David R. Henderson  

Climate Schlock

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Economists who lack an imagina... Two Public Choice Questions...
How likely is it that the world will warm not just by 2 degrees Fahrenheit by the end of this century, but by 11 degrees? What would happen to the planet? And, to avoid a much hotter world, what should we do and when should we do it? In Climate Shock, Gernot Wagner, the lead senior economist at the Environmental Defense Fund, and Martin L. Weitzman, a professor of economics at Harvard University, address those questions.

They claim that if the concentration of carbon dioxide in the air rises from its current level of 400 parts per million (ppm) to 700 ppm, the probability that the world will warm by more than 11 degrees is 11 percent. If that were to happen, they claim, we would experience serious rises in ocean levels and more and more-violent storms, to name two major consequences. To avoid that, they propose a Pigovian tax of at least $40 per ton of carbon dioxide emitted and, they say, "We must act now." If we don't substantially reduce our carbon usage soon, at some point we will find ourselves using "geoengineering" to reduce the earth's temperature by a few degrees. And they fear that geoengineering could get out of control and have unintended consequences. Better, they say, to impose a stiff carbon tax now.

How convincing is their case? Not very. They could be right, but they don't tell us nearly enough to justify their most important claim: an 11 percent probability of a much warmer climate. And, while they often profess relative certainty in the body of the book, they tend to relegate some of the most important doubts and controversies to the footnotes. That's a problem because few people read footnotes. Also, the authors judge competing policy responses to global warming asymmetrically. Specifically, they advocate a stiff carbon tax throughout, always claiming that it's the obviously right thing to do, without ever considering whether such a tax might have unintended consequences. But when they consider geoengineering solutions--technological methods to alter the climate that they admit would cost a small fraction of the cost of a carbon tax--they raise the specter of unspecified unintended consequences and even construct a scenario in which a mysterious foreign government could engage in unchecked geoengineering.


This is from "Egad, Geoengineering!", my review of Climate Shock in Regulation, Winter 2015-16, p. 74.

Read the whole thing.




COMMENTS (29 to date)
Jhanley writes:

Ah, the nirvana fallacy. I've become very attuned to ot in recent years. It seems very hard for people to remember to avoid.

maynardGkeynes writes:

If you concede "they may be right," which I take it to mean you think they have demonstrated there is at least a non-trivial risk of an 11 degree scenario, which I further presume would be monstrously costly to future inhabitants of our planet, I think they have clearly won the argument by any rational cost/benefit calculation. I truly do not see why, after concluding that, you think that you, I, or anyone should care about how they have handled their footnotes.

Josiah writes:

Whatever the unintended consequences of a carbon tax, it isn't going to lead to the end of human civilization. Whereas if you screw up geoengineering that could happen (imagine an entity like the Federal Reserve that could send us into an ice age if it screwed up).

Scott Sumner writes:

I wish the GOP would propose a stiff carbon tax, but only if combined with tax changes that sharply reduced taxation of capital, leading to no net changes in total taxes paid. The beauty of the proposal is that it would improve economic efficiency even if the global warming scare is 100% bogus. The Dems might turn it down because they care more about taxes and income distribution than saving the planet, and the GOP could point that out.

ThomasH writes:

Nor did this blog post give enough information about why the author thinks $40/ton of CO2 emitted is too high and what the author thinks is the optimal level. The post might even lead the naive reader to think that the "cost" of the measure is $40 multiplied by the number of tons of CO2 emitted but that ignores that most of that is a transfer from consumers of CO2 intensive goods to consumers of less CO2 intensive goods. The "cost" is that of shifting consumption into a somewhat less preferred configuration and the extra investment needed to change the production mix such as energy production and distribution from non-fossil fuels. Indeed, if a carbon tax were used to decrease other taxes with (I think) higher deadweight losses like the corporate income tax and the wage taxes that are dedicated to SS and Medicare financing, there might be a net benefit.

While comparing the relative costs and benefits of carbon taxation with different kinds of geo-engineering is difficult, I can certainly see why NOT increasing CO2 levels looks less risky than measures to decrease the heat flux (which will do nothing for ocean acidification). Ultimately the two kinds of measures are not really alternatives but rather the optimal level of a carbon tax needs to take account of the optimal amount and kinds of geo-engineering and vice versa. And considering the time scales involved, we really do need to move quickly on both carbon taxation and geo-engineering research.

Anonymous writes:

@Josiah

Not necessarily. I've heard an argument that it's at least possible that global warming is the only thing preventing the current interglacial from ending.

David R. Henderson writes:

@Scott Sumner,
I wish the GOP would propose a stiff carbon tax, but only if combined with tax changes that sharply reduced taxation of capital, leading to no net changes in total taxes paid. The beauty of the proposal is that it would improve economic efficiency even if the global warming scare is 100% bogus.
You are probably right about carbon taxes vs. capital taxes, but not definitely right.
See Robert Murphy’s “Carbon Taxes and the ‘Tax Interaction’ Effect." He looks at cutting other taxes, not taxes on capital. That’s why I say you’re probably right.

Josiah writes:

Prof. Henderson,

If you look at the chart at the top of page 20 of this report Bob Murphy did for Cato, it shows a positive effect on GDP from swaping capital taxes for a carbon tax.

I agree with Prof. Sumner this would be an excellent idea for the GOP to adopt.

JLV writes:

Geoengineering also has the benefit of allowing people in the 60+ cohort to both avoid the external costs of carbon (they'll be dead by 2050, when most of the damages start to ramp up) as well as the costs of abatement (they avoid paying the carbon tax while still alive).

MikeP writes:

There are two further essential observations about the 60+ cohort:

1. The carbon they burn has a minimal effect on the climate of 2050.

2. They are far poorer than their grandchildren will be in 2050, so protecting them from the costs of abatement is saving the economy from wildly regressive taxation.

This same treatment extends to pretty much the entire population today.

David R. Henderson writes:

@maynardGKeynes,
If you concede "they may be right," which I take it to mean you think they have demonstrated there is at least a non-trivial risk of an 11 degree scenario, which I further presume would be monstrously costly to future inhabitants of our planet, I think they have clearly won the argument by any rational cost/benefit calculation.
You take it wrong. They haven’t demonstrated that. They may be right means just what it says: they may be right. They don’t given enough information for one to be able to tell. I really do recommend that you read the whole review rather than assuming that you know enough from this one snippet.

David R. Henderson writes:

@Josiah,
If you look at the chart at the top of page 20 of this report Bob Murphy did for Cato, it shows a positive effect on GDP from swaping [sic] capital taxes for a carbon tax.
Right you are. I had had a vague recall that I had read it somewhere. I had. Notice whom Bob thanked for looking over a draft.

nh writes:

Why not let the "market" decide? The Earth has warmed and cooled many times over the 4000 years of its existence - oceanfront property will decline in price? will the demand increase at a lower price regardless of 11% risk? or will the Global Warming reduction of supply increase the price?

Technology always outstrips the Luddites

ThomasH writes:

OK now I read the whole thing and the same comment applies: if the the book is wrong what is correct? What IS the optimal combination of CO2 taxation (whose cost are not discussed) and geoengineering and which kinds? Or more reasonably, what is the right way to think about the issue?

Joseph Hertzlinger writes:

If I did the arithmetic right, the carbon tax in question is less than 40 cents per gallon of gasoline.

I'm struck by the contrast between the apocalyptic rhetoric and the anemic actual estimates of damage.

David Friedman writes:

I haven't read their book, but one of the things I'm suspicious about is the "more and more violent storms" claim. For some of my reasons, tying in to an old mistake in economics, see:

http://daviddfriedman.blogspot.com/2012/09/physics-economics-and-hurricane.html

Do they say why they expect that? In particular, do they give one or both of the bad arguments I discuss--or some different and better argument?

Josiah writes:

I've heard an argument that it's at least possible that global warming is the only thing preventing the current interglacial from ending.

Let's think about this for a second. In order to prevent an ice age, the climate sensitivity for CO2 would have to be pretty high (if CO2 doesn't cause much warming, then it can't stop much cooling). Of course, if climate sensitivity to CO2 is high and we aren't about to go into an ice age, then the results would be very bad.

Which scenario is more likely? Well, ice ages come along about once every 10,000 years, or one out of every hundred centuries. So the risk that emitting CO2 will lead to dangerous warming is about 99 times greater than the chance it will protect us from an ice age.

Nathan W writes:

People ignore footnotes? But that's where the caveats and quirky diversions are found.

Anyways, the likely outcome of a carbon tax is reduced waste of energy and a relative reallocation of taxation from income to consumption, both of which count as long term economic benefits in my books.

Sure, employment will go down in the fossil fuel sectors, but it will also go up in the clean energy sector.

In a world where the energy intensity in production is about 6%, even the worst possible scenarios of carbon tax are in the range of forgoing one year of average GDP growth.

I challenge you to make your very best argument against a carbon tax, including the outside bounds of the worst possible impacts on the economy. In my books, the effects may be positive, and in the worst case scenario at the global level they pale in comparison to the likely impacts of global warming.

Radford Neal writes:

"In a world where the energy intensity in production is about 6%, even the worst possible scenarios of carbon tax are in the range of forgoing one year of average GDP growth."

This is the flip side of a claim once made by a respected economist that since agriculture amounts to only 5% of US GDP, claims that global warming might have a catastrophic effect on food production can be ignored, since at most this would result in a 5% decline in GDP.

Checking conclusions against common sense is a good idea.

bill writes:

The case for carbon taxes is undeniable. You don't even have to believe in global warming to realize that carbon taxes are better taxes than almost every other tax we use. Less deadweight losses.

Make two lists. One with the oil producing countries that pursue policies that further US interests and one that is countries that are benign to our interests. That more than negates any of the deadweight losses in the carbon taxes. It's a free lunch.

John Hayes writes:

I'm struck by the rejection of geoengineering. It seems like we're already doing geoengineering quite effectively by altering temperature, rainfall patterns and ocean acidity. If there were a real threat of glaciation, I'd expect we'd try to stop it, or at least the people most likely to be frozen would put in a special effort even if at the expense of others.

It seems like there's two classes of problem. A commons problem with ocean acidity where taxation seems like a good approach. Separately a climate property problem where geoengineering may encourage climate modification for the benefit of some at the expense of others where maximizing utility is the goal.

Buck Enomics writes:

Why were Carbon dioxide levels so high in the 1700's?
No cars, no fossil fuels, no industrial revolution...

If there is an 11% chance of "A" happening, then there is a 89% chance of "B" happening.

Until someone can logically explain the high levels of carbon dioxide emissions pre industrial revolution, I'm going with the 89%.

I wish most of my life decisions had an 89% probability!

Josiah writes:

Buck,

CO2 levels weren't high in the 1700s. They were about a third lower than they are today. See here.

I hope that helps.

Daublin writes:

@Josiah, why would you say that a carbon tax is safe? I don't think it's safe at all.

Advanced economies are very rare in the history of humanity, and nobody is completely sure exactly how they work. The level of understanding is very similar to that of the global ecosystem.

Historically, it's been rare and difficult for a large economy to come into being. In fact, the conditions for this happening appear to require cheap energy.

David R. Henderson writes:

@bill,
Make two lists. One with the oil producing countries that pursue policies that further US interests and one that is countries that are benign to our interests. That more than negates any of the deadweight losses in the carbon taxes. It's a free lunch.
Please explain. I don’t follow at all.

Josiah writes:

Daublin,

We have enough evidence from the variety of tax rates among advanced economies to be confident that a $40/ton carbon tax would not destroy civilization (if you want to pretend skepticism on the point then I assume you also oppose any cut in taxes as a dangerous risk to civilization). In fact, the evidence suggests that if you paired carbon taxes with cuts in taxes on capital you'd come out ahead even without considering any environmental benefit.

By contrast, when average temperatures fell a few degrees during the Little Ice Age a third of Europe's population died. That's the sort of thing you have to worry about if geoengineering doesn't go as planned.

Josiah writes:

Prof. Henderson,

I think Bill has in mind is something like the following: the use of oil and gas as fuel sources as historically meant a large transfer of wealth to corrupt and nondemocratic governments throughout the world. This wealth has allowed these governments to resist liberalizing their political and economic systems. In the case of Saudi Arabia it's also allowed for the funding of religious extremist organizations throughout the world. Both the strengthening of these regimes and the reliance on oil has also encouraged the U.S. to get involved in foreign conflicts than are very costly in terms of lives and money. Most of these harms are not reflected in the direct cost of energy to consumers.

David R. Henderson writes:

@Josiah,
Thanks.
I have no idea, though, if that’s what he was getting at.

Mark Bahner writes:

Hi,

To all the people proposing a carbon tax...would it change your advocacy if the world per-capita GDP (in year 2015 dollars) was over $1 million in 2100?

How about over $10 million (in year 2015 dollars)?

And a follow-up question...if particulate emissions were (they are) much more damaging to human health than CO2, would you support changing the CO2 tax to a particulate emissions tax?

P.S. I invite all people advocating (and not advocating :-)) action on global warming to provide their own predictions on my blog regarding various conditions of the world in 2100 (e.g. GDP per capita, life expectancy at birth, sea level rise relative to 2000):

Predictions for world conditions in 2050 and 2100

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