Cleaning Up Our Mess: On climate change, what is our obligation to future generations?

• Author: Levine, David K.

Young environmental activists often say that older generations are creating a future climate disaster. They argue that current generations are obligated to take decisive action against global warming now to lessen its effects on generations to come. In the words of prominent Swedish activist Greta Thunberg: "Young people must hold older generations accountable for the mess they have created. We need to get angry and transform that anger into action."

The foisting of some cost onto an unwilling third party--what is known as a "negative externality"--has long been a concern of policymakers and economists, and climate change will certainly have future costs. At the same time, carbon-fueled wealth creation, both in the past and ongoing into the future, has benefits --including positive externalities--for future generations, especially in poorer countries that are only now beginning to develop quickly or will do so in the future. A proper appraisal of current generations' environmental obligation to the future must be mindful of both the costs and benefits, to determine how large that obligation is and what policies would best meet it.

This article offers such an appraisal. No doubt, it will face two groups of critics: those who deny the current, best-available science indicating that the climate is changing, and those who deny the economic analysis of the effects of that change. This article is intended for people who aren't among either group of "deniers."

HOW MUCH WARMING?

The basics of climate change are well known. Carbon dioxide and other greenhouse gases in the atmosphere act as a sort of blanket, trapping some of the heat from the sun instead of allowing it to escape into space. Human emissions of greenhouse gases like carbon dioxide enhance this blanket effect, resulting in rising planetary temperatures.

There are considerable uncertainties about how warming will unfold and how the planet will respond. Climate scientists have produced numerous models, built on different assumptions, to estimate how much and how quickly warming will occur. Among the most respected of these models are those produced by the Intergovernmental Panel on Climate Change (IPCC). Figure 1 reproduces estimates from the most prominent models used in the most recent assessment.

The figure is not entirely self-explanatory. The horizontal axis is the year. The IPCC does not consider its estimates past 2100 to be very reliable, but it does offer projections through 2300. The vertical axis is the amount of warming that is estimated to occur, measured in degrees Celsius above the pre-industrial period, which ended in the mid-18th century. The curves displayed, with labels such as SSP1-1.9 and SSP5-8.5, are composite best estimates of the outputs of different models under different assumptions. Scenario SSP5-8.5 is the IPCC's "worst-case scenario," assuming that there will be no change in humanity's current course of growth, energy production, and carbon emissions. This is almost certainly unrealistically pessimistic, but that is the nature of worst-case scenarios.

COSTS OF CLIMATE CHANGE

How large are the future costs of climate change? Using its composite models, the IPCC offers descriptions of the socio-economic future under the different warming estimates. The first chapter of the IPCC's most recent assessment report describes these scenarios as follows:

The Shared Socioeconomic Pathways SSP1 to SSPS describe a range of plausible trends in the evolution of society over the 21st century. They were developed in order to connect a wide range of research communities and consist of two main elements: a set of qualitative, narrative storylines describing societal futures and a set of quantified measures of development at aggregated and/or spatially resolved scales. Each pathway is an internally consistent, plausible and integrated description of a socio-economic future, but these socio-economic futures do not account for the effects of climate change, and no new climate policies are assumed. The SSPs' quantitative projections of socio-economic drivers include population, gross domestic product and urbanization. Notice that, by the IPCC's own description, these socio-economic scenarios are not scientific estimates. Rather, they are "qualitative, narrative storylines" and "quantified measures ... at aggregated and/or spatially resolved scales." This is disappointing because the IPCC could have used more rigorous analyses produced by economists; such analyses are particularly important because economists incorporate human responses to climate change in their models. Instead of that work, the IPCC turned to projects using methodologies assembled by non-experts.

Let's look at some examples of economists' work on global warming. Figure 2 presents four prominent estimates, three contained in the 2006 report prepared for the Government of the United Kingdom by Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment, and the fourth based on a model formulated by Yale economist William Nordhaus.

Figure 2 also is not entirely self-explanatory. The horizontal axis indicates warming above pre-industrial temperatures measured in degrees Celsius, while the vertical axis indicates the resulting percentage loss in per-capita gross domestic product from warming as compared to what would have occurred without warming. Notice that this figure does not factor in the passage of time; rather, it simply indicates that, for a given amount of warming, the models estimate an amount of per-capita GDP loss. So, for instance, the Nordhaus model predicts that a 4[degrees]C increase in global mean temperature would result in a decrease in per-capita GDP of about 5% from the output that would have occurred without warming. Interestingly, though environmentalists often praise the Stern Review and criticize Nordhaus's work, Nordhaus offers the gloomier predictions.

For this analysis, I will mainly use the Nordhaus numbers because he presents the most worrisome future. At the far end of the curve, his model estimates that an 8.6 [degrees]C warming will result in a 16.5% decrease in what income otherwise would be. To put that in perspective, world income in the Great Depression fell about 15%. That was a tremendous, history-shaping loss, though it was not an existential catastrophe. Likewise, an 8.6[degrees]C warming would not result in a "planet on fire," but it is something that humanity should consider taking reasonable steps to mitigate.

We can use the Figure 1 warming projections and the Figure 2 economic effect estimates to get a better sense of the time frame and effects of warming under various assumptions. For instance, if the SSP5-8.5 scenario is realized and the planet warms by 6[degrees]C a century from now and then by 8.6[degrees]C by 2200, Nordhaus estimates that would result in a GDP-per-capita loss in 2200 (compared to what otherwise would have resulted) equivalent to the Great Depression. That would be a large loss and, unlike the Great Depression, GDP per capita would not recover a decade or two later.

On the other hand, there is quite a difference between a Great Depression now and one in 200 years: the latter includes 200 years of economic growth, fueled in part by carbon-based energy. There is considerable difference in the resulting living standards between a 16.5% loss in income in the 1930s or today as compared to that loss in 2200.

Or is there? What if a warming climate severely hampers economic growth between now and 2200? In essence, there are two extreme possibilities, with a range of possibilities in between, for how economic growth will play out as the planet warms. One is that economic growth will halt as a result, and future generations will be no richer or poorer than we are. But if that happens, then carbon emissions will fall because there will be less economic demand for energy given the lower production. We will be in a scenario more like SSP2-4.5 then SSP5-8.5. That, in turn, would mean the planet would warm about 3 [degrees]C compared to today, yielding a 2% GDP-per-capita loss. That's still a painful drop, akin to the loss experienced in the Great Recession of the first decade of this century, and the economy would not likewise bounce back in a decade or so. On the other hand, this loss is not the global catastrophe that often is envisioned by climate activists. Again, the potential for this loss recommends taking reasonable steps to mitigate climate change but does not demand the drastic steps that some climate activists call for.

Notice that the discussion above keeps referring to climate-change-driven losses in GDP per capita "compared to what otherwise would have resulted." It's important to recognize that we do not know how much growth will occur over the next 200 years, either with or without warming. Economic growth is driven by technological progress and by poor countries adopting advances that have propelled rich countries. Yet, the rate of the former is uncertain because we cannot know what technological breakthroughs will or will not happen in the future. The rate of the latter likewise is uncertain because many institutional barriers must be overcome for poor countries to grow, and we cannot know how much success or failure there will be in overcoming those barriers. It is possible there could be no economic growth in the future at all, and it is also possible there could be growth at rates higher than at any other time in human history.

We may get a sense of the future by looking at the recent past. From 1960 to 2020, world per-capita income grew from about $3,584 to $10,520 (in constant 2015 U.S. dollars). That is, it nearly tripled in less than 60 years. If that growth would continue between now and 2200, per-capita GDP would multiply nearly 27 times. But let's be conservative and assume growth would only multiply by 16 over the next 180 years in the absence of climate...