Balancing Risks
I agree with Jim Manzi’s position, as he lays it out in his smart reply to Jonathan Chait:
Carbon dioxide is greenhouse gas, and if you put more of it in the atmosphere, then all else equal the Earth will get warmer. The key unknown, because of the complexities of climate feedbacks, is how much warmer. The UN IPCC forecasts that Earth will get something less than 3C hotter within about a century, and further estimates that 4C of warming would cause the world to lose 1% – 5% of GDP; therefore the expected costs of global warming are on the order of 3% of GDP sometime well into the 22nd century. This is a huge amount of money, but not exactly consistent with Miami becoming an underwater theme park. Given that global consumption is projected to grow from about $6,600 per person per year today to about $40,000 per person per year over the next century, it’s pretty hard to justify massive sacrifice of wealth today for the purpose of preventing our descendants a hundred years from now being only 5.7 times, instead of 6 times, as rich as we are. The real risk is that science has radically understated the greenhouse effect. A carbon tax designed for the expected case can safely be avoided for decades, while a carbon tax high enough to ameliorate a low-odds disaster scenario would be insanely expensive. Relatively low-cost investments in specific technologies that would be useful if such a disaster scenario arose, on the other hand, are a smart insurance policy.
Why don’t more people believe something like this?
March 31st, 2008 01:25
But how would those “low-cost investments” be financed? Perhaps through a carbon tax? If we know that there is a negative externality of small expected effect, shouldn’t a small Pigouvian tax improve efficiency? Doubly so by reducing labor/income taxes? Or if not, then to finance that “smart insurance policy”?
March 31st, 2008 09:40
Call me dumb, but I don’t understand why a move toward a less carbon centric energy system through a carbon tax or other incentives will be “insanely expensive”. People seem to have this as some sort of assumption but is there really evidence that a focused shift away from carbon is bad for the economy? I don’t see why it wouldn’t be a boon for the economy as the focus on new technology creates new industries. After all, we aren’t talking about putting the carbon tax on top of the current tax structure but some kind of revenue neutral carbon tax. What am I missing?
March 31st, 2008 10:50
Why don’t people believe this? Because it’s coming from National Review, the GOP, and other groups who have traditionally supported the interests of industry (rightly or wrongly). This post is a little like bemoaning the fact that conservatives won’t listen to my well-thought-out plan to raise the income tax and spend the money on single-payer health care, despite the fact that it was published in The Nation.
If you want people to adopt this plan, you’ll need some influential backers from the left. Bjorn Lomborg won’t cut it, either. But simply asking liberal to discard years of experience and take NR seriously is not remotely reasonable, and completely fails to take into account human nature.
March 31st, 2008 11:09
I agree with Dan Miller. Treating liberals as if they were open-minded fails to take into account human nature.
March 31st, 2008 11:51
More people don’t believe this because most people don’t reduce the entirety of human existence to the accumulation of capital.
March 31st, 2008 12:19
I’m sympathetic to the thrust of this argument, but I have a couple of concerns:
(1) This sort of calculation was factored into the Stern report CBA calculations, and it didn’t seem to affect the conclusions much. It’d be interesting to try to pinpoint the discrepancy.
(2) “global consumption is projected to grow from about $6,600 per person per year today to about $40,000 per person per year over the next century”
Who exactly is supposed to reap these gains would seem to matter greatly to whether a given sacrifice is worth it or not. The places likely to be worst hit by global warming strike me as also being those least likely to see any of that $33,400 increase, so we’re not necessarily sacrificing for the benefit of those richer than us, as the argument presumes.*
(3) All this SWB stuff probably matters in terms of the trade-off between money and climate. Yes, I am aware that there may be no such trade-off in some areas, but in general I think such considerations suggest the cost estimate is too low.
* Maybe an optimal solution would involve little action now, with massive transfers to those countries worst affected by GW when it occurs, but I’m not sure which is the more politically more infeasible of (a) said massive transfers; and (b) cutting back emissions.
March 31st, 2008 12:25
KJ,
Here is what an economist would say: People and businesses don’t generally have to be forced to cut costs. They have a powerful incentive to buy the cheapest technology that will serve their purpose. If they are currently using carbon-intensive technologies, it is probably because those technologies are the cheapest. Forcing them to move away from carbon (or taxing them until they do) will force them to use more expensive technologies. If clean technologies were cheaper, people wouldn’t need any prodding to use them.
More expensive technologies are not more expensive arbitrarily. They have a higher price tag because it takes more resources to produce them. More resources devoted to creating carbon-free energy means fewer resources devoted to other uses. Carbon-free industries may grow, but other industries will shrink. People will spend more money on energy, but less money on other things. We can’t make the economy collectively richer by arbitrarily choosing not to use a cheap technology.
The problem is not the tax itself. Presumably the government spends the tax money or redistributes it and little real wealth is destroyed in the transaction. The problem is that the tax causes people to change their behavior in order to avoid it — it causes them to use more expensive and less productive technologies.
If the tax is revenue neutral, the question becomes: Is the expensive technology-switching caused by the carbon tax more or less costly than the inefficient behavior caused by the tax it replaces. I guess it’s possible that a carbon tax could help the economy if it replaced an even more costly revenue source.
What all of this tells us is that not emitting carbon is more expensive than emitting carbon. It doesn’t tell us how much more expensive. I don’t know how people get “insanely costly” as opposed to just “costly.” I imagine they look at the price elasticity of demand for carbon using technologies. If a steep increase in the price of gasoline doesn’t cause people to seek out alternatives, you could infer that other technologies are a lot more expensive than gasoline — not just a little bit more expensive.
March 31st, 2008 12:55
Thanks Jebs. Nice explanation.
If I buy that this change will be more costly, I guess the next question is isn’t this move away from carbon all but inevitable anyway. We will likely run out of oil at some point and moving to more coal would probably increase the global warming problem and create more pollution to deal with. So if we have to invest at some point in this change, why not move it forward.
The price elasticity is likely caused by the lack of infrastructure in place to deliver alternatives efficiently. We can let the infrastructure and technology develop slowly or we can push it along. It may or may not cost a few percent of GDP but like Manzi and Will argue, so what.
And of course Manzi should realize that there is more to this than simply GDP measures, which indicates to me a lack of creativity mixed with intellectual shallowness. This is our planet. As much as we can help it, we don’t want to get into the habit of changing its climate for a myriad of reasons beyond GDP.
March 31st, 2008 13:46
Paul, human nature doesn’t just apply to liberals…
March 31st, 2008 14:50
“Why don’t more people believe something like this?”
Freddie’s post is emblematic. Global warming is not a precautionary issue, it is a moral one. The former lends itself to the balancing of risk and reward; the latter type does not.
Moralizing an issue reduces deliberative freedom by scrubbing out shades of gray. Too bad if the situation calls for an etcher’s needle; everybody around you carries hammers and chisels.
April 1st, 2008 09:16
OK, so why won’t Lomborg cut it? And the Senate that voted 95-0 against even considering anything like Kyoto must have included some influential people from the left, no?
April 1st, 2008 10:27
The economic effects of a revenue-neutral carbon tax depend a lot on how inefficient the taxes it replaces are. In British Columbia, we were able to eliminate a really stupid tax on corporate capital.
Libertarians should prefer a carbon tax to most other taxes, since it is (a) a genuine attempt to address an externality, (b) more economically neutral than most taxes and (c) on a tax base that is bound to shrink, since the economy in the future will inevitably be less carbon-intensive.