Policy Study

Global Warming

The Greenhouse, White House, and Poorhouse Effects

Executive Summary

The potential for global warming presents policy issues of unprecedented proportions. The entire debate pivots on assessing large-scale risks without adequate information. For the past decade, environmentalists and some scientists have claimed that human-induced emissions of carbon dioxide (CO2) (and other “greenhouse” gases) could lead to substantial changes in global temperatures. Some scientists, however, dispute these claims. Controversies over the potential implications of global climate change have ignited political debate-and in some cases, policy action-throughout the world.

Estimates of the annual impact on U.S. agriculture of temperature increases range from a cost of $10 billion to a benefit of $10 billion. Estimates of impacts on the total U.S. economy of strategies to reduce greenhouse gas emissions range from net benefits to losses in the U.S. gross national product ranging from 0.3 percent to 1.6 percent, depending on the reduction levels sought.

Despite these uncertainties and potentially high costs of significantly reducing greenhouse gas emissions, President Clinton has stated he would “stabilize” U.S. CO2 emissions at 1990 levels by the year 2000. Like other approaches to directly reduce greenhouse gas emissions by specific amounts, this approach is likely to be costly.

Instead, “no-regrets” or “no-regrets-plus” strategy offers the best prospect for developing policies in which the benefits will outweigh the costs. Under these approaches, policies would focus on improving energy efficiency and reducing previously identified air emissions. These strategies would aim to achieve benefits regardless of whether climate changes occur. Reductions in greenhouse gases would be a side-effect of these efforts.

The no-regrets-plus option provides an additional level of flexibility to address future risk by encouraging greater investment in energy-related research, demonstration, and development (RD&D). While direct government funding of RD&D could be pursued under this approach, encouraging competitive RD&D markets is generally preferable to a public-investment strategy that “picks winners.”

The only rationale for a strategy aimed at direct and aggressive reductions of greenhouse gas emissions would be the presence of clear indications that global temperatures are rising and that they will cause massive economic, environmental, and political upheavals. On the other hand, both the no-regrets and no-regrets-plus strategies articulate a set of goals that make sense given the high degree of uncertainty of global warming risks and the large potential costs of any strategy aimed directly at reducing greenhouse gas emissions.