Common Tragedies

Thoughts on Environmental Economics

The political economy challenge of climate change

Posted by Daniel Hall on April 7, 2008

Ever wonder why Europe seems gung-ho about reducing greenhouse gas emissions — what with the Kyoto Protocol, the EU Emission Trading Scheme, a biofuel directive, and whatnot — while the U.S. can’t seem to get any traction on reducing emissions at all? (Unless you count subsidizing Iowa corn farmers, <cough> <cough> Evan.) Well, a clue arrives today via the CBO Director’s Blog.

Peter Orszag and Terry Dinan of the CBO respond to an article by Cass Sunstein that compares the Kyoto Protocol to the Montreal Protocol — widely hailed as the most successful multilateral environment agreement in history — and suggests ways that the Kyoto Protocol can be strengthened through lessons learned. Orszag and Dinan and more skeptical. As part of their response they collect some summary data into a table.

Note the fourth column, “Damages from 2.5 °C Warming”. Europe faces estimated damages of 2.83% of GDP, while the U.S. faces damages of 0.45%.* The fact that the potential benefit to Europe in terms of avoided damages is around 6 times higher than for the United States surely goes some way towards explaining the relative willingness of each region to act.

Doubtless there are other factors at work as well, but this strikes me as a particularly significant one that doesn’t get much recognition.

Note that Orszag and Dinan point out that one of the ways to increase willingness to act in the U.S. is to come up with damage estimates that do a much better job of incorporating the risk of catastrophic climate change, as discussed by Marty Weitzman. Where have I heard that name before?

*This data is presented in Figure 7 of Sunstein’s paper and comes from a paper by William Nordhaus and Joseph Boyer.

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