Can We Afford the Future? The Economics of a Warming World

For the last two decades, the following narrative has powerfully and decisively shaped debates over climate stabilization:

  • Cutting greenhouse gas emissions would impose large economic costs.
  • The impacts of climate change are uncertain and too far in the future to justify early action.
  • Society’s scarce resources would be better spent on investments that increase economic output in both the short and long runs.

In this new and important book, Frank Ackerman takes aim at this reasoning and suggests a solution to the problem that hardheaded economics is at loggerheads with softhearted environmentalism. The book’s argument is built around the following four bumper stickers for better economics:

  • Your grandchildren’s lives are important.
  • We need to buy insurance for the planet.
  • Climate damages are too valuable to have prices.
  • Some costs are better than others.

Let’s consider each of these points in turn. First, Ackerman acknowledges that stabilizing climate would impose short-run economic costs. He notes, however, that mainstream estimates suggest that emissions reductions would yield net increases in long-run economic welfare that are much larger in magnitude. This is true because climate stability provides critical services that support and sustain economic activity. When equal weight is attached to the interests of present and future generations, economic models support deep cuts in greenhouse gas emissions.

Second, Ackerman questions the argument that investments in climate stabilization are inappropriate because they provide comparatively low rates of return. He says that climate stabilization is best viewed as a form of insurance that protects society from potentially catastrophic risks. “Suppose that we, or more likely our descendants, were to discover someday that we had paid for a bit more wind and solar power than was absolutely needed, in hindsight, to prevent a climate catastrophe. How badly would history remember us for that mistake?”

On average, homeowners pay more in insurance premiums than they expect to recover in the event of a loss. Yet no one argues that home insurance is a bad financial investment. For a small up-front cost, a homeowner can secure both her own future and the sustained well-being of her family.

Third, Ackerman critiques the view that the impacts of climate change can or should be reduced to the monetary calculus of cost-benefit analysis. Without question, climate change will have impacts on goods and services such as food, water, and coastal land that have well-established economic values. Many studies have sought to estimate and characterize these impacts. To Ackerman, however, even a state-of-the-art impact assessment is not exact enough to give us much confidence in the numbers. Moreover, climate impacts involve threats to both human life and the biosphere that raise fundamental moral concerns. According to Ackerman, “There is no hope of coming up with a single dollar amount that adequately summarizes the full range of climate impacts.…Yet even without an impossibly comprehensive summary number, there are ample grounds for taking action.”

Finally, Ackerman argues that well-designed policies can provide multiple benefits, and that a narrow focus on costs can obscure the opportunities presented by policy decisions. On the one hand, engineering and behavioral studies demonstrate that we can reduce greenhouse gas emissions using technologies that actually cut costs, given today’s prices and economic conditions. More broadly, Ackerman argues that investing in low-carbon technologies can create jobs and reduce the social and environmental costs of fossil fuels. Climate stabilization will certainly entail short-run economic costs, but those costs may be understood as an investment in the long-run flourishing of social, economic, and ecological systems.

While informed by a comprehensive and fully up-to-date understanding of the academic literature, this book is written in a lively and accessible style that will be much appreciated by lay readers. Ackerman synthesizes and explains nuanced and often arcane material in a way that clarifies without resorting to oversimplification. Most importantly, Ackerman shows how the elements of economic analysis can be woven into a structured and reasoned argument that supports aggressive steps to cut greenhouse gas emissions.

Economics can be viewed as an approach to storytelling, and Ackerman’s contribution is to construct a new story line that is composed of interesting and compelling elements. In a world in which narrative drives policy, this provides a potential solution to a difficult and long-standing dilemma.