The cost of climate policy depends on the no-policy alternative without which the opportunity cost of climate action cannot be determined. This reference path has to reflect the current failure in the market for carbon emissions: due to a negative externality, private investment decisions do not consider the climate damage they entail; agents overinvest in conventional capital and underinvest in climate capital. Internalization of climate damage lowers the private return to capital; agents reduce investment in favor of mitigation and consumption. Optimal climate mitigation increases welfare of the present and the future. Simulation of the inefficient no-policy scenario in DICE-07 confirms that this point numerically. (author's abstract)