The failure of developed countries to sign the Kyoto Protocol brought to the limelight the issue of the cost effectiveness of adopting the emission reduction plan. The decision to reduce emissions to below 1990 levels over a four year period carries a lot of uncertainty due to a lack of scientific information about the effects of climate change. But Kyoto did move research towards the area of climate change and we now have much more information. Yet the debate remains as to whether or not to adopt the Kyoto Protocol. The opponents claim the measures in emission reduction called for by the protocol are far too costly given what they believe to be the effects of global warming. The proponents of the Kyoto Protocol insist that the opponents are underestimating the costs of climate change, and ignoring the risks carried in the uncertainty about the effects.

Opposing sides to argument about adopting Kyoto.

Key Focus: pay now with Kyoto (safe) or defer costs to future (uncertainty)

Those who oppose Kyoto argue that the cost of reducing emissions goes beyond simply the loss of aggregate output from scaling back production. The costs also involve an opportunity cost where the trade off is economic development. An additional opportunity cost lies in the shift of research and development to the area of climate change, which means less research will be devoted to other sectors. The outcome means slower growth, which is unacceptable to most policymakers.

The estimates for the cost to the U.S. adopting the emission reduction plan ranges from $12 billion to $300 billion. Regardless of what the actual cost is, policymakers are hesitant to spend any money on an issue with real costs in the present and uncertain benefits in the future. Also most skeptics still question the veracity of the costs of climate change. Much of the world is focusing on the effects of climate change on agricultural yields, which may affect the world's food supply. Opponents of Kyoto insist that rising mean temperatures will not wipe out our nation's crop yields, rather it will force us to plant different crops that are better adapted to warmer climates. Others use a similar argument when tackling the issue of resource loss due to climate change. They claim that man will be able to replace lost resources with substitutes. Lost timber stocks will simply be replaced by a new species of tree. Accordingly, if the damages of climate change are not necessarily as great as estimated, then it is most likely not cost effective to adopt the Kyoto Protocol.

On the other side of the issue, people who are in support of adopting Kyoto or some kind of emission reduction make a "better-safe-than-sorry" argument. These people treat the issue of uncertainty, whether about the effects or the costs of climate change, as a reason to enact some form of emission reduction as soon as possible. What the opponents of Kyoto might not understand is that changes we make now to the carbon levels in the atmosphere and to the global climate are not reversible in human terms.

A more ecologically minded economist might recognize that resource loss is a much larger issue than Kyoto opponents make it out to be. These resources are part of our country's capital stock, and their loss means a substantial loss in national output. Counting on technology to provide substitutes is not a safe bet to make with out future resources. Furthermore, resources such as forest cannot simply be replaced with new trees of another species. Humans do not understand enough about ecology to reproduce all the biota involved in a living forest.

We may, however, be able to use substitutes for agricultural purposes. Scientists have grasped enough knowledge about genetics to develop crop strains that are more resistant to certain conditions. Additionally, crop production can shift north as mean temperatures increase. The only problem with these shifts in agriculture is that they only focus on aggregate yields. On a regional scale there will be losses, and some individual farmers may lose their jobs.

Ecological economists will argue that Kyoto should be adopted because we are obligated to pay for emission reduction. Here the idea of paying down our environmental debt comes into play. The concept of an environmental debt focuses on the damage that has already occurred. The debt accounts not only for damages to ecosystems, but also the depletion of natural resources. Paying off this environmental debt requires more than simply paying for emission reduction, but adopting a plan like Kyoto is an important step.

Another important reason for us to pay the cost of emission reduction is the nature of carbon pollution. Global warming is one of the best examples of an externality. Developed countries produce the bulk of the carbon emissions in the world, while every living thing on Earth will feel the effects of climate change. For this reason it is important that the U.S. pays for emission reduction. In economic terms this is known as internalizing the externality. In this case there is a very large externality, which explains the large estimates for emission reduction. However it is rationalized payment should occur now because once these damages are done there might not be another chance to reverse the process.

Insurance: potential healthcare costs may make insurance unaffordable

Airline: Direct impacts of aviation of global warming may require stringent regulations

Energy: Effect of warming on resource stocks, Increasing energy demand

Agriculture: Not necessarily negative (overall) due to shifts in crop production, Losses on a regional scale

Timber: Rapid warming does not allow forest to move

Recreation: Loss of species, loss of Wilderness Areas, loss of beaches

Travel Costs

Food Prices

Health Effect

Given the costs of the impacts of global warming to our economy and the price tag Kyoto has placed on emission reduction, policymakers must decide whether to pay now or pay later. Paying now would require a large outlay of money along with the reduction in growth and the shift in R&D. Most economists would see this analysis as paying for something that will never benefit us now. But they do not account for two things. The first is the irreversibility involved in the situation of global warming. Were this a problem that we could defer to the future and reverse the effects later, then perhaps we should wait. Since the carbon we emit into the atmosphere remains there for 500 years, and once the mean global temperature rises it will not decline, policymakers may agree that quick action is required. The second thing traditional economists might overlook is that even though we do not know what the costs will be in the future, preventive policies almost always cost less than wait-and-see policies.