Climate change policy

Bjorn Lomborg seems to be causing a stir again with his new book, ‘Cool It’. I haven’t read the book but the essence of it seems to be that the dangers of climate change are over-rated. Lomborg also proposes that trying to cut emissions might be part of a good policy response to climate change, but it shouldn’t be the entire response. He says in an interview with Bill Maher,

Right now, we talk a lot, and we say, let’s do the Kyoto Protocol, which costs a lot of money; we actually don’t implement [it], and then even if we did, [it] would do very little good… Instead, we should focus on cutting the cost of cutting emissions. That is, invest in research and development on non-carbon-emitting energy technologies.

Whether Lomborg’s right about the numbers or not, it raises an interesting point: in our haste to talk about ways of cutting emissions have we lost sight of the basic economics principles which should guide us? Lomborg points out that good things can come from global warming too, such as the opening of the Northern Passage. If we can no longer prevent it happening, wouldn’t it be worthwhile to invest in making it productive? Essentially, his point is that many of the responses to climate change have a higher marginal cost than marginal benefit and a re-allocation of resources would be beneficial to everyone.

On a broader lever, does there come a point where we have to acknowledge that, given the lack of action so far, many of the predicted consequences are unavoidable? At that point, would it be more beneficial to invest in technology that will take advantage of a different global climate than continue to aim for an unachievable first-best outcome of preventing climate change? I don’t pretend to know much about the issue but books such as Lomborg’s that address such questions in a reasonable fashion are vital to the construction of effective policy. Climate change is simply too important to let a knee-jerk reaction dictate the future of our planet.

Check out comments by people who’ve read the book at MR.

  • Kimble

    “does there come a point where we have to acknowledge that, given the lack of action so far, many of the predicted consequences are unavoidable?”

    I think you will find that once we start hitting those points in time that they will be reset a little further out. I am pretty sure that most of those predictions, “if we dont do anything by March 2012, we are doomed no matter what!”, are just the predicters effort to give the rest of us a hurry up.

    Waste of time listening to them in any case.

  • CPW

    Lomberg’s point seems to me to go to the heart of the carbon tax versus cap and trade debate. With a cap, we fix the amount of emissions but remain uncertain about what the cost will be. With a carbon tax, we fix the cost, but remain uncertain about how much emissions we get. It’s easy to say that we should do something about global warming, but such statements need to be qualified by working out how much we’re willing to pay to do something about global warming.

    The critics of Lomberg have a point when they say that worst case global warming scenarios are so disastrous that their cost dwarfs any realistic estimate of the cost of reducing emissions, hence we need to immediately establish a cap on emissions.

    But if we just go with a median global warming assumption, it’s quite possible that the optimal response from a cost-benefit perspective will allow some warming. There’s no way of telling until we have some idea of how costly carbon reduction will be, which depends mainly on the rate of technological advance of non-carbon energy sources. In this scenario, it would seem optimal to raise the level of carbon taxation over time as we observe costly reducing carbon emissions really is. (Caveat: that paper that says that slowly raising carbon taxes creates a perverse incentive to produce more now).

    Waiting for more certainty on cost projections obviously has value, but delaying means the eventual response will be more costly. Have we crossed the threshold yet? We really need predictions about how rapidly climate modeling predictions will reduce their error bounds.

  • Kimble

    If Satan beats God in the next Battle for the Universe, we lose our lives PLUS our eternal souls. The stakes are too high NOT to be a Christian!!!

    I have never given credence to the argument that X may be such a big problem that we must do anything and everything to address the possible problem, not matter how slim the chances of it occurring. People who say that have often given up on reason.

  • snufsmumiken

    On the original post: I agree that adaptation is an important issue, but it doesn’t seem to me that it has quite such a clear implication for policy. The externalities associated with abatement may be more important than those associated with adaptation. After all, individuals should have reasonable incentives to adapt. I should qualify this: there may be public goods issues with adaptation technology development. But at this stage, it seems a fair call for policymakers to give a lot of emphasis to encouraging abatement.

    To CPW: I agree that carbon tax rates (in an alternative world where they were used) might ideally be adjusted over time. But I would expect that changes to these rates should reflect changes in our knowledge about the harm from emissions more than knowledge about external costs. The textbook level to set the tax is at the marginal level of *harm*.

    To Kimble: I don’t doubt that there are some people crazy enough to say that we should do “anything and everything”. But that kind of extreme policy response is not on the cards. The best policy *should* reflect the range of possible outcomes – including very unlikely but catastrophic ones. Of course it is very difficult to reflect them properly in policy, because our estimates of the likelihood of these events are very unreliable. If we were going to conduct such an exercise, we would have to accept that there would be a lot of noise in our best guess. But we don’t get our best guess for *expected* harm by truncating the distribution of possible effects.

  • CPW

    snufsmukiken: I agree when the environmental cost is certain. Let me rephrase: given that the environmental cost is uncertain, effectively the decision we’re making is how much insurance we’re buying (do we want to be 95% certain the earth won’t explode, or 99.995% certain). One of the factors in this decision is how costly it will be to obtain a certain level of emissions – which we don’t know until we try and reduce them.

    My general point is that global warming responses follows the same risk-averse model as normal insurance. If we were risk-neutral, we could go with the median forecast. Because we’re not, so the tails on the forecast matter.

    I agree with Kimble that we not willing to spend everything to protect ourselves from miniscule threats (we don’t seem to be doing much about the threat of a large asteroid crashing into us for instance).

    So really I see the grounds for disagreement about global warming response falling into categories of:
    uncertainty about bias of global warming forecasts;
    uncertainty about variance of global warming forecasts;
    how risk-averse we are;
    how costly CO2 abatement will be (and discount rates are another mine-field);
    the costs and benefits of delaying (which depends in part on how quickly we will eliminate other forecast errors).

    Combine any bunch of plausible parameters for all those values and you could quite reasonably support most positions without being ideological in any way (even, I suspect, if we start by stipulating that global warming forecasts are unbiased).

    And then there are the realpolitik aspects – I suspect Lomberg’s argument is better if you think that there is a lump sum of global funds available for worthy causes, and that spending money on global warming detracts from spending money on third-world development, for example.