Cost-benefit analysis is the wrong tool for tackling climate change

The author contends that traditional cost-benefit analysis (CBA) is ill-suited for climate policy as it focuses on incremental change and fails to account for long-term investments, new market entrants, technology learning curves, and the economic value of policy certainty. Using the automotive sector as an example, the text argues that CBA may discourage the early investments in electric vehicles necessary for Canada's long-term competitiveness. The document proposes transitioning to 'risk-opportunity analysis,' which evaluates portfolios of policies under various plausible scenarios and accounts for qualitative risks and positive feedback loops.

• Traditional cost-benefit analysis is flawed for climate policy because it treats company expenditures as costs rather than investments, ignores businesses that could benefit from new demand, fails to account for the societal benefits of accelerated technology adoption (the 'green vortex'), and overlooks the economic benefits generated by policy certainty.
• In the automotive sector, relying on cost-benefit analysis to assess the goal of 100 per cent zero-emission passenger vehicle sales by 2035 could lead to a preference for incremental changes that lower immediate costs for manufacturers but result in fewer jobs and less economic growth in the future.
• Analysis of auto companies under global low-carbon transition scenarios indicates that those investing in electric vehicles will see increased profitability through 2050, whereas those that do not will experience substantial profit loss.
• The document recommends replacing cost-benefit analysis with 'risk-opportunity analysis,' which assesses policy portfolios for transformative change, evaluates a range of qualitative and quantitative risks under plausible scenarios, considers positive feedback loops like declining technology costs, and provides uncertainty ranges and confidence levels.

APA

Canadian Climate Institute (2021). Cost-benefit analysis is the wrong tool for tackling climate change. https://climateinstitute.ca/cost-benefit-analysis-is-the-wrong-tool-for-tackling-climate-change/

Chicago

Canadian Climate Institute. Cost-benefit analysis is the wrong tool for tackling climate change. 2021. https://climateinstitute.ca/cost-benefit-analysis-is-the-wrong-tool-for-tackling-climate-change/.

Wikipedia

{{cite press release |author=Canadian Climate Institute |title=Cost-benefit analysis is the wrong tool for tackling climate change |date=8 November 2021 |url=https://climateinstitute.ca/cost-benefit-analysis-is-the-wrong-tool-for-tackling-climate-change/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{canadianclimateinstitute2021costbenefit, author = {{Canadian Climate Institute}}, title = {{Cost-benefit analysis is the wrong tool for tackling climate change}}, publisher = {Canadian Climate Institute}, year = {2021}, month = nov, url = {https://climateinstitute.ca/cost-benefit-analysis-is-the-wrong-tool-for-tackling-climate-change/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }