Comments on: Refuting the Case for a CO2 Tax: William Nordhaus's "DICE Model" Reconsidered

By: Noblesse Oblige

Noblesse Oblige — Fri, 23 Oct 2009 02:31:38 +0000

Granting your points regarding the fuzziness of Nordhaus’ ‘catastrophic impacts,’ it is an example of the common practice in economics: “If you don’t know the answer and you can’t figure it out, VOTE ON IT.” Still it is indeed telling that one has to work hard to achieve a benefit/cost ratio that exceeds 2. No responsible business I know of would invest with that expectation, given the long payback period and the uncertainties involved. Only governments do this kind of thing, since there is no competition to enforce a penalty for failure, and in fact they usually achieve negative returns.

Norhaus’ analyses are indeed useful for comparing the optimal strategy with alternatives, including Gore and Stern, as well as Kyoto-type policies. Also if I recall correctly, the optimal tax is not much better than waiting a few decades before enacting anything. Presumably this allows the world to become richer and then better afford mitigation measures. Ah, but that kind of solution ‘doesn’t sell newspapers.’

In any event, the world will not warm by 2.5 degrees. It will be about 1 degree plus or minus natural variations. That alone will drive the benefit/cost ratio toward zero, but it is after all the cost part of the ratio that drives government — the ability to tax and spend. Benefits are nice but don’t really matter.

By: Ben

Ben — Thu, 22 Oct 2009 16:52:11 +0000

Tom, I think that it is best described as “doing the best you can with the data you have”. It’s not an unreasonable thing in many cases (I have estimated flowrates by applying the Beaufort wind scale to written descriptions). If he didn’t have the time or money to redo his survey, then the adjustsments aren’t unreasonable.

However, where I draw the line is putting this vague, adjusted number as a cornerstone of his argument. The error bars on his estimate are far too large to use for policy making.

Furthermore, extremely rare, ultra-high-damage events tend to twist things. For example, there is about 1 in a million chance that an asteroid will end life as we know it (damage ~quintillion dollars, the replacement value of Earth). Does this mean that we should spend a trillion dollars a year to develop anti-asteroid technology? Of course not. Argument ad absurdum aside, this same sort of analysis is applied to climate change. I find it questionable at best.

By: Tom Tanton

Tom Tanton — Mon, 19 Oct 2009 14:43:58 +0000

ok, granted he wasn’t necessarily being “malicious”—but changing “reality” to “fit the model” is backwards–change the model to fit reality sure seems like a more honest approach. I’ll grant that the changes he made were actually just simplifying in this instance.

By: Bob Murphy

Bob Murphy — Mon, 19 Oct 2009 14:35:18 +0000

Heh heh good point Tom, but what I meant was, I don’t think he necessarily made at least that particular change because it bumped up the optimal carbon tax. (Or rather, kept it from falling.) Mainstream economists have to use simplifying shortcuts all the time, so I wouldn’t say somebody acted dishonestly unless I were sure the motivation for the tinkering was to arrive at a pre-ordained answer.

There are some people, like Nicholas Stern for example, who I am pretty sure adjusted all the knobs on his modeling so that the carbon tax would be as big as possible. In contrast, Nordhaus’ uses a proxy for market discount rates etc., in order to come up with a decent guess of the ideal Pigovian tax (if you assume away all the flaws in government schemes).

By: Tom Tanton

Tom Tanton — Mon, 19 Oct 2009 13:46:00 +0000

“I want to clarify that I’m not accusing Nordhaus of academic dishonesty. I believe part of the reason for the changes described above, was that it was more convenient to fit into his model.” But, Bob, doesn’t that DEFINE academic dishonesty?

By: Ed Reid

Ed Reid — Mon, 19 Oct 2009 13:33:33 +0000

The International Energy Agency estimated in 2008 that the global investment required to reduce global annual emissions by 50% by 2050 would total approximately $45 trillion. It is reasonable to assume that those making the requisite investments would choose the most productive and least costly investments first. Therefore, it is also reasonable to assume that extending the global reductions from 50% to 83% would require the investment of at least an additional $30 trillion; and, more likely, an additional $45 trillion since the additional projects would be expected to be more difficult and expensive. Achieving a 99.95% reduction would likely require a global investment approaching $150 trillion. The global investment required to achieve “350″ is currently incalculable and arguably inestimable.