Richard Tol on a Global Carbon Tax

Richard Tol, one of the World’s leading economists on climate, has just had published The Structure of the Climate Debate, a paper that makes some very good comments on the gulf between optimal policy and the reality of ineffective policy backed by a great army of bureaucrats, rent-seeking politicians and environmentalists who exaggerate the issues. It is this optimal policy  – a global carbon tax to constrain warming to 2C – that I take issue with. Both economic theory and the empirical evidence contradict this.  The following is a comment posted at cliscep

Richard Tol states in his paper

Only a modest carbon tax is needed to keep atmospheric concentrations below a high target but the required tax rapidly increases with the stringency of the target. If concentrations are to be kept below 450 ppm CO2eq, the global carbon tax should reach some $210/tCO2 in 2020 or so (Tol 2013).

The 450 ppm CO2eq, would produce 2C of warming from pre-industrial levels if a doubling of CO2 on its own produces 3C of warming. The UNFCCC produced a graph for COP21 to illustrate the global emissions pathway needed to ensure 2C limit :-

Whereas even with the all the vague policy proposals fully implemented global emissions will be about 10% higher in 2030 than in 2010, the 2C pathway has emissions 10-30% lower. That means a carbon tax of $210/tCO2 (now £170) would have to turn around the global relentless rise in emissions and have them falling rapidly. I am deeply sceptical that such a global policy would achieve anything like the that difference would be achieved even with an omnipotent, omniscient, and omnipresent planner to impose the tax. The reasons for that scepticism can be found by applying the tax to real world examples.
First let us apply a £170/tCO2 carbon tax to petrol, which produces 2.30kg of CO2 per litre. With 20% VAT applied is equivalent to 47p a litre added to the retail price. (Current excise duties with VAT are equivalent to £300/tCO2, the diesel £250/tCO2). For a car doing 15000 miles at 39mpg, this would generate an additional cost to the owner of £820 per year. Maybe a 15-30% increase in the full costs of running a small car in the UK. There is plenty of empirical visence of the effect of the oil price movements in the last couple of decades (especially in the period 2004-2008 when the price increased) to show that costs increases will have a much smaller effect on demand, whereas for the carbon tax to be effective it would need to have a much greater impact than the percentage cost increase.
Second, let us apply a $210/tCO2 carbon tax to coal-fired power stations. They produce about 400kg of CO2 per megawatt, so the cost would rise by $84MWH. In China, coal-fired electricity will retail at less than $30 MwH. China would rapidly switch to nuclear power. Even so, its power generation emissions might not start falling for at least a decade. Alternatively it might switch to gas, where the carbon tax would be half that of coal.
However, there is another lesson from oil prices, this time over the last three years. A small fall in demand leads to large falls in price, in the short term. That is the market responds by offsetting the cost of the global carbon tax. To use terms of basic economics the demand for fossil fuels is highly inelastic with respect to changes in price, and the supply of fossil fuels in the short term is highly inelastic to changes in demand.  Emissions reductions policies have not just turned out to be pretty useless in practice, they are pretty useless in theory (with real world political constraints removed) as well.

Kevin Marshall


Failed Arctic Sea Ice predictions illustrates Degenerating Climatology

The Telegraph yesterday carried an interesting article. Telegraph Experts said Arctic sea ice would melt entirely by September 2016 – they were wrong

Dire predictions that the Arctic would be devoid of sea ice by September this year have proven to be unfounded after latest satellite images showed there is far more now than in 2012.
Scientists such as Prof Peter Wadhams, of Cambridge University, and Prof Wieslaw Maslowski, of the Naval Postgraduate School in Moderey, California, have regularly forecast the loss of ice by 2016, which has been widely reported by the BBC and other media outlets.

In June, Michel at Trustyetverify blog traced a number of these false predictions. Michel summarized

(H)e also predicted until now:
• 2008 (falsified)
• 2 years from 2011 → 2013 (falsified)
• 2015 (falsified)
• 2016 (still to come, but will require a steep drop)
• 2017 (still to come)
• 2020 (still to come)
• 10 to 20 years from 2009 → 2029 (still to come)
• 20 to 30 years from 2010 → 2040 (still to come).

The 2016 prediction is now false. Paul Homewood has been looking at Professor Wadhams’ failed prophesies in a series of posts as well.

The Telegraph goes on to quote from three, more moderate, sources. One of them is :-

Andrew Shepherd, professor of earth observation at University College London, said there was now “overwhelming consensus” that the Arctic would be free of ice in the next few decades, but warned earlier predictions were based on poor extrapolation.
“A decade or so ago, climate models often failed to reproduce the decline in Arctic sea ice extent revealed by satellite observations,” he said.
“One upshot of this was that outlier predictions based on extrapolation alone were able to receive wide publicity.
“But climate models have improved considerably since then and they now do a much better job of simulating historical events.
This means we have greater confidence in their predictive skill, and the overwhelming consensus within the scientific community is that the Arctic Ocean will be effectively free of sea ice in a couple of decades should the present rate of decline continue.

(emphasis mine)

Professor Shepard is saying that the shorter-term (from a few months to a few years) highly dire predictions have turned out to be false, but improved techniques in modelling enable much more sound predictions over 25-50 years to be made. That would require a development on two dimensions – scale and time. Detecting a samll human-caused change over decades needs far greater skill in differentiating from natural variations on a year-by-year time scale from a dramatic shift. Yet it would appear that at the end of the last century there was a natural upturn following from an unusually cold period in the 1950s to the 1970s, as documented by HH Lamb. This resulted in an extension in the sea ice. Detection of the human influence problem is even worse if the natural reduction in sea ice has worked concurrently with that human influence. However, instead of offering us demonstrated increased technical competency in modelling (as opposed to more elaborate models), Professor Shepard offers us the consensus of belief that the more moderate predictions are reliable.
This is a clear example of degenerating climatology that I outlined in last year. In particular, I proposed that rather than progressive climate science – increasing scientific evidence and more rigorous procedures for tighter hypotheses about clear catastrophic anthropogenic global warming – we have degenerating climatology, which is ever weaker and vaguer evidence for some global warming.

If Professor Wadhams had consistently predicted the lack of summer sea ice for a set time period, then it would be strong confirmation of a potentially catastrophic problem. Climatology would have scored a major success. Even if instead of ice-free summers by now, there had been evidence of clear acceleration in the decline in sea ice extent, then it could have been viewed as some progression. But instead we should accept a consensus of belief that will only be confirmed or refuted decades ahead. The interpretation of success or failure. will then, no doubt, be given to the same consensus who were responsible for the vague predictions in the first place.

Kevin Marshall