Putting a Price Tag on the Melting Ice Caps

Judith D. Schwartz, Time Magazine 3 Apr 10;

Reports about the melting ice caps are distressing, but for the most part climate change remains abstract. The poor polar bear has been trotted out as the tangible face of global warming so often that we're beginning to see "polar bear fatigue."

How about bringing the effects of Arctic melt close to home, as in what it will cost? A new study does just that, and the results are alarming, not just for Arctic dwellers but for all of us. According to lead author Eban Goodstein, Ph.D., over the next 40 years Arctic ice melt will take an economic toll of between $2.4 trillion and $24 trillion. Unless we change course — and fast.

Why is the melting Arctic so expensive? "The Arctic acts as the planet's air conditioner, and that function is already breaking down," says Goodstein, an economist and Director of the Bard Center for Environmental Policy. The high price reflects anticipated losses in agriculture and real estate plus the cost of disease outbreaks and natural disasters associated with rising sea levels. The melt, he says, is already adding extra heat at an annual rate of 3 billion tons of CO2 — the equivalent of 500 coal-powered plants, or more than 40% of all U.S. fossil fuel emissions — and this is expected to more than double by the end of the century.

The "Cost of a Warming Arctic" study, funded by the Pew Environment Group, assessed trends in the Arctic's cooling mechanisms and examined the financial consequences. The research team looked at the rate at which surfaces change from white ice and snow to ocean or exposed tundra, since darker surfaces absorb, rather than reflect, solar heat. According to the report, this shift and the increased methane emissions linked with melting permafrost currently slap us with annual losses in the range of $61 billion to $371 "resulting from such changes as heat waves and flooding." But the anticipated monetary fallout described in the study, expected to run deep into the trillions over the coming decades, may actually be conservative, as it does not take into account the recently discovered large-scale methane releases from the thawing continental shelf.

Of course, grappling with something as vastly complex as climate science involves plenty of uncertainties: What threshold represents a tipping point, after which changes accelerate? What are the chances of some unforeseen catastrophic event? What measures might come into play that limit CO2 emissions and thus mitigate climate change? And how do you precisely gauge the economic impact — particularly when dealing with the future?

Turns out, this last question is a matter of great debate. Typically the province of economists wielding formulas too esoteric for most of us to follow, the Social Cost of Carbon (SCC) is currently under discussion by the EPA and other regulatory agencies. The figure they choose has huge implications for our ability to make inroads against climate change. The Social Cost of Carbon represents the estimate of damages from one more ton of CO2 added to the atmosphere. (One ton of CO2 is what the average family car emits every two-and-a-half months.) The SCC is important because a low number suggests minimal regulation is needed, whereas a high number urges more stringent action (such as efficiency requirements, carbon taxes or alternative energy incentives).

"The idea is that if we have a number, we can compare the costs and benefits of efforts to reduce CO2 in the atmosphere," says Frank Ackerman, PhD, an economist specializing in climate change at the Stockholm Environment Institute's center at Tufts University. "If, say, we value CO2 damages at $20 a ton, then $15 per ton is considered an acceptable cost to ameliorate it. If the SCC is $2, spending $15 seems out of line." The other key statistical variable is the "discount rate," which establishes how to account for future costs and benefits in today's currency. A high discount rate implies that what happens years from now should have less bearing on decisions made today. Inherent in this seemingly technical point is the question: what do we, citizens today, owe the people of tomorrow? Particularly since, once released, CO2 stays in the air for at least 100 years.

The Pew study looked at damages at different SCC and discount rates. "Using the mid-range EPA figure, the cumulative global cost between now and the middle of the century will exceed $7 trillion," says Goodstein. "This means that every working adult will have to pay half of a year's salary just to cover the damage of the breakdown of the Arctic air conditioner." The higher figure used in the survey, based on the U.K.'s 2007 Stern report, yields significantly greater damage estimates.

Frank Ackerman says that the EPA is basing its SCC calculations on models that minimize the economic risks of climate change. He notes that one model includes the assumption that for the first few decades, climate change will bring economic benefits to the world as a whole.

William D. Nordhaus, Sterling Professor of Economics at Yale University, whose DICE (Dynamic Integrated model of Climate and the Economy) is among the three considered in EPA's calculations, points to the difficulty of coming up with accurate figures while climate science is still evolving. "It's a slow process," he says, noting that while there is documentation on rising sea levels, there are little data on such factors as methane release from melting permafrost, the impacts of ocean acidification, and the timing of the potential disintegration of the West Antarctic Ice Sheet. "We as social scientists can't [offer precise financial estimates] until we have reliable information from natural scientists. We will probably get better resolution over the next two decades."

Given the lack of a viable timeline for climate impacts — plus the likely hurdles of implementing a sharp reduction plan — Nordhaus, among others, has advocated a reduction in emissions that starts gradually, then increases over time. Others, such as the authors of the Arctic study, point to the environmental, and ultimately financial, burden of not lowering emissions in a timely way.

"Climate change is different from anything we've had to contend with on a policy level," says Ackerman. "The assumption in any policy discussion is that if a proposal doesn't go forward, you still have the status quo. Here the status quo is not available as a fallback, as doing nothing means a rapidly changing climate and worsening conditions all over the world. By the time you're absolutely certain of the impacts and can observe them in everyday life, it's too late." This is why, he says, paying attention to the dynamics of climate harbingers — such as the Arctic, which is warming at twice the rate of the rest of the planet — is crucial.

Rather than letting the unknowns paralyze us, Ackerman suggests looking at the potential costs of climate change differently. "You don't buy fire insurance on your house because you think it's going to burn down, but because you're not completely sure that it won't," he says. He says about 3% of per capita income is what is needed to protect against climate change: the amount people typically spend on insurance. We could think of it as collective property — or life — insurance.

But unlike the low probability of losing your house to fire, we know that the Arctic is warming. And this study offers an inkling of what it could cost us — if we don't act. "No matter how you slice it, these are big numbers," says Goodstein. "The Arctic air conditioner is breaking down in a big way. Half-measures won't work. If we can get carbon emissions down, we can retain more of this function."