The most comprehensive review ever carried out on the economics of climate change, the just-released Stem Review on the Economics of Climate Change (available at sternreview.org.uk) suggests that to stabilize the atmosphere at 550 parts per million C02 equivalent would require reducing global emissions to about 25 percent below current levels, and, to allow economic growth, reducing emissions per unit of Gross Domestic Product to 75 percent below current rates. These challenges make Kyoto took like an easy warm-up.

Within the United States many perceive these challenges as utterly impossible without destroying our economy. However, the underlying assumption about the cost of reducing greenhouse gas emissions is fundamentally wrong. Most economic models predicting future compliance costs are wrong, and they will always be wrong. The problem with most economic predictions of future compliance costs is that economists do not really trust that this time the market will again innovate and be competitive; the models are flawed because of lack of trust in the marketplace to invent solutions not imagined (because there was no need to imagine) before the mandate was in place.

Until the market is required to innovate to meet a mandate, there is little economic incentive for business to invest in developing or purchasing technology that could meet that mandate. On the other hand, the brilliance of the market, proven time and again, has been that once a mandate is in place, competition to meet that new demand becomes fierce, innovation is rapid, and costs always plummet. Removing lead from gasoline, eliminating CFCs to protect stratospheric ozone, reducing sulfur emissions to mitigate acid precipitation, and the near total elimination of organic compounds from the waste streams of our major chemical companies are but a few examples of seemingly unimaginable reductions being achieved, and achieved at remarkably low costs (and sometimes at a net savings to the economy).

Should not predictions be based on the reality of how markets have actually responded, rather than on models that do not trust that markets will respond? If the experience in California is used to measure greenhouse gas emissions reductions, then not only is a 30 percent reduction possible, but 45 percent would be relatively easy.

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From "Imagining the Unimaginable: Reducing Greenhouse Gas Emissions," by David Hodas, Natural Resources & the Environment, Winter 2007. (Not online.)

Hodas is a professor of law at Widener University and a Natural Resources & Environment editorial board member.