Richard Tol Corrects

This is fairly big news.  Richard Tol, him of the freaky hair, and, to his credit, one of the first wave of economists to study the economics of climate change, has long argued that--until  global warming pushed the planet's average temperature above the two degree C threshold proscribed by the IPCC as an acceptable upside limit--AGW's economic effects would be, when you combined all the local pluses and minuses, beneficial to the planet as as whole.  After some fierce criticism from Bob Ward of the Grantham Research Institute on Climate Change and the Environment, Mr. Tol has admitted he was wrong: the economics of global warming start to suck before we reach the U.N.'s  two degree maximum:

And here's the (Figure 2) Tol speaks of:

Note how, as Richard himself says, the global economy suffers under all estimates before we reach the IPCC's 2 degree limit, and in one case actually seems to take a shit and die

Good on Richard for issuing the correction.  That's how science is supposed to work.

Update: First "this" above now goes through to full text of Tol's correction.

The Economics Of Climate Change

Once upon a time, debates about climate policy were primarily about the science. An inordinate amount of attention was focused on the handful of “climate skeptics” who challenged the scientific understanding of climate change. The influence of the skeptics, however, is rapidly fading; few people were swayed by their arguments, and doubt about the major results of climate science is no longer important in shaping public policy.

As the climate science debate is reaching closure, the climate economics debate is heating up.

Still lazy and overstuffed with meat. Until such time as I am feeling more energetic, Frank Ackerman provides a nice overview of the state of the economic debate re climate change and makes a case for acting immediately. Nice discussion of the importance of "discount rates". You'll laugh! You'll cry!

Cap And Trade In NY Times

A story about "Reggy" (RGGI), the regional cap and trade program set to go into effect in the American North East (participating states include New York, New Jersey, Delaware, Maryland and all six New England states — Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont).

An interesting twist: during the last several years emissions in the participant states have gone down instead of up, due to the current economic slowdown, mild weather, and a gradual shift to natural gas.

Roger Pielke Jr. thinks this tells against the whole idea of Carbon Trading because, from their current level

...emissions will have to grow by more than 1% per year for the RGGI to even have any effect on business as usual. And even a growth rate of 2% would result in a reduction in emissions from 2008 of less than 4%. So for RGGI to actually make a difference on emissions trajectory for these 10 states will require a stark departure from emissions trends over the past 9 years. Energy prices, fuel switching, and the push for alternative energy all work against this for this region. Champions of cap and trade will find themselves in the awkward position of cheering for rapid emissions growth for RGGI to show any teeth. Otherwise, it is just business as usual.

But if "business as usual" is a downward trend, what is the problem other than the set-up costs involved in RGGI look somewhat ill-spent? But then the system is there should, upon an economic recovery, the necessary technological advances not have emerged to ensure a permanent reduction in emissions.

More ominous, perhaps:

This fact is compounded by the fact that leftover credits from one auction will rollover to the next, which means it is possible that 2009's extra 20 million tons will roll over to 2010, whose extra 40 million will roll over to 2011 and etc. This effectively means that the "market signal" which will demonstrate the time to pour money into clean energy industries and technology will never arrive.

...which point is perhaps met by noting that the total allowances available can be adjusted up or down as required.

(Note: you can see, though, how the application and adjustment of a simple carbon tax could meet all of these challenges much more quickly and efficiently)

The Economic Consensus

...on global warming, is being driven largely by the people named in this list:

Joseph Aldy, Resources for the Future
James Edmonds, Pacific Northwest National Laboratory
Richard Howarth, Dartmouth College
Bruce McCarl, Texas A&M University
Robert Mendelsohn, Yale University
William Nordhaus, Yale University S
Sergey Paltsev, Massachusetts Institute of Technology
William Pizer, Resources for the Future
David Popp, Syracuse University
John Reilly, Massachusetts Institute of Technology
Roger Sedjo, Resources for the Future
Kathleen Segerson, University of Connecticut
Brent Sohngen, Ohio State University
Robert Stavins, Harvard University
Richard Tol, Economic and Social Research Institute
Martin Weitzman, Harvard University
Peter Wilcoxen, Syracuse University
Gary Yohe, Wesleyan University

Note how climate change skeptics tend to regard folks like Nordhaus as being on their side of the issue, but really the variation of opinion among this bunch is limited to technicalities:

Opinions varied on whether the Congress should implement a cap-and-trade system or a tax to control greenhouse gas emissions, with eight panelists preferring a cap-and-trade program with a safety valve (sometimes referred to as a hybrid system), seven preferring a tax, and three preferring a cap-and-trade program. All of the panelists agreed that the policy should target all sectors of the economy, and the majority believed that it should include all greenhouse gases. For example, one panelist stated that by establishing a price on emissions from all sources in the United States with no exceptions, the policy would equilibrate the marginal cost of reducing emissions across all sources, making it economically efficient.

h/t Rabbit.

How Neo-Classical Economics Sucks As A Tool For Tackling Global Warming (And How Economists Are Trying To Make It Suck Less)

A wonderful short piece from Scientific American on the pseudo-scientific roots of neoclassical economics (Someone alert Andrew Coyne!):

The 19th-century creators of neoclassical economics—the theory that now serves as the basis for coordinating activities in the global market system—are credited with transforming their field into a scientific discipline. But what is not widely known is that these now legendary economists—William Stanley Jevons, Léon Walras, Maria Edgeworth and Vilfredo Pareto—developed their theories by adapting equations from 19th-century physics that eventually became obsolete. Unfortunately, it is clear that neoclassical economics has also become outdated. The theory is based on unscientific assumptions that are hindering the implementation of viable economic solutions for global warming and other menacing environmental problems.

The physical theory that the creators of neoclassical economics used as a template was conceived in response to the inability of Newtonian physics to account for the phenomena of heat, light and electricity. In 1847 German physicist Hermann von Helmholtz formulated the conservation of energy principle and postulated the existence of a field of conserved energy that fills all space and unifies these phenomena. Later in the century James Maxwell, Ludwig Boltzmann and other physicists devised better explanations for electromagnetism and thermodynamics, but in the meantime, the economists had borrowed and altered Helmholtz’s equations.

The strategy the economists used was as simple as it was absurd—they substituted economic variables for physical ones. Utility (a measure of economic well-being) took the place of energy; the sum of utility and expenditure replaced potential and kinetic energy. A number of well-known mathematicians and physicists told the economists that there was absolutely no basis for making these substitutions. But the economists ignored such criticisms and proceeded to claim that they had transformed their field of study into a rigorously mathematical scientific discipline.

Keep reading for the whole list of nasty theoretical side-effects, but the most important one is that:

The costs of damage to the external natural environment by economic activities must be treated as costs that lie outside the closed market system or as costs that cannot be included in the pricing mechanisms that operate within the system.

As a result:

[Neo-Classical economics] constitutes one of the greatest barriers to combating climate change and other threats to the planet. It is imperative that economists devise new theories that will take all the realities of our global system into account.

I rather think, however, that author Robert Nadeau has missed some of the most interesting recent work in the economics of climate change. I and other's have written about the developing consensus among economists that seems to have followed on the heels of the climatological consensus. Richard Tol, for example, has come around and now supports a carbon tax. And if any single paper by any single researcher can be said to have triggered this emerging consensus, it is On Modeling and Interpreting the Economics of Catastrophic Climate Change by Harvard economist Marty Weitzman.

I cannot confess to being able to follow Mr. Weitzman's math, and you probably can't either, because it strains the limits of the professionals. But the For Dummies version seems to be roughly as follows (here is another attempt at the FD version):

AGW may give rise to any number of "high-impact low probability" disasters (melting Greenland ice-sheets, for example) the results of which would be so catastrophic as to confound the economist's standard cost benefit analysis (you can't really predict how many points having to abandon a flooded New York City will knock of the GDP).

And while these events have a low probability, their destructive effects are so extreme as to justify immediate action against them as a form of insurance policy. (In particular, high enough to set the price of carbon at $50 per ton U.S.)

Environmentalist Discovers That Economists Are Callous, Is Shocked And Appalled

On the one hand, George Monbiot's complaint re. the expansion of London's Heathrow airport, and its justification in terms of The Stern Review, gives a good quickie outline of the thinking that went into that report. On the other hand, his apparent surprise at the fact that an economist should "put a price on human life" makes it sound like he fell off the back of a turnip truck driven by hippies:

What I cannot accept is that it should be scrambled up with the price of eggs and prefixed with a dollar sign. Human life is not a commodity. It cannot be traded against profits or exchanged for convenience. We have no right to decide that others should die to make us richer.

Welcome to planet Earth, George. Human lives are traded commodities, and such decisions are made every day. Furthermore, the notion of pricing a life is hardly unique to Dr. Stern. It is hardly his montrous invention, as Monbiot implies. And it is a common argument against Stern's review that he values future lives too highly ; his report only comes out in favor of acting against climate change now because he isn't callous enough in regards to the worth of unborn human beings.

Not that some of Monbiot's arguments aren't makeable. The difference economists concerned with AGW have often placed on 1st vs. 3rd world lives in well-known (see the wiki link above) and often criticized.

Its Monbiot's naivety, false or real, that weakens his case.

Steyn Rebutted: Are Children Really Our Future, And Should There Be A Tax On Screwing?

But It'll Cost Ya!

Mark Steyn is incapable of serious thought. He does, however, occasionally aim his toxic spew in the direction of real issues, even if he seldom correctly understands the nature of these issues.

For example, recently several academics have sounded a warning re climate change and population pressures. The short form of their argument is that climate change is difficult enough to combat, and will only become more difficult to combat given the pressures exerted by a larger and larger global population demanding a larger and larger portion of the planet's finite resource.

There are too many of us, in other words, and it is immoral to add to their number.

Some of these warnings have come off looking a bit extreme. For example, Australian Obstetrician Barry Walters has suggested that families pay a $5000 levy on the birth of a baby and then up to $800 annually in taxes to offset the child's greenhouse gas emissions(*). Even more radically, environmental activist Toni Vernelli has had herself sterilized so as to make it impossible to inflate her carbon footprint, an act which some have characterized as "selfless".

Such thinking makes Mr. Steyn uncomfortable, and indeed there are real issues with Ms. Vernelli's actions, which resemble a modern form of Flagellantism, of mortifying your flesh for the benefit of an angry Deity to demonstrate how sorry you are for your sins. More generally, however, Steyn writes:

A radical antihumanism, long present just below the surface, bobbed up and became explicit and respectable. In Britain, the Optimum Population Trust said that "the biggest cause of climate change is climate changers – in other words, human beings," and professor John Guillebaud called on Britons to voluntarily reduce the number of children they have.

[...]

What's the "pro-choice" line? "Every child should be wanted"? Not anymore. The progressive position has subtly evolved: Every child should be unwanted.

...which is furious blithering, but misses the point.

And seeing the point requires that we make a quick segue into the economics of global warming, especially into the concept of a discount rate. A discount rate is:

...a financial concept based on the future cash flow in lieu of the present value of the cash flow. The divisor in the discount rate formula is the resultant future value, including income.

In the context of climate change, the choice of a discount rate represents a value assigned by economists today to the lives of the unborn. Since most of the lousy results of Global Warming are decades down the road, a calculation as to what we should spend today to mitigate/adapt to the phenomenon involves deciding how well or badly off we feel comfortable leaving future generations. For example, it is a feature of The Stern Review that he sets his discount rate such that it treats the welfare of future generations as being as important as the welfare of this one. And it is a common criticism of his review that humans do not, as a matter of observed economic fact, treat the welfare of future generations in this manner.

As a matter of observed economic fact, we treat their welfare as being far less important than our own.

And, given all this, one can easily argue contra Steyn, who wants The West to breed like mad things so we have enough soldiers to fight his Culture War against dark skinned immigrants. Specifically, the argument is that, since it is quite possible we will end up doing little or nothing to adapt to/mitigate against global warming, it is indeed a good thing to refrain from having children. Having a child, deriving enjoyment from them, and then conveniently clocking out just as the environmental shit hits the fan, leaving them behind to deal with it, is immoral.

Now, Steyn himself is a denier. For him, its all a conspiracy of left-wing scientists and Al Gore to steal our precious freedoms etc. etc. And I suspect many of the Conservatives for whom he writes would agree with this position. But if Steyn or the movement ever wish to climb out of that particular intellectual ghetto, the ethics of rearing children in the teeth of a possible eco-catastrophe is a moral issue they will need to face up to.

(*) As an aside, the Barry Walters proposal noted above--that we should tax people for each child they bear--is in fact something I would approve of but for its relative inefficiency as a tax. Much more lucrative would be a simple charge on the act of fornication itself. Under my scheme every female in the population would be issued a coin-operated chastity belt, and unless the government was given its proper cut on each occasion, there would be no nookie. Monies from this tax could be in lieu of a carbon tax, and could be used for either mitigation or adaption purposes. This would be one practical method of funding that giant space mirror the geo-engineers have been talking about, and with dough left over we could probably build a stairway to Jupiter.

Because a perfect tax is a tax on something people will do anyway no matter how much you charge 'em.