The following is a guest essay from Jim Manzi, CEO of Applied Predictive Technologies (APT), an applied artificial intelligence software company. He writes occasionally for National Review and blogs at The American Scene.
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Last week on this site Ryan Avent presented a thoughtful response to my recent article at The American Scene arguing against a carbon tax. Grist has graciously invited me to reply.
As I understand it, Ryan had three basic criticisms of my logic:
- the impacts of global warming will be more messy, unpredictable, and heartbreaking than I let on,
- I don't understand the economic trade-offs that make a carbon tax an elegant solution to the problem, and
- the technology-focused approach to the problem I propose is insufficiently conservative.
I'll try to address each of these in turn, all with a spirit of open-minded inquiry.
The first objection highlights the fact that productive global warming debates almost always hinge crucially upon predictions of the future. Consider three generic types of predictions: deterministic ("If I let go of this pencil, it will fall"), probabilistic ("If I flip this coin, it has a 50% chance of coming up heads and a 50% chance of coming up tails"), and uncertain predictions, for which we can not specify a reliable distribution of probabilities ("There will be a military coup in Pakistan in 2008"). Economists will immediately recognize the distinction between probabilistic and uncertain forecasts as, in essence, Knight's classic distinction between risk and uncertainty.
Strictly speaking, all predictions are uncertain, but as a practical matter we treat different predictions differently based on the observed reliability of the relevant predictive rules used to generate them.
No serious person believes that even the physical science projections for climate sensitivity (i.e., how many degrees hotter the world will get if we increase atmospheric carbon dioxide concentration according to some emissions scenario), never mind our predictions for how fast the world economy will grow or the economic impact of various degrees of climate change, are deterministic. This is why climate modelers and integrated climate-economics modelers spend so much time developing probability distributions for various outcomes and combining possible outcomes via odds-weighting to develop expected outcomes. When we hear a modeling group say "the expected outcome is X," it doesn't mean they've assumed only the most likely scenario will occur; it does mean, however, they assume their distribution of probabilities is correct (not being idiots, of course they constantly work hard to try to test and improve this distribution of probabilities).
For the moment, let's assume that predictions of global warming outcomes are probabilistic. I go into all this in my posts and articles in much greater detail, but if we take Nordhaus's DICE modeling group at Yale as a benchmark, we can make the following observations about global warming:
- The total costs of global warming are expected to be equal to about 1% of present value of future human consumption.
- Even if we could implement a "perfect" global carbon tax that operates optimally to reduce emissions at minimum cost, we should still just let about 75% of this warming damage happen, because it would be more expensive to prevent it than simply suffer the damages.
- The net benefit of such a "perfect" carbon tax would be about 0.17% of present value of future consumption.
Think about that: the total benefit available to the world economy from addressing global warming is projected, at best, to improve present value of human consumption by less than 0.2%. Now, not everything that matters in life can be measured by money, but this is nothing like the rhetoric of "New York destroyed in a disaster" would suggest. It makes it very hard to just wave away all of the efficiency costs that would likely be imposed by an effort to force rapid conversion away from fossil fuels.
Even this net benefit is unlikely to be achieved in the real world. Think of what it would mean to enact a harmonized global carbon tax (or some alternative regulatory scheme, even less theoretically efficient than a carbon tax). You'd have to get, among others, the French National Assembly, the Parliament of India, the Brazilian National Congress, the Chinese Politburo, and Vladimir Putin to go along. What kind of side-deals do you think would be required to get them to do this? Further, even if we got to an agreement de jure, we would then have to enforce a set of global laws for many decades that would run directly contrary to the narrow self-interest of most people currently alive on the planet. How likely do you think a rural Chinese official would be to enforce the rules on a local coal-fired power plant?
And this is just on the international front, assuming the U.S. is on the side of the angels. It doesn't require complete cynicism to observe that political coalitions are not entirely composed of philosopher-kings debating the good of humanity. Trillions of dollars of assets and millions of jobs will be threatened by pushing a huge portion of a currently widely-distributed tax burden onto a subset of the economy. What do you think the reactions of the good people of Wyoming, North Dakota, and Alaska will be to the idea of paying for huge tax cuts for their beloved countrymen in New York, California, and Florida? The senators for any 20 states can block most legislation. In my original NR article, I described how, in a presidential election, this dynamic would likely play out to punish harshly any candidate foolish enough to propose such a tax.
What do you think are the odds that the real, not theoretical, regime created by such a process would produce global economic drag (i.e., politically-directed, inefficient allocation of resources) that is greater than 0.17% of present value of consumption?
Of course we can't be certain that our probability distribution of outcomes is correct. That is, we may be facing uncertain, rather than merely probabilistic, predictions. I've written extensively about why, in fact, we should take such concerns seriously in the case of global warming. There is some chance -- by definition non-quantified, since if we could quantify it, it would be incorporated into our probability distribution -- of catastrophic climate impacts well beyond the distribution of possibilities contemplated by consensus models. It is insuring against such an outside chance that is the most valid justification for potential large-scale global warming interventions.
I think that intellectually serious advocates of rapid, aggressive abatement of carbon emissions (via whatever regulatory, tax, or other means) need to confront this reality. If we are taking action to prevent an outcome that is not predicted either in a deterministic or probabilistic way, but is an unquantifiable risk of something that might go horribly wrong, how do we compare it to costs and other risks in order to price it? Simply pounding the table and saying that humanity is imperiled isn't very convincing outside of your own choir loft.
This is not an academic concern. If we introduced a tax high enough to keep atmospheric carbon concentration to no more than 1.5X its current level (assuming we could get the whole world to go along and implement a perfect tax), we would expect (PDF) to spend about $17 trillion more than the benefits we would achieve. That's a heck of an insurance premium -- something like one-quarter of the world's total annual output -- for an event that it is literally outside of a probability distribution. Of course, I can find scientists who say that level of atmospheric carbon dioxide is too dangerous. Al Gore has a more aggressive proposal that if implemented through a perfect carbon tax would be expected to cost more like $23 trillion in excess of benefits. Of course, this wouldn't eliminate all uncertainty, and I can find scientists who say we need to reduce emissions even faster. Once we leave the world of odds and handicapping and enter the world of the Precautionary Principle, there is really no principled stopping point. We would be chasing an endlessly receding horizon of zero risk. Is your answer that you just "know" the right practical amount of risk to take?
The same basic point can be made by noting that there is nothing magic about global warming that should lead us to privilege its costs over all the other bad things that might happen to us. We face lots of other unquantifiable threats of at least comparable realism and severity. A regional nuclear war in Central Asia, a global pandemic triggered by a modified version of the HIV virus, or a rogue state weaponizing genetic engineering technology all come immediately to mind. Any of these could kill hundreds of millions of people. Is your answer that you just "know" how seriously to take each of these risks, and you just "know" that global warming risks, beyond those specified in consensus modeling distributions, are more serious than these other risks?
Now, a reasonable response to this is, "Addressing global warming doesn't mean that I can't also work out smart security arrangements in Asia, invest in biological science, and contain rogue regimes and so on." This is true, but each of these things cost money (or economically equivalently, imposes efficiency costs). I don't have to make this list very long before I start to eat up the bulk of GDP. In a world of finite resources, a responsible advocate must have some integrated framework for weighing relative risks and opportunities.
I'll be clear about my conceptual framework: in the face of massive uncertainty on multiple fronts, the best strategy is almost always to hedge your bets and keep your options open. Wealth and technology are raw materials for options. Because it is easy to predict the future, but extremely hard to predict the future correctly, we should avoid irrevocable commitment to any course of action until as long as it seems possible (not just for global warming, but in general). Adding a large tax burden to the economy is very difficult to reverse, and holds large regrets (just as under-estimating the severity of global warming would). The loss of economic and technological development that would be required to eliminate literally all theorized climate change risk would cripple our ability to deal with virtually every other foreseeable and unforeseeable risk, not to mention our ability to lead productive and interesting lives in the meantime. It's possible to buy so much flood insurance that you can't afford fire insurance.
Rapid, aggressive emissions abatement is not economically justified by probability-weighted consensus forecasts of the distribution of modeled global warming impacts. Advocates for this policy need to do a better job than they have to date explaining how we justify an enormous loss of consumption in return for chasing this one uncertainty in a world of troubles.
Ryan raises a very smart objection to my analysis of costs vs. benefits of a carbon tax, which I think I could paraphrase as, "Since we have to tax something, why not tax something we want less of. If we offset the carbon tax with other tax reductions, why don't I get a free lunch?" I've written another article at The American Scene ("Coase Club") about why I think this is a seductive fallacy, so I won't repeat all the arguments here. I'll just make two points that are described at greater length in that article.
First, as I've already touched on this response, the actual carbon tax that a real government passes is very unlikely to be nearly as efficient as the tax swap envisioned by an academic economist.
Second, there is an unending set of externalities created by all energy sources, and there is no logical reason to privilege AGW-related costs over any others. If I die in an AGW-caused flood or I die from cancer caused by inhaling the fumes from somebody else's car, I am in both cases equally dead. I reference research in Coase Club showing that we can't measure the external costs (including AGW plus everything else) of carbon and non-carbon-intensive fuels within an order of magnitude, and the range of total external cost estimates overlap between every energy source. How can we set an initial price rationally and then engage in trial-and-error learning? How will we know whether we have decreased or increased total external costs once we have shifted X units of production, say, from LNG to biomass? In practice, prices would be set entirely politically, via interest group bargaining.
To the third objection -- that my proposals show that I am not a true conservative -- I can only say: get in line. I doubt anybody reading this post also listens to Rush Limbaugh (I don't either), but I can tell you from experience that it was no fun when the guy basically called me an idiot in front of his audience of 14 million dedicated fans. Our good friends at FoxNews, naturally enough, piled on, along with many bloggers who adorn their homepages with pictures of assault rifles.
I take seriously the possibility that global climate change could become severe. In that eventuality, we would want to have done the long lead-time work to enable us to deploy technology to blunt or eliminate the problems it would create. That is why I favor a technology-investment program. It seems to me that, here at Grist, "insufficiently conservative" would be more in the spirit of a compliment than a criticism. If the charge is trying to think for myself, I plead guilty.
New nukes? A fair shot, not a free ride
To unlock wind power, put a price on carbon
Comments
View as Flat
GreenEngineer Posted 5:16 am
11 Dec 2007
Let's see: The inundation of coastal areas, and the relocation of 70% of the global population, models out to have much less than (because it's only one impact) a 1% impact on the present value of future human consumption. Hmmm... Let's think about this. Does this result make any kind of sense at all?
There is something seriously wrong with his economic model.
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Ekirky Posted 5:32 am
11 Dec 2007
Or have I made a mistake in my understanding?
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JoshS Posted 6:27 am
11 Dec 2007
i am beginning to think that virtual modeling will be our downfall, particularly any model with the label "economic".
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sunflower Posted 6:48 am
11 Dec 2007
It does not cost more money to use less energy, nor should anyone spend more on renewable energy than the costs of continued purchases of fossil fuels for the next 25 years. The net present value of energy efficiency is much cheaper. I'm talking about pure internal costs here.
Further, from real world data, it does not cost more to carpool, to use a clothesline, to eat local, or to grow food at home. An energy efficient building has lower life-cycle costs than a conventional building. A solar power plant is cheaper than a coal power plant. Reducing 50% energy purchases with existing technology will save money, aka, cost nothing. It is not all cost and no benefit excepting the value of carbon mitigation.
Finally, this rhetoric about new technology comes from the same halls of power that actually suppresses new technology with severe budget cuts, with many examples of "zeroing out" the most competitive technologies that threaten existing big business investments.
I, for one, will not go quietly into the night. I will continue to stand and fight with nothing left to lose. Carbon taxes (and auctioned carbon credits) are just arrows in the quiver. We also have sharp spears.
The evil fossil twins: "climate change abatement costs too much" AND "it is too late so party on".
Too much coffee.
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GreyFlcn Posted 6:54 am
11 Dec 2007
If you use that as a baseline, then any economic model will tell you that it would be far more appropriate to spend those dollars on adaptation, rather than mitigation.
Which really is more of an argument about the Science than policy.
And frankly, Nordhaus is not remotely trained in climate science to be qualified to make that sort of argument.
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Anyways I think most people here on Grist would actually agree that a Carbon Tax isn't the appropriate policy approach.
That a Auctioned-Cap-and-Trade would be far more appropriate since we dealing with too many unknown market signals to judge what the appropriate level of tax should be. (Or how to appropriately spend it after it's been collected)
We can however figure out with certainty what level of carbon emissions reductions is necessary to stabilize the level of carbon in the atmosphere.
The only time where a tax might be appropriate is in selected markets, like the automobile industry, where a tax-and-rebate approach would be appropriate.
Overall, the best approaches are revenue neutral, and involve a miniumum deadweight loss.
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GreyFlcn Posted 7:11 am
11 Dec 2007
Well the other assumption being made is that there's zero economic gains to be had from developing renewable/efficient technologies. Which certainly isn't true.
Markets thrive on efficiencies and advances in technology.
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Similarly, theres also an argument to be made that increased efficiency alone won't necessarily lead to reduced emissions. Infact it may likely have the exact opposite effect.
http://www.greencarcongress.com/2007/11/mit-study-rate-.h ...
Since you need to have a regulatory framework involved, or else Jevon's Paradox kicks in.
http://en.wikipedia.org/wiki/Jevons_paradox
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Then again there are also those who make the dogmatic assumption that markets are more effective when they have lower regulation.
So regulation in itself in inherently a bad thing.
Meanwhile ignoring the fact that the market merely achieve the path of least resistance, with a maximum of externalities.
Just like Fire, markets are a very useful tool. But letting it run of of control is rarely beneficial.
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justlou Posted 7:19 am
11 Dec 2007
If this was written in the spirit of open minded inquiry then shouldn't the author have given equal weight to at least one "high ball" model?
Didn't Al Gore have an illustration of something like this in 'Inconvenient Truth' showing the Earth on a balance with a few bars of gold?
Mr. Manzi, you are obviously a very intelligent person, but come on! I'll buy some of your reasoning but some of the ingredients are just rotten.
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sunflower Posted 7:28 am
11 Dec 2007
Our energy NPV is cheaper than coal, not an assumption.
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Jon Rynn Posted 7:42 am
11 Dec 2007
It would be much better to have climate scientists and civil engineers estimate various estimates of certainty of global warming damage -- economists generally know little of either. Nordhaus is now one of the high priests of economics, being the author of the main introductory textbook on the subject, so I suppose many in the economics community take him seriously, unfortunately.
Obviously, once we start with the ridiculous number of 1% of world gdp as the total of global warming damage, virtually nothing needs be done. So, as I have stated before, we have before us a different kind of denial/delaying, and depending on how much of the economics profession signs on to this kind of analysis, the intellectual combat could be even harder than batting down the theories of a few denier scientists.
Except this time there may not be many economists on the side of doing something about global warming to counter the impenetrable models of the delayer economists; I suggest focusing on the estimates of damage, where the deniers will probably on flimsiest ground, and easiest to challenge.
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Colin Wright Posted 12:25 pm
11 Dec 2007
Nordhaus seems to argue for a small modest carbon tax initially that increases over time, and that the cost-benefit of steep initial carbon reductions does not pay off economically. Thus a slow initial response is his "optimal" policy proposal. But...The optimal policy reduces the global temperature rise relative to 1900 to 2.8 °C in 2100 and to 3.4 °C in 2200
So the "optimal" policy fails the science, pushing us over the dangerous limit of 2 degrees C, into the realm of runaway greenhouse effect?
Regarding these cost-benefit analyses, the irony is that the U.S. could simply switch its Pentagon funding to renewable funding, without increasing any taxes or decreasing the GDP at all.
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charlesjustice Posted 4:59 pm
11 Dec 2007
Economists are a lot like theologians. Theologians use a lot of fancy philosophy to prove what they already assume. Economists use mathematical formulae to do the same thing. They figure using calculus, probability distributions and vector analysis means that they are social scientists.
But it all boils down to the same thing. Theologians always prove that that the religion that they belong to is the only true religion. Economists use mathematics to prove that free market Capitalism is the most efficient of all economic systems. They hide behind mathematical formulae rather than letting the real world effect their judgement.
They're not called Free Market Fundamentalists for nothing. That's why most of them keep calling for "market solutions" in the face of problems like global warming that, to anyone else, obviously demands government intervention and international cooperation on a vast scale.
The kind of crap that these people produce is on the level with "how many angels can dance on the head of a pin."
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calvinjones Posted 9:39 pm
11 Dec 2007
Here
So i would question why we have a political strategist for the right writing in grist.
On the issue of carbon tax my position is simple. It would be a useful policy measure. What we need is a global cap on emissions but such a scheme works far better along side a carbon tax. Ideally a carbon tax would replace payroll tax or income tax...or part thereof.
My position has changed slightly in recent times, i always thought of carbon tax as a useful tool but i`m thinking of it increasingly as essential. Several reports have pointed out the need for a reasonable cost of carbon in the short term, it would take very bold cuts in co2 quotas under a yet non-existant global cap and trade sheme to achive this.
Interested in climate change?
http://climatechangeaction.blogspot.com
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GreenEngineer Posted 2:25 am
12 Dec 2007
We're waiting, Jim...
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David Roberts Posted 3:04 am
12 Dec 2007
Seems to me, if you accept the Nordhaus model, Manzi's conclusions follow pretty straightforwardly. GreenE, you say Manzi should come into comments here and defend the Nordhaus model, but nobody's really critiqued it yet (here, anyway), so what's to defend?
I'll look around for somebody more economically literate than myself to comment on Nordhaus. Obviously I disagree with the conclusions, but I'd prefer to win the battle on field that's been established rather than stomping my feet and covering my ears.
grist.org
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Jon Rynn Posted 3:21 am
12 Dec 2007
I think it's great if you can get conservatives to express themselves on this site, I think it does a great service, partly to see what they are up to.
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sunflower Posted 3:31 am
12 Dec 2007
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GreenEngineer Posted 3:35 am
12 Dec 2007
Granted this is likely true. It would be politically challenging to implement, and the results will be less ideal than we would like.
And yet, even if such a policy were only 50% efficient, it would reduce the net cost of a carbon tax by a proportional amount, and strongly influence the impact analysis of the net cost of a carbon reduction plan. And yet no attempt is made to incorporate this into the preceding analysis.
Second, there is an unending set of externalities created by all energy sources, and there is no logical reason to privilege AGW-related costs over any others.
Actually, there is. By happy coincidence, the severity of externalized cost for most energy sources is roughly proportional to the carbon footprint of that energy source. As fuels go, gas is better than oil is better than coal. To some extent, there is a direct connection between carbon content and externalized costs: Coal soot is incompletely combusted carbon. The higher-energy-density forms of coal also tend to be lower in other pollutants. In other areas, the relationship is apparently coincidental: the ecological cost of coal mining is higher (per BTU) than the cost of drilling for gas. Convenient, isn't it?
The GHG cost or (rather dubious) benefit of biofuels would be picked up by this as well, since their fossil fuel inputs would be hit right along with everyone else's. This doesn't address the other negative impacts of biofuel production (water, soil, food costs), but it does help balance the equation. (And if it shifts the economically ideal level of fertilizer application -- made from natural gas -- then it does actually address the soil and water concerns to an extent.)
Lastly, there is a compelling social justice reason to "privilege AGW-related costs over any others". The impacts of AGW are global. They effect everyone, even those who are distant from the point of use and the associated benefit. Contrast this with most other fossil-fuel-related externalities, which are localized at least to some extent. For example, coal mining is horribly destructive to the landscape, but at least it provides jobs within the community it is destroying. It may be a faustian bargain, but at least it's a bargain that the locals can choose to make or refuse. A Pacific Islander has no such say in what kind of fuel is used to produce power in the US.
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amazingdrx Posted 3:46 am
12 Dec 2007
This time he admits that GHG climate change is human created, but claims the expense of averting it is higher than dealing with the cosequences.
Denying that any soluition is necessary except to do more study. Prepare technology to deal with it, but don't spend the financial and political capital to manufacture and deploy it.
Here's the problem. This energy revolution will not cost growth. It will enable it. A huge manufacturing, job creating, investment boom will follow on the wave of the financial realization that taking the huge "tax" (that energy has become because of oil war, GHG climate change, and higher monmopoly pricing) off of the world economy will let the growth engine power ahead.
All economists know that taxes slow growth, right? So take the "tax" payed to exxonmob, saudi princes, bush cronies, cheney war mongers and divert that into investing in US manufactured renewable energy products, plugin cars, and conservation devices like geo heat exchange systems.
It is clear that his main argument falls on this point. The cure for GHG climate change will be a money maker, not a money taker, hehey. Intellectual enough for you, oh mighty ivory towered economists? (was that ad hominem? well just a gentle hint)
http://amazngdrx.blogharbor.com/blog
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justlou Posted 3:52 am
12 Dec 2007
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GreenEngineer Posted 4:00 am
12 Dec 2007
My initial response was made in haste (I've got a job, after all). But it was attempting to point out:
The underlying assumption upon which all further analysis rested.
When your model tells you something plainly nonsensical, it's time to get a new model.
Jim's entire thesis seems to rest on two legs:
The cost of climate change mitigation strategies will be high, and will be equally high whether we start now or in 20 years.
The consequences of the consensus model's predicted impact is minimal. Only in the outlier case do we have anything to worry about.
I didn't attempt to address the first assumption, though that has been discussed at length elsewhere on this site. But a basic examination of the predicted consequences of climate change (including a range of possibilities, but discounting the outlier scenarios) shows impacts that are far to severe to be ignored. Even if your completely devalue biodiversity for its own sake, the loss of ecosystem services, changes in water availability, and impacts on agricultural production are a serious matter. This is visible from inspection and a basic application of common sense. A model may tell you that a decrease in cereal production in one place will be compensated for by an increase somewhere else, but that model probably does not account for cultural factors and economic inertia: A region that has been a breadbasket for 200 years does not gracefully adapt to failing agricultural production, and a region that has traditionally been too cold for crops does not become a breadbasket overnight.
I am not qualified to review the details of the DICE model. But given the clearly goofy results it is spitting out, I don't think I need to.
I am reminded of a young engineer I know who was asked to calculate how long it would take for a Space Station module to depressurize after a micrometeorite impact. His calculations showed that it would take approximately 20 hours to lose all their air from a 3" diameter hole. I didn't need to review the calculations to know that a mistake had been made, either in the calculations or (more likely) in the assumptions.
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Jim Manzi Posted 6:33 am
12 Dec 2007
Let's see what the UN IPCC estimates are.
The UN IPCC estimates for global temperature increase from the A1B scenario (often used as a reference case) is 2.8C by 2100.
You can see this data in the 4AR WG1 SPM (page 13) here:
http://www.ipcc.ch/pdf/assessment-report/ar4/wg1/ar4-wg1- ...
The UN IPCC estimate for the economic impact of a 4C increase in global temperature (that is, an increase that we project to experience some time well into the 22nd century under scenario A1B) is 1 - 5% of global GDP.
You can see the data for this on page 17 of the 4AR WG2 SPM here:
http://www.ipcc.ch/pdf/assessment-report/ar4/wg2/ar4-wg2- ...
So, assume I'm wrong, the academic modeling community is wrong and the economics profession is irrelevant. Here's what the IPCC says: under a realistic set of assumptions for economic and population growth, if we do nothing we should expect the world to be ~97% as rich as it would otherwise be, as of some time well over 100 years from now. By the way, the world is projected to be far, far richer in 100 years than it is today, so under these projections our descendants would still be much better off than we are, in spite of any AGW impacts.
(The reason, incidentally, models end up with ~1% of present value of consumption impact, instead of 3%, is because there is a non-zero discount rate that makes a dollar in the year 2100 worth less than a dollar today).
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Jim Manzi Posted 6:42 am
12 Dec 2007
You say that:
"By happy coincidence, the severity of externalized cost for most energy sources is roughly proportional to the carbon footprint of that energy source."
In my post here on Grist, I referenced another post that cites a research paper by European academics that reviewed all known peer-reviewed studies on the external costs of various fossil fuels and alternative energy sources. I'll reproduce the link to their paper here:
http://www.handels.gu.se/econ/seminar/Article1.pdf
You'll find that the estimates for the external costs per kilowatt-hour of, for example, coal range from about .01 cents to $10. Even the middle 50% of studies have cost estimates that range by a factor of about 20. Depending on the analysis, AGW-related externalities might be anything from a dominant to a trivial component of external costs. Every form of energy production from fossil fuels (coal, oil and gas) to alternative fuels (nuclear, solar, biomass, etc.) has a huge range of estimated external costs. The cost estimate range for every energy source overlaps with the cost estimate range for every other energy source. How can we rationally choose which ones should be taxed at what level vs. the others for the purposes of pricing the externalities? How will we know whether we have decreased or increased total external costs once we have shifted X units of production, say, from LNG to biomass?
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Jon Rynn Posted 6:49 am
12 Dec 2007
The substantial problem, in my view, is that mainstream economics is not well-designed to understand long-term social processes, not even ones like economic growth, as some in the field have admitted. In addition, neoclassical economics does not do a very good job outside the domain of most of its models, that is, within a particular competitive industry, in the short-term, with little technological change. So when economists start to sound very sure of themselves about processes as complex as the global climate and global economy, well, some of us are rather skeptical.
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Jim Manzi Posted 7:35 am
12 Dec 2007
I meant that part of my comment to be slightly light-hearted.
Believe it or not, I am currently writing a book on the limitations of econometrics in making reliable predictions for humans systems. I am acutely aware of the limitations in our ability to predict.
That said, even if you ignore the Nordhaus, et al models, (that are really about how to evlauate trade-offs in how to address the issue)the scientific consensus, as per my earlier comment, is for impacts that are huge in absolute terms, but that represent a few percent reduction in consumption for a world a century from now that we expect to be much, much richer than today's world.
Does that mean we should do nothing? No, of course not. But it does indicate that we should be careful about impeding the social systems (that, as per your comment, we don't understand that well) that create this growth.
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Jon Rynn Posted 8:04 am
12 Dec 2007
I guess the problem is that some of us think that global warming will be be Big Impediment to wealth creation, not mitigating global warming. And as per a a comment I made on Jerry's post, I think the "Limits to Growth" are important to understanding where we will be in 2100. I think that, at the very least, oil, if not all fossil fuels, are problematic.
But at any rate, I think the environmental community is in the starting phase of the very important task of showing how a transformed, fossil-fuel free civilization would work, and why it could quite possibly work better than the current one. If that case can be made, when, as I expect, the scientific news on global warming gets worse and worse, it will be possible to make the case that, indeed, the "social systems...that create this growth" will not be harmed, but might even be helped. So, stay tuned, I hope the conversation continues.
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GreenEngineer Posted 8:36 am
12 Dec 2007
These observations confirm evidence reported in the Third Assessment that, while developing countries are expected to experience larger percentage losses, globalmean losses could be 1-5%GDP for 4°C of warming [F20.3].
The developing world takes the brunt of the damage, and they represent only a tiny fraction of the world GDP. So in an analysis that considers global GDP, they barely show up.
So, if this analysis is to be used to answer the question "Should the United States implement a carbon tax?" in the negative because the net benefit to the world GDP of doing so is very small, then implied reasoning behind that answer is: "No, we should not, because the potential harm to our economy does not justify the cost and risk. And the (non-economically developed) rest of the world can go to hell."
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GreenEngineer Posted 9:35 am
12 Dec 2007
The reason, incidentally, models end up with ~1% of present value of consumption impact, instead of 3%, is because there is a non-zero discount rate that makes a dollar in the year 2100 worth less than a dollar today.
However, Chapter 20, section 6 of the WG2 report says:
Three types of aggregate impacts are commonly reported. In the first, impacts are computed as a percent of gross domestic product (GDP) for a specified rise in global mean temperature. In the second, impacts are aggregated over time and discounted back to the present day along specified emissions scenarios...
It's not explicit, but the implication is that the aggregate GDP impact scenarios such as Nordhaus' already include a discount rate. If so, then adding a second layer of discounting would be inappropriate, or at least require some justification.
Comments?
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kayser Posted 3:59 am
17 Dec 2007
So, if this analysis is to be used to answer the question "Should the United States implement a carbon tax?" in the negative because the net benefit to the world GDP of doing so is very small, then implied reasoning behind that answer is: "No, we should not, because the potential harm to our economy does not justify the cost and risk. And the (non-economically developed) rest of the world can go to hell."
Well, one issue here is, should we "reimburse" or help out these developing nations with aid rather than massively cutting down GHG emissions? Maybe such aid would be much cheaper and have the same impact.
Another critical question, though, is whether measuring the impact on "consumption" leaves out too much important stuff. Put it this way: if global warming kills my uncle, the reason I care about it is NOT because aggregate consumption has been reduced. Are non-economic factors (like "the fact that I don't want people to die", "the fact that I don't want my house to flood", "the fact that I don't want to pick up and move inland", "my enjoyment of the outdoors", etc.) being accounted for in the Nordhaus analysis?
I believe Weitzman pointed out in his survey. Ok, yup, I just found it on page 18 of his Stern review-review:
More mundane examples of alternatives to CO2 mitigation from middle-of-the-probability-distribution mild warming might include accumulating air conditioners to counter high temperatures or erecting sea walls to keep the rising ocean out of coastal cities.
Such alternative investments compensate mostly for potential loss of "indoor" consumption and they tend to be a lot less expensive than wholesale abatement of greenhouse gases.
The real problem is in the tails and it mostly concerns "outdoor" consumption. If the definition of consumption is broadened (as it should be) to include non-market enjoyment of the natural environment --like habitats, ecosystems, and species -- then it is difficult to imagine what the compensating investments are for which we should now be saving more as an alternative that might substitute for holding down [temperature increase] directly.
With roughly 3% IPCC-4 probability, we will "consume" a terra incognita biosphere within a hundred years whose mass species extinctions, radical alterations of natural environments, and other extreme outdoor consequences of a different planet will have been triggered by a geologically-instantaneous temperature change that is significantly larger than what separates us now from past ice ages.
What he's saying is, OK, we might be able to fix some consumption-related problems by building big walls to keep out floods, or whatever. But what about the fact that "it just sucks if the environment changes"? There's not a terrific way to measure that economically, although we can think of a lot of reasons why it sucks (like we can't go hiking in the same places, or things like that).
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kayser Posted 5:48 am
17 Dec 2007
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