Category — Climate economics

In this month’s article at EconLib, I provide an introduction to the economics of climate change, and discuss some of its major controversies. Follow the above link for the full story, but in a nutshell here are the main issues:

(1) The Discount Rate. Economists give wildly different estimates of the “social cost of carbon” and hence the “optimal” tax on an additional unit of emissions.  These differences are not primarily due to the assumptions about climate systems or human vulnerabilities to warming. On the contrary, the main difference between, say, the policy recommendations of the Stern Review (very aggressive) and William Nordhaus’ DICE model (very moderate) is that Stern uses a very low discount rate, while Nordhaus plugs in an estimate of the market’s rate of return on capital.

Efforts to mitigate greenhouse gas emissions impose large, upfront costs on the economy (in terms of forfeited potential output of goods and services), while the benefits will not accrue until decades in the future (in the form of avoided climate change damage). Thus, the lower the interest rate used to evaluate present and future events, the greater the perceived net benefits of mitigating emissions.

(2) Modelling Uncertainty. One of the most popular lines of attack against the conventional carbon-pricing models concerns the treatment of uncertainty, or how they handle small-probability worst case scenarios. [Read more →]

Longtime MasterResource readers know of Chip Knappenberger’s post on the negligible climatic effects of unilateral adherence to Waxman-Markey. Across the board, the response from supporters of Waxman-Markey was not to deny Knappenberger’s calculations, but rather to insist that the U.S. had to show leadership. The (perhaps unspoken) premise was that if the whole world adopted the steep emission cuts proposed in Waxman-Markey, then the climatic benefits would clearly outweigh the economic costs.

In an earlier post, I tried to show that this view is simply false. According to the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (AR4)–the very document showing the “consensus” on the physical science basis of manmade climate change–the best estimates of climate change damages do not justify the aggressive limits contained in the current Waxman-Markey bill.

Then in a follow-up post, I documented that a recently released summary paper from Resources for the Future (RFF) reached the same conclusion: Using standard cost/benefit analyses, the peer-reviewed literature cannot justify the aggressive emission cutbacks in Waxman-Markey. In order to justify the bill’s 83% cut (relative to 2005 levels) by 2050, proponents must stipulate that there are climatic tipping points beyond which it is too dangerous to proceed. But the actual expert models of the global economy and climate system cannot themselves spit out these “tipping points” as the efficient policy choices. (In general, many proponents of aggressive government action have repudiated cost/benefit analysis altogether when it comes to climate change policies.)

In the present post, I want to show the contradictions in Paul Krugman’s recent advocacy for Waxman-Markey, and then comment more generally on the implications of a cost/benefit result. [Read more →]

Chip Knappenberger was perhaps the first analyst to demonstrate the negligible impact on global temperatures that would result from unilateral U.S. adoption of the pending Waxman-Markey bill. Knappenberger showed that even if the U.S. cut its emissions by 83% (of the 2005 level) by the year 2050, and then capped them at that level indefinitely, the schedule of global temperature increases would only be postponed by about five years.

Naturally, supporters of strong government action argued that the whole point of Waxman-Markey was to give American negotiators credibility when they demanded reciprocal action from other countries; Paul Krugman says as much in a recent blog post. Yet this leads to the next major problem: If the whole world adopted the stringent emission cutbacks in Waxman-Markey, then the costs to the global economy would far outweigh any reasonable estimate of the benefits (measured in avoided climate damage).

I explained this point in a previous post, but since then Resources for the Future (RFF) has released an excellent primer on climate mitigation policies. Even though two of the papers’ authors now work for the Obama administration, it too agrees with me: Standard economic analyses cannot justify the sharp emission cuts laid out in Waxman-Markey. Its costs far outweigh its benefits, as a simple perusal of the “consensus” models will show. [Read more →]

Jim Manzi has a very good post introducing the analysis of costs and benefits of Waxman-Markey. Here I want to follow up on Manzi’s great start, by showing that Chip Knappenberger’s estimate of the climate benefits of Waxman-Markey (W-M) actually erred on the side of optimism in its assumptions.

Specifically, Knappenberger very conservatively ignored the problem of “leakage”–he didn’t model the fact that unilateral U.S. carbon caps would actually increase the rate at which other countries’ own emissions grow. What’s worse, even if the entire world signed on to the aggressive emission schedule in W-M, the resulting environmental benefits would be achieved at a staggering cost in terms of lost economic output.

No matter how you slice it–whether the U.S. goes it alone, or the rest of the world signs on too–the environmental benefits of W-M are swamped by its economic costs. [Read more →]

In a provocative post, Joe Romm argues that even “strong climate action” would be well worth the effort. Yet Romm’s claim that stabilizing atmospheric greenhouse gases at 445–535 ppm (CO₂-eq) would cost only “one tenth of a penny on the dollar” (through 2050) understates the IPCC’s actual cost estimate by about 95%. In reality, the IPCC’s reported estimate translates into a mitigation cost of about 2.2 cents on the dollar–far far higher than Romm’s figure. Romm’s mistake has nothing to do with climate science: he simply confuses the rate of growth in income, with income itself.

To make matters worse, even when correctly interpreted, the IPCC estimate significantly understates what the cost will be in practice. The IPCC admits that its estimate is a theoretical textbook case, which assumes all participating countries implement their mitigation policies perfectly, and keep them in force throughout the 21st century. To the extent that any major government deviates from this flawless enforcement, even if just for a few years during a severe recession in (say) the years 2030–2032, then the costs of achieving the stipulated atmospheric concentrations will rise above the stated figure.

Presumably none of these details will alter Joe Romm’s conclusion. After all, he contrasts the slower economic growth resulting from new government regulations to the “incalculable cost of catastrophic global warming impacts to the next 50 generations.” With such a specter in mind, it hardly matters how much potential income the world will forfeit in order to meet Romm’s desired concentration targets. Still, for those who do think magnitudes are important, I explain below exactly how Romm managed to so severely understate the IPCC’s own estimate of the costs of mitigation. [Read more →]

Is the proliferation of electronic devices in homes and offices causing a net increase or decrease in electricity consumption and greenhouse gas emissions?

This question has been a topic of heated controversy ever since 1999, when technology analyst Mark P. Mills published a study provocatively titled “The Internet Begins with Coal,” and co-authored with Peter Huber a Forbes column titled ”Dig more coal – the PCs are coming.”

Others–notably Joe Romm and researchers at the Lawrence Berkeley National Laboratory–argued that the Internet was a minor contributor to electricity demand and potentially a major contributor to energy savings in such areas as supply chain management, telecommuting, and online purchasing.

Mills and Huber argued that digital networks, server farms, chip manufacture, and information technology had become  a new key driver of electricity demand. And, they said, as the digital economy grows, so does demand for super-reliable power–the kind you can’t get from intermittent sources like wind turbines and solar panels. [Read more →]

Supporters of the Waxman-Markey climate bill have not seriously disputed the extreme costs and the negligible benefits estimated by critics of the cap-and-trade proposal.  I must confess that I was expecting a real fight, but some very important markers seem to have been laid down in this legislative debate. Waxman-Markey supporters are going beyond the math to dispute the conclusion being drawn from the math. And that conclusion, which logically follows, is that cap-and-trade for carbon dioxide is a very bad deal. [Read more →]

Some people argue that we are morally obliged to reduce greenhouse gases aggressively because otherwise the world’s current development path would be unsustainable, and our descendants will be worse off than we are.

But will a warmer world be unsustainable, and leave our descendants worse off?

I have examined these claims out to the year 2200, using the IPCC’s own assumptions regarding future economic development and results generated by the Stern Review on the economics of climate change. Note that both the IPCC and Stern are viewed quite favorably by proponents of drastic GHG reductions (see, e.g., here).

The first figure (see below) [Read more →]

Headlines are meant to sell papers, but the above scream from atop Page 1 of today’s Houston Chronicle deserves critical comment. A fair and accurate (but less sexy) headline would have been: “EPA Declares Peril of Greenhouse Gases.” Just changing one word–from “recognizes” to “declares”–makes all the difference.

The Chronicle, particularly the editorial page, has been a bastion of climate alarmism rather than informed skepticism, or what a lot of us simply call climate realism. (Eric Berger, the “sci-guy” at the Chronicle, is more of a straight shooter on day-to-day global-warming reporting.)

The science is not settled in favor of climate alarmism. But this conclusion requires some background and explanation. [Read more →]

Well, how else should we describe a conference addressing “The Greatest Challenge in History”? That’s what the 350 Climate Conference, to be held May 2 at Columbia University, calls global warming, which it also asserts is ”likely the greatest threat humanity has ever faced.”

The number “350? refers to the “safe upper limit” of carbon dioxide (CO₂) concentrations in the atmosphere–350 parts per million (ppm)–according to NASA scientist and Columbia University professor James Hansen, who will keynote the conference. Atmospheric CO₂ levels today are roughly 385 ppm.

The online conference flyer explains: [Read more →]