News Column

Obama Shifts Approach to Costs of Climate Change

Feb. 12, 2013

David Leonhardt


The strongest argument for a major U.S. government response to climate change is the obvious argument: climate change.

Green jobs have long had a whiff of exaggeration to them. The alternative-energy sector may ultimately employ millions of people. But raising the cost of the energy that households and businesses use every day -- a necessary effect of helping the climate -- is not exactly a recipe for an economic boom.


In Washington, the economic case for responding to climate change has made little progress, and President Barack Obama has subtly shifted his approach, talking less about green jobs and more about extreme weather.


Alternative energy may not be a solution to the United States' economic problems. But neither is it guaranteed to make those problems much worse, despite the continuing claims of opponents. Mr. Obama has a range of options with the potential for different economic consequences. Some may indeed do harm, but others could have economic benefits that equal their costs, particularly in a world in which temperatures, storms and uncertainty keep rising.

The most intriguing choice facing Mr. Obama is whether to resuscitate a version of the centerpiece of the Democrats' failed 2009 climate push: a cap-and-trade program. He has little chance of creating such an economywide program, because Republicans and some coal-state Democrats oppose it. But he may be able to create a scaled-down version specifically for power plants -- no small thing, given that power plants produce about one-third of the country's carbon emissions.

To economists, the best climate policies are those that allow market incentives to work, and the most damaging tend to be those heavy on mandates. "Telling companies they have to install this or that equipment is the more expensive way to proceed," said Michael Greenstone, an economics professor at the Massachusetts Institute of Technology and a former Obama administration adviser. "Instead of a one-size-fits-all solution, you should allow companies to find the least-cost solution."

Mandating that every power plant use turbines with a minimum efficiency, for instance, is likely to impose large costs on some. Perhaps the plants are designed in a way that makes it easier -- and cheaper -- for them to use their old turbines and reduce emissions another way. A turbine mandate could force them to raise prices for consumers more than necessary to achieve the same climate benefit.

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