Adapted from “The costs of ‘costless’ climate mitigation,” by Matthew J. Kotchen from Yale University, James A. Rising from the University of Delaware, and Gernot Wagner from Columbia Business School.
Key takeaways:
- New research from CBS has found that top-down economic models estimate higher costs to “costless” climate mitigation than the commonly used cost curves presented by McKinsey & Co. and the Intergovernmental Panel on Climate Change.
- The research shows that many technically costless routes to cutting emissions still have nonmonetary barriers that we will need to overcome to make progress.
- Zeroing in on these barriers and additional costs helps identify and better target policies to overcome them.
Why the research was done: Scientists and economists agree: Mitigating the output of carbon — and quickly — is essential to stopping the catastrophic warming of the planet. So why aren’t we doing everything we can? Gernot Wagner, senior lecturer in Discipline of Economics at Columbia Business School, says understanding the cost of mitigation is essential to finding a way forward — but measuring cost doesn’t just mean dollars and cents.
Oftentimes a mitigation strategy — like riding your bike to work instead of driving — is cheaper than the alternative, but that doesn’t make it the most appealing choice to every person. “The exasperated scientist would say, ‘You've got to be kidding. What more do you need? You've got to just get on with it,’” Wagner says. “Enter the social psychologists, sociologists, and economists, who point to barriers that prevent apparently ‘costless’ actions from being taken. For example, some people just like driving. Some are OK with driving longer distances every day for that extra bedroom farther afield.” To better understand these barriers, Wagner and his co-authors investigated the different methods of estimating costs to begin to understand how to overcome some of these impediments.
How it was done: The researchers compared two different types of cost curve modeling: One was the bottom-up approach pioneered by McKinsey & Co. and also used by the United Nations’ Intergovernmental Panel on Climate Change in its “Sixth Assessment Report,” which measures costs sector by sector and technology by technology to calculate a total. The other was several examples of top-down integrated assessment models, widely employed by economists, which considered tradeoffs in climate mitigation investments to reach their totals. The top-down approach, Wagner says, looks “holistically at where we are as a society, how we ended up where we are, and how that affects the overall trajectory of what we could or should be considering the cheapest abatement technologies.”
What the researchers found: In their analysis, the researchers found that the bottom-up approach reported considerably lower costs for emission reductions than the top-down economic models. There was one core feature that helped explain the difference: The bottom-up estimates included substantial reductions that appear to come at zero cost, or even at a savings, whereas the economic models assume no such “free lunch.”
“The cost curves look very much the same when you cut off the ‘costless’ portions, which tells us the key question in what it actually costs is: How much of it is ‘costless’?” Wagner says. This returns to the issue of barriers to mitigation beyond overall monetary cost. Among these barriers are startup costs (solar energy is by far cheaper than any other kind of energy, but the upfront price of installing solar panels on a home can deter many potential customers from getting started) or real or perceived loss of safety or status (buying large SUVs, even though their size can be inconvenient and they require more fuel to run than smaller cars).
Why it matters: Steps need to be taken to overcome the impediments to climate mitigation, whether financial, philosophical, or practical. The LED light bulb, Wagner says, is a fundamentally better and cheaper product than incandescent bulbs, but it still took federal legislation in 2007 to make people change their habits. “There are barriers that we need to overcome to take advantage of these energy savings opportunities,” he says.
The researchers suggest that future studies investigate the nonmonetary costs of climate mitigation and that economists collaborate more closely with scientists to work toward a clearer understanding of the actual costs of addressing climate change. Wagner also believes psychologists, sociologists, and social scientists should contribute to the research on how to overcome barriers to mitigation efforts. The methods that work may be different than what we’d expect. “It can be bus lanes; it can be bike paths, ” Wagner says. “It’s interventions that are very different from the standard view of, ‘Here is what the prices tell us it ought to cost.’”
