Open Thread – May 2013

Anything goes. Moderation is limited to obvious spam.

Picture 26

Suggested topic for discussion – in designing future policy, how much reliance should the public place on the opinions of various academic disciplines?

Specifically, is there an economic consensus on sustainability issues, particularly the carbon problem? If so, how reliable is it compared to the climatological consensus? How much should it inform decisions that have a very long-term impact?

The image is from Bjorn Lomborg’s congressional testimony from last month.

Comments:

  1. Lomborg says that "It is important to realize that economic models show that the overall impact
    of a moderate warming (1-­‐2oC) will be beneficial"

    http://www.lomborg.com/sites/default/files/Congress_testimony_April_2013_3.pdf

    Is that even remotely defensible?

    • Here's how might answer Nordhaus himself:

      Elementary cost-benefit and business economics teach that this is an incorrect criterion for selecting investments or policies. The appropriate criterion for decisions in this context is net benefits (that is, the difference between, and not the ratio of, benefits and costs).

      This point can be seen in a simple example, which would apply in the case of investments to slow climate change. Suppose we were thinking about two policies. Policy A has a small investment in abatement of CO2 emissions. It costs relatively little (say $1 billion) but has substantial benefits (say $10 billion), for a net benefit of $9 billion. Now compare this with a very effective and larger investment, Policy B. This second investment costs more (say $10 billion) but has substantial benefits (say $50 billion), for a net benefit of $40 billion. B is preferable because it has higher net benefits ($40 billion for B as compared with $9 for A), but A has a higher benefit-cost ratio (a ratio of 10 for A as compared with 5 for B). This example shows why we should, in designing the most effective policies, look at benefits minus costs, not benefits divided by costs.

      http://www.nybooks.com/articles/archives/2012/mar/22/why-global-warming-skeptics-are-wrong

    • Well, there is one model I know of that shows this - Richard Tol's FUND model. I'm pretty sure it's the only one; certainly Nordhaus's DICE model shows damages increasing monotonically. But damage estimates are about as speculative as speculative can be, and require what might perhaps be called "super-heroic" assumptions.

      A great deal of course depends on discount rates. The main reason the Stern Review found much higher damage estimates (5-20%) is because of the use of a much lower discount rate. And there is no such thing as a "correct" discount rate. Thus, to make a much more general point, the value of damages is not something that is "predicted" as much as it is something that is decided. The value judgments that go into a damage cost estimate are far beyond just discount rates (see my "Worth of an Ice Sheet," http://planet3.org/2011/11/03/the-worth-of-an-ice-sheet/).

      The rest of Lomborg's testimony is pretty lame too - I'd give it a C-, even on its own terms (crappy citations, misleading figures, etc.) It's right about a few things though, including that what we're doing already is not working very well, and that more R&D would be a good thing.

    • > It is important to realize that economic models show that the overall impact of a moderate warming (1-­‐2oC) will be beneficial.

      First, please note Lomborg talks about economic models. Does that mean all, most, or at least one which is the one Lomborg prefers?

      ***

      Second, please note that Lomborg does not say why is it important to realize that the overall impact &c.

      So, why?

      Here is the following sentence:

      > Thus, as indicated in Figure 1, global warming is a net benefit now and will likely stay so till about 2070, after which it will turn into a net cost.

      The thus thus seem to introduce a logical connection. But which one? My bet would be a tautology, since this sentence does not add anything. Sure, it points at figure 1. But figure 1 is simply an illustration of what is being said.

      Unless there was no intention to explain why the fact presented was important, the thus introduces a circular explanation. Not unlike Molière's Bachelierus would say, opium makes you sleep because it has dormitive powers. Perhaps not unlike the logical properties of Lomborg's testimony too.

      ***

      Third, please note that this was a testimony. Auditors ought to bear in mind that testimonies are made under oath. They also ought to repeat that fact over and over again.

      Why?

      Because it has auditing powers.

    • Richard Tol's FUND model finds that initial warming is beneficial, so there's at least one. I'm not aware of others with the same result; at one time I knew them all reasonably well, but not lately.

      Such results should be taken with a huge grain of salt. In addition to climate uncertainty, these models are all making rather strong assumptions about markets and rationality that are unlikely to prevail in the real world.

  2. Well it might be defensible in that economic models may show benefits. However, it's unlikely that such models are actually grounded in reality. In any case, such statements, IMO, are not intended to be defensible, their purpose is to be a fig leaf for delay.

  3. I thought at first the diagram was from the Stern Report. If it had been it shows how ridiculous that report was - suggesting that a 1% cut could make a significant effect.

    The global economy is based on burning fossil fuels. If we cut back on them we will have widespread poverty. If we don't cut back on burning fossil fuels then we will starve, when climate change causes agriculture to collapse.

    But there is no point in you, or even Al Gore, or even an individual state or nation cutting back on use of fossil fuels unless there is international agreement. As an individual, the most you can cut back is 100% of your consumption but there is no limit to how much your neighbour can increase his consumption. He only needs to increase his consumption by over 100% and he has wiped out any good you have done.

    Unbridled competition can lead to progress in the short term but eventually it ends in catastrophe :-(

  4. > Is that even remotely defensible?

    It is if no-one attacks it.

    More specifically, the economic cost-benefit analysis shows (let us suppose) smallish overall costs, or perhaps even net benefits, for 1-2 oC of warming. The thing to do then is examine that analysis, find out what the costs and the benefits are and see of the figures appear plausible. That's the use of it. Taking the overall figure and saying "yeah, I believe that" or "nah, don't seem right" gets you nowhere. Yes, this is tedious: you have to actually read the work.

    • Well, that would make sense if he showed his work or linked to somebody who did.

      Lomborg's first link is a garbled version of this: http://www.copenhagenconsensus.com/sites/default/files/CP_GlobalWarmingCC08vol2.pdf; their figure 4.2 is reasonably abstracted as his first figure. In addition to making it hard to track the reference down, though, the reference itself is remarkably unclear on the nature of its analysis. It goes directly from "emissions trajectories" to "results" without discussing the analysis in any way. (Section 5 repeats the trick, broken down regionally. But the nature of the calculation remains unrevealed.)

      As for his second link, it is flatly unjustified. (I don't mean to claim it cannot be justified, only that by providing a reference he pretends to justify it without actually doing so.) It simply points to a model, not to any analysis undertaken using that model.

      The first link is also showing the median sensitivity case, not the risk-weighted sensitivity, as it explicitly admits. I have numerous other complaints, some of which are mentioned in passing. But the most important caveat is clearly this:

      Notice that Figure 4.1 displays the potential for beneficial climate change, at least as measured by global aggregate economic activity, through the first half of this century.

      Emphasis added. I welcome the honesty of that paper in being explicit in this regard.

      The presumption that maximizing global aggregate economic activity is what we want to do in long term problems is simply that, a presumption. It is not a rationally supported result, it is simply an axiom, and a very dubious one indeed. An obvious example is to consider two future scenarios, in which the population is similar, and the consumption of the population is otherwise similar, but in one case the atmosphere is unbreathably toxic. In that case, there would be a great deal of pressure to buy equipment, both installed and portable, to filter the toxins out of the air. Everybody would work harder to maintain an otherwise equivalent level of consumption. Stress would be higher, human happiness would be lower, and global aggregate economic activity would be higher.

      While this is intended as a reductio ad absurdum, I would not be alone in maintaining that much of our present-day activity has a similar, if less obvious, fevered character. Perhaps the "extra" economic activity shown is just the extra effort required to produce a unit of food in the presence of increasingly unpredictable agricultural conditions.

      So, we are back to the main question yet again. Why are we maximizing economic activity in the first place? Why is that a good thing?

      In this case, we at the very least should be measuring wealth and not throughput. The increased throughput may well be additional activity used to repair damages. They don't seem interested in telling us, in any case.

    • > The thing to do then is examine that analysis [...]

      In this case, footnote 2 leads to this:

      http://nordhaus.econ.yale.edu/RICEmodels.htm

      The page contains a link to the paper with this abstract:

      > The science of global warming has reached a consensus on the high likelihood of substantial warming over the coming century. Nations have taken only limited steps to reduce greenhouse gas emissions since the first agreement in Kyoto in 1997, and little progress was made at the Copenhagen meeting in December 2009. The present study examines alternative outcomes for emissions, climate change, and damages under different policy scenarios. It uses an updated version of the regional integrated model of climate and the economy (RICE model). Recent projections suggest that substantial future warming will occur if no abatement policies are implemented. The model also calculates the path of carbon prices necessary to keep the increase in global mean temperature to 2 °C or less in an efficient manner. The carbon price for 2010 associated with that goal is estimated to be $59 per ton (at 2005 prices), compared with an effective global average price today of around $5 per ton. However, it is unlikely that the Copenhagen temperature goal will be attained even if countries meet their ambitious stated objectives under the Copenhagen Accord.

      http://nordhaus.econ.yale.edu/documents/Nordhaus_Copenhagen_2010_text.pdf

      Lomborg's figure does not seem to appear in this paper, nor does it seem to appear in the SI:

      http://nordhaus.econ.yale.edu/documents/Nordhaus_PNAS_Copenhagen_2010_supplement.pdf

      ***

      On Nordhaus' webpage, we do find this:

      > This study is available both as a published book from MIT Press and in electronic form on the Internet. The Internet version is provided below.

      http://www.econ.yale.edu/~nordhaus/homepage/web%20table%20of%20contents%20102599.htm

      The relevant chapter seems to be this one:

      > The DICE/RICE models are the extension of the Ramsey model to include climate investments in the environment. Emissions reductions in the extended model are analogous to investment in the mainstream model. That is, we can view concentrations of
      GHGs as “negative capital,” and emissions reductions as lowering the quantity of negative capital. Sacrifices of consumption that lower emissions prevent economically harmful climate change and thereby increase consumption possibilities in the future.

      http://www.econ.yale.edu/~nordhaus/homepage/web%20chap%202%20102599.pdf

    • So it looks Lomborg has presented bullshit to U.S. Congress. How very surprising. They will invite him again to hear more.

  5. Richard Tol on Blowing Carbon Bubbles
    http://richardtol.blogspot.ca/2013/05/blowing-carbon-bubbles.html

    I think he's mostly right, we needn't fear our economies blowing up because of a stock-market crash, caused by any sudden drop in fossil fuel demand, resulting from a sudden big carbon tax.

    Governments seem reluctant to introduce any small and gradual demand-reducing policies, let alone big and sudden ones. At best, from a climate perspective, we can look forward to moderate carbon taxes introduced over a decade or more rather than draconian taxes applied overnight. This would cause a slow puncture rather than a burst bubble. It could get ugly quickly for high cost producers in the oil sands, though.

    This comment of Tol's struck me as a little daft, though:

    In the unlikely case of unexpectedly stringent climate policy, sovereigns would be hit. This is one reason why climate policy will not accelerate much. It is not wise to cause unrest in Iraq, Iran, Russia, Saudi Arabia or Venezuela.

    Really? The GOP is opposed to climate policy because they fear unrest and economic hits to Iraq, Iran, Russia, Saudi Arabia or Venezuela? Shale gas and shale oil in the US are also threatening some of those those producers (and Canadian oil sands in the case of Venezuela), but I don't hear that worry from any N American politicians.

    • > In sum, there is no carbon bubble. If there were a carbon bubble, it would not be about to burst. If it would burst, the economic impact would be minimal.

      The structure rings a bell. Compare and contrast:

      1. Nothing exists;
      2. Even if something exists, nothing can be known about it; and
      3. Even if something can be known about it, knowledge about it can't be communicated to others.
      4. Even if it can be communicated, it cannot be understood.

      http://en.wikipedia.org/wiki/Gorgias

      Hmmm. Big hmmm.

  6. A couple of academic economics heavy hitters ruminate on the state of macroeconomics and the risks of financial crises.

    Not a word about resource constraints or waste constraints, though, and not a glimmer of recognition about what happens to exponential processes in nature. Nobel prize winner Stiglitz:

    "we are at least beginning to clearly identify the really big market failures, the big macroeconomic externalities, and the best policy interventions for achieving high growth, greater stability, and a better distribution of income."

    Emphasis added.

    Look, endless growth is an extraordinary claim. The fact that growth has been the norm for a couple of centuries is true enough. The claim that it can go on forever on a finite world needs defending, not wishful thinking. But as far as I can tell it's a shibboleth. If you question the goal of endless growth, if you don't believe in the impossible hamster, you are not considered serious by the academic economics community.

  7. Ethics, not economics, is the applicable discipline. It’s about solving the tragedy of the commons, not the discount rate equation. No reliance should be put on macro - economics. It does not matter if macro is right or wrong. It is not applicable to the problem and, therefore to the solution. Now the market can and should be used, but only as a tool for action.

    • This presentation from the best regular commenter at Judy's may be related to that perspective:

      http://prezi.com/hthhffwhdz7p/carbon-cycle-privatization/

      More Prezis, pretty please with some sugar on it.

      • That's an interesting site. Got on to a different prezi (slang for precis, I assume) there. One could go on and on.

      • Problems w/ prezis:

        1) basically it's just a slide transition device
        2) I don't know how long the presentation is; so I gave up
        3) Tied to proprietary software; if anything would wait for HTML5 version

      • You might prefer something like this lesser evil:

        https://speakerdeck.com/

        This is from the GitHub crowd, so it might be a less evil too.

        And you get to keep your PDF, which I presume you'll do in LaTeX, right?

      • Re not knowing how long it is - If you look closely there's a thin blue bar between the control bar and the display window that increments as you progress, so you can estimate how far you've gone and how much longer it is. But I didn't notice it until too late.

        But it got pretty annoying before too long anyway. Bad colors too.

  8. Sorry to say but I have a very simple view on consensus about economy. There can never be one, that's why we haggle.

  9. It just occurred to me that the great bulk of the real-estate writeoff during the economic crisis of '08-09 was on property developments in Nevada and Florida. It's interesting to note that these are arguably the places with the worst prognoses in climate change scenarios.

    Could part of the story be that people are now resisting moving to Florida and the desert Southwest because they don't want to sink their money into places that are going to sink in the long run? Is this why developers overestimated demand in those places?

    Have we already had our first climate bubble?

    How much on-the-books value was written off in real estate in the wake of the crash of '08? How does that value compare with the on-the-books value of fossil fuel reserves? (I am sure I could figure out the latter. Does someone reading have a solid sense of the real-estate writeoff in the US in '08 -'09?)

  10. With respect to your real estate question, here is at least a starting point for the answer (assuming from your earlier paragraphs that you're contemplating residential real estate). That site estimates a 27% drop, from $25 trillion to $18.2 trillion. From here it looks like prices decreased about 33%.

    As a Fermi estimate of the value of residential real estate to see if the first site's total value is "reasonable," assume 300 million Americans each need 500 ft^2 to live at $100/ft^2. This yields $15 trillion so I think we're in the ballpark by saying the write down of real estate was on the order of $7 trillion.

  11. Has anyone wandered over to "The Right Climate Stuff" (get it?) web site where an esteemed group of retired NASA engineers and rocket scientists conclude, basically, that there is no evidence of crisis, no remedial action need be taken at the present time, and that more research is needed? There's a link to a paper they produced as well.

    I mean, they ARE rocket scientists after all.

    • Yeah, it hasn't escaped notice in our circles.

      Let me point out that few outside NASA seem to have noticed the huge cultural divide within NASA, between the scientists and the test pilots, i.e., between the constituency for manned missions and the constituency for remote sensing instruments. When budgets get tight these are natural enemies. So in evaluating the astronauts' and their allies' claims, don't forget to discount, not just for the air force culture, but also for long-standing intramural competition and resentment against the earth observation people.

      The paper you link is the same old stuff, but it is a good candidate for a fisking.

    • This somehow caused me to recall
      http://www.af.mil/shared/media/photodb/photos/070113-F-4884R-006.JPG
      *Science marches on!*

    • From that site:

      5. Our US government is over-reacting to concerns about Anthropogenic Global Warming.

      That destroyed their credibility in my eyes, as I'm unable to detect any reaction by our government.

  12. Pingback: The Haircut | Planet3.0

  13. Pingback: The Carbon Bubble: All we have to do is decide to not commit civilizational suicide – and the markets crash? – Stoat

  14. Gred Laden thinks about tornadoes and climate change in a way that reminds me of mt's hanging mobile analogy:

    http://scienceblogs.com/gregladen/2013/05/21/understanding-storms-and-global-warming-a-quaint-parable/


Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>