Conclusion

U.S. Market Consequences of Global Climate Change

A critical question that naturally emerges from this analysis concerns the degree to which potential damages arising from climate change are sufficiently large as to warrant more aggressive and more immediate mitigative actions. Most climate change policies achieve their greatest benefits far in the future, while incurring potentially substantial costs nearer term. As a result, traditional benefit-cost analysis can inspire a wait-and-see attitude toward such initiatives. The very existence of potential market benefits for the U.S. under some climate change scenarios and for some amount of time, together with the increasing gap between bestand worst-case impacts as warming progresses, would seem to lend further support to the wait-and-see approach. However, this conclusion ignores one of the most important results of this analysis, namely, that any benefits from climate change are temporary. Predicted trends in market outcomes become less optimistic and more pessimistic as warming occurs both within and across climate change scenarios. This suggests that some short-term mitigative actions would undoubtedly provide positive net benefits. It also highlights the risk that inaction today could increase the likelihood and magnitude of future damages. Moreover, to the extent that pessimistic outcomes prevail and steep emissions reductions become necessary over time, near-term efforts to begin phasing in moderate greenhouse gas reductions may avoid the need for more costly measures later.

The findings also support more immediate actions for other regions of the world. Economies in which agriculture provides a larger fraction of national income and particularly in regions that are likely to move from cooler and wetter climate conditions to hotter and drier conditions are obviously at greater risk. For these economies, short-term mitigative actions will appear more favorable because the benefits of these actions are likely to lie near or above their current social costs.

Failure to include climate-related impacts on mortality and morbidity understates the effects of climate change on overall economic welfare together with the true magnitude of likely benefits associated with mitigative policies. To the extent that adverse health effects are more likely than beneficial ones under all plausible scenarios for long-term climate change, the net benefits of such policies are again higher than they are often currently perceived. Add to this the fact that the market impacts estimated here for mortality and morbidity effects are at the low end of valuations reported in the available literature and, in each case, the arguments for deferring policy action diminish.

The results of this analysis also suggest a number of priorities for future research on the likely impacts of climate change. First, the kinds of market consequences evaluated here must be integrated to a greater extent with assessments of non-market consequences. Second, there is an essential need to clarify the likely range of market outcomes arising in a given sector (or area of economic activity) from a given level of climate change. Moreover, it is highly likely that trends in response functions will vary with changing climate conditions as opposed to remaining fixed. A better understanding of the relationship between market response and climate at the sector or activity level would allow for a better determination of the distribution of likely outcomes for a given climate scenario. With an improved understanding of response functions, it would be possible to better estimate the impacts of alternative climate scenarios on both income and welfare measures (with the latter—welfare impacts—being arguably more relevant). These scenarios could then be combined probabilistically to yield a likely distribution of market outcomes that better characterizes the full range of potential U.S. market impacts from climate change.