The Costs of Climate Change to the United States
By James G. Titus
The Costs of Climate Change to the United States (PDF, 21 pp., 1.2 MB) was originally published in Global Climate Change: Implications, Challenges and Mitigation Measures (1992), edited by S.K. Majumdar, L.S. Kalkstein, B. Yarnal, E.W. Miller, and L.M. Rosenfeld. The report's Introduction is available below.
Given the consequences that the other chapters of this book expect to result from global warming, it is hard to imagine that we would deliberately alter our planet in such a fashion. Yet preliminary analyses on the subject generally conclude that the value to society of avoiding these consequences is not as great as the cost of decreasing emissions, especially when one "discounts" future benefits to present values (e.g. Nordhaus 1990). This paper, however, makes two departures from previous studies, and thereby reaches a much higher estimate of the cost of heating our planet.
First, we focus on the range of uncertainty, rather than merely the central estimate, of a given impact. Focusing only on central estimates understates the value of an environmental risk because (a) our uncertainty tends to be skewed; (b) the damage function is often nonlinear; and (c) people are risk-averse. Suppose, for example, that our uncertainty regarding the impact of climate change on a farm is lognormal with the most likely impact a loss of 9 acre feet with nine-fold uncertainty; that the cost to the farmer is equal to number of acre feet lost, raised to the 1.5 power; and that people will pay 25 cents to avoid a risk that has a standard deviation of $1. Elementary probability theory shows that the expected decline in water would be 16.5 acre-feet; the expected cost would be $105, with a standard deviation of $395; hence, people would be willing to pay about $200 to avoid such a risk. By contrast, using only the best estimates and ignoring risk aversion would lead one to expect a loss of 9 acre-feet and a cost of only $27.
Second, we include environmental and other nonmarket impacts. Because estimates of these assets range from poor to nonexistent, we assume that society will undertake the necessary costs to offset environmental effects of global warming.
The following sections (1) develop equations that summarize the nationwide impact of effects that have already been quantified; (2) develop state-by-state equations for four areas that have not been previously estimated in detail; (3) project the costs of climate change for two alternate emissions scenarios; and (4) calculate the benefits of reducing emissions. We assume that the U.S. economy will grow 1.2 to 2.1 percent per year. For the most part, our estimates are based on the GISS (Goddard Institute for Space Studies) and GFDL (Princeton Geophysical Fluid Dynamics Laboratory) models whose implications are discussed in detail by Smith and Tirpak (1989). Our calculations suggest that a CO2 doubling would cost the United States $37-351 billion per year, with $92-130 billion most likely. At a 3% discount rate, the CO2 from burning one gallon of gasoline will cause damages of 16-36 cents.