Limits of an Economists Policy Tool Kit

Tim Worstall on the ASI Blog looks at the robust economic tools that are available to control externalities. Here I enlarge on a blog comment looking the limits of these tools in combating climate change.

Although economic solutions may be “hugely cheaper than the sort of command and control systems”, that does not mean they are a solution in every circumstance. In the area of climate change mitigation there are four practical areas where such solutions may have higher costs than the original problem.

  1. The economic policy is applied too far. The benefit to cost ratios will fall the greater the desired change. A 1% reduction in CO2 can be achieved, ceteris paribus, by economic solutions at a benefit to cost ratio of much greater than 1. The costs will rise exponentially after that, so for a given state of technology, the ratio will quickly reduce to less than one. This is the implication of Richard Tol’s 2010 paper “An Analysis of Mitigation as a Response to Climate Change” (2.5MB pdf). Looking at various scenarios, reducing the total amount spent on climate change mitigation from $2.5 trillion to a twentieth of the size increases the benefit to cost ratio from 1/100 to 3/2. I try to graph this here.
  2. Any Cap and trade or Carbon taxes will not be implemented in their purest form. Public Choice theory (or practical examples) will predict that special interest groups will seek to maximize their returns. Those businesses that will be harmed will seek to reduce the effectiveness. Those who can make easy gains (and thus have permits to sell) along with any potential administrators of the scheme will be keen to promote it. There is a long policy chain linking the pure theory and the final outcomes. These various levels of policy formulation and implementation diminish the benefit / cost ratio as I attempt to outline here.
  3. Scheme avoidance. For either a carbon tax or a carbon trading scheme, if there is competition from those outside the area of the scheme that is not proportionately shared by all emitters, then those facing the competition will have the gravest effect on their business. For instance both the steel industry and fossil-fuel power stations are huge CO2 emitters. The European steel firm cannot pass on the cost of the permits to its customers, as it is competing with firms in emerging economies with little or no carbon-trading. A British coal or oil power station does not have this competition, and its main competition comes from the more expensive nuclear power stations, the less reliable wind and the finite hydro-power stations. In the short-term it can pass on the costs. Protectionism is not a solution as it imposes extra costs.
  4. The more encompassing a cap and trade scheme, the greater the number of participants and the complexity. The greater of severity of the scheme, the greater the potential economic gains and losses. Combine these two areas and you create large potential gains from out-right corruption, or engineering biases through the political system, or having unidentified inefficiencies.


    The economic tools might be quite powerful and robust, but put into the hands of inexpert users can create a lot of harm. A bit like a hot-hatch in the hands of 17-year-old trying to impress his mates on a night out.

Julia Gillard’s Carbon Taxes– An ineffective policy

Jo Nova claims the Australian Prime Minister, Julia Gillard, lied to the Australian public by being circumspect about a carbon taxes, then when in office to introduce a carbon tax to be followed by cap and trade.

Betrayal of promises is to be expected and welcomed if to meet changed circumstances. For instance new taxes to close a deficit brought on by a recession. But in this case nothing has changed. However, there is a much better reason for Australian’s to oppose the policy – it will inflict economic pain and hardship for little or no returns.

The political argument for the introduction of the policy is that we should meet international obligations. OECD countries “need” to cut CO2 emissions by 80% by 2050 to constrain CO2 levels to around 550-600ppm. It is claimed by the IPCC & the Stern Review that this can be achieved by at a cost much less than the costly consequences of global warming. My example below suggests that a gasoline tax of 6.5 cents a litre would be almost totally ineffective. It would only serve to reduce living standards. Yet this is the start of CO2 reduction policies, when there should be some easy wins. It is as bigger inroads are made that reductions in CO2 should become more costly. Unless more effective policies can be devised, the CO2 reduction policies will leave us and future generations worse off than if nothing was done. Therefore, those who believe in the impending climate catastrophe, but are policy realists should join the climate sceptics in opposing the introduction in Australia of a carbon tax and carbon trading.

I try to explore demonstrate the case for climate change mitigation policies graphically here and which the policy will never link

A Carbon Tax on Gasoline

Consider a motorist in Australia who travels high distances in an old, inefficient truck. He travels 30000km a year and consumes a litre every 6km (6km/l or 17mpg in British terms). So the cost of 5000 litres used will increase the fuel bill by AU$325. If there are no gasoline taxes in Australia, fuel prices will be around $1.20 per litre, so the motorist will already be paying $6000 per year for fuel and (if he is lucky) $2000 for insurance, other taxes, maintenance and depreciation. So the tax will add 4% to his motoring costs.

At a more moderate level, consider a British example (in Australian dollars). Somebody has a medium sized car that is three years old, travelling 10,000 miles (16,000km) per year at 40mpg (14km/l). Fuel is $2 (£1.30) per litre , so costs $2280 for 1140 litres. With no serious maintenance issues, tax, depreciation, insurance and servicing cost around $4500 per annum. Total costs (rounded) are $7000 per year. A 6.5 cent carbon tax will add $71.25, or 1% to this bill.

For a newer car the percentage increase will be lower. Upgrade the specification and the percentage will be lower.

As real incomes rise people are able to afford more luxury. Compare the typical car in Australia with say Brazil, or Brazil with an African nation. In Brazil the best-selling cars have mostly one litre capacity and low specification. Many cars new cars still do not have air conditioning or electric windows. A carbon tax will take people in the reverse direction a long way before they will give up the utility of a private vehicle.

Richard Black implies UNIPCC scientific conclusions have political bias

Richard Black, an environment correspondent with the BBC, loses sight of the purpose of climate change negotiations in criticizing the USA.

There is a proposal to withdraw funding from the UNIPCC, a result of climate change deniers taking control of House of Representatives in the mid-term elections last year. The consequence, according to Black, is that the USA could have reduced influence over the scientific part of the next UNIPCC report. Does this mean that the scientific conclusions of the UNIPCC reports are politically biased?

The result is that the USA looks

    “set to marginalise the country even further within the global community of nations – at least when it comes to climate change.”

So joining a global climate change agreement is to avoid censure from one’s intellectual superior? Not a matter of making a real positive difference for future generations? If you believe, like Richard Black seems to, that global agreement is all that is necessary to avoid global climate catastrophe, please consider my previous posting here.

Hattip BishopHill

Betraying Socialist Principles to Combat Climate Change

Jo Nova reports that a Carbon Tax is coming to Australia. This is to be followed by carbon trading. Comment submitted

In economic theory, in a closed economy and zero transaction costs, with all other things being equal, a carbon trading should work quite well to reduce carbon emissions. In the real world consider these points.

1. The oil price has more than tripled in the past decade. There are enough incentives to improve energy efficiencies from this alone. The marginal impact of carbon trading will be much lower than if the oil price had been static.

2. Those businesses which can most easily pass on the extra costs to the customer are those with no competition from abroad. Supermarkets, which consume huge amounts of energy, are a good example. Australians cannot hop over to New Zealand or Singapore for their weekly groceries. The biggest burden relatively, will be borne by the poor. Manufacturing businesses will be incentivised by the profits from selling carbon credits to ship production abroad to China. High polluting, old production processes will gain a new income stream. New, efficient, competing ventures will have to pay the incumbents to enter the market.

3. The energy trading schemes are highly complex and need experts to set up the rules. Or rather people who read up on the theory, and know more than the naive punters the elected representatives of the people. Enron was bidding to be a big player, before it went bust. Lehman Brothers was bidding to be a big player, before it went bust. With mortgage securitisation now so out of fashion, this presents a new way for the masters of the universe to make extraordinary profits.

I do not keep up with politics much, especially on t’other side of globe like. (I am from Manchester, England). So have I got this reet? A socialist government in Australia is bringing in a regressive policy that could cause consumers to subsidise the movement of manufacturing jobs abroad, and help a return to the multi-million dollar bonuses in the financial services industry. All this, in the name of a policy that will be near impotent in constraining CO2 emissions.

If you follow the UNIPCC or Stern Review line, the policies to combat climate change are highly cost effective. But that requires correctly identifying the low-cost alternatives and successfully pursuing those options. Politicians have not the skill-sets, the incentives, the staying power, the knowledge, the longevity, the power, or the incentives to achieve these aims. They may inadvertently undermine the very things in which they originally believed.

Antony Watts in addition reports that whilst the socialist government in Australia is taking on carbon trading, the Republicans of New Hampshire are ditching the same policy. I commented

I do not keep up with politics too much, so Anthony, are you sure that you have things the right way round? A socialist government in Australia is bringing in a regressive policy that could cause consumers to subsidise manufacturing jobs abroad, and help a return to the multi-million dollar bonuses in the financial services industry. All this, in the name of a policy that will be near impotent in constraining CO2 emissions. The Republican Party (who represent business interests) in New Hampshire is proposing binning a policy that would help their real constituents.

Revision on 25th February.

  1. Having slept on the issue, I would like to put a perspective on my comments above. Carbon trading will have some early successes over and above rises in the oil price, as it gives a cost-bias to non-GHG energy sources. However, given that

    1. Regulation is making it difficult to build high-carbon power-stations, particularly coal. So the movement away from high fossil-fuel power is happening anyway.
    2. High carbon-emitting manufacturing has been moving away from the developed countries for years. For instance, steel, shipbuilding and bulk chemicals are goods examples, along with labour-intensive low-carbon options.
    3. Government subsidies for clean energy sources.

    So even with a well-designed and well-run policy, the impact will be limited to start off with. That is the cost per unit of CO2 saved will already be high. Then as the policy is progressed, diminishing returns will set in.



Name-Calling in Climate Change may harm Our Future

The Economist blog has a posting about the name calling from both sides of the Global Warming / Climate Change divide. Here is my comment, complete with links.

The name calling will lead to polarized views and more extreme policy. This is why.


There is no balance to all this name-calling. There is abundant evidence that anyone who doubts the Consensus, whether the science or the policy, is vilified. For sceptics, research grants are not nearly as available and sceptical views are more difficult to publish. Any public figure who doubts orthodoxy, or any business which funds scepticism, are targeted by pressure groups. Similarly, scientific groups who do not make strong position statements in favour are targeted by pressure groups and bloggers.

Even if the evidence is over-whelming in favour of there being significant anthropogenic climate change, consider the incentives for a scientist or policy-maker working in the field. The prerequisite for acceptance is singing-up to the main conclusion that mitigation policies are needed to combat likely and severe climate change. To pour doubt on that conclusion risks standing accused of being in the other camp. Novelty comes from restatement of this position in an original way, or from original, and more alarmist research.


It is in the area of policy this bias is most skewed. To check, the Economist should do a benefit-cost analysis, using as a starting point the Stern Review. Stern estimated the likely costs of climate change at 5 to 20 times the mitigation costs*. Then adjust for the more moderate view of climate change outlined in the Economist article in hyperlinked in the article, including a modicum of uncertainty. Then allow for some of the worst impacts (hurricanes, droughts, floods, etc.) are largely speculative. Then allow that some consequences, like sea level rise, will occur over generations. Therefore slow and low-cost adaptation is possible. Then allow for the benefits of temperature and CO2 rise in extending the margins and intensity of agriculture in many areas. Then allow that any politically feasible mitigation policy will be far less comprehensive (on a global scale) than Stern assumed. Then allow that policy choices will be constrained by political realities and that large ill-defined and complex government projects have a tendency to massively over-run on costs and underachieve on benefits – the Economist archive is a good place to verify this supposition.


Well before crunching the final numbers, there will an irreversible tipping-point reached on the benefit-cost analysis. Current mitigation policies will leave future generations worse off than if nothing were done at all. We reach the wrong policy conclusion by letting the issue become polarized.



*The Stern review has some ambiguous statements. The directgov site hyperlinked above says

If we take no action to control emissions, each tonne of CO2 that we emit now is causing damage worth at least $85 – but these costs are not included when investors and consumers make decisions about how to spend their money.  Emerging schemes that allow people to trade reductions in CO2 have demonstrated that there are many opportunities to cut emissions for less than $25 a tonne.   In other words, reducing emissions will make us better off.


But what is clear is that the costs of climate change have been overstated and an extremely naïve assumptions about the efficacy of policy is included.

Climate Change in Perspective – Part 2 of 4 – The Mitigation Curve


The previous posting developed a simple graph showing the consensus case for climate change mitigation. This posting looks at the policy arguments, suggesting a huge gap between what is believed to be theoretically possible and what may be realistically achieved. The conclusion is stark. Mitigation policy optimization requires a political process that cannot deliver a result that will leave the world better for future generations.

The Mitigation Cost Curve

The previous posting presented in graphical form the consensus argument (UN IPCC & Stern) for stabilizing CO2 at around double the pre-industrial level, along with stabilizing other greenhouse gas emissions. That is that the costs of constraining the growth in levels of CO2 – are much less than the costs of allowing greenhouse gases temperature rises to go unchecked. Mitigation is essentially a cost minimization strategy with the Stern Review claims the benefits outweigh the costs 5 to 20 times. To put this into context, the Review states that the expected mean costs of mitigation will be annually 1% of annual global product (GWP). The costs of the actual climate change impact could be 5% of GDP or more.

The Prudent approach from this graph is to aim for point P. That is not the absolute minimum costs, but still much lower cost than the likely costs of doing nothing.

What is important to note is that the policy is not to reduce CO2 levels from the current levels of around 380ppm, but to stabilize the growth in emissions. This growth in emissions will come from the emerging economies, in particular from China where emissions per capita have recently been growing by 12% a year. The OECD countries have had largely static emissions per capita, and the population is very slow growing as well.

To turn theory into successful stabilization of CO2 at 550 to 600ppm, requires quite a extended process. I have attempted to break down this process into a flow chart showing the major steps. Next to each step is an arrow suggesting the direction the curve will move if the process is less than perfect.


The graph below shows the impact on the mitigation curve of a movement in the arrows.

A movement to the right will shift the curve from M to M’. This is when the marginal costs increase. A movement upwards will shift the curve from M to M”. This is when costs are incurred that totally ineffective in influencing on CO2 levels. Finally there are policy shifts upwards and to the right, from M to M”’, which is a combination of higher marginal costs and ineffective elements.

Looking at the issues in turn.

Economic Theory

I will assume that the shape and position of the curve is correct. That is, there is a set of policies or actions in the real world that if applied will achieve the outcomes desired. However, these have to be discovered. Some low-cost constraints will be quite easy to discover. Others might be more difficult, relying on estimates from self-interested parties. The optimal policies will not be given for long periods, but could change over time with relative costs and technological advances. For instance, a technological breakthrough enabling much cheaper and compact batteries could transform the viability of electric cars. Therefore the switch from gasoline and diesel could be achieved with little or no subsidies.

A second assumption is that although the right economic policies will cost money, the optimal policies will have absolutely no impact on economic growth. This is a crucial assumption of the Stern Review. The policy costs will amount to around 1% of GDP at the end of the century, against costs of around 5% of GDP of climate change impacts if nothing is done. However, if growth rates are reduced by just 0.1% then in ninety years output will be over 9% lower. It is quite conceivable that a drastic change in climate policy would reduce China’s growth rate by 0.5%. By 2100 this would mean output was a full 35% lower than without the policy change. If growth by then has slowed to 3% per annum, living standards would lag 25 years, or a generation, behind where they would have been. Even if the 0.5% growth reduction is for just the first 40 years, output is still 17% lower. There may be a preference of trading a 9% lower living standards with certainty, to possible suffering from the harmful and random effects that will costAny policy that fails to recognize this


A simplistic analysis would take into account the actual costs. The cheapest ways to constrain growth in emissions is to impose a uniform policy globally. A country like Ethiopia, for instance, has nominal GDP per capita of less than 1% of the OECD average ($330 against $39473) according to World Bank Data. The real impact of a uniform carbon tax will be disproportionately felt by the poorest. The UNIPCC and Stern recognize this, but have not made an adequate provision allowance. The proposals are for the rich countries bear the overwhelming burden of the constraint in emissions and for monetary transfers to enable the poorest to grow economically without increasing their CO2 emissions. Stern recommends that the rich countries reduce their emissions by 80% per capita by 2050. However, this split will not be totally equitable. Within countries there are large inequalities in income and wealth. For instance, the richest 10% in Brazil have far better life styles than the poorest 10% in the United States. Any split between countries will leave many of the rich and powerful untouched by the policies, whilst leaving the poor in the OECD countries worse off.

Policy Identification

There are a number of possible tools to achieve a cost effective containment of CO2 growth. These include Cap and Trade; Carbon Taxes; encouraging technological development; carbon sequestration; building (or regulating the building of) new carbon-neutral power stations; and promoting energy saving through subsidies and regulation. Minimizing the costs and maximising the effectiveness of this containment requires optimizing these alternatives in terms of extent, combination and timeliness. As we do not know when to use each of these in terms of time and place, there needs to be learning through experience. When policies or initiatives are not producing results, there needs to be quick and decisive actions in constraining, changing or abandonment. Yet these decisive decisions need to be taken in the context of often only vaguely perceiving, even retrospectively, whether we are taking the best course of actions. Are we pursuing the right sort of alternative power supply? Is funding for our favoured form of future technology the correct one? If that technological preference is broadly the best are we favouring the best approach, or disregarding a far more efficient alternative? Are we applying Cap and Trade too far, or is the design of the policy inappropriate to achieve optimal result? Are any carbon taxes delivering reductions in CO2 with our cost constraints?

If we fail to optimize then policies like Cap and Trade will generate marginal costs much higher than planned. The curve shifts to the right. If the research for new low-cost carbon neutral energy consumption fails, then the curve shifts upward as we waste money. So overall, sub-optimal policy choice will shift the curve upwards and to the right.

International Negotiation

Climate change policies need to be spread broadly to be effective. If major countries are excluded, then the burden of constraint on the others will be that much greater. Yet mitigation policy is to inflict some costs now to avoid much greater costs in two, five or twenty generations down in the future. To get

  • Overstate the urgency and the extent of the problem.
  • Understate or fudge the immediate cost implications.
  • Alienate any who raise the slightest question about the efficacy of such agreements. There are plenty of NGOs to do this.
  • Understate the alternatives.
  • Provide a world stage for the leaders, including those would normally be ostracized. (Such as here and here).
  • Leave aside the implementation problems.


International Polices & Targets

The fudging is likely to affect the final policy. Nation states do not accept strict targets within cost constraint, with punishments meted out to those that fail. They will not relinquish part of their sovereignty and possibly their economic growth easily. But the poorer ones, with promises of cash to help them out, will be enthusiastic. Therefore any final agreement will load costs on those keenest on the policy, and plenty of loop-holes to allow those with other priorities, or those with a weak political grasp on power, to fudge. This does not have to be a permanent fudge

National Policies

There will be a number of different approaches. Cutting or CO2 levels or constraining the growth requires long-term policies, with short-term plaudits. In Britain’s case the implementation CO2 reduction target of 80% gained much praise in the international community. But the costs are mostly left to successor governments. The favoured form of green energy is easy to promote, but the rising energy costs and the prospect of future energy blackouts on windless and frost winter nights will be blamed on later governments.

In the short-term there may be some job benefits and subsidies. Promoting Cap and Trade will create jobs for those administering the scheme and large profits for those who can easily reduce their emissions and sell on the carbon credits. There are also jobs to be had in climate research and the development of new technologies.

There is also political benefit to be had from providing a reason to raise taxes. In Britain the green taxes have mostly been loaded onto the motorist. Yet such a policy is likely to have very little marginal impact on CO2 emissions for precisely them same reason that it is a very good way of raising extra tax revenue – demand is very inelastic with respect to price. It is only with viable and cost-effective substitutes (electric to replace the internal combustion engine) that we will see a switch.

The nature of deriving and maintaining political census will be to have little project management from the top down. Therefore, there will be initiatives that were sub-optimal to start with and less effective moving forward. There will be little focus on research, but plenty on public relations. Rather than maximizing effectiveness and minimizing costs, there will be other, self-justifying matrices developed. The biggest justification will be international obligations.

Policy Outcomes and Policy Feedbacks

There may be plenty of policy and much more rhetoric, but the policy outcomes are likely to be feeble at great cost. However, to obtain and maintain the optimal policies, there must be a feedback process. This feedback needs to influence every level, including the economic theory as shown below.

This needs to be a continual and dynamic process. For this to happen there needs to be objective and honest analysis of results to better refine and amend our view of the optimal policies at both national and international level. The size of the arrows indicates my personal assessment of the importance of each aspect. The biggest feedback is in the continuous altering of national policies, to bring into line with optimal policies. But there must be an ability to easily change course at all levels. This requires not just openness and flexibility, but surrender of policy in this area to an international body. But countries will not easily agree to shoulder more of the burden, or lose subsidies. They will not easily be told that they must change course. Vested interests in the environmental matters do not have a unique humility and objectivity that is absent in other groups. Neither will politicians easily admit that they have made errors of judgment, or that there are areas where they have neither the competency nor power to act upon.


The process of implementing an optimal policy, requires an openness and flexibility that does not exist. The whole policy process works against this. Politics is about negotiation and compromise between competing interests. It is about jostling for power, rewarding supporters and undermining the influence of opponents. It is also about other priorities as well, which in the short-term are more pressing. In the section on economic theory we I showed how a small reduction in economic growth can more than offset the worst consequences of the policy.

The problem now becomes two-fold.

  1. Guaranteeing how the revised optimal policy P”’ will be less costly than doing nothing and letting the total climate impact costs reach CCImax.
  2. Justifying to the developed nations why they should be significantly worse off than doing nothing.

In the next posting I will look at the validity of the estimation of the costs of climate change.


Climate Change Policy in Perspective – Part 1 of 4


In the Climate Change policy there lacks a simple framework to assess the policy. There is a large consensus of scientists telling us that a large rise in global temperature will occur, and that the only policy in offer is to constrain the growth in greenhouse gas emissions globally. Presented below is a simple graphical model to encapsulate the central policy arguments of the UNIPCC and the 2006 Stern Review. That is, there are policies that can be implemented that though costly, will be an order of magnitude less than the disastrous consequences of letting global temperatures rise unchecked. These consequences will not only affect the human race and for the rest of the planet. Use of this model allows analysis of the relative importance of various issues in devising policy and implementing global policies needed to achieve the consensus objectives.

The starting point for the analysis is to assume that two propositions are correct. First, that if we do nothing in two centuries global average temperatures will be at 5-10oC warmer than at present. Second, that there exists in theory a set of policies that will comfortably constrain CO2 emissions to prevent the atmospheric CO2 levels going above 600ppm and thus preventing global temperatures rising more than 2oC above current levels. I also start from a moral basis for policy that few will disagree with. Political action should only be taken if there is a reasonable expectation that the resulting outcome be a better situation than if no action was taken at all. The treatment, if not a full cure, should at least be expected to leave the patient in a better condition than without treatment. This, I would claim, is an absolute minimum requirement for action, as it can still leave moral dilemmas. For instance, if the policies cause the deaths of a million people, but prevents a 10% chance of 11 million people dying, then it is justified on this rule.

There are four parts to this explanation, which I will divide into separate blog postings. Part one, below, develops a graph replicating the standard consensus argument of the overwhelming consensus case for action. Part two addresses the issues with policy, relating this through movements in the policy curve. Part three evaluates the impacts of that warming, showing how changing the analysis of risk and time can radically change our perception of the costs. Part four brings these together for an overall conclusion, with indications of areas for further research.

The basis of the model is that global warming will create costly consequences, both for the human race and for the rest of the planet. Proposals to resolve this we also be costly. It is therefore to economics that we must turn to understand the issue from the top-down.

Part One – The Consensus Argument for Mitigation in Graphical Form

The following aims to replicate the mainstream consensus case of catastrophic climate change and the mitigation policies deemed necessary to combat it.

The Costly Consequences of Global Warming

We are already seeing some of the minor consequences of increasing greenhouse gases through disrupted climate. But the scientists tell us this will be as nothing compared to what will happen if greenhouse gases continue to increase unchecked for the next century or more. The large increases in temperature – around 4oC to 7oC or higher – would cause massive disruption to the climate system. It is fair to say that as global temperatures increase, these costs would increase exponentially. These “costs” are in the broadest sense. They are not just the human costs of property damage, failed harvests, population migrations and land being submerged by rising seas. These include the damage to the eco-systems and species extinction. Graphically it would look something like this.

There is no scale on this graph. It cannot be predicted how far temperatures will increase if the growth in anthropogenic greenhouse gas emissions are not curtailed, nor at what point the catastrophic consequences will set in. What is essential to recognize is that allowing temperatures to increase will be many times worse than stabilizing that increase at lower temperatures. Without a check, it is near certain that the planet’s temperatures will climb to the top end of the graph with the level of costs predicted.

The Costs of Mitigation

The solution to the problem of climate change is to remove the cause of that change. To remove anthropogenic greenhouse gas emissions totally would be hugely costly. The economic wealth of the rich countries is based upon fossil fuel energy consumption. Stop the energy consumption and you not only stop economic growth, but potentially cause economic collapse. Instead, there must be a rapid but orderly switch in energy use to clean energy sources. This may actually spur economic output as the switch is made, but is more likely to be costly, but have at most a negligible but negative impact on economic growth. Similarly, in the emerging BRIC (Brazil, Russia, India & China) economies, satisfying their rapidly-rising energy demands from carbon-neutral sources need not constrain their economic growth. Indeed for China and India real living standard could rise more rapidly, as the cities suffer less from the choking effects of the pollution from burning fossil fuels. How will these costs map out? To stop climate change now and reverse the impacts would be hugely costly. Even to stabilize emissions at current levels globally would be hugely expensive. In particular with China and India increasing their emission levels rapidly, to stabilize globally would require huge cuts elsewhere. Far less costly would be to stabilize at some higher level than at present.

The shape of the cost of mitigation graph can be represented like this.

The costs of doing little are very small, whilst those of stopping global warming in its tracks, or even reversing the warming that has already occurred, are huge. We are able to choose the policy to pursue.

The Combined Costs of Climate Change and Mitigation

Climate change will incur costs of CCI. Combating climate change involves mitigation costs M. For any temperature that stabilization is reached, the total costs TC will be CCI+M.

The question as to which level of policy to pursue now becomes clearer. A highly aggressive policy could be just as damaging as doing nothing. However, we are left with a large middle ground. By stabilizing the temperature increase from pre-industrial levels at around 2-3oC is generally thought to be where this middle ground lies. However, as there is some uncertainty as to what average temperature the worst effects of climate change start to come into play, a prudent policy is to aim at stabilization at the lower end of the temperature range. Prudent policy is at around point P.

Climate Change in Perspective Part 2 – The Mitigation Curve

John Redwood and the BNP

Blogger Ralph Musgrave in comments to John Redwood’s posting “Finding our National Identity” claims that John Redwood and the rest of the Conservatives have been moving towards the BNP. This is my response.

A sure sign of extremism is to point to superficial similarities, over the substantive ones. In this case the use of a word – Identity – over these points of difference with the BNP.


1. Praising the left for making racism unacceptable.

2. “(W)e should also dislike those who think there is a single or pure British way which they wish to enforce.” Sounds like a dig at the BNP.

3. The ideas of Britain having emerged into a tolerant democracy.

4. Anyone who was moving towards the BNP position would not have written this posting:-


I categorize extremism as falling two types. The first is the numerical type – those who hold ideas distinct from the numerical majority, or mainstream. The second is those who hold ideas that cannot be substantiated by rational argument, or who are highly intolerant of others.

I believe that John Redwood has sometimes taken extreme positions of the first type – usually for well-argued reasons. The BNP falls into the second category.

Arsene Wenger does not play Cricket

John Redwood has an excellent post on the good points in our national identity.

I commented

There is something else that I believe that stands out about the British that is distinctive. We play by the rules and are (traditionally) honourable in upholding contracts on a handshake. It works to our disadvantage where rules and taxes are onerous, or only where rules that can be fully enforced are adhered to.

On Friday evening I heard Arsenal Manager say of the Cesc Fabregas incident that makes this distinctive aspect of the British clear. (BBC)

“He has not been charged by the FA, there is no action against him, so I don’t see why we should spend any more time to defend somebody who is not guilty.”


I am a great admirer of Arsene Wenger, but my interpretation of his statement is that something is only wrong if the authorities show it to be wrong. Rules are only broken when they are broken AND the authorities decide to take action.

I have been a great admirer of Arsene Wenger, in that his teams play attractive and creative football. But in this he is quite wrong.

Climate Change Impacts – UNIPCC and the Skeptics

Climate feedbacks are crucial to climate change forecasts. As Richard Lindzen1 said in his congressional testimony last year

  1. A doubling of CO2, by itself, contributes only about 1C to greenhouse warming. All models project more warming, because, within models, there are positive feedbacks from water vapor and clouds, and these feedbacks are considered by the IPCC to be uncertain.
  2. If one assumes all warming over the past century is due to anthropogenic greenhouse forcing, then the derived sensitivity of the climate to a doubling of CO2 is less than 1C. The higher sensitivity of existing models is made consistent with observed warming by invoking unknown additional negative forcings from aerosols and solar variability as arbitrary adjustments.

As Roy Spencer has recently claimed2,

In fact, NO ONE HAS YET FOUND A WAY WITH OBSERVATIONAL DATA TO TEST CLIMATE MODEL SENSITIVITY. This means we have no idea which of the climate models projections are more likely to come true.

Warren Meyer3 comments that

70-80% or more of the warming in catastrophic warming forecasts comes from feedback, not CO2 acting.

The impact is worse than that. It is not predicted temperature rise that is important. It is the catastrophic consequences that follow. These rise exponentially with temperature, so without the feedbacks more than 95% of the catastrophe does not happen. This is illustrated by the Climate Impacts table on page 10 of the UNIPCC Summary for policy makers4, where most of the impacts dramatically – almost exponentially – increase with temperature.

To illustrate this simply, the consequences of global warming will create costs. The reduced water availability, or crop failures will lead to increased hunger and in the extreme lead to deaths. The costs could also include the loss of species, both plant and animal.

To illustrate this graphically, plotting temperature increase against climate change costs, gives a Climate Change Impact curve as illustrated below.

There is no scale. There is no firm forecast of how high temperatures could go. The Stern review (Page 12) even saw fit to include a study with an upper estimate of 17.1oC maximum increase, and the UNIPCC AR4 has outlier estimates of 10oC. Neither do we know the costs. However, without the feedbacks, there is a temperature increase of around 1oC and so no hardly any noticeable costs. It is the pink line CCIS (S for skeptic) below.



  1. Quoted by Warren Meyer at

  2. Roy Spencer on 28th January 2011
  4. UNIPCC Summary for Policy Makers (SPM) reached from


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