By David R. Henderson and John H. Cochrane
July 30, 2017 4:24 p.m. ET
Climate change is often misunderstood as a package deal: If global warming is “real,” both sides of the debate seem to assume, the climate lobby’s policy agenda follows inexorably.
It does not. Climate policy advocates need to do a much better job of quantitatively analyzing economic costs and the actual, rather than symbolic, benefits of their policies. Skeptics would also do well to focus more attention on economic and policy analysis.
To arrive at a wise policy response, we first need to consider how much economic damage climate change will do. Current models struggle to come up with economic costs commensurate with apocalyptic political rhetoric. Typical costs are well below 10% of gross domestic product in the year 2100 and beyond.
That’s a lot of money—but it’s a lot of years, too. Even 10% less GDP in 100 years corresponds to 0.1 percentage point less annual GDP growth. Climate change therefore does not justify policies that cost more than 0.1 percentage point of growth. If the goal is 10% more GDP in 100 years, pro-growth tax, regulatory and entitlement reforms would be far more effective.
Yes, the costs are not evenly spread. Some places will do better and some will do worse. The American South might be a worse place to grow wheat; Southern Canada might be a better one. In a century, Miami might find itself in approximately the same situation as the Dutch city of Rotterdam today.
But spread over a century, the costs of moving and adapting are not as imposing as they seem. Rotterdam’s dikes are expensive, but not prohibitively so. Most buildings are rebuilt about every 50 years. If we simply stopped building in flood-prone areas and started building on higher ground, even the costs of moving cities would be bearable. Migration is costly. But much of the world’s population moved from farms to cities in the 20th century. Allowing people to move to better climates in the 21st will be equally possible. Such investments in climate adaptation are small compared with the investments we will regularly make in houses, businesses, infrastructure and education.
And economics is the central question—unlike with other environmental problems such as chemical pollution. Carbon dioxide hurts nobody’s health. It’s good for plants. Climate change need not endanger anyone. If it did—and you do hear such claims—then living in hot Arizona rather than cool Maine, or living with Louisiana’s frequent floods, would be considered a health catastrophe today.
Global warming is not the only risk our society faces. Even if science tells us that climate change is real and man-made, it does not tell us, as President Obama asserted, that climate change is the greatest threat to humanity. Really? Greater than nuclear explosions, a world war, global pandemics, crop failures and civil chaos?
No. Healthy societies do not fall apart over slow, widely predicted, relatively small economic adjustments of the sort painted by climate analysis. Societies do fall apart from war, disease or chaos. Climate policy must compete with other long-term threats for always-scarce resources.
Facing this reality, some advocate that we buy some “insurance.” Sure, they argue, the projected economic cost seems small, but it could turn out to be a lot worse. But the same argument applies to any possible risk. If you buy overpriced insurance against every potential danger, you soon run out of money. You can sensibly insure only when the premium is in line with the risk—which brings us back where we started, to the need for quantifying probabilities, costs, benefits and alternatives. And uncertainty goes both ways. Nobody forecast fracking, or that it would make the U.S. the world’s carbon-reduction leader. Strategic waiting is a rational response to a slow-moving uncertain peril with fast-changing technology.
Global warming is not even the obvious top environmental threat. Dirty water, dirty air and insect-borne diseases are a far greater problem today for most people world-wide. Habitat loss and human predation are a far greater problem for most animals. Elephants won’t make it to see a warmer climate. Ask them how they would prefer to spend $1 trillion—subsidizing high-speed trains or a human-free park the size of Montana.
Then, we need to know what effect proposed policies have and at what cost. Scientific, quantifiable or even vaguely plausible cause-and-effect thinking are missing from much advocacy for policies to reduce carbon emissions. The Intergovernmental Panel on Climate Change’s “scientific” recommendations, for example, include “reduced gender inequality & marginalization in other forms,” “provisioning of adequate housing,” “cash transfers” and “awareness raising & integrating into education.” Even if some of these are worthy goals, they are not scientifically valid, cost-benefit-tested policies to cool the planet.
Climate policy advocates’ apocalyptic vision demands serious analysis, and mushy thinking undermines their case. If carbon emissions pose the greatest threat to humanity, it follows that the costs of nuclear power—waste disposal and the occasional meltdown—might be bearable. It follows that the costs of genetically modified foods and modern pesticides, which can feed us with less land and lower carbon emissions, might be bearable. It follows that if the future of civilization is really at stake, adaptation or geo-engineering should not be unmentionable. And it follows that symbolic, ineffective, political grab-bag policies should be intolerable.
Update:
A good recent summary of the calculations of economic damage of climate change in an NBER working paper:
2. A Survey of Global Impacts of Climate Change: Replication,
Survey Methods, and a Statistical Analysis
by William D. Nordhaus, Andrew Moffat - #23646 (EEE PE)
Abstract:
....the estimated impact is-2.04 (± 2.21) % of income at 3 °C warming and -8.06 (± 2.43) % of income at 6 °C warming. We also considered the likelihood of thresholds or sharp convexities in the damage function and found no evidence from the damage estimates of a sharp discontinuity or high convexity.
http://papers.nber.org/papers/w23646
John,
ReplyDeleteAs far as climate change goes (and it's affect on civilization), it is my opinion that there are larger forces at work.
https://en.wikipedia.org/wiki/Milankovitch_cycles
https://en.wikipedia.org/wiki/Ice_age
Global warming does seriously threaten human populations, but not so much in the US. The real people who will feel the affects are those in Africa, South America and Asia that will see crop yields collapse due to increasing temperatures but also increasing strength of storms and floods. While the hit may be 1% of GDP in the US, it will be far more in the developing world where negative changes in GDP bring far bigger social consequences. It would be insane to only think on a national basis.
ReplyDeleteAnd there are more species in the world than elephants. What about wildlife in the Arctic being wiped out due to lack of ice? Or ocean acidification - directly caused by increasing CO2 concentration in the atmosphere. This has been shown to already be impacted fish populations and especially barrier reefs. All of this threatens the entire food chain.
And for your actual point on economic quantitative analysis. We all know how accurate projections like that that span decades are. To consider the economic impact of climate change in 2100 you'd have to consider a million and one variables which would be impossible to do remotely accurately - most studies that project just temperature in 2100 have huge variations. It's better to invest more - say, 2-3% of GDP (although European countries invest far less and emit far less than us still) - as an insurance policy against a potentially catastrophic event.
Some comments:
ReplyDelete1. Academics are supposed to know "the literature" and credit people who have made similar arguments earlier. If I were an academic referee, I would chastise Cochrane for not mentioning Bjoern Lomgorg, who has been making essentially this argument for a long time.
2. There's a certain consistency in "all experts are wrong" people who deny all of climate change research. Once you've accepted that some experts are right, it's harder to deny some conclusions while accepting others. The ample research on the economics of avoiding climate change has the same weight as the research on the physics of climate change.
3. People over-estimate the cost of avoiding climate change. Renewable energy is cheaper than people thought it would be. The losers in switching from fossil fuel to solar are fossil fuel companies more than the general public.
4. In 1978, I was a very junior person in the MIT Energy Lab, which was associated with the business school, not engineering. Every one of their weekly seminars devolved into an argument over the discount rate. It's charming to see that this hasn't changed.
Excellent points!
ReplyDeleteHere are a few items to consider:
(1) paraphrasing Deirdre McCloskey: Gloom and doom sells but it doesn't do a very good job of explaining the last two hundred years of mass flourishing,
(2) a phrase by Benjamin Zycher at AEI within an essay entitled Wasteful subsidies for me and thee, not that fossil guy behind the tree: "...ideology masquerading as analysis....".
Putting those two thoughts aside for a moment, one needs to seriously examine the folktale of Henny Penny aka Chicken Little aka Chicken Licken (versions of which go back 2500 years). The folktale exists for a reason: one can't believe everything one is told, nor is the world coming to an end and the hysteria associated with the notion that disaster is imminent. Moreover, the folktale exists, through the many, via spontaneous/emergent order. It is a cautionary tale of the many, for the many.
Hence gloom and doom, the preaching there of, especially the world is coming to an end theme (particularly popular), has existed for time on end. It has existed for so long.... that folktale emerged and is deployed to explain its true ridiculousness. One has to not only appreciate that point, but one must understand Chicken Little is a poke-in-the-eye of charlatans (the few) via the common sense of the many.
Returning to McCloskey, gloom and doom does in fact sell. Moreover, it is a "sales technique". A sales technique highly associated with charlatans. Coupling McCloskey with Zycher one ends with: a sales technique that indeed appeals to ideology, especially ideology that masquerades as analysis.
The aggregate of the above points reminds one of a formula put forth by Thomas Sowell. How so?
“What all the [ideological crusades of the twentieth-century] have in common is their moral exaltation of the anointed above others, who are to have their very different views nullified and superseded by the views of the anointed, imposed via the power of government....[S]everal key elements have been common to most of them:
1. Assertions of a great danger to the whole of society, a danger to which the masses of people are oblivious.
2. An urgent need for action to avert impending catastrophe.
3. A need for government to drastically curtail the dangerous behavior of the many, in response to the prescient conclusions of the few.
4. A disdainful dismissal of arguments to the contrary as either uninformed, irresponsible, or motivated by unworthy purposes....(p.5)
What is remarkable is how few arguments are really engaged in, and how many substitutes for arguments there are. This vision so permeates the media and academia, and has made such major inroads into the religious community, that many grow into adulthood unaware that there is any other way of looking at things, or that evidence might be relevant to checking out the sweeping assumptions of so-called "thinking people". Many of these "thinking people" could more accurately be characterized as articulate people, as people whose verbal nimbleness can elude both evidence and logic. This can be a fatal talent, when it supplies the crucial insulation from reality behind many historic catastrophes. (p. 6)”. - The Vision of the Annointed
http://nobsblog.blogspot.com/2002/12/vision-of-anointed-by-thomas-sowell.html
Just saying..........
Numerous developments will create pressure for global warming legislation of some type in the coming congressional session. These include the Paris climate agreement, record high temperatures caused by the recent El Niño, the Obama administration’s circumvention of the legislative process with regard to global warming policy, the Supreme Court’s stay of the EPA's “Clean Power Plan,” and calls for a tax on carbon dioxide emissions.
ReplyDeleteInteresting, reasonable, rational but I'm not sure I should be relieved. Will Greenland be a new migration destination? Policies favoring a gradual switch towards solar and wind and electric cars still seem realistic. I feel for the polar bears, heartbreaking.
ReplyDeleteWhy would it be a bad thing for Greenland to be a new migration destination? After all, without the massive global warming of 10,000 BC, canada would not have been a migration destination. Nothing in what we wrote contradicts sensible, cost effective policies favoring your gradual switch. All we care about are the adjectives. I also feel for the polar bears. And the many animals going extinct right now, for lack of habitat and poaching having nothing at all to do with climate.
DeleteDon't really disagree with any of that. I agree that the approach to climate change should be more rational and calculated, but doesn't look like that is in the cards for now at least. Would love to be around when the ice cap reveals a beautiful Greenland. I bet it will live up to its name.
DeleteThis article propose, roughly, that the perils of climate change are over-stated. They seem particularly annoyed at Obama and those who say that climate change is enormously important.
ReplyDeleteIn choosing what to be annoyed about, I would go with statements by leading government officials, including the head of the EPA, that deny climate change. Setting policy without conceding this premise seems to me the first thing we should fix about our decision-making.
The question of how the costs are distributed is noted but treated lightly. Like many people, my thinking is local. Once we accept the existence of climate change as reported by the scientific community, we can ask what local investments or policy changes we should consider. We could also ask whether costs should be shared by larger groups - states and the countries and the world. Some groups may prefer that all costs be paid locally, while others are more committed to state or national support. How costs are shared is a values-based conversation. It has been my observation that the most fervent patriots are also the most fervent that costs not be shared. Funny world.
Against this background, arguments that criticize a former administration for being concerned about climate change, while supporting the climate deniers in the current administration, are not helpful.
The first and most important step is to promote the use of green energy and reduce the use of fossil fuels. This makes sense for many reasons other than climate change. It helps our balance of trade, reduces pollution, provides jobs and is not in danger of depletion. No downside!
ReplyDeleteFine. Why bring up climate change nonsense, then? If these things are good, then they will happen without theories about global warming or global cooling or global stability.
DeleteFrom their general conclusion, an important point I think you've missed or minimised:
ReplyDelete"An additional warning is that the impact estimates are generally not
comprehensive. They often cover key sectors such as agriculture, sea-level rise, energy,
and forestry. Most do not include many non-market impacts, and the quantifications of
non-market impacts that do exist are generally just guesses. As examples, estimates of the losses from ecosystems or damages from melting permafrost are omitted or unreliable.This point suggests that the figures examined here are likely to be underestimates of true damages."
Consider the loss of the Great Barrier Reef as example (see Hughes et al in Nature, 2017, on mass bleaching of corals). There are economic effects, but we should also care about the horrible destruction of one of the great wonders of the world.
"Climate policy advocates’ apocalyptic vision demands serious analysis, and mushy thinking undermines their case. If carbon emissions pose the greatest threat to humanity, it follows that the costs of nuclear power—waste disposal and the occasional meltdown—might be bearable. It follows that the costs of genetically modified foods and modern pesticides, which can feed us with less land and lower carbon emissions, might be bearable. It follows that if the future of civilization is really at stake, adaptation or geo-engineering should not be unmentionable."
ReplyDeleteWhat about population control policies?
"Five scientists analyzed the article and estimated its overall scientific credibility to be ‘low’ to 'very low'. A majority of reviewers tagged the article as: Biased, Misleading."
ReplyDeletehttps://climatefeedback.org/evaluation/wall-street-journal-op-ed-economic-consequences-climate-change-found-naive-scientists-david-henderson-john-cochrane/
Anything that questions the consensus must be wrong, because the consensus is right.
DeleteThat is not how scientific consensus works. They show evidence why this paper was wrong and why the questions are based on incorrect evidence.
DeletePlease dont bring the "earth was the centre of the universe" or the "Earth was assumed flat" argument as both are incorrect.
https://www.youtube.com/watch?v=9suO4jrwfDE
ReplyDeleteHalf trillion dollars for Florida only. Estimates are there. Ask insurance companies.
You assume without evidence that hurricanes are affected by global warming. You have no evidence because they aren't.
DeleteAnd Russ is wrong. The energy of hurricanes comes from warm ocean surface water. The warmer the water the more the energy. More energy makes faster wind which makes more damage.
Delete--E5
You guys are falling into the trap that the whole point of the oped is to fight. OK, suppose storms are getting stronger, and will cause more damage. How much? How much will that damage cost? Is it worth losing (say) 10% of GDP, rather than build buildings a bit stronger, or not rebuild in flood prone areas? Hurricanes will still damage stuff absent C02 emissions. Is it more cost effective to reduce hurricane damage by rebuilding houses stronger and higher up, or is it more cost effective to give my Palo Alto neighbor $15,000 and a HOV pass for his new Tesla?
DeleteJohn, I am unsure what you mean by "the whole point of the oped is to fight". Or "the trap".
DeleteMy take is that we are transitioning to sustainable energy sources (away from heat engines fired by burning fossils -- so 18th century). And that the profiteers of fossil fuel industry, in their panic, are convincing lots of people that there is a debate about climate change and that climate change is a hoax. This so that they can sell off their fossil fuel holdings at a good price before it collapses. So, in my view, there is no fight other than the artificial one stoked by the abovementioned.
We can argue about whether or not, or how much, to speed up the transition. Subsidising, and otherwise encouraging, use of electric vehicles requires justification on the basis of how it helps build the infrastructure capital of the sustainable-energy economy. A carbon tax seems like a no-brainer for encouraging the transition.
--E5
A conspicuous absence from most discussions of global warming is the benefits of warming. Historically, times of warming have been times of plenty, the era of Viking expansion occurred under a similar period of warming. While heat weather is hard on people and can kill, cold does so more regularly. If I had to choose between the planet getting slightly warmer or slightly colder, I would choose warmth.
ReplyDeleteI don't understand why that paper bothered to consider 3C warming or 6C warming. The IPCC only predicts 1 degree of warming, and we've had half of that so far and nobody has noticed.
ReplyDelete