The UN’s COP26 sessions in Glasgow recently concluded. Depending on your perspective, the meeting was either: A) a major disappointment because China and other big emitters did not commit to accelerating their transition to carbon neutral; B) a slap in the face for “developing” nations seeking increased reparations from “developed” countries; C) a productive consensus-building exercise which culminated in several breakthroughs; or D) the perpetuation of hollow policy pledges that will never be achieved because they are economically irrational.

Each of these competing interpretations has some merit, and that is what makes climate politics so challenging.

For the IPCC faithful, COP26 was disappointing because China (the largest emitter) and India (fourth largest) refused to endorse a policy objective to explicitly phase out the use of coal.

Some had also hoped that Beijing would make a splash by accelerating its target date for carbon neutrality, or by detailing how it would tackle the transition. It did neither. The Glasgow talks came at an awkward time for China, and President Xi Jinping did not attend.

Reeling from demand for aluminum, steel, and other power-intensive commodities in the wake of Covid, China’s electric grid was plagued by blackouts last summer. As factories struggled to cope, Chinese leaders reversed their efforts to reduce coal reliance and began quietly boosting coal production again.

The reparations lobby was more vocal than ever at Glasgow, with 77 nations (including China, which the IPCC classifies as “developing”) demanding aid of $1.3 trillion annually to fund climate mitigation and green energy projects.

No progress was made on those demands. The Paris Accords already included pledges for $100 billion in annual climate aid by 2020. In 2019 developed nations committed $80 billion, but in 2020 only a fraction of that figure materialized.

Climate aid negotiations are based on a central premise: that 20th century industrial powers, over the course of more than a century, generated the lion’s share of total global emissions.

Data published by the Global Carbon Project (GCP) partially undermines this assertion. The GCP data show that fully one half of historical CO2 emissions from industrial activity have occurred since 1991. China, India, South Africa, and several other developing nations were significant contributors during that period.

For optimists seeking evidence of progress, COP26 did produce several new diplomatic developments.

For the first time, the Glasgow Pact called for an end to fossil fuel subsidies. In the past year, G20 nations spent over $600 billion subsidizing fossil fuels.

A pledge to reduce methane emissions also made its first appearance, although that portion of the agreement was only endorsed by 110 of the 200 countries participating.

The Glasgow Pact also ratified final rules for an international carbon trade market. This mechanism is similar to the carbon offsets already used by many companies, except these transactions may now occur between countries.

Commercial carbon offsets already attract criticism for overstating the quantum of saved emissions. Those concerns will escalate as the sovereign offset market grows into what is estimated to be $100 billion in trades annually.

COP26 was attended by thousands of diplomats, politicians, scientists, and activists, but economic experts were conspicuously absent from the proceedings.

The IPCC estimates that if we do nothing to slow global warming, the annual damage by 2100 will be equivalent to a 2.6% cut in global gross domestic product. The U.N. also expects the average person to be 450% as rich in 2100 as today; that figure falls to only 434% if the temperature rises unimpeded. It is difficult to calibrate policy through this lens.

Economist William Nordhaus won the Nobel Prize in 2018 for his work on quantifying climate policy costs. His work showed that the damage global warming inflicts isn’t the only costly part of climate change; carbon and methane reduction policies also inflict significant economic harm.

Since both costs must be paid, Mr. Nordhaus developed models that seek to minimize their sum by identifying the optimum balance between prevention and adaptation.

Nordhaus’ worst-case model assumes a global temperature rise of 7.4 degrees Fahrenheit by 2100. Under the “do nothing” policy scenario, global damages inflicted by climate change total $140 trillion.

A competing model shows that aggressive warming prevention policies that limit temperature rise to 3.9 degrees Fahrenheit would themselves cost a staggering $177 trillion, while direct climate damages would still exceed $37 trillion.

Nordhaus’ work suggests that the optimal policy would be one that slows the average temperature’s rise to 6.3 degrees by 2100. This approach minimizes climate damages and the costs inflicted by climate policies, bringing the combined cost down to $110 trillion.

This work suggests carbon transition strategies – rather than being “necessary at any cost” as some politicians suggest – should be framed economically based on the cost inflicted relative to the benefit derived. It’s ironic that in IPCC circles a Nobel award is needed to gain consideration for such an obvious premise.