The Costs of Cap and Trade and The Costs of Doing Nothing
Nicolas Loris /
The economic losses from carbon emissions cap-and-trade policies are often compared with “the cost of doing nothing.” CBO director Doug Elmendorf in his testimony to the Senate Energy and Natural Resources Committee labels these costs as nonmarket impacts. These include effects of human health, loss of species’ habitats, and other destruction to wildlife and ecosystems. He points to a study by William Nordhaus and Joseph Boyer that found an 11 degree Fahrenheit increase by 2100 translates to an almost 5 percent drop in output.
This is a common argument made by proponents of the legislation. However, those who make this argument do not carry the analysis through in a rigorous way, which renders the argument simply a strawman.
This “opportunity cost” of doing nothing must be discounted by the actual effect the “doing something” will have. Doing something like cap-and-trade, does not mitigate climate change entirely and therefore the (negative) opportunity foregone (i.e., the expected climate change) is not the full benefit.