequences
as reasonably to be thought of as climate catastrophes. Confronting the possibility of climate
catastrophes means taking prudent steps now to reduce the future chances of the most severe
consequences of climate change. The longer that action is postponed, the greater will be the
concentration  of  CO 2 in  the  atmosphere  and  the  greater  is the  risk.  Just  as  businesses  and
individuals  guard  against  severe  financial  risks  by  purchasing  various  forms  of  insurance,
policymakers can take actions now that reduce the chances of triggering the most severe climate
events.  And,  unlike  conventional  insurance  policies,  climate  policy  that  serves  as  climate
insurance is an investment that also leads to cleaner air, energy security, and benefits that are
difficult to monetize like biological diversity.

1 For a fuller treatment of the current and projected consequences of climate change for U.S. regions and sectors,
see the Third National Climate Assessment (United States Global Change Research Program (USGCRP) 2014).2 See for example the Summary for Policymakers in Working Group I contribution to the Intergovernmental Panel
on Climate Change Fifth Assessment Report (IPCC WG I AR5 2013).