Cost of cutting carbon: Pennies a day

Reducing the pollution that causes global warming is both affordable and critical

The cost of capping global warming pollution over the next two decades is almost too small to measure.

That was the conclusion of our original 2008 report and we confirmed it again in new analysis in 2009:

The first-of-its-kind report synthesized the predictions of a range of peer-reviewed economic models, and found that:

  • We can afford an aggressive carbon cap to tackle global warming. The cost to the economy will be minimal -- less than one percent of U.S. gross domestic product in 2030.
  • We cannot afford to wait. Further delay will greatly increase the costs of making necessary emissions cuts and will risk locking in irreversible climate change.
  • Strict limits on global warming pollution can harness the power and creativity of capital markets. Transitioning to a low-carbon economy is best done through the powerful engine that drives our economy.
  • The cost of inaction is projected to be far greater. The total cost of global warming will be as high as 3.6 percent of GDP if present trends continue, according to a report from Tufts University. And it could be even higher.

Cost to Americans will be pennies a day

Our report shows that creating a carbon market to cap pollution and curb global warming will not harm the economy. To reach this conclusion, we used a range of economic models and focused on comparative costs rather than absolute dollars.

Here are the numbers. A business-as-usual approach, continuing with today's policies, puts the U.S. economy on a path to reach $26 trillion in January 2030. With a cap on the greenhouse gas emissions that cause global warming, the economy will reach the same level two to seven months later.

How would Americans be affected by a carbon cap?

  • The new carbon market would create new jobs
  • Total job loss would be minimal
  • The manufacturing sector is projected to see some job losses, but the models show that losses due to an emissions cap would be minimal.
  • The effect on household consumption is expected to be one percent or less.
  • American households will be most affected by energy costs, but even here the increases would be modest. Overall costs would be small enough to allow us to expand programs to offset the burden for low-income households.

Why a cap will work

Under cap and trade, a hard limit is set on how much global warming emissions are allowed — that's the cap. Every company can choose how to cut emissions. Companies that cut more than they need to can sell their extra allowances to others for a profit — that's the trade. Cap and trade gives the economy the most flexibility to reduce pollution in the most cost-effective ways. Our original report and updated brief shows the cost of cap and trade is affordable.

It turns market failure into market success. Global warming is a classic example of what economists term market failure. Greenhouse gas emissions have skyrocketed because their hidden costs are not factored into business decisions -- factories and power plants pay for fuel but not for the pollution they cause. Putting a dollar value on the pollution fixes that failure and gives industry incentive to pollute less.

It taps American ingenuity. History shows that Americans can overcome steep challenges. In two short years during World War II, Americans redirected much of the U.S. economy. Manufacturers produced different goods against tight deadlines. Detroit converted car factories to munitions production. Fireworks factories made military explosives. AC Gilbert, a maker of model train engines, produced airborne navigational instruments. Given the right incentives, we can transform the way we make energy, too.

We must act immediately, or costs and risks will rise

The report factors time into the cost equation: costs will remain low only if we act quickly. The longer we wait to curb pollution, the steeper the cuts must be to avoid catastrophic climate change. We need time to develop new technologies and build infrastructure. Plus, developing countries like China and India are waiting for us to act before they take action.

Our analysis indicates that we have very little time remaining to cap greenhouse gas emissions before we incur a large risk of climate catastrophe, heavy economic costs, or both.

But if we start now, we can do it – affordably.

Download brief and report

PDF Climate economics brief Adobe Reader [PDF]


How we use economics

We create and shape markets to reward cleaning up, not polluting.

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