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This is a joint posting with Kevin Ummel
Q: What can we do to save the earth?
Wendell Berry: "Stay put."
2008 United Nations Framework on Climate Change ConferenceEconomists are always irritating their colleagues by harping about opportunity cost, but the concept can be useful nonetheless. For example, consider the “carbon account” announced for the Poznan climate change meeting. According to the sponsors, travel and other logistics for the 8,000 conference participants will generate 13,000 tons of greenhouse gas emissions.
Participants have duly announced the purchase of “carbon offsets” as atonement for their logistical sins (which begins to sound like the sale of indulgences by the medieval Church, but that’s another story). The whole thing projects a reassuring aura: By purchasing offsets, the participants can cover the “climate cost” of the meeting.

But hold on a minute - even if it’s true that the offsets are properly priced (and they tend to be ridiculously cheap – far below the EU’s current carbon price in its Emissions Trading System, for example), they are not really covering the “climate cost” of the meeting. The real cost is the opportunity cost of bringing 7,900 “non-deciders” to the meeting in the first place (we’ll grant the need for 100 or so true “deciders” to get together). And that cost is pretty steep - probably around $50 million ($6,000+/participant), fully accounted.
Let’s consider the true climate opportunity cost of Poznan by posing this question: What could be gained by investing the $50 million in emissions-reducing activity? Fortunately, we can provide one answer to this question from an in-depth analysis of solar thermal power that we have just completed. Redirection of the $50 million to a clean-technology subsidy would induce private-sector investment in a 40MW solar thermal power plant, rather than investment in a comparable coal-fired plant. And this would prevent CO2 emissions of 90,000 tons/year, or 2.7 million tons over a 30-year plant life.

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Now let’s revisit the Poznan calculation. In the organizers’ estimate, the participants are inflicting 13,000 tons of CO2 on the planet by going. But from an opportunity cost perspective that’s way off: The participants are actually inflicting 2.7 million tons on the planet by going, instead of staying home and channeling the same resources into clean technology subsidies.
That’s the real opportunity cost of Poznan. Is it really worth it for the 7,900 “non-deciders” to go, rather than occupying themselves with climate-worthy tasks close to home and channeling the resources into clean technology subsidies? Particularly since the rationale for Poznan is the threat of runaway global warming?
Now expand this calculation to total global climate meeting attendance per year, and you get a figure that’s probably tenfold larger (and this is undoubtedly conservative) - 27 million tons. This is the annual CO2 emissions from Scherer, the largest coal-fired power plant in the United States.
We recommend that experts on other clean technologies try the same calculation, along with forest experts who can estimate how many tons of CO2 could be saved by channeling $50 million into payments to proprietors for conserving forested areas instead of clearing them for profit. Who knows? The opportunity cost of Poznan may be even higher when other benchmarks are used.
But we think the main point is clear enough. We invite serious reflection on this issue (and hopefully positive action) by the global climate community.

Disclaimer

CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.