Economists try to calculate the cost of climate change

The economic cost of greenhouse gas emissions is likely deeper than scholars have been estimating, and the costs are going to be borne unequally across the globe, according to research presented at a conference underway at the University of Minnesota.

"Most studies show the more we learn, I think the more alarming it is," said Michael Greenstone, an economist who heads the University of Chicago's Energy Policy Institute. "Not every study goes in that direction, but the general thrust is that the estimates of the costs are increasing as we learn more."

While scientists have explored in depth the effects of carbon on the climate, economists have been slower to study the economic consequences, said V.V. Chari, director of the Heller-Hurwicz Economics Institute at the U, which is hosting the conference, "Developing the Next Generation of Economic Models of Climate Change."

One ton of carbon emissions costs society about $30, according to current economic models, Chari said, but consensus is growing that the cost is much higher — probably closer to $100 per ton. More economists are looking into the effects of a warmer climate on mortality, labor productivity and agricultural yields. They're also looking at the effects on energy consumption, which perversely are projected to increase, since more people will presumably use more air conditioning.

"We're getting a much better sense of what things like hurricanes will do," said Greenstone, who is among the small group of economists working to measure specific costs of a hotter climate and today will present a paper on the costs of a warmer climate in rural India.

The study of 43 years of economic data shows that hotter years in rural India cut real wages and agricultural yields by about a tenth each. Also, 7.3 percent more people died in those years.

Those effects were far less severe in urban parts of India, the study found. This difference in costs by geography will mean that some parts of the colder world may hardly feel the economic effect of climate change, while developing countries could see devastating rises in mortality and drops in wages.

Economists are trying to zero in on these costs in order to help set the price of emissions in a cap and trade or carbon tax scheme. Marty Weitzman, a Harvard economist who in February published a paper on the effects of a uniform international carbon price, said it is very difficult to measure the costs.

"We don't know. It's highly uncertain. This is the problem from hell," Weitzman said. "We're really quite uncertain how the system is going to respond in the course of decades, and we're uncertain, I'm afraid, how to model this economically."

Richard Sandor, founder of the Chicago Climate Exchange, said the key is to set a price and let the market work itself out.

"You need to price it, no matter what way you do it," Sandor said. "Once that signal's out there, innovators come in … and almost always, the initial and forecasted price is higher than the price that's revealed in trading or a tax."

Chari said Heller-Hurwicz is hosting the conference to help spur more substantive economic work on climate change, help shape the public discussion, and contribute to a framework for collective policymaking.

That consensus is not shared among nations, yet.

One obstacle is that poorer countries might find it daunting to make expensive investments switching from fossil fuels to cleaner green energy, Greenstone said. His research, showing that poorer parts of the world can be the most vulnerable, could incentivize developing countries toward faster action.

"Yes, on one side it will be quite expensive for them to do this," he said. "But on the other hand, the benefits might be disproportionate as well."