Don't Ignore The Risks
By Joseph Stiglitz
16 November, 2006
British government recently issued the most comprehensive study to date
of the economic costs and risks of global warming. Written under the
leadership of Sir Nicholas Stern of the London School of Economics,
who succeeded me as chief economist of the World Bank, the report makes
clear that the question is no longer whether we can afford to do anything
about global warming, but whether we can afford not to.
The report proposes an agenda
whose cost would be equivalent to just 1 percent of annual consumption,
but would save the world risk equivalent costs that are five times greater.
The reported costs of global warming are higher than in earlier studies
because it takes into account the mounting evidence that the process
of global warming is highly complex and nonlinear, with a nonnegligible
chance that it may proceed much faster than had previously been thought
and that the extent of warming may be much greater than had previously
Indeed, the study may actually
significantly underestimate the costs: for instance, climate change
may lead to more weather variability, a possible disappearance or major
shift of the Gulf Stream -- of particular concern to Europe -- and a
flourishing of disease.
Some suggest that because
we are not certain about how bad global warming will be, we should do
little or nothing. To me, uncertainty should make us act more resolutely
today, not less. As one scientist friend puts it: If you are driving
on a mountain road, approaching a cliff, in a car whose brakes may fail
and a fog bank rolls in, should you drive more or less cautiously? Global
warming is one of those rare instances where the scientific community
is more fearful of what may be happening than the population at large.
Scientists have glimpsed what the future may portend.
To an economist, the problem
is obvious: Polluters are not paying the full costs of the damage they
cause. Pollution is a global externality of enormous proportions. The
advanced countries might mean Bangladesh and the disappearing island
states no harm, but no war could be more devastating.
A global externality can
best be dealt with by a globally agreed tax rate. This does not mean
an increase in overall taxation, but simply a substitution in each country
of a pollution (carbon) tax for some current taxes. It makes much more
sense to tax things that are bad, like pollution, than things that are
good, like savings and work.
The power of incentives
Although President Bush says
he believes in markets, in this case he has called for voluntary action.
But it makes far more sense to use the force of markets -- the power
of incentives -- than to rely on goodwill, especially when it comes
to oil companies that regard their sole objective as maximizing profits,
regardless of the cost to others.
Exxon has reportedly been
funding so-called think tanks to undermine confidence in the science
of global warming, just as the tobacco industry funded ''research''
to question the validity of statistical findings showing the link between
smoking and cancer. Some companies even seem to celebrate the melting
of the polar ice cap, because it will reduce the cost of extracting
the oil that lies beneath the Arctic Ocean.
The good news is that there
are many ways by which improved incentives could reduce emissions --
partly by eliminating the myriad of subsidies for inefficient usages.
The United States subsidizes corn-based ethanol, and imposes tariffs
on sugar-based ethanol; hidden in the tax code are billions of dollars
of subsidies to the oil and gas industries.
Most important, price signals
that show the true social costs of energy derived from fossil fuels
will encourage innovation and conservation.
Small changes in practices,
when replicated by hundreds of millions of people, can make an enormous
difference. For example, simply changing the color of roofs in warm
climates to reflect sunlight or planting trees around houses can lead
to great savings on energy used for air conditioning.
We have but one planet, and
should treasure it. Global warming is a risk that we simply cannot afford
to ignore anymore.
is a Nobel laureate in economics. His latest book is Making Globalization
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