by Judith Curry
David Montgomery has testified twice in the past few weeks on the economics of climate change. Lets take a closer look at his testimony, and at some of the critiques of his testimony.
Who is David Montgomery?
I found this biosketch:
Dr. W. David Montgomery is Vice President of CRA International and co-head of CRA’s global Energy and Environment Practice. He is an internationally recognized authority on economic issues in climate change policy, and was one of the first contributors to the academic literature on emission trading, for which he received the Association of Environmental and Resource Economists 2005 award for a “Publication of Enduring Quality.” Dr. Montgomery was a Principal Lead Author of the IPCC Second Assessment Report, Working Group III, and has authored a number of peer-reviewed studies of climate change policy over the past decade. He also advises major energy companies on incorporating future climate policies in their strategic planning process.
Prior to joining CRA, Dr. Montgomery held a number of senior positions in the United States Government. He was Assistant Director of the U.S. Congressional Budget Office and Deputy Assistant Secretary for Policy in the U.S. Department of Energy. Dr. Montgomery has a Ph.D. in economics from Harvard University, and has taught economic theory and environmental economics at Caltech and Stanford University.
His c.v. with publication list is here.
Hearing on Climate Change: Examining the Processes Used to Create Science and Policy
For background on this hearing, see this previous thread. Full text of Montgomery’s testimony is found here. The summary of his testimony is reproduced below:
Climate change is a global phenomenon driven by global emissions. Concentrations of greenhouse gases in the atmosphere are what matter, not emissions in a single year, and these concentrations change very slowly. Stabilizing global temperatures at any level requires ultimately reducing carbon dioxide emissions from energy use to near zero. To avoid unnecessary economic harm, policies must involve comparable efforts by all countries, mandates for emission reductions must not get out ahead of technology readiness, and effective R&D policy is essential.
Reducing greenhouse gas (GHG) emissions will have a cost. All the comprehensive economic models used to study past proposals have agreed on this point. Model results do differ about the size of these costs, but the differences stem from the models‟ varied assumptions about future technology and the effectiveness of a global emission trading system. All models also find that the deeper are the emission cuts, the higher is the cost of making them. Some recent studies that make claims to the contrary have recently garnered undue public attention, but the fact remains that regulatory or cap and trade policies will not lead to a net increase in U.S. jobs, nor will they create conditions for a U.S. clean energy industry able to compete more effectively in global markets.
Studies that purport to show that GHG controls will produce these outcomes make a number of common errors. To be sure, if fears about climate change are correct, curbs on GHG emissions will have some benefit. But the harm to the U.S. that can be avoided directly by U.S. action is often greatly exaggerated. Most of the damage from climate change will occur in countries without adequate public health systems and with poor, undernourished and unempowered populations. Four points are crucial to keep in mind. First, if the U.S. were to act without solid assurance of comparable efforts by China, India, and other industrialized countries, its efforts would make almost no difference to global temperature, especially if industrial production and associated emissions are simply exported to other countries. Second, even global action is unlikely to yield U.S. benefits commensurate with the costs it would incur in making steep GHG emission cuts. Third, globally, even with moderate emission reductions, benefits would not be much greater than costs, and, fourth, conflicting economic interests will make international agreements on mandatory limits unstable.
Response from Paul Baer
Real Climate Economics has posted a response to Montgomery’s testimony by my colleague at Georgia Tech, Paul Baer, entitled “Why is the conventional wisdom of climate economics so pessimistic?” Some excerpts:
First, Montgomery holds two beliefs that are in tension: one, that capital and labor markets are “efficient” and can be assumed to be generally at equilibrium at times of “normal” economic growth (that is, profits are being maximized and labor is receiving its marginal product), and two, that there is an unpriced externality to GHG emissions. He claims that since investment in pollution regulation MUST have lower private returns than available alternatives (otherwise it would be done already by rational firms), therefore labor productivity, total wages and total economic output must all fall if the quantity of allowable emissions is reduced by regulatory fiat. However, if there is any externality at all, by definition social welfare can be improved by internalizing it. This will lead to a drop in output in the industries affected, and to a drop in the wages and profits in that industry, but again, overall welfare – something that includes, but is not limited, to economic output (GDP), will go up. On average, workers and everyone else will be better off. . . How those gains are distributed is another question, of course. But those gains can be real and potentially significant, especially if one considers other co-benefits of emissions reductions.
Second, Montgomery assumes that nations do in fact – and normatively should – balance their own economic costs of emissions reductions against only their own benefits from avoided damages, not global damages. He describes this as an appropriate empirical characterization of what countries do, and normatively justifies it on the basis that if that’s what a country expects other countries to do, it would be useless and thus normatively unwarranted to do otherwise. This is importing game theoretical reasoning, and ignoring the possibility that other normative reasons to want to act justly or virtuously might be warranted. Crucially, however, the basic theoretical framework makes it perfectly possible for a nation to incorporate the well being of non-citizens into its own domestic welfare function, and whether to do so or not is a choice, not a fact. The importance of course is that if one believes – as Montgomery apparently does – that countries cannot be persuaded to empathically value the well being of those harmed by their pollution, then pessimism about global cooperation is inevitable. However, some level of other-concern is plainly evident; what role it may yet play remains an open question, but it a place where one might find some possibility of hope.
Montgomery’s Testimony at the Hearing on EPA’s Greenhouse Gas Regulations and Their Effect on American Jobs
Montgomery’s testimony can be found here. His testimony responds to a recent report by Ceres/PERI that finds that investments to clean and modernize U.S. power plants will create significant new job growth. His testimony defies easy summary (by me anyways), here are excerpts from his summary:
I discuss how a study of green jobs released last month by Ceres and PERI gives a biased and incomplete picture of the effects of regulation and of how jobs are created. I also discuss estimates made with CRA’s MRN-NEEM model of the effects of EPA’s proposed greenhouse gas regulations on energy prices, employment and competitiveness.
These regulations undeniably raise the cost of doing business. Tradeoffs must be made between economic costs and environmental benefits in designing regulations, and pretending there is no cost does not help those deliberations.
The PERI study and its like predict job gains because they leave out of their calculations all the jobs lost in the rest of the economy because of regulatory costs. Indeed, the logic of the PERI report implies that the greater the unproductive investment caused by a regulation, the greater its impact on jobs. The result is absurd because the ‘logic’ upon which it is based is nonsense.
Using CRA’s models, even highly cost-effective greenhouse gas regulations plus the other pending regulations would increase wholesale electricity prices by 35 – 40%%, reduce average worker compensation by about $700 per year, and shrink coal, electricity and energy intensive sectors of the economy. Using Clean Air Act Authorities to create a system of command and control regulations will cost far more, because they are designed by bureaucrats who know next to nothing about the circumstances of individual businesses. Therefore, their orders cannot possible lead to the same cost-effective solutions that managers would find for their own businesses when facing a price on greenhouse gas emissions.
Response from James Heinz
Again at Real Climate Economics, James Heinz rebuts Montgomery’s testimony in this post. Some excerpts:
A central theme in Dr. Montgomery’s testimony is that regulations raise the cost of doing business. However, the discussion of costs should be framed in the appropriate context. Most economists would agree that pollution also represents an important cost, but one that is external to the decisions made by utility companies. Utilities with high levels of emissions are not paying the full cost of their activities, the rest of the population is. This is the standard economics concept of an externality (costs that are ‘external’ to economic decision-making) – a source of market failure, suggesting that government action can result in improved outcomes. The existence of such externalities directly influences investment decisions. Because utilities do not pay the full cost of their activities, there is a strong motivation not to invest in capital improvements which would modernize electric generation capacity in the U.S. Furthermore, the costs that businesses pay are not the only ones worthy of consideration. The regulations actually lower the costs that are currently paid in terms of health and environmental problems. Finally, Dr. Montgomery tends to assume that any capital investments in response to pollution control are unproductive. However, this ignores the supply side impacts of getting the incentives right – utilities will invest in capital improvements which have real impacts on productivity and efficiency, relative to the efficiency of out-dated plants. These productivity improvements will tend to lower costs.
Dr. Montgomery correctly argues that the job gains presented in the Ceres/PERI report would not be evident if the economy were operating at full capacity. There is no disagreement here: if the economy were at full-employment then you wouldn’t get a net change in jobs through regulations that correct market failures and improve incentives. This is by definition – full-employment means there is no extra labor to be employed. Moreover, when the economy is truly operating at full-employment, the resources needed for the kinds of investments behind the jobs estimates would have to come from somewhere else in the economy – i.e. there is the potential for crowding out. So, yes, if the economy were operating at full-tilt, with low rates of unemployment and no excess capacity, there could be something to this argument. However, the current reality is significantly different. Unemployment remains at historically high levels and one glance at the data on the financial sector from the Federal Reserve shows that lending has not recovered. Mobilizing idle resources through new investments does create jobs, since the resources were not productively employed in the first place.
Most economists would argue that investments should be channeled to uses that raise the productivity of the scarce factor of production (you get more bang for your buck this way). In the U.S. economy, labor is currently not scarce – with a 9 percent unemployment rate. What is scarce is non-renewable energy and the capacity of the environment to absorb pollutants over time. Given this, the right economic argument would be that we should channel investment towards activities which raise energy efficiency or reduce reliance on non-renewable sources of energy, and make the most of the environment’s capacity to assimilate pollutants in a sustainable way (e.g. through investments in pollution control). There are many ways to think of productivity – and we would be well advised to consider the productivity of our scarce energy resources when making policy choices.
JC’s comments: I think the issues raised by Montgomery’s testimonies are of critical importance on the global warming debate. I don’t really know how to evaluate merits of his arguments. I found Baer’s critique to be not very convincing, although I thought Heinz’s critique was much more convincing. Your thoughts? Other good references on this topic?
One paragraph describing Heinz was repeated – the second from the bottom.
The Heinz critique is no better than Baer’s. He is trying to draw a distinction between current conditions and full employment as if extra government regulation would create more private sector jobs now but not during good economic times. This is hogwash. Government regulation destroys jobs regardless of the level of employment.
Government regulation destroys jobs regardless of the level of employment.
Government doesn’t solve problems; it IS the problem.
Those claiming to counter Montgomery are simply complaining against reality.
But Montgomery, in choosing to discuss the premise of dangerous climate change as if it were credible, grants too much by far to the AGW community.
Indeed, those skeptical of AGW can only enter this discussion on a hypothetical basis and it is hard to reason about what one does not believe. Still it is important to do it, as the economic arguments against emission elimination are very strong, and far easier for most people to understand.
Political AGW has ground to a halt primarily for economic reasons, although physical climate science reasons play a supporting role. But the economics has a physical basis as well. Energy supply is after all a physical phenomenon, one which most people do not understand.
“But Montgomery, in choosing to discuss the premise of dangerous climate change as if it were credible, grants too much by far to the AGW community.
Please quote Montgomery’s testimony so I can understand what you are talking about. All I get from the testimony is an explanation of the negative economic impacts of green regulation.
The weakest part of the alarmist case on AGW and the need for laws limiting emissions is the economic one. It is, indeed so weak that normal economists who don’t make a whole set of unrealistic economic assumptions have come to the conclusion that it is a bad idea. I’ve spoken to alarmists who quite simply say they don’t want to talk about economics. It’s quite odd that the majority expert view on climate science is regarded as unchallengable but the majority expert view on the economics is disregarded by alarmists.
The standard economic model on global warming, drawn up in the early 1990s has not really been challenged.
William Nordhaus from Yale and others have made similar points. It is the starting point of Bjorn Lomborg and to a lesser extent Roger Pielke Jnr. Richard Toll would presumably agree.
Roger Pielke Jnr’s take on the situation adds in the uncertainty on global warming predictions. His book ‘The Climate Fix’ and Bjorn Lomborg’s ‘Cool It’ and Nigel Lawson’s ‘An Appeal to Reason: A Cool Look at Global Warming’ are all well worth a read.
The most curious thing about this view is how little attention it garners. What these thinkers proscribe is a low C02 tax ( $10 / tonne or less ) all of which is hypothecated for energy research. If only some country somewhere would listen to them.
Anyone who has actually created jobs would dismiss both of these guys. Reality is trying to pay energy costs in exess of ones expectations with income which is also falling short of expectations due to a poor economy which has been thrust upon us to no small degree by government’s tinkering.
Their disagreement seems to be whether our ‘economic chicken’ should be hobbled and starved or vigorously choaked. More eggs will not result from either plan.
The question for them should be; Why do we as a society pay exorbItant amounts of tax dollars for the Energy Department of our Federal Government which has never functioned to our benefit these many decades?
Montgomery: I have a car and I like it.
Heinz: Waaaah! He’s not factoring externalities. Look at the number of deaths caused by accidents and pollution.
Rational observer: let’s see… society that is mobile and free and yes there are always drawbacks… or society that eschews energy because of real and IMAGINARY theoretical drawbacks but very very safe because we’re all using ox carts to make it to town to go to chuch. Ignore the starvation and the plague (the externalities Heinz conveniently forgets.)
Is recognising that all progress comes at a cost (TANSTAAFL!) really so rocket sciencey that faux intellectuals like Heeinz feel the need to point this out, as if we’re too vapid to grasp the obvious?
Good heavens, argument has come to this?
“Stabilizing global temperatures at any level requires ultimately reducing carbon dioxide emissions from energy use to near zero.” — I can’t get past this one sentence. Has the climate ever, in 4 billion years, been stable?
The hubris and ignorance that combine to lead allegedly intelligent people to claim otherwise about the climate is not going to lead to any good policies.
There are no instabilities demonstrated by the earth’s temperature data. The only instabilities are demonstrated by the climate models as they extrapolate forward, based on 130 years of instrumented data that was taken during a natural warming. This warming will end below the plus one degree and then there will be another cooling that will end above the minus one degree.
Yes, the most recent ten thousand years have been extremely stable in a narrow range. Most of the temperatures in the most recent ten thousand years have been between plus and minus one degree around the modern normal. None of the temperatures during the most recent ten thousand years has exceeded plus or minus two degrees C. The temperature rise in the most recent 130 years of instrumented data is inside the plus or minus one degree stable range. Before the current ten thousand years, the temperature for the past eight hundred thousand years, based on using ice core data, has been going up and down in a stable, but wider range. The data for the temperature of the earth is characteristic of a stable system. You think it is extreme if you get a record hot summer or a record cold winter, but these are all well inside the normal range for the past ten thousand years.
Yet in the midst of this ‘stability’ shorelines have moved, deserts have ebbed and advanced, lakes have formed and disappeared. Arctic ice has apparently gone through multiple cycles of growth and retreat, as well as glaciers. Forests have been replaced by grasslands, etc.
My take is that the derived global numbers tell us nearly nothing that is useful.
Agree. Global average temperature trends don’t tell me much about how to react. Perhaps we should focus on the trends in habitable acreage of the earth’s surface, and how this changes with time. That would give us confidence that we will have the time, ingenuity and resources to adapt to whatever climate changes are ahead. We have a much bigger real threat in habitation adaptation from asteroid impacts or the giant volcanic crater eruption of Yellowstone National Park that is now overdue based on its past history of regular eruptions.
I’m much more interested in the climate of the last 20,000 years…
I imagine that both Baer and Heinz would see the earthquake in Japan as “good” for the economy. Think of all the new cars, houses, roads, etc. that will have to be built. It will stimulate the economy. Similar thinking can be seen in the “cash for clunkers” program in the U.S. Or paying farmers to not grow food, etc. The idea that creating artificial demand will help the economy is what led us to the mortgage crisis that we are recovering from.
The basic fallacy is claiming that the cost of regulation is a benefit simply because somebody gets the money.
Exactly right. Cash for clunkers was a terrible idea, especially when people are saddled with too much debt already. “Hey, buy a car! Get some more debt!”
They might as well stimulate the glass industry by having people walk down the street and throw rocks through windows. The stupidity of government knows no bounds.
First, take a look at the pedigree. Montgomery’s 1972 paper is a classic. Baer and Heinz, both older than Montgomery was in ’72, have yet to publish anything that comes near.
Baer’s comment is lazy. Montgomery’s arguments do not substantially change if markets are imperfect (i.e., the economy is inefficient). Montgomery’s conclusions do change if markets are imperfect and climate policy improves market conditions. There is no reason to believe that additional (greenhouse) regulation would improve markets. (Montgomery knows this, but choose to tell the simpler story omitting the unrealistic exception. Baer knows that Montgomery knows this.)
Heinz’ comment is of a similar nature. In times like these, the economy needs a government stimulus. There is a large literature on how best to stimulate an economy. Investment in a labour-extensive sector with a slow capital turnover (i.e., energy) usually comes somewhere near the bottom of the list: It takes too long (i.e., the stimulus is effective after the recession has ended) and it generates few jobs at a high cost.
Richard, thanks for stopping by. We would definitely appreciate more input from you on this topic.
I’m a bit perplexed. Am I correct in thinking that Montgomery is now less convinced of the need for carbon encumbering than he used to be? Has the science changed? Heh.
That seems like a curious way to introduce your response. Are we to assume that because of something Montgomery wrote in 1972, everything that he produces now is necessarily better than anything that Heinz or Bear have produced in the past, are producing now, and will produce now and going forward?
Is it true that no one of what you deem to be of sufficient “pedigree” would criticize Montgomery’s baseline assumptions with respect to the externalities of spending on renewable energy and/or the economic impact of regulation? If not, then how is the pedigree of Heinz or Bear relevant to the substance of their arguments?
As a side note — I also find it ironic that many of the “denizens” at this blog, who no doubt agree with Montgomery’s perspective, regularly argue that there is generally an inverse relationship between the academic “pedigree” of an expert and the quality of their work (of course, exceptions are sometimes made – depending on how the expert views the argument that GW is probably A).
Sorry – should be Baer. If ever there were someone who needs a preview feature, it would be me.
As a side note — I also find it ironic that many of the “denizens” at this blog, who no doubt agree with Montgomery’s perspective, regularly argue that there is generally an inverse relationship between the academic “pedigree” of an expert and the quality of their work (of course, exceptions are sometimes made – depending on how the expert views the argument that GW is probably A).
40+ years of working with, for and around scientists gives me some small experience with the prevalence of arrogance and the general lack of common sense, and with their work. There are the good, the bad and the ugly – none of which are confined to any particular viewpoint but the latter two of which seem to be uncommonly prevalent in some circles (climate science, for example).
I’m not saying you’re wrong – just that there’s good reason for the attitude, which you seem to not understand.
From what I’ve seen as a very remote outsider, there is , perhaps, a tendency towards “arrogance” and in the “climate community” which is not characteristic of academe in general. However, I would argue that:
(1) That “arrogance” needs to be viewed in full context, and the full context is the inherently political nature of the climate debate; oppositional “tribalism” has existed from the very start of the debates about AGW, and the debate is like a lightening rod for members of many different tribes on both sides of the political spectrum. Tribalism begets arrogance, and the tribalism of the “climate community” was not spontaneously generated in some vacuum.
(2) While that “arrogance” might be characteristic of the “climate community,” and while it exists to some degree throughout academe, I see ubiquitous attempts from outside academe to overgeneralize about the “arrogant” attributes of academia. I see that tendency towards overgeneralization as being rooted in the larger political context (think of country-club Republicans criticizing the Ivy League elites).
As for a “lack of common sense.” I worked for many years outside of academia before I began working in academia. I have loved to observe human nature my entire life. From what I’ve seen, scientists and academics haven’t cornered the market with respect to a lack of common sense.
Again, I often see statements made such as: “Those who can do, do, and those who can’t do, teach.”
While I can recognize some truth in that aphorism (personally, when criticizing the common;y biased understanding of IQ, I always point to “genius” computer hackers who can’t manage to wear matched socks), I could also say, “Those who can understand people quietly go about their work, those who can’t understand people become managers,” or “Those who understand how things work, put object together to achieve their goals, those who don’t understand how things work, become engineers.”
That “arrogance” needs to be viewed in full context, and the full context is the inherently political nature of the climate debate;
You assumed that what I said was directed ONLY at the climate community. But I worked with other scientists as well. And my statement was broader than your assumption.
oppositional “tribalism” has existed from the very start of the debates about AGW
“Oppositional tribalism” is usually the result of pushback by one group to extreme positions advocated or forced by another group. The growth of the NRA political power is a prime example of response to those who would force their political agenda on everyone else. They didn’t start as a political organization, but were forced to become so in order to survive.
think of country-club Republicans criticizing the Ivy League elites
You forget that many of those country-club Republicans ARE Ivy Leaguers. Ivy League has not always been synonymous with liberal-progressive
From what I’ve seen, scientists and academics haven’t cornered the market with respect to a lack of common sense.
That’s true – but in combination with apparently innate arrogance, it can be a really nasty combination. Witness the lawsuits under discussion in the next thread.
As you read on, you note that I offer arguments too.
I did notice that, Richard – which is why I felt it was a curious introduction. It predisposed me to think that you might have an agenda.
You are apparently predisposed to think that anyone and everyone might have an agenda. :-)
Thanks, Judy, for referencing the posts on Real Climate Economics. And thanks, Richard, for raising (mostly) substantive points.
I do have to admit, yes, my dissertation doesn’t quite match David Montgomery’s. On the other hand, the 1972 paper in question is a classic work of mathematical economics, which demonstrates “efficiency” results of emissions trading under highly restrictive conditions. Its precise relevance to practical policymaking is an interesting question, but I lean towards skepticism.
I will respond to the more substantive criticism subsequently.
The issue is not whether assumptions are restrictive.
The issue is whether releasing the assumptions in a realistic manner would change the results. There is no reason to believe that as shown in the extensive literature on policy in the second-best.
You argue for less restrictive but unrealistic assumptions. That’s sophistry.
I’m sorry – which less restrictive but more unrealistic assumptions that I’m arguing for are you referring to?
Sorry. I read too quickly. You seemed to start to argue that climate policy would reduce the distortions in the economy. Instead, you argue externalities. The climate externality is too small to distort the market, at least according to published studies.
What exactly do you mean “distort the market” that is different than “produce at a sub-optimal level”? And how would the market distortion be qualitatively different if the externality was larger? Obviously there are many published estimates of the climate externality.
Paul, I’m just paraphrasing your “First, Montgomery holds two beliefs that are in tension: one, that capital and labor markets are “efficient” and can be assumed to be generally at equilibrium at times of “normal” economic growth (that is, profits are being maximized and labor is receiving its marginal product), and two, that there is an unpriced externality to GHG emissions.”
There is no “tension”. For all practical purposes, a Pigou tax suffices.
Hi Paul, thanks for stopping by, we look forward to your further input on this.
For some reason I can’t reply directly to Richard’s “no tension” comment. Too many levels down?
I went back and reread Montgomery’s testimony again; I think you’re right that he simply sees the situation as calling for a (Pigouvian) GHG tax, but he also admits that that’s not going to happen. What I was referring to as “tension” was precisely the gap between the consequences of regulation in lost output, and the consequences of no regulation in lost welfare, if there’s no tax or emissions market; he seems to believe that we’re better off erring on the side of no regulation, but there’s no actual discussion of the welfare losses of inaction.
Hardly surprising, since we have no idea that there are any losses.
Well, in this case I think Richard and I and David Montgomery all agree that there are, as do almost all serious economists. Of course, we could all be wrong and you could be right.
What sense does it make for economists to agree there are welfare losses, when scientists have yet to establish that CAGW is actually happening?
(I’m sure noone disputes that if/b> CAGW was true, there would be welfare losses from inaction. But you weren’t just making that trivial point surely?)
No, I was making the other trivial point, which is that most professional economists who pay attention to the matter believe that the IPCC is generally correct, and that a doubling of CO2-equivalent concentrations is likely (not certain, mind you) to lead to a significant and probably harmful level of “global warming” and climatic change, even if they disagree about how much the economic damages will be.
Richard, help me out here.
So most professional economists just believe a fraud-ridden, biased political advocacy group like the IPCC. Why?
A rational person would say that there is a probability p that anthropogenic climate change is a scam, and a probability (1-p) that climate change is real, caused by humans, and a problem of size D. You would then apply a carbon tax based on (1-p)D.
I don’t think anyone can maintain that p=1.
I have worked in climate research for 20 years now, and while I’m aware of many little conspiracies, I think that the probability of a grand conspiracy is vanishingly small: p ~ 0.
Climate change is real, even partly anthropogenic. The question is whether or not the ‘new’ climate system is more susceptible to putsches by Dragon Kings or not. There is no evidence that it would be.
Really, R, you are too binary here. The question is not whether or not it is a scam, but whether or not it has been exaggerated. And there does seem to be a conspiracy, I’ll not call it grand, to exaggerate the peril of CO2.
This is where the science is wrong. The ClimateGate emails didn’t change any physical laws of science, but they’ve changed the perception of the application of those laws. This is why I continue to argue with you that the ‘science’ has changed.
Simply, it, the science, is not so sure as before.
Well put. Thanks, Richard!
I can make the same argument in continuous probability space. A carbon tax is justified if there is a strictly positive chance that incremental emissions would do damage. You would need to be 100% certain that humans do not affect the climate to make that result go away. You cannot claim such certainty.
(Alternatively, you could argue that climate change does more good than harm, but you’d have a hard time finding empirical support for that.)
I completely agree with you that there has been a lot of exaggeration about the seriousness of climate change, and some dishonesty too, but if you take an exaggerated problem and remove the exaggeration, you still have a problem.
This is an interesting example of a Bayesian updating problem in a very complex space. For people who are broadly familiar with the wide range of evidence for AGW, the events of “Climategate” probably had only a very small positive influence on their (low) prior estimate of the likelihood that AGW theory is wrong; for those whose “priors” were that it is a scam, it probably had a similarly small positive effect on their (high) prior estimate that AGW theory is wrong. For some significant group of people who had very weak priors, however, it may have had a very large effect, moving them from “probably true” to “probably false.”
The book “A Question of Balance” by William Nordhaus (published 2008) contains an excellent and very readable discussion of most central issues related to what economists think about climate change. Technically the book is a description of his model DICE, but one can skip essentially everything related to technical details of the model and still understand the main points, which are more general and more important than the model or its quantitative results.
Nordhaus accepts the mainstream views on climate change, but his conclusions for the economy are not extreme, they differ radically from those of the Stern Review (discussed at the end of the book). One of the reasons for the difference is related to discounting. This is a subject discussed further in the scientific literature after the book was published. I have made some comments on this problem in a recent posting on my blog.
So if there is ever found to be anything of substance in the mainstream views on climate change, this would be a book worth reading.
Whether the book is worth reading or not has very little, if anything at all, to do on the climate science used as starting point for the analysis. The book is not about climate science, it’s about principles and methods of environmental economics.
It does not take a grand conspiracy for the idea of climate science being fubar’d to be true.
And many small corruptions, as you allude to, do not yield an overall good product.
By the way, I think your p / 1-p is a bit simplistic.
My bet is that history will show that consensus climate science is wrong about being wrong.
Indeed. Quite the opposite in fact.
Given its political funding, and the vested interest of politics in CAGW being believed, it takes a grand conspiracy (of integrity) for the idea of climate science NOT being fubar’d to be true.
@punksta — somewhere below
Indeed. One would want to weight the expected costs of emission reduction against the expected benefits of avoided climate change.
This has been done time again.
The costs of no emission reduction are zero, and the costs of a little bit of emission reduction are small.
The impacts of uncontrolled emissions are large and more-than-linear, so the benefits of controlling emissions by a little bit are large too.
Therefore, any cost-benefit analysis of climate policy that has ever been published recommends at least a little bit of emission reduction.
Even though there is zero actual evidence that there are any significant costs associated with emissions.
Agreed Richard – the chances of state-selected, state-funded scientists having a conspiracy of honesty whereby they ignore the vested interests of their employer (in this case CAGW alarmism), and instead doing honest science, are close to zero.
I agree with Richard Tol on this one: inadvertent congnitive biases-yes, conspiracy-no.
Yep, this construction needs no conspiracy to go wrong. And it has. It’s had a little conspiratorial help, though, from East Anglia and other places of ill repute.
Judy, you need to refresh yourself with Steve’s latest two posts at Climate Audit. That is not ‘inadvertent cognitive biases’. That is conspiracy. Period.
Both Judy and Richard have the congnitive bias vs conspiracy thing back-to-front – you would need a grand conspiracy of integrity for state science to NOT have a cognitive bias in favour of the state’s vested interest.
Because they work for organizations like governments and Wall St. firms that are no less corrupt.
Well, actually most of them work for universities, and their funding comes from a variety of sources. You could ask them why they believe “mainstream” climate science, and most of them will probably give you a predictable set of reasons. Ask Richard, or David Montgomery (who worked for a consultancy that gets industry funding, and – though he favors much weaker action than I do – accepts AGW as probably true).
Stimulus policies have been adopted over many decades in many countries. I don’t know of any evidence for their success, almost invariably they lead to slower medium term growth and employment and higher deficits, inflation and interest rates, while achieving little of their aims. Anti-recession spending has in every case peaked long after the recession, causing labour shortages for viable businesses and wage inflation. The best way to stimulate an economy is light-handed regulation and taxation which encourages entrepreneurs and innovators.
OK, so I actually went back and read Montgomery’s 1972 paper, called “Markets in licenses and efficient pollution control programs.” If I understand it correctly, its main argument is that under common assumptions of profit-maximizing firms and convex technology, a spatial configuration of pollution targets can be met in an economically efficient (cost minimizing) manner by allocating licenses not for emissions per se, but for pollution levels at the specified points. This is an elegant result, but I am unaware of any serious consideration having ever been given to issuing pollution licenses that define the spatial location at which the pollutant is to be monitored; it would require every firm to have a portfolio of licenses even for a single type of pollutant, containing licenses for every monitored location. If Richard or anyone else knows where this has been implemented or even seriously proposed, I would interested (and surprised).
Overall this confirms my belief that sophisticated mathematical economics doesn’t necessarily lead to useful policy guidance. Which is to say, Montgomery’s pedigree –or more precisely, the respect earned for this oft-cited paper – doesn’t have obvious applicability here. It is of course the case that he is well known for the types of macroeconomic modeling that CRA (Charles River Associates, for whom he worked until recently) has been pioneering for years, and there certainly his “pedigree” is in the directly relevant domain. However, CRA’s modeling is controversial among economists in the field for being notoriously pessimistic (not least for leaving out benefits of avoided damages, as he did at a conceptual level in the testimony I was referring to). So the argument will have to go forward on substantive issues.
If anyone else here wants to see the paper and can’t get it easily, I’m happy to send it. I’m curious if anyone here besides Richard and me read this kind of economics.
Saying that “sophisticated mathematical economics doesn’t necessarily lead to useful policy guidance” is certainly justified, but that doesn’t solve the problem of finding useful policy guidance. I have found the rather strong statements of Richard Tol as well (or better) justified than the contrary statements made by other environmental economists like those behind the Stern Review.
The economics is definitely not irrelevant and erring seriously on economics may lead to wasteful and inefficient policies. The disagreements among environmental economists are huge, and builders of integrated assessments models can produce totally opposite results without violating any well known principles.
Applying Pigovian taxes to internalize externalities is a good principle, but requires reasonably accurate estimates of the externalities. Such estimates are, however, missing and estimates may well deviate by a factor of five or ten from each other.
The problems listed by Montgomery are real. One may disagree (and I do disagree) with some of his starting points or attitudes, but the problems listed make it very difficult – or impossible – to formulate efficient and well justified policies.
Pekka – your points are well taken. You are quite right that estimates of the externality vary widely, but many people (myself, Stern, others) take the high estimates very seriously. The problem of course is very deep, since any effort to (say) estimate the welfare losses of melting an ice cap over a few centuries is an exercise in pure speculation. Nonetheless, determining the “willingness to pay” to prevent such an occurrence requires us to do exactly that.
Montgomery is correct on the points I read. He avoids arguing CO2, rather assumes it is a problem, and then showing that of all possible alternatives, the EPA is the worst solution, sure to cause the most harm to the economy.
This pretty much guarantees it will be the solution chosen by the US government. US -> EPA -> CO2 -> JOBS -> $$$ -> CHINA
A couple quick quotes from the Real Climate Economics “About” page:
“There is now extensive economic analysis in the peer-reviewed literature and in reports by reputable economists working for universities, government agencies, think tanks, and non-profits that rigorously supports immediate, large-scale policy responses to the climate crisis.”
“The articles, reports, analyses and commentaries included here generally reflect and build on the following principles:
* Risk and uncertainty are fundamental to the climate problem; the magnitude and the irreversibility of uncertain, but possible, worst-case climate impacts dominate the analysis of policy options.”
By all means, in determining how to deal with potential climate problems, let’s turn to those who prescribe “immediate large scale policy options” to deal with “irreversib[le] [but] uncertain…worst-case climate impacts….” These are indeed just the kind of people I want running our economy from a nice centralized office in Washington D.C.
If there is any discipline that is less successful than climate science at predicting outcomes of a huge, complex, chaotic system, it is economics. And these guys (Baer and Heinz) are Exhibit A of why it would be suicidal to turn control of a major sector of our economy over to delusional central planners with over blown messianic complexes.
I thought the critiques were mediocre. Both make a fairly mundane observation that social welfare can be increased if externalities are properly priced in the market, as if Montgomery did not know this.
One of the key points that Montgomery makes is that if the U.S. adopts regulations to reduce greenhouse gases, but some other countries do not, then energy intensive industries with high CO2 emissions will simply move to countries with less regulation. The effect is then loss of U.S. jobs with no global reduction in CO2 emissions. Even worse, if the jobs are exported to third world countries with lower energy efficiency, the net effect will be an increase in CO2 emissions.
This a big problem for any attempts to address CO2 emissions outside of an international framework
The world’s poor are most damaged by carbon pricing. Higher fuel costs condemn the world’s poor to continued misery. People that want to increase the price of carbon obviously have no compassion for the billions living in poverty. That includes, sadly most of the world’s so called “Green Parties”.
The way to help the world’s poor is not to make energy more expensive, but rather cheaper and more available. Both of these armchair analysts miss that simple, yet vital point. Cheap energy means higher standards of living, better health and longer life expectancy.
This is why the countries that are emerging from poverty want little to do with climate control policies, and say so quite clearly. Unless they are paid for by the rich countries, also stated quite clearly. Poverty has its own externalities.
Poverty has its own externalities.
Indeed. It’s always struck me as odd that a lot of those commenting on the economic aspects only seem to acknowledge negative externalities.
Yes, but cheap fossil energy leads to climate change (of course if you disagree with this, this, you won’t agree with anything else I say). But the claim that those who want to raise carbon prices have no compassion for the poor is false and insulting. Subsidizing clean energy for the poor seems to me like a great idea (and yes, I’m quite willing to pay higher taxes – whether carbon or otherwise if more of it goes for this).
The climate consensus science has failed. Arguing economics as if the science had not failed is simply stupid, no matter what your resumé.
Many people still accept the consensus science, so in that all important demographic sense it is far from failed. Put another way, the world does not change just because you make up your mind. We still have the great debate to win.
The climate consensus still holds sway on all Australian political parties and the public. Like a super-tanker in motion, it’s very difficult to turn this round. Australian voters are beginning to appreciate some of the costs, e.g. as energy prices are driven up by mandatory renewables etc, and are definitely susceptible to economic arguments. Given the entrenched and quasi-religious position of al warmists, it’s sensible to point out the economic devastation that anti-emissions policies can cause, and that these costs for Australia will have negligible impact on climate even if AGW were happening.
Heinz says “What is scarce is non-renewable energy”
I hadn’t heard of energy scarcity in the US. We have plenty of untapped coal and oil reserves, and quite a bit of hydro. Of course, lots of these reserves are off limits and dams are being removed for fish migration, etc.
My what a surprise. GMI’s W David Montgomery knows how to transparently argue backwards from right-wing economic ideology to claims that can only reach his preferred political conclusions. Just like you, Judith. Perhaps the only difference is that he is fully aware of it and acknowledges it.
Of course the costs of doing business are part of healthcare and housing and access to safe food and clean air. Etc. The functional economic concept that resources are not limitless and the ethical concept of not leaving the worst off to suffer the worst impacts is not brain surgery for most people. Being good citizens and stewards of the environment is far easier and more normal than continuing with the myth of endless resources. Whether you make any adjustment in your personal and political Reagan era attitudes or not, Judith, is irrelevant to social and environmental realities, internationalism, and the increased bargaining power of poorer regions.
p.s. A realistic economic understanding, from any political perspective, does in fact require you to read, and to know how to do that without handholding.
There are resources enough for 10 billion people, Martha, about where it is expected the population will top out at if the poor are allowed to develop.
We only use about a millionth of the sun’s energy to sustain human life on earth. A tiny increase in our efficiency of that use will allow even more than 10 billion people to live well and sustainably.
We have countervailing Noble Causes, Martha, and mine is superior because it will allow the development of our race to a sustainable and rich life. Encumbering carbon in the foolish pursuit of a mirage will prevent such development.
Slight clarification. We only use about a millionth of the sun’s energy that reaches the earth to sustain human life.
You’ve got another short circuit in your reasoning there, Martha. You have made the assumption that poor people prefer to stay poor and pristine than become developed. Your ‘increased bargaining power of poorer regions’ is true, and was ineffectively countered at Copenhagen by Barack Obama’s misguided Neo-Colonial attempt to forge a pact among the developed nations which excluded the developing ones. That strategic gaffe allowed the Chinese to cover the embarrassment of the failure of their shakedown, that increased bargaining power, by expressing outrage over the duplicity of Obama and the ‘West’.
Lots of ironies there for you to digest, Martha. Will it help your intestinal action if I hold your hand?
Martha, please continue on telling me about my personal and political attitudes, this is most informative, i don’t ever recall having explicitly formulated them (let alone made them public). This is a lot to infer from my public position on integrity in science, better uncertainty management at the science-policy interface, and support for robust decision making (oh I get it, must be that sourcewatch page that Anna Haynes put together). But go for it. In terms of poorer regions, most of my current scientific and professional activity is focused on south and southeast asia, please enlighten me to the realities that I seem to be missing.
And please let me know when you find another climate economist with anything close to the credentials of Montgomery. p.s. I just checked sourcewatch and Montgomery doesn’t even have a page, the “tribe” is slacking off here.
Ah… another class-less post from Martha…. The temerity of the many statements I have seen you make is only matched by your predictably spineless ability NOT to defend yourself once you have inserted your shoe in your mouth.
Now that I have stooped to your level… I at least feel ashamed of myself :(
of course, as you wish. You are an excellent hostess and sponsor of this site. we obviously disagree on some things, but your integrity and professionalism are above reproach by any reasoning informed person.
And frankly you are the extremely well educated accomplished person who donates her time to this blog enterprise. Martha? Another anonymous partisan lacking in manners and skill.
When I see a good person getting kicked at by a clearly bad intentioned person like Martha, it bugs me a bit.
But I do hope you enjoyed my small literary gesture. ;^)
Did you have a point that even remotely intersects reality?
Didn’t think so.
When you get really wound up (which is usually) you demonstrate what many others have believed for a long time: that true belief in AGW often correlates with an extreme hardcore lefty bitterness.
I ran into this link:
Which profiles you and many other bitter AGW true believers rather well.
By the way, your virtual stalking (and much, much more) of Dr. Curry is pretty creepy.
Economists are notoriously bad at figuring out what any society should do about any given problem, real or imaginary, even though the same economists have 20/20 hindsight. The evidence is that problems caused by slight warming are imaginary while problems caused by slight cooling are real and lead to an increase in a demand for cost-effective energy sources compared with incomes as humans have a very narrow temperature band in which they can comfortably exist.
I started by looking at he earlier testimony, that on job creation by EPA’s rules. In that Montgomery makes valid points, and Heintz is incapable of answering them. Heintz points correctly out that the numbers picked from their report are not relevant for the case of regulating CO2 emissions, but that does not counter the main argument.
The main argument is that putting money in any activity creates jobs, but it also prevents using that same money to some other activity, which leads to a loss of jobs. If the productivity of the new activity is low, it creates temporarily very many jobs, but has a negative net impact on long run. The PERI study fails totally to estimate the net effects concentrating almost solely only on the positive part and forgetting the negative one. Therefore its result is essentially of zero value as an estimate on what happens to the employment.
The comments of Heintz on the Real Climate Economics don’t add anything to answer the real question.
This same approach is all too familiar from countless similar analyses and political claims here in Europe. All this work is equally worthless, but used continuously by advocates of renewable energy support policies and green politicians.
Supporting new technologies and regulating polluting technologies may be economically justified, but this kind of reports do not help in deciding. That would require real economic analysis, where all positive and negative factors are taken into account.
“I don’t really know how to evaluate merits of his arguments. I found Baer’s critique to be not very convincing, although I thought Heinz’s critique was much more convincing. Your thoughts?”
It appears you have hit the nail on the head.
David Montgomery is a very highly regarded Economist repeating conclusions that are not readily apparent without a great deal of study. He has only a short time to present what he has to say, and much to cover on a complex, controversial topic to a demanding and important body and must expect criticism from opposed interests.
Within these constraints, one might expect any expert to present the case that most strongly supports one’s beliefs, so might simplify, omit or understate details contrary to one’s agenda, and arrange one’s statements to decrease the transparency of weaker points and overstate the certainty of one’s position.
Paul Baer and James Heinz’s rebuttals do the same to some degree, although they appear to me technically correct so far as they go, skipping fewer steps in reasoning, pointing to areas where David Montgomery’s statements differ from widely accepted first principles and widely held beliefs of some.
My key complaint of David Montgomery’s presentation is one of lacking imagination. Montgomery says, in summary, if one chooses the worst possible way to go about any project, one cannot expect the best result. As Congress is imagining those worst possible ways, it would be wrong to fault David Montgomery’s approach. However, there is no small amount of scare tactic in this particular presentation, which ought be called out.
The alternatives before the people are Cap & Trade, command and control regulation, and subsidy. Carbon tax is presented only as a gloss, a variant on Cap & Trade, which seems odd to me.
Subsidy and regulation will always be easy for an Economist to criticise from first principles; we don’t need to rehash the harms of distortionate policy or benefits of internalization. Where there is an administratively viable alternative to subsidy or regulation that instead internalizes costs of decisions to the decision process of the individual decision-maker, Economics usually should deprecate subsidy or regulation.
The Conservation Paradox brings to mind the situation of the SUV, a story you will not find well-documented due to the measures the auto industry takes to protect its secrets. Here we see subsidy and regulation at mischief.
This is one instance of the Conservation Paradox. You cannot regulate partial conservation and succeed, even if your targets could be met by regulation of just that one part of the market. Sellers will exploit loopholes and shift the market to adapt to what makes them the most money, which is almost always not command and control regulation. Buyers will largely base their buying decision on the package offered them that has the most short-run appeal, even if in the long run decision is against their interests.
Where the regulations failed was in trying to control buyer and seller decisions by decree, instead of by building a level playing field for buyers and sellers to make the natural decision, the one where each must pay for the harm they do through a market price where long and short run outcomes share the same value.
A nuance missed by some that both approaches require some regulation, but that simpler regulations — like currency laws, standards of weights and measures, communication protocols — that tend to internalize decisions protect the democracy of the market and the choice of consumers while stimulating a healthy competitive environment for suppliers differ from complicated command and control prohibitions and limits on freedom (like fuel-efficiency standards by classes of vehicles).
Is Cap and Trade one such alternative?
While C&T internalizes costs, providing an on-ramp for the market to the series of pricing decisions passed through the life cycle of goods from top to bottom of supply-distribution chain, it is administratively complex for many types of transactions, in particular having difficulties in those smaller exchanges involving most direct consumers, which accounts for about three quarters of all CO2E buying decisions.
Further, C&T schemes have huge start-up costs, take considerable time to find and fix loopholes and abuse at great expense, and do not tend to self-propagate. If Trading Block A has a C&T, then its competitors in Trading Block B may see no competitive point to adopt the same sort of scheme, Potential Block Member X has no incentive to join Trading Block A while competing trading blocks exist, and Free Rider Z will simply exploit its opportunities outside the blocks, finding and abusing the inevitable loopholes and black markets.
Which is where, sadly, it appears the imagination of Congress ends.
“In the United States, the most cost-effective approaches, a carbon tax and cap and trade, were respectively never on the agenda and defeated in Congress. Instead we appear to be embarking on a piecemeal approach of command and control regulation through the Clean Air Act and technology mandates and subsidies through legislation. This outcome was completely predictable given the history of comprehensive energy legislation and the nature of legislative institutions. “
In my view, a revenue neutral carbon tax — understandably a non-starter — would have none of the drawbacks of the best of the bad approaches (Cap & Trade) David Montgomery analyses. It’s administratively straightforward, encourages non-participating trading blocks to join, yields other economic benefits intrinsically, and doesn’t increase costs. (How could it? All the money goes back to the consumers who then buy from suppliers of things they want more than they want fossil fuel.)
Likewise, any carbon tax acts like a shoe-horn when combined with Cap & Trade and command and control regulations. Carbon taxes are particularly attractive for exactly those areas that Cap & Trade is difficult to administer, enforce and prevent abuse. With so much of the CO2E economy internalized as possible in this way, the fewest possible command and control regulations necessary will then be more effectual and least expensive.
Congress has failed to approach CO2E policy as a body, and its piecemeal attempts fall apart.
A scientist can understand how a piecemeal approach to any subject without attempt to build a cogent body of knowledge will lead to less satisfying results overall. Piecemeal hypotheses without some coherent unifying theory do little good to advancing understanding and bringing together observations in a meaningful way.
I’d have liked David Montgomery to have addressed these points to Congress in so thorough and well-spoken a way as he addressed the worst of the options.
If we tax carbon to manage the climate we are fools.
“All sound a fury, signifying nothing” William Shakespeare.
Since CAGW does not exist, this whole discussion is completely irrelevant.
The discussion has merits and implications entirely independent of CAGW.
It is commonplace for Climate Economists who do not believe in CAGW to debate and even propose many such measures because of the cost of risk, because of reduction of distortions in the market, or for other reasons, or all three.
Dr. Ross McKitrick backs carbon taxes, to cite one well-known example.
You have it pretty much backwards, in other words.
Since risks, distortions, inversions, externalities and other benefits and costs exist, the truth or harm of CAGW is largely irrelevant.
Failure to price CO2E, regardless of ‘climate management’ (whatever that means) is true folly.
Bart R writes “Failure to price CO2E, regardless of ‘climate management’ (whatever that means) is true folly.”
Why? The price of CO2 is determined by the marketplace, in that we pay a market price for those things which we burn and then produce CO2. I cannot see why any other price is either necessary or desirable. Since there are only benefits, and no detriments, to producing lots of CO2, there is no requirement for any other price mecahnism, except the normal market.
“The price of CO2 is determined by the marketplace, in that we pay a market price for those things which we burn and then produce CO2.”
The price of CO2E would indeed be determined by the market if we –the owners of the CO2E budget resource — were to charge a fee for the use of this scarce resource.
Our trustee in ownership of shared common resources is the government.
The government is the CEO of CO2E co.
What do shareholders do if their CEO gives away their product for free to support his friends over their in other companies, and by the way those friends pay him very handsomely for that?
Again, if there are either benefits or no detriments or both to producing lots of CO2 (delusional conclusion based on propaganda so far as I can tell, but an opinion you’re welcome to hold), there is still no good cause to give away the rights of the shareholders.
There are only benefits and no detriments to eating apples and wearing fur coats, getting cosmetic surgery and watching John Waters movies.
Do you propose stealing apples, skinning stray neighborhood cats and dogs, demanding the state pay for your personal enhancement procedures or tying John Waters into a director’s chair and forcing him to shoot and edit films using a borrowed iPad?
In a well-ordered capitalist system, people pay the owners for the benefits they derive from the use of scarce resource.
The price of the resource isn’t determined by the harm done or the value of the benefit received, but rather by the point of diminishing return to suppliers on sales of goods.
What you propose or imagine is framed in non-capitalist thought, and is bound to produce the bad results David Montgomery warns of, even if there were absolute benefit to emitting CO2E.
Bart R writes “Our trustee in ownership of shared common resources is the government. ”
Which government? You sound like an American who believes that what is best for the USA is best for the rest of the world. In Canada we believe that the government does best if it keeps out of the way of private enterprise. Let private enterprise make the profits, create jobs, etc. and go on looking for more and more resources when such resources seem to be in short supply. I can see no good reason why governments should try and regulate who uses what of our resources. Canada tried this when oil supplies first became in short supply and Pierre Trudeau was our Prime Minister. He succeeded in forcing the Government of Alberta to sell it’s oil cheaply to the rest of Canada. The whole thing was a complete disaster, and no Canadian Prime Minister has dared suggest anything like that again.
I am sorry. Let the market place decide. That is what democracy is all about.
Pierre Trudeau was our Prime Minister. He succeeded in forcing the Government of Alberta to sell it’s oil cheaply to the rest of Canada. The whole thing was a complete disaster, and no Canadian Prime Minister has dared suggest anything like that again.
My truck wears a “Free Newfoundland” bumper sticker. Many of the Newfies would disagree with that statement.
I’m only peripherally aware of the Newfoundland issue, but have to agree the treatment Newfoundland and Labrador have been subject to historically by Canada and Quebec has been shoddy in the extreme.
Certainly, neither Alberta nor Quebec has cause to complain so dire as Newfoundland, from the little I’ve heard.
And it seems I’m agreeing with two Jims from Canada in one post.
I too believe the market ought decide. However, since the government of Canada has decided very deliberately to fail to charge a fee for CO2E and thus fails to collect on this widely abused resource, it doesn’t pay the Canadian shareholder in the CO2E budget anything at all.
Compare with British Columbia (part of Canada, though it’s way at the far end and thus almost as forgotten as Newfoundland) which does pay British Columbians a significant return on CO2E. The strongest economy in your country, and probably the world, because the market is perfectly happy to bear the cost of CO2E and the shareholders are perfectly happy to spend their CO2E dividend through lower taxes (personal and corporate) and direct payments to individuals as they choose.
This false idea that people pay for CO2E because they pay for fuel is nutty nonsense.
Should you get unlimited free beer and corndogs in the stands because you pay to see the Riders vs. the Argos?
Even though we no idea whatsoever what the cost of CO2 emissions is – and it could well turn out to be zero for all practical purposes – you want its use charged for.
How exactly do you see a rational price for this completely unknown cost being set?
Jim: define “externality” and “public good” and then tell me again that “In Canada we believe that the government does best if it keeps out of the way of private enterprise. “
externality, noun: a term used to demonize any activity progressives want to tax in furtherance of redistributive governmental policies.
public good, noun: any benefit progressives want to use as justification for another redistributive tax.
What – not to the the highest bidders?
Exactly my point.
And how I propose to set the rational price for CO2E.
The price that should be charged is the price that is reached when returns to shareholders begin to diminish, as with all goods.
See, the value of the benefit of apples or John Waters movies or CO2E isn’t calculated beforehand by some central planning committee of the politburo. It’s decided by consumers in the market who will either pay or won’t pay.
The cost of the harm of CO2E isn’t calculated, likewise, in the same way by some central planning committee either. Since it is impractical to poll every shareholder in the indivisible commonly held resource for how much harm they individually feel is done them, as proxy in the selling decision, the government ought fix a price at least at the point of diminishing returns — thereby maximizing return to shareholders — until and unless a greater price of harm is established and generally agreed.
This idea that until harm is calculated and proven no fee ought be charged is simply anticapitalist.
No carbon emission related market will form unless there are both buyers and sellers. In practice no market will form without a political decision that forces it. The two basic alternatives are carbon tax, which implies that the price is set by the political process and the cap & trade, which means that the cap has to be defined by the political process.
Many scientific studies have found that the cap & trade solution is less efficient and more risky as determining a reasonable cap turns out to be more difficult than determining a reasonable level for tax, and because every single private actor is anyway subject to the price, not to the limit. Therefore the actors can act more rationally, when the price is fixed rather than floating widely as it has done in the EU emission rights market.
That is a contorted bizarre look at price setting:
“The price that should be charged is the price that is reached when returns to shareholders begin to diminish, as with all goods.”
Price is what a willing buyer and willing seller agree to .
The shareholders may or may not profit from that agreement.
The fact that many companies lose money for shareholders, and that many shareholders lose the value of their investments is evidence of that.
“returns to shareholders” has nothing to do with the specific price of a specific product or service.
As to the value of CO2 emissions, or more properly the cost you want to assess, you are really faced with your contortions because you are confusing a tax with a fee.
Bart R now admits that we have absolutely no idea whether or not CO2 emissions are causing anyone any problem, yet still insists on massive government interference in this area.
And beyond some general handwaving, offers no idea whatsoever what concrete form this should take.
And *that* would be why so many of us *hate* the legacy of Trudeau, including his successors in that political party.
Now I have skimmed through also Montgomery’s more recent testimony and Baer’s comments on that. As the matter is very familiar to me, I think that nothing essential was left unnoticed on this rapid skimming through.
To me it’s pity that Montgomery starts by taking an ethically controversial US centric stance. It strikes out strongly for an European who is accustomed to very different attitudes among European commentators. It’s pity, because it may take off from the message, which is particularly important for those, who may be influenced negatively by the stated attitudes.
Concerning the main content of the paper, I find it as a good listing of issues that hamper success of many possible policies to mitigate climate change. Everything presented in the testimony appears valid, but on the other hand Montgomery does not go to the discussion of, what can be done to improve the situation.
Paul Baer has only very generic comments stating mainly that Montgomery might be overly pessimistic. That may be true, but the real issue is in that case to find out, where he is overly pessimistic, as an answer might help in formulating wise policies.
The content of Montgomery’s testimony should be taken as one important starting point in discussing, what should be done. It’s not the whole truth, but it is a valid description of an essential part of the whole truth.
One can make any argument they wish on the ‘economics’ of action on Climate Change.
All anyone needs to do is descend into the ‘average cost’ fallacy and coal is evenly distributed throughout the world fallacy that the IPCC did.
There are 33 billion tons of coal in Africa and 15 billion tons in South Africa. The EU-27 import 40% of their coal. China is no longer coal self sufficient. India is no longer coal self sufficient. Japan and South Korea are out of coal. Vietnam will be out of coal in a few years. Bangladesh has a little bit of coal in the ground but has opted to buy some Russian Nuclear plants because they will be cheaper.
For most of the world ‘affordable energy’ and ‘action on climate change’ are the same things even China. The Chinese miscalculated the amount of ‘inexpensively extractable coal they had.
The US, Russia, Australia and South Africa have somewhat more complicated discussions. We have substantial coal reserves and much of it is ‘inexpensively extractable’.
Even in the US and Russia we have regions where ‘action on climate change’ and ‘affordable electricity’ are the same thing.
Of course in the US our ‘climate actions’ to date have been poorly directed. Giving someone in Seattle a 35% tax credit for installing solar panels when the sun doesn’t shine for months at a time achieves neither affordable energy nor any impact on CO2 emissions. All it achieves is spending money on someone stamping their green credentials.
There is no point in investing in Solar Panels in Seattle or Boston until such time that market forces and technology move the costs of solar panels to the point that they make economic sense in the Southwestern US where they have excellent sunshine.
The Saudi’s are burning $100/barrel oil to make electricity and they have outstanding sunshine. Why isn’t the barren Saudi Arabian desert covered in Solar Panels?
If we just changed the goal from ‘action on climate change immediately’ to ‘a future of clean, affordable, secure energy for our children’ the economics change dramatically.
“If we just changed the goal from ‘action on climate change immediately’ to ‘a future of clean, affordable, secure energy for our children’ the economics change dramatically.”
Well said, I also beleive moving the discussion away from a “climate change problem” to a “national security problem” or “self sufficiency problem” would bring a lot more people under “the need to change energy policy” tent.
Using climate change as the poster child for the reasons to adopt alternative energy technologies is built on a scientific house of cards. The uncertainties of how our climate changes and what drives the changes are too great to make the case for the majority of the people… and it has become too politically charged.
On the other hand, most everyone (here in the US) agrees our major, current energy sources are finite and/or may require dealing with less than friendly suppliers who threaten our economic stability. I figure most everyone feels this idea is true independent of political leanings.
I would think getting more people to “buy in” to the need for alternative energies (whether you feel it is important for the climate or not) would be easier if the main reasons for change were re-focused, as you suggest, to one of broader appeal.
wr2: Unfortunately the concepts of “clean, affordable, secure” are economically incompatible, especially when clean is code for carbon free and secure is code for abolish global trade. Those codes are fundamentally inconsistent with affordable, unless it too is code for something else the greens want, like not using any. (Asceticism disguised as engineering.)
CO2 is not dirty and the USA has nothing to fear from any other nation, so your phrasing is meaningless propaganda. You are trying to foist bad technology on people with freaky framing. Are you running for office?
Delivered steam coal prices in the world vary from less then $1/Mbtu to $7/Mbtu. Natural Gas prices vary from $4/Mbtu to $11/Mbtu.
$1/MBtu approx 1 cent fuel cost.
The fuel cost on a nuclear power plant is about 1/2 cent per KWh.
The current installed price of solar panels in the US works out to about 19 cents/KWh over the life of the panel using a solar insolation factor of 4. Using an insolation factor of 6 as found in the south western US the per KWh price over the life of the panel drops to 12 cents/KWh. (Assuming 0% interest rate)
All industry mouthpieces arguing over all the energy options are either using ‘best’ or ‘average’ prices and play with the interest rate to show the other guys costs are either higher or lower. The same goes for ‘economists’ arguing for or against action on climate change.
Solar is getting fairly close to ‘viable’ without subsidy in the Southwestern US. Coal isn’t particularly financially interesting in the South East or North East compared to nuclear or natural gas.
Wyoming has some kick ass wind. Hydro already powers most of the Pacific Northwest.
I’m agnostic on climate change. But we could get a fairly big bang for our buck if we focused on technologies that are close to penciling out in a given geographic area rather then some one sized fits all plan.
I find your post incoherent, sorry. It sounds like you are saying 12 cents is competitive with one cent, but that cannot be it. BTW if you want to hype solar don’t forget intermittency. What is your leveling technology and what does it cost?
Second, Montgomery assumes that nations do in fact – and normatively should – balance their own economic costs of emissions reductions against only their own benefits from avoided damages, not global damages. He describes this as an appropriate empirical characterization of what countries do, and normatively justifies it on the basis that if that’s what a country expects other countries to do, it would be useless and thus normatively unwarranted to do otherwise.
History does tend to bear this out.
This is importing game theoretical reasoning, and ignoring the possibility that other normative reasons to want to act justly or virtuously might be warranted.
Once again, history will provide many episodes where nations act “justly or virtuously” because it’s in their own interests. I’d be interested in examples where nations have acted against their interests solely in the name of “justice” and/or “virtue”. (As a side note, I find the application of individual ethics to nations to be both naive and shallow. )
Crucially, however, the basic theoretical framework makes it perfectly possible for a nation to incorporate the well being of non-citizens into its own domestic welfare function, and whether to do so or not is a choice, not a fact.
Possible, yes. Likely?
The importance of course is that if one believes – as Montgomery apparently does – that countries cannot be persuaded to empathically value the well being of those harmed by their pollution, then pessimism about global cooperation is inevitable.
Global cooperation will take place in an environment of global benefit. Nations will not incur costs because “it’s the right thing to do”. They will do so when it’s in their own best interest.
Montgomery’s testimony is upheld by the Nobel prize winning economists at Copenhagen Consensus 2008
See their Global Warming summary and detailed documents.
They further focus on climate change policy at: FixTheClimate.com
See: Advice for Policymakers
Current US policy and Federal deficits and rapidly increasing interest will eliminate any ability to put funds in to “controlling climate” whatever the wisdom of doing so or not. See: Obama’s projected deficits.
However, none of this seriously grapples with the impending decline of light oil exports, that will precede full blown global “peak oil” decline. Rescuing the economy in the face of rapidly declining conventional transport fuel will dominate all other issues.
David, thanks for these links
“Most of the damage from climate change will occur in countries without adequate public health systems and with poor, undernourished and unempowered populations.”
As far as I know, the predictions are that the arctic will receive the most impact from AGW and that the tropics will be least affected.
But still they persist that poor countries (centered mainly around the tropics) will be hit hardest.
So where is the evidence for this claim? The Sahara desert is in fact shrinking:
Similarly the kalahari and the Namib deserts are greening, not expanding as the common narrative goes.
So where are these “impoverished” countries receiving the brunt of global warming? Bangladesh where sea level is not rising at all? Pakistan which had a historically reoccurring flood?
It has become a truthism that some poor country somewhere will receive all the burdens of global warming. Well – please be precise and tell us which country(ies) you are talking about. And please tell us where the millions of “climate refugees” are situated also.
Here is my short summary of Montgomery’s testimony:
Studies which purport to show significant increase in Green jobs due to U.S. government regulations are incompetent.
Net job loss may occur because of significant unaccounted job loss in the legacy power industry in the U.S. and ignored “likelihood of renewable energy equipment being sourced overseas” (China).
IMO, this point is undeniable; any discussion of greens jobs growth is probably misleading outside the context of net job growth.
Viewed from afar there is something rather perplexing about the approach to regulation that seems to be so vexing the USofA. It is just so unAmerican.
Love it or loathe it, there are things that America does well and some that it does badly, or not at all.
Cap & Trade or Carbon Tax seems to be veering from a bad idea to an it isn’t going to happen idea, and that may not be a bad thing both domestically and globally, and if it isn’t about to happen, the sooner it is kicked into the long grass the better.
So what can and will America do for the global environment?
Well it could use its economic/political muscle to do something to clean up the global coal/power industry for a start. An industry that kills thousands, poisons untold numbers, and creates wastelands. It is a matter of health and safety, noxious emissions, ground degradation, and surface pollution, that is perhaps at its worst in China, but could spread to other less developed countries.
I think that there is a strong argument that the world would be on its way to a better place if the only emissions and pollutants that eminated from the global coal/power/heating sector were the GHGs, H2O and CO2.
In the case of China, moves in that direction would in some part be pushing on an open door. China does see much of this as a priority.
Would a less noxious sector do anything for reducing the growth in GHG emissions, arguably yes through addressing the global externalities it would affect the relative cost effectiveness of the coal sector and act favourably on the intensities of its use. It will also qualify as a deliberate experiment in global warming theory and a prove of principle as to whether it is climatically safe to limit sulphate emissions.
Now acting on the global stage is hopefully something that America is still capable of, if not we are in a pretty pickle, and clean air, fewer deaths, less land degradation, and importantly a more level economic playing field, is perhaps an easier sell than bouts of poorly integrated national self-flagellation.
I must confess that at the core of my thinking is an approach that is so green that it must make ones eyes water but is also deeply rooted in the market approach to environmental issues, and known as ZERI.
Again like it, loathe it, or just roll about on the floor laughing about it, the Zero Emissions Research and Initiatives concept, is an old idea, and an imaginative idea, that might just be able to inform our thinking here.
In terms of its imagination, the ZERI approach to CO2 emissions demands that we find the optimal use for CO2, so we would have CO2 Capture and Usage, and BTW reducing the emissions to just H2O and CO2 is a logical step for when we do see fit to make use of CO2 emissions.
As I said ZERI is bleeding edge green thinking which plays well on one side of the debate, and seeks to treat externalities in a consistent and optimal way which plays well with a different set of perspectives. It is also so fundamentalist that it can never be fully implemented demanding compromise which gives the politicians their role to play.
As far as I am aware ZERI concept has never been fully implemented, it is more a way of thinking about the interplay between environmental an economic goals. It is perhaps best illustrated by the example that if you want beer then you must find a market for mushrooms, pork and fish; for one industry’s waste is anothers added value opportunity.
Don’t forget that the U.S. has used its muscle to significantly clean up its own backyard – SO2 scrubbers come to mind. In addition, China has been pressured to reduced SO2 emissions as well. Ironically, the reduced SO2 was supposed to dramatically increase surface temperatures. but the declining natural trend has “interfered”.
The SO2 (or acid rain) scare (or hoax) was a precursor to the CO2 scare (or hoax). Money for nothing. I really like coal fired power but unfortunately we Americans are now going to burn up all our natural gas instead, just to make juice. What a waste of resources. Meanwhile the Chinese have increased their coal burn from one billion tpy to three billion in just a decade. Smart people, those Chinese.
Montgomery’s argument that action to curtail CO2 emissions will cost more jobs than it creates strikes me as plausible, although my underwhelming knowledge of economics forbids me to weigh that argument against those of his critics. Where his economic expertise is not a sufficient basis for judgment, however, entails the costs of inaction. Those costs require a knowledge of the physical impacts of inaction – coastal flooding, Southwest droughts, disease spread, etc. – and must rely on expertise outside of economics. In the words of a former President, it is possible he has “misunderestimated” those costs. That possibility requires expert judgment in a variety of non-economic realms, including climatology and public health.
It also requires an awareness that U.S. interests are more linked to global interests than is often acknowledged by assessments based on mid-twentieth century thinking. The awareness has not been lost on the Dept. of Defense and CIA, which have established teams to anticipate military contingencies based on continued warming and its consequences, as described by John Broder in a 2009 NYT Report:
“WASHINGTON — The changing global climate will pose profound strategic challenges to the United States in coming decades, raising the prospect of military intervention to deal with the effects of violent storms, drought, mass migration and pandemics, military and intelligence analysts say.
Such climate-induced crises could topple governments, feed terrorist movements or destabilize entire regions, say the analysts, experts at the Pentagon and intelligence agencies who for the first time are taking a serious look at the national security implications of climate change.”
Montgomery also dismisses notions that the U.S. or other nations might act out of sense of virtue in furthering the interests of the global community, but that is also based on a prior century mindset and may again underestimate the extent of changing global relationships. I’m sure he is right that short term national self-interest will dominate policy considerations, but this is not an all-or-none proposition. I suspect that a growing sense of global interconnectedness may lead perceptions of long term self interest to converge with the idealism of younger generations to advance policies subordinating immediate goals to longer term benefits. The sacrifices won’t be dramatic, but they may make a difference, particularly when the pall of the current recession begins to lift.
Does this resonate in the current political climate? I’m not sure, but it may. One immediate piece of evidence, based on today’s news reports (perhaps premature) indicates that the Obama Administration, in striking a budget deal with the Republican opposition, has been willing to grant the opposition large spending cuts, but has compelled the opposition to drop restrictions on the authority of the EPA to regulate greenhouse gas emissions. This is certainly a political calculation that perceives the tradeoff to be one acceptable to the public and welcomed by many Administration supporters who view greenhouse gas regulation as a public good rather than a personal benefit.
Perhaps it was a miscalculation. Nevertheless, some recent polling data summarized in the most recent issue of Science throw an interesting light on the subject:
“Framing the Climate Debate:
How concerned are Americans on the whole about global warming? Yeager et al. have found that the answer may depend on what exactly the question is. Pollsters regularly pose a “most important problem” (MIP) question originally devised by George Gallup in the 1930s: “What do you think is the most important problem facing the country today?” Only 1 to 2% of respondents to this question in three surveys conducted by the authors offered global warming or the environment as an answer. However, if instead the question posed was “What do you think will be the most serious problem facing the world in the future if nothing is done to stop it?” global warming/environment emerged as the most frequent response, its percentage more than 10-fold higher than before. Shuldt et al. examined the partisan subtleties of wording choice. They found that the Web sites of conservative think tanks use the phrase “global warming” more frequently than “climate change,” whereas the reverse was true of liberal think tank sites. They then surveyed a sample of Americans to probe the impact of these distinct phrases and found that self-identified Republicans were more likely (by a ∼3:2 margin) to consider climate change a real phenomenon than global warming. Democrats were not affected by the wording, nor did educational attainment appear to favor one response over the other.
Public Opin. Q. 75, 125;115 (2011).”
I find it interesting to note which participants in the climate debate become concerned or unconcerned about uncertainties related to specific phenomena:
“The changing global climate will pose profound strategic challenges to the United States in coming decades, raising the prospect of military intervention to deal with the effects of violent storms, drought, mass migration and pandemics, military and intelligence analysts say.”
This is incredible. It sounds exactly like the movie “Independence day” or any other of a number of movies where the US military comes in at the last minute to save the world from disaster. But here you seem to have found people who actually believe that The Marines will have to go into combat, to “intervene” to deal with the effects of “violent storms”, etc..
The mention of “military intervention” and then “violent storms” makes it all seem like a war, huh? It is of course tempting in a populist sort of way to portray the “climate crisis” as a third world war, the last stand for humanity, but it makes most of us throw the laptop out of the window in frustration.
Tone it down. There might be a catastrophe somewhere, but there has always been a catastrophe somewhere. And when it happens people help each other, first of all family, friends, neighbors, then civil society, ambulances, hospitals. There is no “war”. No need for guns, jet fighters or nuclear submarines.
Please: take a deep breath.
Your argument appears to be with the Pentagon and CIA, not with me. This is contingency planning, of course, but what is significant is that it has acquired enough priority to warrant the establishment of teams specifically charged with anticipating the consequences of future warming as it might pose challenges requiring military (and diplomatic) intervention.
With all due respect, Fred.
My argument is with you. If you did not support the statements you posted, surely you would not have posted them?
And again you say:
“as it (the global warming) might pose challenges requiring military (and diplomatic) intervention.”
In no conceivable way is there any need for military intervention due to climatic problems. There might be a hurricane, but this is a matter for civil society. It is about helping people, not about guns and troops. Don’t make it more dramatic than necessary.
As for diplomatic “intervention” I am not sure what you mean. I have never heard of such a thing. Diplomats represent their countries’ policies, they have no powers of intervention.
Maybe Copenhagen was an attempt at “diplomatic intervention”, but as we all know: thousands of diplomats and politicians were gathered, but none of them “intervened”.
You’re reading far too much into it due to your politics and beliefs.
The DoD also plans for meteor strikes and alien invasion, for GMO foods gone wild and subsequent worldwide famine, and possibly the second coming of jesus. The DoD has a plan for everything and anything. With the claims of climate change being what they are, they would be idiots to not look at a plan, since this is part of the job.
Did you read my post from 1:53? The point (being made my military experts) is not that the military might have to fight storms, but that the
of climate change could have security implications.
Yes, I believe the military is appropriately concerned about the potential for anthropogenic warming and its consequences to undermine regime stability and enhance terrorist threats. A recent example was the catastrophic Pakistan floods that did both of those things, as Al Qaeda/Taliban elements stepped in to gain support for their own efforts while discrediting government inaction. The cause of the flooding has been a subject of dispute, but is not really relevant, because the example illustrates the type of security threats to be anticipated from similar catastrophes that become more frequent as a consequence of anthropogenic warming.
It has been well documented that the flood in Pakistan is an example of a recurring climatic event, often hinged with drought, heat and forest fires in Russia. Caused by a blocking of the jet streams. You must have read this if you are at all interested in climate. If not I can supply plenty of links.
Al quaeda will use any excuse for gathering support, and I don’t think climate change is the number one recruiting argument by far.
Probably totally useless.
AGW (or ACC, if you prefer the new brand name) had nothing to do with the Pakistan floods (despite the canard by US Secretary of State, Hillary Clinton).
Max – I don’t believe you read what I wrote, which was that the Pakistan floods, whatever their cause, illustrated the potential destabilizing effects of climate catastrophes, including those likely to be more frequent in a warming world.
Even so, your statement that AGW “had nothing to do with the Pakistan floods” is not warranted by the available evidence, which is uncertain in that regard. Major events of this type typically reflect the confluence of multiple causes or predisposing conditions, and a warmer world with more frequent intense precipitation events may have been one of them, even if it was not the proximate cause. For example, Kevin Trenberth considers excess atmospheric water as a possible contributor to the flooding, although he is careful enough not to use the word “proof”.
Similar claims and qualifications relate to the deadly Russian heatwave, where a proximate cause due to atmospheric blocking may (or may not) have been aggravated by pre-existing atmospheric conditions. Again, this is not a circumstance where a single paper or opinion is definitive.
However, the main point of this comment is in its first paragraph.
Fred- The floods in Pakistan are an example of what happens when a corrupt nation does not construct and manage infrastructure properly to protect its population from potential weather events. I do not understand how anyone can believe that the damage caused should suggest that the United States (or other nations) should implement taxes to reduce CO2 emissions in an attempt to slow or minimize climate change.
The posted article described how CO2 “taxes” would be a detriment to the economy of the nation imposing them. Heinz’s position is simply is not based on economic principals but upon the base notion that CO2 is pollution and must be eliminated as much as possible.
So, let’s assume that the US took drastic actions to reduce its CO2 emissions. Considering the overall impact of those actions, total worldwide CO2 will continue to rise for decades. If countries like Pakistan, and India continue to not make infrastructure a high priority vs. an afterthought, people will continue to die in floods.
The only change will be that the nations that spend a portion of their wealth on reducing CO2 will have fewer resources for their own futures.
Fred—regarding DoD’s planning for potential harms due to climate change, you clearly put way to much stock into the significance of this planning. The US military has done at least as much planning in preparation for both an asteroid strike and an invasion from another planet. We pay people to do contingencies studies, but that is NOT a reason to justify additional taxes due to the topic.
This is an application for more funds.
Grow used to it.
What security implications?
Climate refugees? We should start seeing them by now. From where? Africa is growing greener as we speak.
Climate terrorists? from where? What part of the world has become so devastated that people are desperate enough to kill?
These are scenarios dreamed up by those who have something to gain by dreaming such things up.
There is no link to reality.
First you misconstrue the point (thinking that someone argued that the military would be needed to fight the storms), and then you categorically state that the concerns of security experts about the effect of climate change have no connection to reality.
Ok. I think I see where you’re going with this. Have a nice day.
1. No, I did not misrepresent anyones argument, pretending that the military would “fight storms” as you say. Read again, and read better this time.
2. Yes I did indeed state that the security concerns of the so called “security experts” are bogus, probably manufactured to secure additional funds for their diverse activities.
There is of course this one as well –
‘The research suggests that once temperature rises above some threshold, adverse weather conditions could develop relatively abruptly, with persistent changes in the atmospheric circulation causing drops in some regions of 5-10 degrees Fahrenheit in a single decade. Paleoclimatic evidence suggests that altered climatic patterns could last for as much as a century, as they did when the ocean conveyor collapsed 8,200
years ago, or, at the extreme, could last as long as 1,000 years as they did during the Younger Dryas, which began about 12,700 years ago.’
Just covering all bases I suppose.
“Paleoclimatic evidence ”
Paleoclimatic evidence is rightly described here as fumbling about in a dark room and gathering evidence by touch alone – http://www.nap.edu/openbook.php?isbn=0309074347
Still – it is better than ‘puter models.
I am unsure which is better.
As long as both are susceptible to “the human touch” we probably end up with a very human result anyway.
Both sides in the economic debate assume that reduction of emissions (to zero???) is possible, and debate the question whether it will be cost effective or economically beneficial.
Emission reduction (to a significant degree) is not possible with the technology now in existence or foreseeable.
So, the economic question is moot. Whatever you do to disturb the current course of affairs (carbon taxes, cap&trade, mandates) is all harm and no benefit, all cost and no result.
Seems the economists are no more capable than climate scientists to grasp the realities of the technology and engineering domain.
Here is my take on all this, for what it’s worth.
Dr. David Montgomery makes four important points at the start of his written testimony:
Montgomery discounts the idea that regulations will cause companies to take actions to save money, which they would otherwise not do:
He points out why climate policy will not promote a new clean energy export industry in the U.S., citing the experience of the past 10 years. This experience shows that they rather cause the loss of U.S. jobs with the possible addition of a few new jobs located outside the U.S.
Montgomery then addresses the great uncertainties plus the “winners and losers” argument mentioned by Dr. Curry in her testimony before U.S. Congress:
He points out how cost/benefit analyses for specific actionable proposals are hardly ever made. Instead the whole palette of possible worst-case scenarios is presented as justification for action.
Montgomery makes a good case for his conclusion that attempts to change our planet’s climate will neither change the climate perceptibly nor show cost effective economic benefits, such as creating jobs.
He also points out that they would be totally meaningless without world-wide cooperation, and this is highly unlikely to occur.
The rebuttal by Paul Baer is weak, as it does not directly address the main points made by Montgomery, but gets more into socio-economic or philosophical deliberations.
Baer introduces the concept of “internalizing social welfare”, i.e. this must be included in the economic calculation, referring to the negative health impacts to humanity, which are postulated to result from human-caused climate change (but ignoring any health benefits that might result from a slightly warmer climate).
His rebuts Montgomery’s assertion that nations will inevitably act in the interest of their own populations rather than considering global concerns, introducing the concept that they may see “reasons to want to act justly or virtuously” even if this is not in the interest of their own citizens.
This sounds like it is coming from a theologian rather than an economist.
James Heinz is more specific and to the point in his response. He argues that pollution costs must be internalized in the economic calculation stating:
This would certainly apply for real atmospheric pollution that comes from coal combustion (particulates, SO2, NOx, Hg, As, etc.), which is directly harmful to human health, but it does not apply for the CO2, which is emitted. What “costs” do the “rest of the population” pay for higher atmospheric CO2 levels? None.
His statement below again applies for real air pollution, but does not hold for CO2 emissions, as these pose no direct “health and environmental problems”:
Heinz then argues that regulations will force utilities to invest in energy conservation and improved efficiency measures, which will improve the overall economics. This reasoning is silly. If it makes economic sense to do so, the utilities will make these investments without any regulation, as Montgomery wrote.
He then brings out the “new jobs created” justification, pointing out that in the current economic slump this would be a benefit. Here he simply ignores Montgomery’s statement based on the past 10 years’ experience, which shows that the net impact of regulation is that more jobs are lost than are gained and that many of the jobs that are created are outside the USA, while those lost are in the USA.
I’d say the testimony of Montgomery is much more convincing than the rebuttals of either Baer or Heinz.
But then, Montgomery had a lot of time to prepare his testimony, while Baer and Heinz were just “shooting from the hip” in response.
Sounds good to me. Re market failure, often invoked to support non-market policies, here’s something I wrote several years ago.
Market failure and government failure
Markets are very efficient devices for providing and processing information, for organising production and distribution of goods and services so as to allocate resources to their highest valued use and thus maximise community income. Their superiority to central planning is well attested.
There may, however, be cases where markets do not produce the most efficient outcome, where there is “market failure.” This tends to arise in particular circumstances, for example when there is a natural monopoly, where externalities are not taken into account, where there is information asymmetry or in the case of public goods. (There is extensive literature on the issue for those who seek more detail.)
The identification of market failure alone is not, however, sufficient reason for government intervention. There can be no presumption that governments outperform markets: indeed, “government failure” is more common. The World Bank advised that “the countless cases of unsuccessful intervention suggest the need for caution. To justify intervention it is not enough to know that the market is failing; it is also necessary to be confident that the government can do better.” (World Bank (1991) (p 131), World Development Report: the challenge of development, OUP, Washington DC) A Bureau of Industry Economics paper assessing the 15 major interventionist policies of the Commonwealth Government from 1970-85 found no positive outcomes: 13 had negative returns, while for two the net outcome was unclear.
Should the cost to the community of market failure be significant, government should first see whether it is possible to improve the workings of the market. If not, it must assess its capacity to produce a better outcome, and the costs and benefits of any intervention. Given that a number of studies have found administrative costs of around 15-50 per cent in government industry support programs, the prospect of a net benefit from intervention must be considered doubtful.
Within the Queensland system, the term market failure has rarely been used in its true economic sense. It tends to be shorthand for “We think that certain opportunities for which there is no commercial support should in fact be pursued, with government funding.” That is, picking winners again.
Imperfect government: “The skills of government in addressing market failure are often exaggerated. Government intervention must overcome three formidable difficulties: the tendency of regulated firms to “capture” their regulators, weak incentives for efficiency within the public sector, and missing information (where markets lack it, governments are likely to lack it as well). … The record of intervention is poor … history suggests that the burden of proof should lie with those who would extend the government’s role.” The Economist, 17/2/96.
“This sounds like it is coming from a theologian rather than an economist.”
Well, actually I’m a philosopher as well as an economist.
I’m quite proud of the fact that two of my publications are in a book called “Climate Ethics: Essential Readings” (Gardiner et al. 2010, Oxford University Press). Happy to discuss them with you if you feel like looking them up.
Some posters here take issue with David Montgomery for simply accepting the premise that human CO2 emissions will lead to substantial global temperature increase.
IMO Montgomery was right in not questioning the IPCC “party line” on climate sensitivity and resulting climate changes from increased CO2 levels. That was outside his brief, as an economist.
He simply addresses the great uncertainty relating to the “conventional wisdom” on the negative impacts on humanity and the premise that there would only be losers.
IMO his level-headed analysis as an economist advising the congress of the USA makes good sense (certainly more than the IPCC “Summary for Policymakers” reports do).
I feel enlightened enough to play now. My economics is much improved under Bart R’s most excellent tutelage. I have learned 3 fundamental economic principles.
1. A fiscal deficit can be turned into a fiscal surplus if you squint at it just right.
2. Working backward from a conclusion with a millstone tied around your neck is not just a mixed metaphor.
3. Keep talking until their eyes roll back into their heads and they scream.
All participants in this debate have admirably fulfilled the economic tenets and are fully deserving of their elephant stamps. And as nothing is ever likely to happen – it all happily stays in the realm of theory where to C&T or not to C&T can take it’s place in the pantheon of other great debates of civilisation. Will Kate and William stay married and become King and Queen of England, Scotland and Australia? Will Charlie Sheen become a Muslim and marry both goddesses? Should M… M… go to Penn State or State Pen?
My position on climate science is somewhat notorious. I have published in the pages of Energy &Energy and online in American Thinker – puzzled though I am by the oxymoron in both titles. I have guest posted on Judith’s hyperactive Climate etc. I am on Marc Morano’s list of despicable quislings most likely to be indicted for crimes against humanity. I have written a poem in celebration.
Song of a Climate Zombie
Am I some poor merchant of doubt selling shopworn and
threadbare wares on the ebays of the ideas marketplace?
Let me take stock then in a dismal reiteration of my poor
argument that is my faint hope to delude and dismay you.
Unless we can count on some mad and unprovable theory,
then the unholy carbon ghost must grasp the photon closely
in warming arms for a period of no less than 80 years or so.
Or until judgement day – whichever comes before the cart.
My stock in trade must then be: the power of ENSO twins,
abrupt shifts in the PDO, the fickleness of the PNA, the
slow pendulum of the AMO and the SAM with its storms
freewheeling off the Southern Ocean to smash on the shore.
These standard bearers of doubt engage in a global dance.
Occasionally, they pirouette towards a grand crescendo and,
then fly wildly to the ends of Earth in a new choreography,
Tremendous energies cascading though powerful systems.
Unless I miss my mark then this is the mark of chaos and
a danger in its own right as climate system components
jostle unpredictably and things settle into whatever pattern
emerges – mayhaps a cold, cold, cold day on planet Earth.
So, you are 90% sure we caused warming over 50 years?
But the only global warming was between 1977 and 1998.
By more than chance, it was the last period when the boy
child, El Niño, reigned over climate in the Pacific Ocean.
His influence can be seen in the record of Earth radiance.
A slow decline in reflected short wave as cloud dissipated
over the warm ocean and let in more of the Sun’s energy.
Ten times more powerful than a gaseous embrace of photons.
Before that time and since his sister, the girl child La Niña,
ruled the waves with winds and cold, cold water rising in the
eastern Pacific – with cool cloud spreading over cold seas –
she will rule for some decades yet before ceding power again.
However, since discovering Dragon Kings – the thought has occurred to me that provoking Dragon King (extreme variance) in the climate system by making small initial changes – such as increasing greenhouse gas concentrations in the atmosphere – might not be the supreme expression of human ingenuity or suit my natural timidity.
I was wondering if there might not be a bearable 3rd alternative to the C&T or not to C&T morass. Being intellectually very lazy – I purloined this from the Hartnell 2010 Paper.
‘Therefore, in our view, the organising principle of our effort should be the
raising up of human dignity and in that pursuit, our re-framed primary goals
should be three:
1) to ensure that the basic needs, especially the energy demands, of the
world’s growing population are adequately met. ‘Adequacy’ means energy that is simultaneously accessible, secure and low-cost.
2) to ensure that we develop in a manner that does not undermine the
essential functioning of the Earth system, in recent years most commonly
reflected in concerns about accumulating carbon dioxide (CO2) in the
atmosphere, but certainly not limited to that factor alone;
3) to ensure that our societies are adequately equipped to withstand the risks and dangers that come from all the vagaries of climate, whatever may be their cause.’
I am so impressed with this that I am going to refer it to the leader of the opposition in Australia – otherwise known as the Mad Monk (not to be confused with Mad Max) – as I feel this most nearly approximates the conservative version of pretending to do something about global warming. He can wave it around repeating the phase – ‘London School of Economics’.
I suggest that you read it – and if you have any questions on the economic fundamentals get back to Bart. Now if all that is clear as mud – I’ll get out of your way.
Well done, my Padawan.
Remember, in Economics the conclusion isn’t important, it’s the process you use to derive it. Anyone can get the right answer to differential equations, what matters is the Economical answer.
Keeping in mind very few who read what Economists write agree entirely with them, or with each other, or ought, we’re disagreeing nicely.
For instance, around the last three paragraphs of page 32 of the English version of the Hartwell Paper, as a simple layman I start disagreeing with the experts.
They claim “it has not proved possible to create carbon tax regimes that are simultaneously efficient in reducing demand or in stimulating innovation and that are accepted or even well tolerated by democratic electorates.”
i. The Claim
Their inference is that it is impossible to do so. However, British Columbia is very nearly there with its revenue-neutral carbon tax. As Hartwell agrees, “A slowly rising but initially low carbon tax has the advantages of avoiding negative growth effects.”
The tax was so well-tolerated as when made the sole subject of a British Columbia election, it returned the sponsoring government to office with an increased majority.
This perhaps is due to the revenue-return portion of the tax. The majority of British Columbians saw more money return to them from the carbon tax than they paid out to it either directly or indirectly. Their income taxes were significantly reduced, and those who paid little or no taxes received direct payments.
This applied to corporations as well as to individuals.
The BC carbon tax is due to rise to the $30/ton level by 2012, which is four years to go from zero to ten percent of the $300/ton proposed level (which level I also disagree with, but more later).
While it’s true as yet the BC carbon tax has had negligible impact on demand, it’s had real stimulatory impact on the local economy, which weathered the 2009 crisis pretty much better than any other regime on the planet according to the informed opinion of several financial analysts.
Suppose BC, having experienced no shocks and great success at $30/ton decides to make the leap to my preferred level, the point of diminishing returns to shareholders.
Since only the market can determine what that level is, and the market has as yet not spoken on this matter, we’ll take $300/ton as our best initial guess.
Let’s also use the foot-draggingly slow motion of Canadian policy, to have that rise take another four years to implement, perhaps by approximately doubling the revenue-neutral carbon tax and its return per capita to BC citizens every year.
At that level, looking at the case familiar to consumers of the price of vehicle fuel, price would rise by about one third in BC. The returns to BC citizens, as energy demand is relatively inelastic, would also increase tenfold. We can thus use the principal of ceteris paribus to conclude:
1. The majority of BC taxpayers would see a drop in taxes on the order of $2000 and experience significant increases in spending power other than for fossil fuel. (Even counting indirect rises through passing on the energy expense of transportion, refridgeration, etc.)
2. The majority of BC corporations would see a like proportionate drop, and experience a significant competitive advantage.
Still below the average European or Asian price, one might think a one third price of fuel would cause significant issues.
However, the price of fuel in BC — and the rest of the world — is already expected to steeply rise, and the average vehicle efficiency in BC is only under half of the fuel efficiency of the latest generation of conventional vehicle.
If over four years the newly wealthy BC driver spends their new $8,000 of personal income to contribute to buying a new high-efficiency car, they will after four years be in the possession of four things:
a) a new car;
b) a lower overall annual vehicle fuel expense;
c) a source of revenue from CO2E on the order of $2000/year;
d) envious neighbors who want what BC has.
Similarly, the majority of corporations will experience like returns and incentives.
Why pay 35% US corporate tax when you could move to BC and pay effectively none?
The automobile case is apt to every major energy decision, with like comparisons in efficiency and returns.
Likewise, the BC example could in five years trash Hartwell’s other claims on page 33: leakage, example to cite when discussing CO2E policy, and clean alternatives.
Do you really suppose that leakage from BC is really going to be BC’s problem in 2016?
No, more like beating away companies and individuals who want to move there to experience the benefits of revenue-neutral carbon taxes, will be their problem in 2016.
See, Chief, I know an extra $2000 in your pocket a year and an influx of the sort of money-smart industry that doesn’t rely on fossil emissions would be small change and important to a man like you, but to real people it means something.
If in the mix some high-CO2E industries and people think to flee to free-riding regimes, well then let them.
iii. Example to Cite
So I say BC is the example to cite when discussing policy, not ETS or other forms of C&T. Because BC hasn’t fallen apart three times, and has the scope to move forward to a practical level that achieves the stated objective.
As with the example of automobiles, clean technology is available today, is price-competitive today, and could be implemented today in the vast majority of cases to move substantially closer to the stated objective.
If free riders believe as Hartwell puts it, “They would rather translocate to lower labour cost and less regulated places or play the emissions-permit shell game,” the must ask will it be very long before those jurisdictions outside BC feel the pressure from their citizens to get what BC has?
Otherwise they really aren’t paying attention to human nature.
Now, at some point this scheme will tap out.
Research stimulated broadly in the private sector by the huge incentive of tapping into the CO2E alternative cash stream will be overall faster and more effective than government-sponsored hypothecation. It will be less bureacratic, and it will enjoy faster time to market.
Once all the CO2E technologies and non-technological adaptations are made, and revenue-neutral carbon taxes deliver nothing to the shareholders — which will happen slowly over the course of a lifetime or so, thus will barely be noticed — then they can be dealt with as little more than an appendix, a vestige of a time when the madness of giving away something of value for nothing distorted the market.
None of this, you will note, is going to cost first-in participants anything. They will accrue benefits as early adopters by shifting means of production and engines of wealth into their jurisdictions.
So while there may be an economic cost, it will be borne by the laggards and those who throw wide open their arms to the free-riders only.
Say, isn’t Australia considering a carbon tax thingy, Chief? You should look into that.
You seem to have summarized rather well the keys to not only Bart R’s economics, but AGW as well.
How do you internalise a cost, if you don’t even know it exists?
Unless and until CAGW is established, this is just an angels-on-a-pinhead discussion in economics, and a how-can-we-impose-more-government discussion in politics.
Internalisation is the process of removing government command and control regulation and replacing it with individual decision power in the market.
You don’t increase government by internalisation, you decrease it.
Imposing such control and commands as ‘unless and until’ dictums is more government.
Charging a fee and returning that fee to shareholders is less government.
I’ve never known a shareholder to want to wait for someone else to tell them the value of their goods to start charging for their use.
How would that work for farmers, being told to give away their produce until the benefits of vegetables can be scientifically proven? Should toothpaste be free until the harm of cavities is calculated?
That is a very poor defense of the consensus.
There is no established value for AGW demanded polices that hold up under scrutiny.
Vegetables and toothpaste do not have that problem.
Among other issues with your analysis.
While professing a belief that the climate change at issue is caused by human induced CO2, Motngomery provides some real world cautionary considerations in trying to mitigate CO2 emissions without weighing the real world value of such actions against the true cost. I think many who are concerned about the issue have not expanded their scope of consideration enough to weigh all the consequences of action or inaction. It is a very complex world so I think we should collect more data and leave some of the problem solving to our grandchildren lest we get it wrong.
I mean this seriously (so don’t be offended):
Your prose is beautiful – I’d say almost poetic.
Your logic is impeccable and unassailable.
Now let’s get to:
The Hartwell Paper: A new direction for climate policy after the crash of 2009
Let me offer my (unsolicited) thoughts on this paper.
This paper reframes the climate issue in a fundamental way.
– Kyoto model crashed in 2009 and is over, presenting opportunity for a new direction.
– Top-down regulatory schemes do not work.
– A climate policy with emissions reductions as the primary goal is not possible.
– Decarbonization of the global economy is desirable as a long-term goal.
– The issue needs to be reframed with pragmatic and politically attractive goals.
– The basis should be the “raising up of human dignity”.
Primary goals should be:
1. ensure basic energy demands are met with low-cost source
2. ensure we do not upset Earth’s ecology system
3. ensure we can respond to climate changes, whatever their cause
Goal #1 is not possible with current ‘mitigation’ proposals for the estimated 1.5 billion people who have no access to energy today. In order for these individuals to obtain access to energy, the costs of energy must be lowered, not increased.
Goal #2 can be achieved by eliminating real pollution; this refers to “black carbon” from indoor burning or particulates, CO, NOx, Hg, As, hydrocarbons, etc. from industrial combustion, rather than chasing after CO2. Protecting the tropical forests should be a second step toward achieving this goal.
Goal #3 (“adaptation” to whatever climate changes come along) was (falsely) framed by the Kyoto approach as “a cost of failed mitigation”. Yet this approach will manage all the risks of climate change much more effectively and efficiently than mitigation attempts.
The report describes the errors made, stating:
A ‘wicked problem’ is defined as follows:
Anthropogenic climate change (as it has now been re-branded from the earlier ‘anthropogenic greenhouse warming’) is such a problem. As was evidenced from the need to rename it, in the first case!
Policymakers like clear black and white issues, where clear decisions can be made based on the facts before them. This is not the case for ‘climate change’, as it is not a single problem with a simple single solution. The ‘war on climate change’ is, therefore impossible to fight (and impossible to ‘win’).
Yet, the authors continue, some climate scientists used the authority of their expertise to claim that their results dictated specific policy actions, leading some politicians to claim that their policy recommendations were dictated by science:
As a field, which is still in its infancy, climate science itself is fraught with insurmountable uncertainties.
And, no matter how well the basic climate science is understood, there are also great uncertainties regarding the drivers of climate change, such as population growth and technological innovation as well as major uncertainties regarding the ‘winners and losers’ from global warming.
In other words, we do not know enough today to arrive at any real conclusions.
So far, so good.
But now the authors get into the “what should we do now” mode, starting off with the very logical suggestion:
The authors argue for policies leading to efficiency improvements.
This is nice, but these have been ongoing and will continue to be so for purely economic reasons, as fossil fuels become increasingly scarce and their prices continue to increase.
No ‘policy actions’ are required to make these occur (as David Montgomery pointed out in his testimony to US congress).
The authors then state that
Following Montgomery’s logic, I do not believe that this step necessarily requires a ‘carbon tax’. Furthermore, it is well known that tax revenues from whatever sources usually end up being tossed into the overall pot for whatever spending or ‘investments’ are deemed politically worthwhile or expedient at the moment. And, finally, the costs of implementing and administering a carbon tax will reduce the overall efficiency (as Montgomery pointed out).
The authors cite the (now famous) quotation from The Economist:
Here I would disagree completely with the authors
Action: Yes, at the individual and corporate level. (Reduce waste, eliminate pollution, improve efficiency, develop lower cost alternates)
Large government intervention: No. (Can work to ‘win a war’ or achieve a single deliverable goal, such as landing a man on the moon or beating the enemy in the race to develop an atomic bomb, but will not work to solve this ‘wicked’ problem)
Carbon taxes (direct or indirect): Absolutely not (Will achieve nothing except making energy more expensive and less affordable for all, especially for the poorest)
The authors write:
This all makes sense on paper, but I am reminded of Eisenhower’s parting remarks about the dangers of creating an all-powerful ‘military-industrial complex’.
The rest of the paper defines several alternate policy approaches to addressing the ‘problem’ of decarbonization, pointing to past successful and unsuccessful examples, where governments either subsidized new R+D efforts directly or indirectly as prospective customers for the products being developed.
The authors point out:
I agree. But this speaks directly against government subsidizing of clean energy investments, such as building wind farms or subsidizing domestic solar panels.
In arguing for a ‘hypothecated’ carbon tax, the authors point out that a ‘dedicated’ carbon tax will be ineffective in decarbonizing our economy.
Firstly, this is so because it is not possible to establish the ‘cost of carbon’ as it is equated to the detrimental effect of CO2 on our climate, due to the many uncertainties. (Montgomery concluded the same.)
The second problem is that there will be no consensus among the various nations to accept a carbon tax. (Again, Montgomery made the same point.)
Thirdly, even in the nations whose governments may support a carbon tax, the general voting (and tax-paying) public may not.
The fourth point made was that a carbon tax would not necessarily force industries to develop new ‘clean’ energy solutions.
The authors then state:
By a ‘hypothecated’ tax the authors refer to a tax that is not imposed in order ‘to alter short-term consumption behaviour as the once popular “Cap & Trade” approach hoped to do’.
Instead, they argue
The authors then rationalize the benefits of this low tax as a source of revenue to develop new technologies, agreeing that ways must be found to ensure the revenue gained is not spent elsewhere:
IMO this is all idealized top-down thinking. Life simply does not work this way.
A ‘small tax’ may be ‘less bad’ than a ‘large tax’, as the authors concede, but even better is NO tax.
New energy sources will be developed with or without a tax. The odds of environmentally viable and cost effective solutions being developed by private industry without government subsidy are IMO (and that of David Montgomery) greater than if these developments are subsidized by the government. (The US corn to ethanol disaster shows why this is so.)
History has shown us that tax revenues will go to plug whatever holes are there, no matter how many pledges are initially made to allocate them specifically to clean energy projects. (The US Social Security Tax demonstrates this.)
So I would say that the first two-thirds of this report are on the mark, but the argument for a low ‘hypothecated’ carbon tax is weak.
Just my thoughts on this, Chief.
I’m thinking maybe we should do a thread on the hartwell paper?
Excellent idea, Judith.
Max, another excellent post which chimes with my own approach and conclusions. Re hypothecation, it assumes that a certain issue is and will remain such an over-riding priority that it must be funded no matter what. Of course, priorities change, resources are constrained, and it is most efficient at any point in time to apply resources to their most welfare-enhancing use. Hypothecation is not efficient and in practice governments accept that funds are fungible. Raising taxes to deal with a particular issue does not ensure that that issue will be properly addressed, but it does ensure higher taxes.
Which explains 95% of the support for political action on climate.
Paul Baer: Crucially, however, the basic theoretical framework makes it perfectly possible for a nation to incorporate the well being of non-citizens into its own domestic welfare function, and whether to do so or not is a choice, not a fact.
As a non-American, I do not vote for the US President, members of Congress, State legislators, etc. As Baer suggests, it is entirely possible for US politicians to choose policies that would benefit me at the expense of people who can actually vote for them.
Hands up all those who believe that such a choice would increase the likelihood of said politicians being elected?
There are some highly technical issues in the science, and some puzzling issues in the economics, but the politics, at least, is pretty simple.
A quick response before reading the full testimony and comments: as a former government economic policy adviser concerned with drivers of economic growth, Montgomery’s views as summarised fully accord with my own experience, knowledge and views. I hope to post more fully later (it’s bedtime here in Brisbane.)
Both Baer and Heinz make the point externalities in an economy are suboptimal. (I guess because the total costs to society are larger when the externalities are not included in economic decision making)
Baer makes an additional, and imho important point: The prisoner’s dilemma aspect of the global commons: All actors are best off if they decrease GHG emissions, but are reluctant to do so in the absence of being confident that others do so too. There’s a fundamental moral aspect to this (as Baer aludes to: “it’s a choice, not a fact”).
The prisoner’s dilemma / tragedy of the commons is probably the most important obstacle to deal with this global predicament. Kudos to Baer to bring that issue to the forefront of the discussion.
Those of us who are not economists, or lack a broad background in economics would probably benefit from a quick introduction to the main concept at play here. I recommend that you start by reading Bastiat’s http://en.wikipedia.org/wiki/Parable_of_the_broken_window “Parable of the Broken Window” (it’s a quick read, although the implications are substantial). For a longer and more in-depth introduction (book-length), read Henry Hazlitt’s http://steshaw.org/economics-in-one-lesson/ “Economics in One Lesson” . Neither is the last word on the subject, but these two sources provide everything you need to gain a solid first-order understanding of the issues at play here. In fact, they do a great job of clearing out most of the fog in popular descriptions of economic issues. (Quick aside for any actual economists who read this: Yes, I know that there are more recent sources that delve more deeply into details. These two references cover 95% of what a layman needs to know with enough accuracy for that layman’s purposes.)
My personal summary would be “Montgomery’s about right; both criticisms are unconvincing.”
And (admittedly a bit off-topic) anyone who wants a cynical giggle should read Bastiat’s apocryphal document purporting to be a request from the candle-makers of Paris for relief against unfair competition from the sun. It’s a beautiful little piece that quite appropriately skewers most complaints about “unfair” trade practices.
To me, it looks as if the EPA summarizes perfectly the “economics” of climate change mitigation : $78 billion per year up to year 2100 for controlling CO2 emissions from vehicles in the US to achieve a) a “saving in temperature” of 1/100 °C and b) a 1 millimeter sea level reduction ; anything to add to the most informed advise from such a distinguished climate mitigation proponent ?
You asked whether there is anything to add to the EPA estimate of climate impact of the mitigation proposal.
I’d day add the word “maybe”.
“What is scarce is non-renewable energy…Given this, the right economic argument would be that we should channel investment towards activities which raise energy efficiency or reduce reliance on non-renewable sources of energy”
There are a few major jumps here.
(1) Energy is not particularly scarce. Prices are high becuase of the fear of future scarcity – some of which results from long standing restrictions on exploration in the US. The US alone has huge supplies of nat gas and reasonable supplies of coal for the forseable future, and many other countries have large nat gas supplies (2) renewable energy may or may not be scarce, but it’s not in demand per se, except as a result of gov regs. (3) the argument that we should increase investment in renewable energy is dependent on (1) , which is false. (4) scarcity alone, even if it were real, doesn’t imply an investment in alternative energy is cost effective. Cost effectiveness depends on the relative cost, not the relative scarcity. Suppose the US gov builds 100 nuke plants. The energy becomes abundant and the retail cost is low. But that doesn’t make it cost effective. Cost effectiveness is measured in the overall cost of production – including the initial investment. Even if the retail cost is low, the cost to the consumer is still high because they’ve paid the taxes that cover the investment cost.
Overall, I’m impressed by Montgomery and completely unimpressed by Baer and Heinz.
When I first learned the concept of externalization, I thought it was a great concept. But the way it’s applied to energy by AGW Action Supporters is a total fraud. They argue that the costs of pollution are not included in energy prices, thus the prices are too low, thus the costs are “socialized”. But they ignore the fact that low priced energy is also provides massive social benefits. Suppose we double the cost of energy – what happens to the price of food? Up. What happens to medical prices? Up. etc.
So, overall, I think the externalization argument is total garbage on two counts:
(1) it drastically underestimates the social of lower energy prices
(2) even without (1) it must drastically underestimate the cost of renewables to be successful.
So… do you support further subsidies to fossil fuel energy prices in order to lower the cost of food, medical care, etc.? Or by some coincidence is the subsidy that comes from ignoring future damages just right?
JL makes the point that there are spillover benefits as well as spillover costs in unpriced CO2 ‘pollution’, since cheaper energy means cheaper everything-else. Paul Baer asks , “is the subsidy that comes from ignoring future damages just right?”
Since we have no idea what the damage is, ie no confident idea what the impact of CO2 is yet, how can anyone know?
So what do w do now? Just go with Paul’s previous recommendation and lamely accept the verdict of a vested-interest- and malpractice-ridden climate-science establishment ?