The Cost Of Combating Climate Change

Consider the European Union's 20-20 policy, which targets a 20% reduction in CO2 emissions below 1990 levels by 2020. It is important to examine this approach, not only because the EU is pursuing the world's largest and most ambitious climate policy, but also because other climate policies suffer from similar shortcomings.

The most cost-efficient way to achieve the 20% target would be to operate a single, EU-wide carbon-market, which would cost the EU about $96 billion annually by 2020. But the benefits to the entire world would be much lower. Indeed, the only peer-reviewed overview of EU climate policy estimates that it can avoid climate-related damage of about $10 billion per year. So, for every dollar spent, the EU stands to avoid about 10 cents of damage.