Thursday, May 21, 2009

Tol on the Economic Effects of Climate Change

The last JEP has an interesting survey article by Richard Tol on the economic effects of climate change. In his own words (italics are mine):
Only 14 estimates of the total damage cost of climate change have been published, a research effort that is in sharp contrast to the urgency of the public debate and the proposed expenditure on greenhouse gas emission reduction. These estimates show that climate change initially improves economic welfare. However, these benefits are sunk. Impacts would be predominantly negative later in the century. Global average impacts would be comparable to the welfare loss of a few percent of income, but substantially higher in poor countries. Still, the impact of climate change over a century is comparable to economic growth over a few years.
There are over 200 estimates of the marginal damage cost of carbon dioxide emissions. The uncertainty about the social cost of carbon is large and right-skewed. For a standard discount rate, the expected value is $50/tC, which is much lower than the price of carbon in the European Union but much higher than the price of carbon elsewhere. Current estimates of the damage costs of climate change are incomplete, with positive and negative biases. Most important among the missing impacts are the indirect effects of climate change on economic development; large-scale biodiversity loss; low-probability, high-impact scenarios; the impact of climate change on violent conflict; and the impacts of climate change beyond 2100. From a welfare perspective, the impact of climate change is problematic because population is endogenous, and because policy analyses should separate impatience, risk aversion, and inequity aversion between and within countries.
In other words: the debate on the subject until now has been mostly driven by dogma and not by science.


Richard Tol said...

"the debate" -- you'd have to be a bit more specific than that, as there are many debates on climate

your statement is roughly true for much of the debate in Europe on climate policy

Pedro H. Albuquerque said...

Richard, thanks for stopping by to comment. I refer to the economic policy aspects of the debate. I agree that, if you search in the right places, you'll find islands of rationality. However, it also appears to me that, even here in the US, most public and political views on the subject are marked by a disturbing lack of concern for sound economics. I hope that articles like yours will help to improve the quality of the debate.

michael said...

But is the cost of protecting forest for the indiginous peoples a cost of human rights or a cost of reducing the climate change impact? Is going to war to maintain world exploitation of oil rich nations from insurgencies angry over the exploitation a national security cost or a climate change cost because of the high level of carbon emissions?

Is replacing labor saving oil which causes millions of idle workers with labor intensive energy producing capital creation a cost of fighting limate change or an economic benefit from reduced government welfare and increased tax revenues?

In the real world, unlike the economic ivory tower, everything is connected. Oil is limited by nature and no economic handwaving can eliminate peak oil, consumption of which is directly tied to green house gases.

Imagine a magic bullet that captures greenhouse gases cheaply; peak oil is going to impose essentially the same limits on oil consumption that reducing the impact of climate change imposes.

And why not simply add up the costs the world society has already racked up as a result of the policies that cause so much environmental harm? What is a mountain flattened and a stream polluted costing?

CosmoTopper said...

I don't believe we need an authoritative conclusion as to the final consequences of the continued disgorgement of fossilized CO2, to recognize the need to dismantle our dependence upon it. Even if the probability that failing to do so will precipitate a "near extinction event" within the next hundred years or so is, let's say 1%, what right have we to pass that risk along to successor generations in order to preserve our comfortable standards of living? Putting ethical concerns aside, what rational business case exists for perpetuating a global dependence upon a finite, dwindling and irreplaceable natural resource, the exhaustion of which is guaranteed, at best in the next hundred years or so? And finally, how can a nation which is so disadvantaged in it's reserves of that resource, not embrace with gusto (and capital) the opportunity to create a cheaper, sustainable replacement for it as quickly as possible?

The most compelling thing we learn from this debate is that our political institutions are inadequate to the challenges posed by abstract threats. Anything short of a Pearl Harbor or an Adolph Hitler can be decomposed and rendered harmless by a panel of media pundits, and the counter-intelligent but ubiquitously accepted notion that there are two equally weighted sides to every issue.

If I were to list the top 5 empirically provable threats to the survival of our civilization (in any recognizably acceptable form), I doubt that climate change would make the list. When you consider that in 1939, there were slightly less than 2-billion people trying to reconcile their competing interests in a future on this planet, our success at even identifying, much less moderating the malignant practices we continue to pursue has been dismal.

The irony of it all is that the self-destructive behaviors themselves could be replaced with sustainable practices capable of operating in balance. Abraham Lincoln's address to Congress in December of 1862 summed it up concisely, when he reminded us that "We cannot escape history." History is the anvil against which we, as civilized thinking beings, must wield a hammer if the best parts of our civilization are to survive.

But in order to succeed in that, as Lincoln observed: "We must disenthrall ourselves..." That word is listed in my browser as either unknown or misspelled. It has fallen from the vernacular of the modern world. But it's meaning, although perhaps antique, epitomizes the tragic flaw which all but guarantees our failure at the apex of our accomplishment.

Pedro H. Albuquerque said...

CosmoTopper, the fact that a resource is nonrenewable doesn't mean that its depletion will lead economies to collapse. This is a myth propagated by uneducated politicians and activists. For example, take a look at the Hartwick's rule:

CosmoTopper said...

Thanks for the suggested reading. I spent several hours following various links starting with the Hartwick article. I am a computer programmer, not an economist, so I figure I understood maybe 20% of what I was reading. I'm also an occasional chess player, and I know that once you're a pawn down, your opponent can often play out the game making even exchanges, each one extending the margin of his advantage. As I see it, the USA is already much more than a pawn down in terms of oil reserves, therefore our only viable strategy is to seize the opportunity to create and dominate an entirely new paradigm for harvesting solar energy. It's there for the taking, all we need to do is get about the business of doing it (IMHO).

Pedro H. Albuquerque said...
This comment has been removed by the author.
Pedro H. Albuquerque said...

CosmoTopper, thanks for stopping by. Notice that, as oil reserves are depleted, and if the demand for oil remains high, the price of oil can only go up . As the price of oil goes up, alternative sources of energy will *automatically* become economically feasible (most of them *are not* feasible at this point) through efficient free market allocation mechanisms.
To rush to economically unfeasible alternative energy sources can only hurt the economy in the long term, maybe even in the short term. Most of the alternative energy policies are promoted through government subsidies, and have been in large part the result of special interests and rent seeking, in other words, just another way to assult the taxpayer.
We shouldn't allow ourselves to be taken as fools in these matters.

CosmoTopper said...

I heartily agree regards more subsidies. I believe the solution to sustainable energy may (must?) be found using common sense, not massive R&D budgets. At the same time, waiting for the cost of oil to stabilize at a level sufficient to produce the 'automatic' appearance of a 'backstop resource' (term I discovered yesterday), leaves us at risk in terms of climate change. Due to 4K limit, I'll keep this brief, but I have more detailed backup if your interested. Basic outline:

1. Current carbon sequestration testing in HNLC regions of open ocean demonstrate that phytoplankton can be cultivated. Plankton is 200 times more productive of bio-diesel raw oil than corn. Uses no existing agricultural land. I have a concept proposal for a relatively low-tech means of cultivating and harvesting phytoplankton on a large scale in the open oceans. Use obsolete single hull tankers to refine bio-diesel at sea.

Public funding to test/develop: just a guess, but how about $2-billion? Oregon State U, UC-Davis, UC-Irvine ( provide R&D resources since this draws on their competencies.

2. Wind farm strategy is all wrong. Maintenance costs prohibitive, cost of infrastructure to deliver electricity huge, inefficient.

My approach: for about $10 you can construct a zero-friction wind turbine (prototype) using off the shelf magnets from Ace Hardware. No bearings, no wasted heat, zero maintenance. Scalable from tiny to huge. Key paradigm change: use simple DC coils to generate and store hydrogen + oxygen using electroysis, then use fuel locally for transportation, or electricity generation. Eliminates most long-haul distribution costs. No costly/wasteful power conditioning hardware required to feed electrical grid. No limitations on wind speed, because electrolysis works no matter how fast/slow the available wind.

Public funding: how about $1-billion (and we won't need to spend all of it).

3. Source of funding: put off Mars Lander program for a few years while we save the planet. They're getting $5-billion a year for that.

There's more evidence that supports this concept. If your interested, e-mail to ted at cosmozilla dot net. (This is not a money making venture, it's a Manhattan project of sorts, but not nearly as complicated or expensive. Most of the technology would be public domain.)