PEORIA MAGAZINE June 2023

ECON CORNER

over $50 per ton, but many economists believe it should be updated to more than $100/ton. Some projects have costs that are negative, which means they ought to be done anyway to save money, not counting climate benefits. For example, many households could save energy costs by switching to LED lighting, better insulation and other kinds of weatherization. Beyond those “win-win” opportuni ties are other low-cost ways to reduce carbon emissions, such as installing more wind turbines or solar panels. But other kinds of emission reduction programs are quite expensive. Research might be worthwhile for new technol ogies like biodiesel or “carbon capture and storage,” but some estimates of the costs of those technologies are over $100 per ton of carbon emission reduction. The most efficient choices are possible with a policy of “carbon pricing” such as a cap-and-trade program with a price of $50 for a permit to emit one ton of carbon, or a carbon tax of $50 per ton of carbon emissions. Then every household or business could decide for themselves whether and how to cut emissions. When carbon policy raises the price of coal fired electricity, households with sunny rooftops could save money with solar panels, and farms with enough wind can get a higher return from building wind turbines. Electric utilities can avoid high-carbon coal and use more low-carbon natural gas or zero-carbon technologies to avoid paying the carbon

price by whatever means are cheapest for them. PM: Given the real and potential consequences associated with climate change – the property damage caused by extreme weather events, land loss through sea level rise, the disappearance of various species, the increase in certain diseases due to higher temperatures, the repercussions for agriculture, etc. – is there any argument, economic or otherwise, for sitting back and just letting things happen? DF: The main problem with sitting back and doing nothing is the huge uncertainty about what could happen with more greenhouse gas emissions and temperature increases that would eventually exceed several degrees Fahrenheit. We would face uncharted territory because we really don’t know how much and where those hotter temperatures will create droughts, ruin crops, kill people directly from heat stroke, and increase wildfires that destroy homes. The world has not yet experienced the hotter air that holds more moisture and thus can create bigger storms that hit without warning in new locations, causing more damage from storm surge that floods more homes and drowns more people. In other words, the cost of climate policy to reduce greenhouse gas emis sions is a way to buy insurance! It is a way to pay to reduce those unknown risks … about whose homes will be ruined and whose lives will be lost.

W elcome back to Peoria Magazine’s Econ Corner, a recurring feature in which we pose questions to experts about various economic issues and how they affect our lives and careers here in central Illinois. Doing this month’s Q&A is Don Fullerton, Ph.D., an economist at the University of Illinois Urbana-Cham paign. He also is associate academic director at the Center for Professional Responsibility in Business and Society. Peoria Magazine (PM): As you assess the economic costs of global warming and climate change, how do you weigh the price tag on policy intervention – through carbon taxes, government subsidies for alternative energies, etc. – vs. the financial impact of doing nothing? Don Fullerton (DF): The cost of all damages to the worldwide economy from one ton of carbon emissions today — aka, the “social cost of carbon” — is Don Fullerton, Ph.D. Gutgsell professor of finance at Gies College of Business, University of Illinois Urbana-Champaign INTERVIEW BY MIKE BAILEY ILLUSTRATION BY SCOTT SHEPLER

78 JUNE 2023 PEORIA MAGAZINE