An affordable truth

Action on climate, if it happens, will take the form of "cap and trade:" businesses won't be told what to produce or how, but they will have to buy permits to cover their emissions of carbon dioxide and other greenhouse gases. So they'll be able to increase their profits if they can burn less carbon - and there's every reason to believe that they'll be clever and creative about finding ways to do just that.

As a recent study by McKinsey & Co. showed, there are many ways to reduce emissions at relatively low cost: improved insulation; more efficient appliances; more fuel-efficient cars and trucks; greater use of solar, wind and nuclear power; and much, much more.

Conservatives who predict economic doom if we try to fight climate change are betraying their own principles. They claim to believe that capitalism is infinitely adaptable, that the magic of the marketplace can deal with any problem. But for some reason they insist that cap and trade - a system specifically designed to bring the power of market incentives to bear on environmental problems - can't work.

Well, they're wrong - again. For we've been here before.

The acid rain controversy of the 1980s was in many respects a dress rehearsal for today's fight over climate change. Then as now, ideologues denied the science. Then as now, industry groups claimed that any attempt to limit emissions would inflict grievous harm.

But in 1990 the United States went ahead anyway with a cap-and-trade system for sulfur dioxide. It worked, delivering a sharp reduction in pollution at lower-than-predicted cost.

Curbing greenhouse gases will be a much bigger and more complex task - but we're likely to be surprised at how easy it is once we get started.

The Congressional Budget Office has estimated that by 2050 the emissions limits in recent proposed legislation would reduce real GDP by between 1 percent and 3.5 percent from what it would otherwise have been. If we split the difference, that says that emissions limits would slow the economy's annual growth over the next 40 years by around one-twentieth of a percentage point - from 2.37 percent to 2.32 percent.

That's not much. Yet if the acid rain experience is any guide, the true cost is likely to be even lower.

Still, should we be starting a project like this when the economy is depressed? Yes, we should - in fact, this is an especially good time to act, because the prospect of climate-change legislation could spur more investment spending.

Consider, for example, the case of investment in office buildings. Right now, with vacancy rates soaring and rents plunging, there's not much reason to start new buildings. But suppose that a corporation that already owns buildings learns that over the next few years there will be growing incentives to make those buildings more energy-efficient. Then it might well decide to start the retrofitting now, when construction workers are easy to find and material prices are low.

The same logic would apply to many parts of the economy, so that climate change legislation would probably mean more investment overall. And more investment spending is exactly what the economy needs.