Climate Change Alarmism

Anyone following the debate over cap and market legislation has probably noticed the growing alarmism voiced by opponents. Leaving aside the substance of attacks, their tenor has grown increasingly biting. During recent hearings held by Chairman Markey, opponents unleashed a fusillade of arrows ranging from dire warnings to shrill personal attacks on Vice President Gore who testified in support of cap and market legislation. What is most remarkable about the alarmism, as Paul Krugman point out in his column today, however, is that it is coming from the same people who ordinarily have an unbounded faith in markets to cope with any obstacle. Newt Gingrich, for example, who has at times been an evangelist for markets and the future, testified at the same hearing that putting a price on carbon would be devastating for the US economy. In fact, as Krugman writes today, the impact of a carbon regime is likely to be mild and gradual. Yet junk economics, he argues, is becoming as widespread in the climate change debate as junk science. While a cap and market regime is likely to increase prices of emissions-intensive commodities such as electricity, cement and steel over time, the increases will phase in slowly. According to data from MIT's Emmissions Prediction and Policy Group, cited by Krugman, even stringent limits would lead to a reduction of only 2% in consumer demand by 2050. The short term impact on GDP--from higher prices--would be almost negligible. Yet there is more to the story. While any negative effects would not show up for years, Krugman points out that a carbon regime might well stimulate growth in the near term. Were congress to mandate caps to begin phasing in three years from now, the impact on prices would be negligible in the short term, but the prospect of caps would stimulate capital investment today, driving up the investment component of GDP and exerting a multiplier effect on consumption--exactly what the economy needs during a slowdown. In short cap and market legislation won't hurt the economy much, will at most trim demand in the future and might actually help the economy now. If you throw in the fact that developing new technologies is something the US has to do if it does not want to compete with countries such as china and India solely on cost, the economic case for putting a price on carbon is there. Oh, and there is also the benefit preventing the very real costs of higher temperatures, rising sea levels and climate instability.