Misusing the Inaction Argument

SAN JOSÉ, COSTA RICA – One commonly repeated argument for doing something about climate change sounds compelling, but turns out to be almost fraudulent. It is based on comparing the cost of action with the cost of inaction, and almost every major politician in the world uses it.

The president of the European Commission, José Manuel Barroso, for example, used this argument when he presented the European Union’s proposal to tackle climate change earlier this year. The EU promised to cut its CO2 emissions by 20% by 2020, at a cost that the Commission’s own estimates put at about 0.5% of GDP, or roughly €60 billion per year. This is obviously a hefty price tag – at least a 50% increase in the total cost of the EU – and it will likely be much higher (the Commission has previously estimated the cost to be double its current estimate).

But Barroso’s punchline was that “the cost is low compared to the high price of inaction.” In fact, he forecasted that the price of doing nothing “could even approach 20% of GDP.” (Never mind that this cost estimate is probably wildly overestimated – most models show about 3% damages.)

So there you have it. Of course, politicians should be willing to spend 0.5% of GDP to avoid a 20% cost of GDP. This sounds eminently sensible – until you realize that Barroso is comparing two entirely different issues.