The Closest yet to my perspective on Climate Change

 Michael S. Bernstam of the Hoover Institution has produced a short post Inconvenient Math. (hattip The GWPF). The opening paragraphs are:-

Climate change faces a neglected actuarial problem. Too many conditions must be met to warrant a policy action on climate change. The following four stipulations must each be highly probable:

1. Global warming will accumulate at 0.12 degrees Celsius or higher per decade.

2. It is anthropogenic, due largely to carbon dioxide emissions.

3. The net effect is harmful to human well-being in the long run.

4. Preventive measures are efficient, that is, feasible at the costs not exceed-ing the benefits.

But even if the probability of each of these stipulations is as high as 85 percent, their compound probability is as low as 50 percent. This makes a decision to act or not to act on climate change equivalent to flipping a coin.

Bernstam later states

In the case of climate change, the conditions are four. They are not random, nor are they arbitrary. To see this, one can run a thought experiment and drop or ignore any of the above foursome. At once, the entire call for action on climate change becomes pointless. If global warming is not ongoing, there is no need to stop it. If it is not anthropogenic, there is no need to curb carbon dioxide emissions. If it is not harmful, there is no need to worry. If preventive measures are inefficient, they would not help and there is no use applying them. It follows that all four conditions are necessary. If just one of them does not hold, action is unnecessary or useless.

That is, for action on climate change to be justified (in terms of having a reasonable expectation that by acting to combat climate change a better future will be created than by not acting) there must be human-caused warming of sufficient magnitude to produce harmful consequences, AND measures that cost less than the expected future costs that they offset.

These sentiments are a simplified version of a series of posts I made in October 2013, where I very crudely deriving two cost curves (costs of climate change and climate mitigation). This aimed to replicate a takeaway quote from the Stern Review.

Using the results from formal economic models, the Review estimates that if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more. In contrast, the costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1% of global GDP each year.

I looked at the idea of multiplying the various probabilities together, at least for the costs of climate change.  But instead of the boundary it is a continuous function of an infinite number of possible scenarios. In general I believe the more extreme the costs of warming, the less likely it is to happen. The reason is that we derive the non-visible part of the cost curve can only be objectively derived from the revealed warming from the recent past. Separation of the costs of warming-induced climate change are extremely difficult from the costs of random extreme weather events. Even worse, the costs of extreme natural weather events (especially in terms of death toll) has been falling over time, as Indur Goklany has documented. The fall-back for global-warming theory is to use the late Milton Friedman’s Methodology of Positive Economics. That is to evaluate theory credibility on its predictive ability. If in the short-run climate scientists (or anyone who believes in climate alarmism like Al Gore) are able to make predictions about the signals of impending climate apocalypse, then this should give some credibility for claims of substantially worse to come. The problem is there are a huge number of failed predictions of climate worsening, but not a single one that has come true. This would signify that the true risk (as opposed to the perceived risk from the climate community) of climate change is approximately zero. The divergence of belief from the evidence is likely from the collective navel-gazing of post normal science.

The policy aspect that Bernstam fails to explore is the re-distributional aspects of policy. The theory is that global warming is caused by global greenhouse gas emissions. Therefore climate mitigation must comprise of reducing those global emissions. However, as the COP21 Paris showed most of the worlds population live in countries where there are no GHG emissions reduction policies even proposed. But actually reducing emissions means increasing energy costs, and hampering businesses with onerous regulations. Policy countries are given a comparative disadvantage to non-policy countries, as I tried to show here. The implication is that if developed countries strongly pursue high cost mitigation policies, the marginal cost of non-policy emerging economies switching to emissions reduction policies increases. Thus, whilst Donald Trump’s famous tweet that Global Warming is a Chinese hoax to make US manufacturing non-competitive is false, the impact of climate mitigation policies as currently pursued are the same as if it were true.

There is also a paradox with the costs of climate change. The costs of climate change are largely related to the unexpected nature of the costly events. For instance, ceteris paribus. a category 1 hurricane could be more costly in a non-hurricane area than a stronger hurricane in say Florida. The reason is that in the non-hurricane area buildings will not be as resistant to storms, nor will there be early warning procedures in place as in Florida. The paradox is that more successful climate scientists are in forecasting the risks of climate change, the more people can adapt to climate change, reducing the costs. The current focus on climate consensus, rather than focusing on increasing competency and developing real expertise in the field is actually harmful to future generations if climate change is a actually a serious emerging problem. But the challenge for the climate alarmists is that in developing the real expertise may result in their beliefs about the world are false.

Finally, Bernstam fails to acknowledge an immutable law of public policy. Large complex public policy projects with vague aims; poorly defined plans and lack of measurable costs tend to overshoot on costs and under-perform of benefits. Climate mitigation is an extreme example of complexity, lack of clear objects and lack object measurement of costs per unit of emissions saved.

Kevin Marshall

ATTP on Lomborg’s Australian Funding

Blogger …and then there’s physics (ATTP) joins in the hullabaloo about Bjorn Lomberg’s Lomborg’s Consensus Centre is getting A$4m of funding to set up a branch at the University of Western Australia. He says

However, ignoring that Lomborg appears to have a rather tenuous grasp on the basics of climate science, my main issue with what he says is its simplicity. Take all the problems in the world, determine some kind of priority ordering, and then start at the top and work your way down – climate change, obviously, being well down the list. It’s as if Lomborg doesn’t realise that the world is a complex place and that many of the problems we face are related. We can’t necessarily solve something if we don’t also try to address many of the other issues at the same time. It’s this kind of simplistic linear thinking – and that some seem to take it seriously – that irritates me most.

The comment about climatology is just a lead in. ATTP is expressing a normative view about the interrelationship of problems, along with beliefs about the solution. What he is rejecting as simplistic is the method of identifying the interrelated issues separately, understanding the relative size of the problems along with the effectiveness and availability of possible solutions and then prioritizing them.

This errant notion is exacerbated when ATTP implies that Lomborg has received the funding. Lomborg heads up the Copenhagen Consensus Centre and it is they who have received the funding to set up a branch in Australia. This description is from their website

We work with some of the world’s top economists (including 7 Nobel Laureates) to research and publish the smartest solutions to global challenges. Through social, economic and environmental benefit-cost research, we show policymakers and philanthropists how to do the most good for each dollar spent.

It is about bringing together some of the best minds available to understand the problems of the world. It is then to persuade those who are able to do something about the issues. It is not Lomborg’s personal views that are present here, but people with different views and from different specialisms coming together to argue and debate. Anyone who has properly studied economics will soon learn that there are a whole range of different views, many of them plausible. Some glimpse that economic systems are highly interrelated in ways that cannot be remotely specified, leading to the conclusion that any attempt to create a computer model of an economic system will be a highly distorted simplification. At a more basic level they will have learnt that in the real world there are 200 separate countries, all with different priorities. In many there is a whole range of different voiced opinions about what the priorities should be at national, regional and local levels. To address all these interrelated issues together would require the modeller of be omniscient and omnipresent. To actually enact the modeller’s preferred policies over seven billion people would require a level of omnipotence that Stalin could only dream of.

This lack of understanding of economics and policy making is symptomatic of those who believe in climate science. They fail to realize that models are only an attempted abstraction of the real world. Academic economists have long recognized the abstract nature of the subject along with the presence of strong beliefs about the subject. As a result, in the last century many drew upon the rapidly developing philosophy of science to distinguish whether theories were imparting knowledge about the world or confirming beliefs. The most influential by some distance was Milton Friedman. In his seminal essay The Methodology of Positive Economics he suggested the way round this problem was to develop bold yet simple predictions from the theory that, despite being unlikely, are nevertheless come true. I would suggest that you do not need to be too dogmatic in the application. The bold predictions do not need to be right 100% of the time, but an entire research programme should be establishing a good track record over a sustained period. In climatology the bold predictions, that would show a large and increasing problem, have been almost uniformly wrong. For instance:-

  • The rate of melting of the polar ice caps has not accelerated.
  • The rate of sea level rise has not accelerated in the era of satellite measurements.
  • Arctic sea ice did not disappear in the summer of 2013.
  • Hurricanes did not get worse following Katrina. Instead there followed the quietest period on record.
  • Snow has not become a thing of the past in England, nor in Germany.

Other examples have been compiled by Pierre Gosselin at Notrickszone, as part of his list of climate scandals.

Maybe it is different in climatology. The standard response is that the reliability of the models is based on the strength of the consensus in support. This view is not proclaimed by ATTP. Instead from the name it would appear he believes the reliability can be obtained from the basic physics. I have not done any physics since high school and have forgotten most of what I learnt. So in discerning what is reality in that area I have to rely on the opinions of physicists themselves. One of the greatest physicists since Einstein was Richard Feynman. He said fifty years ago in a lecture on the Scientific Method

You cannot prove a vague theory wrong. If the guess that you make is poorly expressed and the method you have for computing the consequences is a little vague then ….. you see that the theory is good as it can’t be proved wrong. If the process of computing the consequences is indefinite, then with a little skill any experimental result can be made to look like an expected consequence.

Climate models, like economic models, will always be vague. This is not due to being poorly expressed (though they often are) but due to the nature of the subject. Short of rejecting climate models as utter nonsense, I would suggest the major way of evaluating whether they say something distinctive about the real world is on the predictive ability. But a consequence of theories always being vague in both economics and climate is you will not be able to use the models as a forecasting tool. As Freeman Dyson (who narrowly missed sharing a Nobel Prize with Feynman) recently said of climate models:-

These climate models are excellent tools for understanding climate, but that they are very bad tools for predicting climate. The reason is simple – that they are models which have very few of the factors that may be important, so you can vary one thing at a time ……. to see what happens – particularly carbon dioxide. But there are a whole lot of things that they leave out. ….. The real world is far more complicated than the models.

This implies that when ATTP is criticizing somebody else’s work with a simple model, or a third person’s work, he is likely criticizing them for looking at a highly complex issue in another way. Whether his way is better, worse or just different we have no way of knowing. All we can infer from his total rejection of ideas of experts in a field to which he lacks even a basic understanding, is that he has no basis of knowing either.

To be fair, I have not looked at the earlier part of ATTP’s article. For instance he says:-

If you want to read a defense of Lomborg, you could read Roger Pielke Jr’s. Roger’s article makes the perfectly reasonable suggestion that we shouldn’t demonise academics, but fails to acknowledge that Lomborg is not an academic by any standard definition…….

The place to look for a “standard definition” of a word is a dictionary. The noun definitions are

noun

8. a student or teacher at a college or university.

9. a person who is academic in background, attitudes, methods, etc.:

He was by temperament an academic, concerned with books and the arts.

10. (initial capital letter) a person who supports or advocates the Platonic school of philosophy.

This is Bjorn Lomborg’s biography from the Copenhagen Consensus website:-

Dr. Bjorn Lomborg is Director of the Copenhagen Consensus Center and Adjunct Professor at University of Western Australia and Visiting Professor at Copenhagen Business School. He researches the smartest ways to help the world, for which he was named one of TIME magazine’s 100 most influential people in the world. His numerous books include The Skeptical Environmentalist, Cool It, How to Spend $75 Billion to Make the World a Better Place and The Nobel Laureates’ Guide to the Smartest Targets for the World 2016-2030.

Lomborg meets both definitions 8 & 9, which seem to be pretty standard. Like with John Cook and William Connolley defining the word sceptic, it would appear that ATTP rejects the authority of those who write the dictionary. Or more accurately does not even to bother to look. Like with rejecting the authority of those who understand economics it suggests ATTP uses the authority of his own dogmatic beliefs as the standard by which to evaluate others.

Kevin Marshall

Why no country should sign up to Climate Mitigation at Paris 2015

The blog “the eco experts“, has produced a map of the countries most likely to survive climate change.

The most populous country with a high risk is India. In fact it has more people than the 50+ nations of Africa, or nearly twice the population of the OECD – the rich nations club. It is determined not to constrain the rapid growth in emissions if it means sacrificing the rapid economic growth that is pulling people out of poverty. Is this sensible when rapidly increasing its emissions create the prospect of dangerous climate change?

Look at the pattern of vulnerability.

Why is Mongolia more vulnerable than Russia or China?

Why is Haiti more vulnerable than Guatemala & El Salvador, which in turn are more vulnerable than Mexico, which in turn is more vulnerable than the USA?

Why are Syria and Iraq more vulnerable than Iran, which in turn is more vulnerable than Saudi Arabia, which is in turn more vulnerable than the UAE?

Why is Madagascar more vulnerable than Tanzania, which in turn is more vulnerable than South Africa, which is in turn more vulnerable than Botswana?

The answer does not lie in the local climate system but in the level of economic development. As with natural extreme weather events, any adverse consequences of climate change will impact on the poorest disproportionately.

In the light of this, should India

  1. Agree to sacrifice economic growth to constrain emissions, having a significant impact on global emissions and maybe encouraging others to do likewise?

    OR

  2. Continue with the high economic growth (and hence emission growth) strategy knowing that if catastrophic climate change is real the population will be better able to cope with it, and if inconsequential they will have sacrificed future generations to a trivial problem?

    OR

  3. Continue with the high economic growth (and hence emission growth) strategy and invest in more accurately identifying the nature and extent of climate change?

Now consider that any Government should be first and foremost responsible for the people of that country. If that can be best progressed by international agreements (such as in trade and keeping global peace) then it is the interests of that country to enter those agreements, and encourage other nations to do likewise. Global peace and globalisation are win-win strategies. But climate change is fundamentally different. It is a prospective future problem, the prospective harms from which are here clearly linked to stage of economic development. Combating the future problem means incurring costs, the biggest of which is economic growth. Technologically, there low-cost solutions are in place, and there is no example of any country aggressively weeding out ineffectual policies. Even if there were effective policies in in theory, for costs to exceed benefits would mean every major country either drastically cutting emissions (e.g. the OECD, China, Russia, Saudi Arabia, South Africa) or drastically constraining future emissions growth (India, Brazil, Indonesia, Vietnam, Thailand, plus dozens of other countries). If some countries fail to sign up then policy countries will be burdened with the certain actual costs of policy AND any residual possible costs of policy. Responsible countries will duck the issue, and, behind the scenes, help scupper the climate talks in Paris 2015.

Kevin Marshall

Have 250.000 Spanish jobs been sacrificed for the folly of saving the planet?

Spain is one of the leading countries in Europe for Renewables. In 2013 output broke new records, with renewables accounting for 21.1% of Spanish electricity demand, with wind and hydroelectric power production increasing by 12% and 16%, respectively on 2012.

This is to the detriment of the Spanish economy for three financial reasons.

First is the huge amount now likely being spent on wind power subsidies. In 2013 output from wind farms was about 54GWh, or 12% higher than the 48.5GWh produced in 2012. Assuming an average subsidy of €54MWh (the rate for onshore wind turbines in the UK) that would be €2.9billion in subsidies.

Second, there is the huge amount now likely being spent on solar power. Spain is home to the massive Anadasol Solar Power Station. The three sections are expected to produce 495GWh per year, which at 38% of capacity seems a tad high. This will have a guaranteed price of €270 per megawatt. In the UK, the wholesale price is about £45 or €60 a megawatt. The excess cost (or subsidy) is therefore €210MWh, or €100million a year. At this rate, the total 8.2GWh produced by photovoltaics would have attracted a subsidy of €1.7bn in subsidies.

The combined estimated subsidy is worth €4.6bn is equivalent to 0.3% of GDP. Total subsidies are likely to be much more.

Third is the disastrous foray in solar panels lead to huge amounts of investments in solar schemes. In 2008 there were an estimated 30,000 jobs supported in the boom years. These jobs disappeared with the bust. With this sudden boom, caused by extremely generous subsidies, the quality of the panels was poor and overpriced. Many investors would not have got their money back even if the subsidies had remained. Now they will be saddled in debt, with no income. These borrowing were often state-backed. According to Bloomberg this fund was €24bn at the end of 2011. If some of this has to be written off, then there could be a material impact on deficit reduction plans, and thus the levels of unemployment. Government backing loss-making projects costs jobs.

This claim can be cross-checked. In the same Bloomberg article the Renewable Energy Producers Association (Asociación de productores de energías renovables or APPA) was quoted as saying that the renewables industry sustains about 110,000 Spanish jobs. In 2011 Verso Economics, a Kirkcaldy-based outfit, wrote a report about the effect of renewables jobs in Scotland and the impact on the wider UK. Whilst the report found that the jobs in renewables were largely neutral with Scotland – one job lost in the wider economy for each gained in renewables – in the wider UK economy for each job gained in Scottish renewables 3.7 jobs were lost in the wider UK economy. (report here, and reported at Caledonian Mercury, BBC and Scottish Sceptic) If this were replicated in Spain, the net impact of 110,000 jobs in renewables would be 400,000 jobs less jobs in the wider Spanish economy. Without renewables more than 250,000 people could be in work, or over 1% of the labor force.

Why I call Spain’s attempt to save the planet a folly, are the same reasons for calling Britain’s attempts a folly. Any emissions reductions in Europe will be more than offset by many times over from the emerging economies elsewhere. In reducing emissions, Spain will increase unemployment and reduce growth. But future generations will still bear over 80% of any consequences of warming than if no rich country did anything. In the current situation, I believe that a lot of Spanish people might object to their country being called “rich” anyway.

Update 20/11/14 – minor editing.

Ed Davey needs to understand the policy problem before denouncing climate change critics

EurActiv website interviewed Ed Davey, Secretary of State for Energy and Climate Change. They reported Davey as saying:-

“My recommendation to most politicians who want to talk about the climate is to listen to the scientists and listen to the evidence,” he said. “Of course you can question it, but when there is overwhelming evidence you should tend to shut it.”

Rather denounce critics Ed Davey needs to grasp the policy problem. Britain is the only country in the world committed to an aggressive carbon reduction policy. The sum of actual carbon reduction policies in place globally will do practically nothing to offset the growth in emissions from emerging economies. If, as Ed Davey believes, the science is correct about the catastrophic consequences resulting from all these emissions, then he is faced with a terrible truth. Britain will incur hundreds of billions of pounds of cost over the next few decades, yet leave future generations to bear 99% of the climate change problem when compared to having done nothing at all. Ed Davey is fronting policy that is net harmful to this country by any measure.

If Britain wants to truly lead the way on getting a global agreement on carbon emissions, it should show that it is possible to successfully transfer to a low carbon economy for costs of 1% of GDP (as Stern claimed), and with zero impact on long-term economic growth. Britain’s current policies are something any country would avoid like the plague, even if they had the same views on the “science” as Ed Davey. From the evidence to date in Britain and other countries, there are no policies of net benefit, even if the political issues can be sorted out. The fact that no other country has followed the UK’s lead in passing the Climate Change Act 2008 would suggest that see the harm that the policy is causing.

These comments were reported by The Daily Mail on 6th March and Bishop Hill on 8th March. I looked into this issue in the recent post “Why Climate Change Mitigation Policies Will Always Fail“.

First time comments are moderated. Please use this as a point of contact, requesting that the comment not be published.

Kevin Marshall

Understanding the US EIAs Levilized Cost of Electric Generation figures

At Watts Up With That?, Willis Eschenbach has a post “The Levelized Cost of Electric Generation“. These are estimated figures by US Energy Information Agency (EIA) for the costs of power by fuel source, for plants with construction started now that would enter service in 2018. The full table from the EIA in $/MwH is reproduced as Table 1 below.

Willis makes the valid point that every unit of “non-dispatchable” power (i.e. renewables with no power on demand) capacity, there must be an equal amount of dispatchable power to back it up. He does not follow this up. Non-dispatchable power does not need to be fully-covered by the expensive high-efficiency fossil-fuelled power stations. The most extreme conditions of peak power demands but no wind can be met by diesel generators. These are relatively low capital cost, but with high unit costs of output. They still add to the costs of renewables, along with reducing the CO2 savings. In terms of the large scale fossil-fuelled power stations gas is clearly better than coal. Combined cycle gas has half the capital cost per unit as conventional coal so dropping the utilisation will have a much smaller impact on unit costs. Further it can be switched on or off much quicker than conventional coal. Combined the actual additional cost of renewables is lower than he implies.

As I have been looking into the subsidies that renewables receive in the UK, I would like to observations. To understand these comments in the context of Willis Eschenbach’s post please note:-

  • In the UK, all generated electricity is paid the wholesale price (approx $0.09 kwh at present).
  • In addition renewables receive renewables obligation credits or ROCs. Biomass (wood pellets usually imported from USA) and onshore wind receive 1 ROC per megawatt hour. Offshore wind receives 2 ROCs. With a ROC worth $0.07 kwh (£42.02 MwH), onshore wind and biomass receives $0.16 kwh and offshore wind $0.23 kwh.
  • Currency conversion is at £1.00 = £1.66. Willis uses kilowatt hours for his simplified summary, whereas as the EIA uses megawatt hours.

Revenue is somewhat different to the costs, but there are a few observations possible.

  1. Capacity utilisation for onshore wind is assumed at 34% and 37% for offshore. For the UK, actual average utilisation as 26% for onshore and 35% for offshore. On that basis, US costs for onshore wind would rise from $0.087 to $0.117 kwh. Here are the figures from the most recent four available years.

  2. Biomass in the UK consists of burning non-fossil fuels in existing coal-fired power stations. It is more expensive than coal because (a) fuel cost per tonne is more than coal and (b) output per tonne is slightly less than coal. I would want to know why the capital cost per kwh is 20% lower and why the variable costs are just 45% higher. On fuel costs alone the 0.2 ROCs per Mwh would be more than generous for biomass. Based on figures from April to August 2013, the full year subsidy saving of this change would be in the order of £300m or $500m per annum.
  3. The transmission investment is vastly understated. Like in the UK, the cost of transmission for a power station investor is likely in connecting the power station to the nearest point on the national grid, regardless of the capacity of the line. To obtain 34% efficiency, wind turbines need to be placed in highly exposed areas, such as hill-tops. Population centres, and established grid networks, tend to be on the plains, or in sheltered valleys. In the UK, the best locations for wind turbines are in the far North of Scotland. To effectively connect this to main grid means upgrading about 400 miles of transmission lines to enable around 5-10GW of power at peak generation. This capital cost could be as much as the wind turbines themselves. Fossil-fuelled power stations tend to be located near existing power stations. These in turn are near to the existing grid infrastructure. The upshot is that wind turbines have much higher transmission costs than fossil-fuelled power stations. The difference could be a number of cents per kilowatt hour.

Kevin Marshall

1 Replicating Stern – The Costs of Climate Change and Policy Graph

One aspect of neoclassical economics that is extremely useful is the representation of an economic theory in a graphical form. Where would any introductory course be without Alfred Marshall’s supply and demand curves? For many years, the ideas of John Maynard Keynes’s ideas were synthesised in the Sir John Hicks’s IS-LM curves. These graphs have the advantage of enabling analysis of the logical consequences of changes in the overall context of the problem under consideration. In climate, there is a lot of shouting between the different camps, but what appears to be a complete inability to put the consequences of global warming and the mitigation policy option of globally constraining the growth of greenhouse gas emissions into their proper context. Therefore, when assumptions are changed, or new information becomes available, it is difficult to put those into the overall context of the “climate change” issue.

Sir Nicholas (now Lord) Stern’s report of 2006 (In the Summary of Conclusions) had the two ideas separated when it claimed

Using the results from formal economic models, the Review estimates that if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more. In contrast, the costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1% of global GDP each year.

 

This leads to two offsetting sets of costs. The first is the “do-nothing approach” of letting greenhouse gas emissions spiral out of control, raising global temperatures by a number of degrees and throwing the weather systems out of control. The other is the policy costs of constraining the rise in emissions by switching to “cleaner” forms of living in general and energy-production in particular. It is should not be confused with a cost-benefit approach. Stern is proposing to exchange a very high set of costs in the distant future, with a much lower set of policy costs now. His proposal is not to incur costs in exchange for a stream of benefits (like when constructing a new motorway), but to minimize total costs of climate change and policy.

Constructing the graph

We are told by the climate scientists that some of the minor consequences of around 0.8oC of warming over the last century are already visible. But their climate models project this is utterly insignificant 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. Assuming a top end of 7oC the cost curve would look something like this.

The relative cost scales 7oC of warming are set to be twenty times the costs of constraining global warming to 3oC, or the mid-range of estimates by the IPCC for a doubling of CO2 from pre-industrial levels of 280ppm, and an approximate policy target.

Conversely, the cost of stopping any more warming will be huge. Hugely aggressive policies would quickly stop any increases in emissions and could bring about major reductions. But such policies would bring to a halt the fast-growing economies of China and India, and would considerably worsen the recession in much of Europe. However, it is possible to postulate that low-cost policies that give the odd nudge here and there over a long period could reap large rewards. In line with climate costs, I have set the relative cost of constraining the rise in global temperatures to 3oC above the pre-industrial levels to 1. So the curve might look like the one below.

Combining the two curves gives a total cost graph.

The total costs curve is derived by the addition of the climate and policy cost curves.

This replicates Stern’s statement above. The “do-nothing” scenario is ten times more expensive than the optimal cost-minimization scenario.

Some points to note.

First is that the total cost curve has quite a wide minimum area. Even if a lot of the main policy targets are missed, doing something looks to be far better than doing nothing at all.

Second, is that cost minimization strategy is at a higher temperature level than the intersection of the curves. However, a risk-averse strategy (which most people would expect in avoiding a prospective global catastrophe) would aim for a somewhat lower temperature increase.

Third is that “policy” should be called mitigation policy. That is preventing climate change costs from occurring by constraining the rise in greenhouse gases. As will be seen later, the alternative (or complementary) adaptation policies are included within the climate costs curve. The full reasons will be explained later, but the main one is that climate mitigation is something that, by definition, needs to be tackled at a global level, whereas adaptation can be done at the local, country or regional levels.

Fourth, is a clear separation of mitigation policy considerations from the projections of climate science. Yet new information from the science and policy areas can be put into a total context of acting in the best interests of the planet and the human population.

Fifth, an issue with the policy curve is the change in gradient. There must exist a set of policy options which are low cost, high impact (LC-HI) as well as the high cost, low impact (HC-LI). There are two possible types of policies which should be avoided. First are those with costs, but with zero impact (C-ZI) and second are those with a net negative impact (NNI).

Sixth, any look at climate projections and policy options show they are all over the place. The assumptions of single curves are highly restrictive ones. But like in

Finally, on climate costs there is an issue with projections about future costs. The data we have is from less than one degree of warming, and a minute fraction of projected costs. As shall be shown, the handling of this issue is crucial.

Kevin Marshall

2 Climate Change Policy Choices

The risks from policy are becoming increasingly well-known. The question is how to manage these risks. Assuming there is a genuine problem, which is possible to overcome through policy, what are we doing to make a real difference? The policy curve gradient assumes there must exist a set of policy options which are low cost, high impact (LC-HI) as well as the high cost, low impact (HC-LI).

There are two possible types of policies which should be avoided. First are those with costs, but with zero impact (C-ZI) and second are those with a net negative impact (NNI). All of these costs may include unintended consequences, which may not be fully recognized.

The choice is quite clear. Policy creation and policy implementation requires a high degree of focus in driving through effective emission reductions.


3 The Mitigation Policy Curve – Part 1

One of the aspects of neoclassical economics is that you make a whole host of assumptions, some of which are highly unrealistic. This enables one to look at the consequences of removing or changing the assumptions one at a time. For this exercise, let us assume the global cost curves are correct. That is to assume that if no policy is enacted that there will be significant global warming with catastrophic consequences for the planet and the people upon it, whilst there are a set of feasible global policies that mitigate against this.

As stated above, for a viable mitigation policy curve to exist, there must exist a set of low cost, high impact (LC-HI) policies. If you believe, as I do, that public policy should aim to make the maximum positive difference, and at a minimum to avoid net harm, then for climate change there is a duty of care in creation and implementation of policy that this truly happens.

The Small Country Problem

A small country is faced with the same climate cost curve as the entire planet. That is, if nothing is done to constrain the growth in greenhouse gas (GHG) emissions this country will face the same escalating costs of climate change. The only difference is that this cost is no longer relative to total gross world product (GWP), but relative to its own GDP. Assuming that the country’s emissions are an insignificant part of the total world amount to begin with, no matter how effective that country is in constraining its own emissions growth path, or even in cutting its total emissions, its policy cost curve will be vertical. It will move to the right with the relentless rise in global temperatures.

The total costs curve, for any temperature level will simply be the addition of the climate change costs and the money spent on emissions reductions.

The more spent by this small country, the greater its prestige in the green movement for unilaterally leading the way on “saving the planet.” But if nobody follows the small country’s example, then its “conspicuous impoverishment”(1) will be in vain.

Avoiding the small country example

How do we avoid the small country example, where the total costs are just added to by wasted effort on cutting emissions?

The standard answer is along the lines of saying if everybody does their bit, with the rich countries taking the lion’s share of the responsibility, then everything will be just fine. What is more, Britain already has some of most draconian emissions reductions targets in the world, as imposed by the Climate Change Act 2008 and others, such as the EU and Australia are also contributing. The small country argument does not hold.

The minority of countries pursuing emission reduction policies I will term the PC1 group. Still assume for the moment that the policy cost curve is correct. The current issue is to enlarge that group to make it the PC2 group. Eventually it is to convince every country to join making the policy curve truly global. As the group enlarges the policy curve shifts to the left.

If all PC1 countries commit to restrain global warming to 3oC, then they can only do so by crippling their economies. The relative cost is a global one after all. They still could cripple their economies if they went to the climate costs equal policy costs point. If the PC1 countries accounted for 25% of GWP, then they would have a benefit a quarter of all the countries acting together. So should the in the economic interests of an outsider country to help create an enlarged group PC2, that represents 50% of GWP? The PC1 group will rid the planet of over 75% of the climate change costs. The PC2 group could halve that again.

Would it be in the economic interests of a country to join the PC2 group, or stay outside?

My Excel graph gets a bit blocky here – sorry.

Let’s do the maths, with approximate numbers. Enlarging the policy-enacting group moves from point A to point B.

PC1 group members have a climate cost of 3.1 plus a policy cost of 3.1/25% = 12.4

Non PC1 members have a climate cost of 3.1 = 3.1

PC2 group members have a climate cost of 1.7 plus a policy cost of 1.7/50% = 5.1

Non PC1 members have a climate cost of 1.7 = 1.7.

So to join the enlarged PC2 group, would increase costs from 3.1 to 5.1. To stay outside the policy countries would be better for the citizens of that country, even if there is a workable policy to adopt and the clear prospect of catastrophic global warming if no mitigation policy is enacted.

Later arguments on the effectiveness of policy and prospective costs of climate will make this choice look even more unambiguous. This aspect of all countries not acting together to share proportionately the costs has not, as far as I am aware, been seriously looked at in the literature. This is why the annual COP meetings – conferences in exotic locations – will never get anywhere. Any leaders that are persuaded to join the policy-enactors, unless their country will be disproportionately made worse by climate change, are acting against their own national interests.

 

Policy Risk

Policies carry risks. There is a risk of them not being effective, and costs running out of control. There is also a risk of a ratchet effective. That is once the policy is implemented, vested interests are created that make it very difficult to withdraw the policy even if results fall far short of those expected. The above assumes policy success. Policy failure within PC1 countries will demonstrate to potential PC2 countries that they should avoid adopting mitigation policies, no matter how great they believe in the looming climate catastrophe.

 

  1. Thorstein Veblen attacked in the rich for the “conspicuous consumption”. The “conspicuous impoverishment” of the global warming movement is a variant on this, the difference is that the “prestige” that Veblen went to those wasting their money. The “prestige” heaped on the unilateralist country by the green movement on those implementing the policy and not those suffering the policy consequences.

 

4 The Mitigation Policy Curve – Part 2 – Counter-Examples

In the first part on the mitigation policy curve I looked at

  • The Small Country Problem. How one small country acting unilaterally will make an insignificant impacts of global climate change.
  • How it is very likely to be against the economic interests of any country to join the small group of countries already with climate mitigation policies.

In this section I will look at two examples that go completely against logical thinking. There can be instances (like in Britain) where bold policies increase global warming at great cost to that economy, but the shale gas, which constrains global warming at net benefit to the gas-producing country?

To see the effect of policy, there is a need for analysis both at the front-end (prior to implementation), during and after. The question is about the gradient of the policy cost curve, at the point

Policy increasing global emissions?

We know that policy countries are in a minority of countries. With the structure of global growth this amount will fall.

Look at the long-term. Implementing a policy, you are saying to businesses that, ceteris paribus, your energy costs are going to rise year-on-year relative to those in non-policy countries. There will be a bigger incentive to make technological efficiency gains in these countries, but those gains can be transplanted to non-policy countries. In this global emissions may decrease more rapidly than they would have done, but the policy countries bear well over 100% of the costs and it becomes a policy benefit to the non-policy countries. By implication they will achieve around 200% of the global decline in emissions.

Question is, will it be more or less than 200% of the decline? Could it be that the policy countries energy-efficient factories are replaced by less energy-efficient factories in the non-policy countries?
There is some economic theory needed here. The Solow growth model shows a technological growth curve. Developing countries can achieve rapid growth by adapting to higher-productivity by adapting existing technologies. Their lower-unit labour costs will enable to undercut the more advanced economies, but the growth in these economies will grow the global economy as well. Most of this is unit labour costs. But by adapting previous generation technologies and exploiting labour costs less than a tenth those of the rich countries, they can under-cut the rich world. Greater technological advance is mostly in unit labour costs, but it can also mean lower unit energy costs. The portion of global output transferred from the rich countries to the poorer developing countries could result in higher total energy use, and ceteris paribus, higher CO2 emissions.

What is clear is that policy countries will increase unit energy costs. There is a two-pronged approach in Britain. The European-wide carbon-trading scheme will restrict supply of energy, bidding up the price. But also renewables cost more than fossil fuels. So the two-pronged approach doubly increases unit energy costs. Increasing unit energy costs accelerates the switching of manufacturing to developing countries, mostly China. The blue bit above postulates that energy per unit of output is globally could increase. But that is part of the problem. China has much higher CO2 emissions per unit of output as Britain. If Britain’s aggressive rush to renewables is successful, then this gap will increase, as much of Chinese energy output is from coal. A de-carbonised British economy will also be a de-industrialised one. But overall global emissions will have increased through switching of output to China.

The biggest cost of the policy for Britain is nothing to do with switching low-CO2 emitting production to high CO2 emitting countries. It is the restriction on economic growth. Loss of jobs from manufacturing, and pushing up higher energy costs elsewhere constrains growth. Due to the long-term consequences of that pushes policy costs through the roof. In the sectors where jobs are lost overseas, the policy curve is positive. If British Climate Change Act 2008 is massively unsuccessful in meeting the carbon targets, it could be a very expensive policy to increase global CO2 emissions.

The Shale-Gas Counter Example

In the USA, a consequence of the shale gas revolution has been to drastically reduce unit energy costs to industry. But also there has been a switch away from coal. As CO2 emissions of gas are around half that of coal, US CO2 emissions have been falling with electricity prices. The US is enjoying both cheaper and cleaner energy. Consequently, some chemical factories that relocated to China have returned to the USA. China has a greater proportion in its electricity production than USA, and the gap is widening. So the switching of a factory from USA reduces global CO2 emissions, even though the total energy usage remains the same.

Let me show this graphically.

Suppose (as is likely at present), the Climate Change Act 2008 falls a long way short of its target but unintentionally moves a substantial part of manufacturing to China through higher costs. For Britain this will be a large cost relative to British, but may be a net contributor to global warming. The policy curve points gets a positive slope! Conversely, “free market” shale gas in the USA has constrained global carbon emissions doubly by reducing US carbon emissions per unit of output, and switching production from China, where carbon emissions per unit of output are higher. It is having positive benefits on the US economy as well (hence negative costs), whilst constraining (slightly) the top-end of global warming.