Global Warming:
Costs and Benefits

Thomas Gale Moore
Senior Fellow
Hoover Institution

Government officials can be dangerous to your weal, your wealth, and your health. Ignoring costs and exaggerating benefits, an obscure State Department functionary at the July Geneva meeting of the Second Conference of the Parties, a name only a bureaucrat could love, called for a legally binding agreement to reduce greenhouse gas emissions after the year 2000. Although the U.S.delegate never specified the magnitude of the cut, nor the period over which emissions would be reduced, nor even the level from which abatements would be measured, this step may cost billions, perhaps trillions. Before this nation commits itself to such a radical agreement, we should understand the alleged benefits of curtailing carbon emissions and the costs involved, issues obscured in both official and popular reports. This first of two essays explores the economic effects of any global warming. The second, scheduled for publication in September, will outline the costs that greenhouse gas reductions would impose on the American people.

Most forecasts of global warming's repercussions have been dire, but an examination of likely effects suggests little basis for that gloomy view. The media and others have attributed about any possible weather to global warming: from more to less climate variability, both more rainfall and more drought, and more violent winter storms as well as fewer and weaker cold weather surges. We will take the common perception that global warming would bring warmer summers, more precipitation, warmer winters with fewer and weaker storms, and higher temperatures at higher elevations and latitudes.

Climate affects principally agriculture, forestry, and fishing, which together constitute less than two percent of U.S. GDP. Manufacturing, most service industries, and nearly all extractive industries are[this sentence is qualified enough, it does not need another mostly] immune to direct impacts from climate shifts. Factories can be built in northern Sweden or Canada or in Texas, Central America, or Mexico. Banking, insurance, medical services, retailing, education and a wide variety of other services can prosper as well in warm climates (with air-conditioning) as in cold (with central heating). A warmer climate will lower transportation costs: less snow and ice will torment truckers and automobile drivers; fewer winter storms will disrupt air travel -- bad weather in the summer has less disruptive effects and passes quickly; a lower incidence of storms and less fog will make shipping less risky. Higher temperatures will leave mining and the extractive industries largely unaffected; oil drilling in the northern seas and mining in the mountains might even benefit.

A few services, such as tourism, may be more susceptible to weather. A warmer climate would be likely to change the nature and location of pleasure trips. Many ski resorts, for example, might face less reliably cold weather and shorter seasons. Warmer conditions might also mean that fewer northerners would feel the need to vacation in Florida or the Caribbean. On the other hand, new tourist opportunities might develop in Alaska, northern Canada, and other locales at higher latitudes or in upper elevations.

Inhabitants of the advanced industrial countries will scarcely notice a rise in world-wide temperatures. In his 1991 presidential address to the American Economic Association, Thomas Schelling concluded "that in the United States, and probably Japan, Western Europe and other developed countries, the impact on economic output [of global warming] will be negligible and unlikely to be noticed." As modern societies have developed a larger industrial base and become more service oriented, they have grown less dependent on farming, thus boosting their immunity to temperature variations.

In many parts of the world, warmer weather should mean longer growing seasons. Should the world warm, the hotter [I am trying to avoid over using the word higher - higher temperatures are hotter] climate would enhance evaporation from the seas and probably lead to more precipitation world-wide. Moreover, the enrichment of the atmosphere with CO2 would fertilize plants and make for more vigorous growth. Agricultural economists studying the relationship of higher temperatures and additional CO2 to crop yields in Canada, Australia, Japan, northern Russia, Finland, and Iceland found not only that a warmer climate would push up yields, but also that the added boost from enriched CO2 fertilization would enhance output by 17 percent. The United States Department of Agriculture in a cautious report reviewed the likely influence of global warming and concluded that the overall effect on world food production would be slightly positive and that agricultural prices would probably decrease. (Kane 1991)

Rising sea levels would impose costs on low lying regions, including a number of islands and delta areas. For the United States -- assuming a one meter rise in sea level, at the high end of predictions for the year 2100 -- economists, such as William Cline, William Nordhaus, and Richard Morgenstern, estimated the costs of building dikes, levees and from the loss of land at $7 to $10.6 billion annually, or less than 0.2 percent of GDP. For some small low-lying island nations, the problems would be much more severe.

William Cline and William Nordhaus estimated, separately, the cost of warming of 2.5 degrees Celsius at about one percent of the U.S. GDP. But both ignored potential benefits from a warmer climate. In fact, Nordhaus calculated the cost at only one-quarter of one percent, then guessed, on the basis of unmeasured sectors, that the total might be as high as one or two percent. Parts of the rest of the world, especially poor agricultural regions and those subject to flooding from rising sea levels will suffer more than the U.S. or Europe. Nevertheless, virtually all published estimates based on careful research put the cost of a doubling of CO2 to the world at less than or equal to 1.5 percent of world income. The IPCC's Working Group III in its report to policy makers quoted estimates of the total cost from a doubling of CO2 of "a few percent of world GDP."

Although many agree that the cost of warming, after adjustment, may be small, some observers have worried that the speed of climate change will be unprecedented, making adjustment difficult and costly. Ice core researchers have shown, however, that climate has shifted in the past as rapidly or more rapidly than is predicted over the next century. In addition, the IPCC has reduced the forecast temperature increase over the next century, sharply slicing the rate of change of climate. In short there is little to fear from global warming and possibly much to gain; even the need for a "no regret policy" seems negligible. [The reference to ice cores is that climate has shifted more rapidly in the past than is forecast under future climate change. In debates that I have had on climate warming, people may agree that the cost of warming is small, but that the warming will be so fast that neither people nor flora nor fauna can adjust. I wanted to deal with that issue. If you both feel strongly that this point does not need to be made or isn't made adequately, then delete the last paragraph and add]:

If global warming occurs, it may cost the world at most one or two percent of the world's GDP. Offsetting these drawbacks are many benefits from warmer winters: people like warm climates; heating bills are lower; clothing costs are reduced; transportation is less troubled; and death rates are lower. Trying to slow the emissions of greenhouse gases is likely to be costly, significantly exceeding two percent of the world's GDP. The next essay will detail the major problems with any binding agreement to cut greenhouse gas emissions.


William D. Nordhaus. "To Slow or not to Slow: the Economics of the Greenhouse Effect," THE ECONOMIC JOURNAL, 101 (July 1991): 920-937.

William D. Nordhaus.MANAGING THE GLOBAL COMMONS, Cambridge, MA: MIT Press, 1994.

William R. Cline. THE ECONOMICS OF GLOBAL WARMING, Washington, DC: Institute for International Economics, 1992.

Sally Kane, John Reilly, and James Tobey. CLIMATE CHANGE: ECONOMIC IMPLICATIONS FOR WORLD AGRICULTURE, Resources and Technology Division, Economic Research Service, U.S. Department of Agriculture, Agricultural Economic Report No. 647 (October 1991).

Richard Morgenstern. "Towards a Comprehensive Approach to Global Climate Change Mitigation," THE AMERICAN ECONOMIC REVIEW, 81 (May 1991): 140-45.

Thomas Schelling. "Some Economics of Global Warming" THE AMERICAN ECONOMIC REVIEW 82 (March 1992): 1-14.

Summary for Policymakers: The Economic and Social Dimensions of Climate Change, IPCC Working Group III (1995).

Originally Published in The World Climate Report August 1996.