A Nobel Economist Examines Climate and Cap and Trade. (May 1, 2009)

The 2008 Nobel Laureate in Economics, Princeton academic and New York Times columnist, Paul Krugman makes a few observations regarding the affordability of carbon cap and trading schemes.

[O]pponents of action claim that limiting emissions would have devastating effects on the U.S. economy. So it’s important to understand that just as denials that climate change is happening are junk science, predictions of economic disaster if we try to do anything about climate change are junk economics.

[T]he best available estimates suggest that the costs of an emissions-limitation program would be modest, as long as it’s implemented gradually. And committing ourselves now might actually help the economy recover from its current slump.

[Yes] a cap-and-trade system would raise the price of anything that, directly or indirectly, leads to the burning of fossil fuels... Consumers would end up poorer than they would have been without a climate-change policy.

But how much poorer? Not much, say careful researchers, like those at the Environmental Protection Agency or the Emissions Prediction and Policy Analysis Group at the Massachusetts Institute of Technology... [there] would still [by] room for a large rise in the standard of living, shaving only one-twentieth of a percentage point off the average annual growth rate.

[S]uppose that Congress were to mandate gradually tightening emission limits, starting two or three years from now. This would have no immediate effect on prices. It would, however, create major incentives for new investment — investment in low-emission power plants, in energy-efficient factories and more... a commitment to greenhouse gas reduction would, in the short-to-medium run, have the same economic effects as a major technological innovation... given the current state of the economy, that’s just what the doctor ordered.

Of course he's just an academic economist with a gold gong, what would he know?