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AOC's Green New Deal Pricetag of $51 to $93 Trillion vs. Cost of Doing Nothing

A think-tank led by a former Congressional Budget Office director has come up with a price of the New Green Deal.
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New Green Deal is Economically Crazy

The American Action Forum concludes Alexandria Ocasio-Cortez's Green New Deal Could Cost $93 Trillion.

Representative Alexandria Ocasio-Cortez’s ambitious plan to fight climate change won’t be cheap, according to a Republican-aligned think tank led by a former Congressional Budget Office director.

The so-called Green New Deal may tally between $51 trillion and $93 trillion over 10-years, concludes American Action Forum, which is run by Douglas Holtz-Eakin, who directed the non-partisan CBO from from 2003 to 2005.

That includes between $8.3 trillion and $12.3 trillion to meet the plan’s call to eliminate carbon emissions from the power and transportation sectors and between $42.8 trillion and $80.6 trillion for its economic agenda including providing jobs and health care for all.

Backers of the plan say cost of inaction would be more expensive. The resolution itself, released earlier this month by Ocasio-Cortez and Massachusetts Democratic Senator Ed Markey points to a major report on global warming released by the United Nations last October that says catastrophic climate change could cost more than $500 billion annually in lost economic output in the U.S. by 2100.

I'm the Boss

Until you do it, I'm the boss.

Cost of Doing Nothing vs Green New Deal

William Nordhaus was a co-recipient of the [2018 Nobel Prize in economics](Yale’s William Nordhaus wins 2018 Nobel Prize in Economic Sciences) for his work climate change.

He compares AOC's Green New Deal with the cost of doing nothing and various alternatives.

Please consider William Nordhaus versus the United Nations on Climate Change Economics.

William Nordhaus was a co-recipient of the 2018 Nobel Prize in economics for his pioneering work on the economics of climate change. On the day of the Nobel announcement, the United Nations’ Intergovernmental Panel on Climate Change (UN IPCC) released a special report advising the governments of the world on various steps necessary to limit cumulative global warming to 1.5 degrees Celsius. The major media coverage treated the two events as complementary. In fact, they are incompatible. Although Nordhaus favors a carbon tax to slow climate change, his own model shows that the UN’s target would make humanity poorer than doing nothing at all about climate change.

Indeed, we can use Nordhaus’s and other standard models to show that the now-championed 1.5°C target is ludicrously expensive, far more costly than the public has been led to believe. This is presumably why the new IPCC special report does not even attempt to justify its policy goals in a cost/benefit framework. Rather, it takes the 1.5°C target as a politically “given” constraint and then discusses the pros and cons of various mechanisms to achieve it.

Nordhaus is arguably the inventor of the modern economics of climate change, with contributions going back at least to his 1979 book.

Nordhaus subscribes to the standard view that greenhouse gas emissions from human activities constitute a negative externality and, therefore, recommends that the governments of the world implement a carbon tax. One of his major purposes in developing and refining his DICE model is to estimate the “social cost of carbon.” The social cost of carbon is the present value of the net future harms from an additional ton of emissions in a particular year. A related purpose of Nordhaus’s DICE model is to estimate the trajectory of the optimal carbon tax over time. (Note that the “social cost of carbon” trajectory depends on government policy. In the presence of an optimal carbon tax, the volume of future emissions will be lower than otherwise. Thus, on the margin, an additional ton of carbon dioxide emitted in, say, 2050 will be less damaging than it would have been in the laissez-faire baseline.)

Relative Benefits of Various Climate Actions

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The first row of the table shows what the DICE model—as of its 2007 calibration—estimated would happen if the governments of the world took no major action to arrest greenhouse gas emissions. There would be significant future environmental damages, which would have a present-discounted value of $22.55 trillion.

In contrast, the second row shows what would happen if the governments implemented an optimal carbon tax. Because emissions would drop, future environmental damages would fall as well; that’s why the PDV of such damage would be only $17.31 trillion. However, even though the gross benefits of the optimal carbon tax would be some $5 trillion as a result (because of the reduction in environmental harms), these gross benefits would have to be offset by the drag on conventional economic growth, or what is called “abatement costs.” Those come in at a hefty $2.20 trillion (in PDV terms), so that the net benefits of even the optimal carbon tax would be “only” $3.07 trillion.

Consider, now, the scenario “Limit temp. to 1.5°C.” Recall that this is the IPCC’s current policy goal and that various environmental analysts and pundits also embrace it. Because Nordhaus just won the Nobel Prize for his work on climate change, one might suppose that his model would provide support for the UN’s goal. It doesn’t.

As Table 1 indicates, Nordhaus’s model—at least as of its 2007 calibration—estimated that such a policy goal would make humanity $14 trillion poorer compared to doing nothing at all about climate change. Moreover, the $14 trillion magnitude of the net damages from the wrong policy—including what is now the UN’s goal—dwarfs the $3.07 trillion size of the net benefits from even the best theoretically possible policy.

Factor in All Costs and Benefits

Assuming one believes climate change is worth dealing with, then it's important to not only factor in the the benefit of halting climate change, but the cost of doing that as well.

That is precisely what Nordhaus does.

The numbers are from 2007. They may be way out of date, or not.

However, AOC's Green New Deal adds in countless other items besides climate change that all contribute to the massive cost of her deal.

It is reasonable to assume the benefit of AOC's proposal vs doing nothing is negative to the tune of at least $20 to $80 trillion depending on the actual price one places on her proposal.

Dilbert Revisited

Let's return one more time to Dilbert Creator Scott Adams on Climate: "Hockey Stick is a Symbol of Lying"

Adams came up with three red flags to consider. I added three more.

Six Red Flags

  1. Hockey Stick Graph
  2. Prediction Models
  3. 97% agreement
  4. Suppressing or Hiding Data
  5. Changing the Data or the Data Sources
  6. Constantly changing the model to explain what's happening

Adams then proposed a methodology in which to decide if the climate deniers were wrong.

Let's assume climate change is real, and the skeptics are wrong. I am willing to change my mind, as is Adams.

What Then?

I concluded: "The notion that politicians will do anything sensible about the problem seems ridiculous."

AOC, Al Gore, and the UN study provide massive supporting evidence to my position.

Mike "Mish" Shedlock