Bjorn Lomborg on Climate Costs in the Australian

Australian Climate Madness blog points to an article, “Wrong way, go back“, in the Australian Newspaper by Skeptical Environmentalist Bjorn Lomberg on Australia’s climate policies. This is my comment.

This statement in the article is significant

When economists estimate the net damage from global warming as a percentage of gross domestic product, they find it will indeed have an overall negative impact in the long run but the impact of moderate warming (1C-2C) will be beneficial. It is only towards the end of the century, when temperatures have risen much more, that global warming will turn negative.

Now consider the Apocalypse Delayed? posting of March 28th. Referring to an Economist article, it says that a number of empirical studies show that climate sensitivity is much lower than the climate models assume. Therefore, moving into the net cost range seems much less likely.
But why are there net costs? Lomberg’s calculations are based on William Nordhaus’s DICE model that

calculates the total costs (from heat waves, hurricanes, crop failure and so on) as well as the total benefits (from cold waves and CO2 fertilisation).

I would claim that the destablisation of the planet’s climate by rapid warming has very little evidence. Claims in AR4 that hurricanes were getting worse; that some African countries would see up to a 50% reduction in crop yields by 2020; that the Himalayan Glaciers would largely disappear by 2035; that the Amazon rainforest could catastrophically collapse – all have been over-turned.
Thus the policy justification for avoiding climate catastrophe as a result rising greenhouse gases is a combination of three components. First, a large rise in temperatures. Second, the resulting destablisation of the climate system having net adverse consequences. Third, is that the cost of constraining the rise in greenhouse gases is less than the cost of doing nothing.
It is only this third aspect that Bjorn Lomberg deals with. Yet despite that he shows that the Australian Government is not “saving the planet for future generations”, but causing huge net harm. Policy-making should consider all three components.

That is, there are three components to the policy justification to combatting “climate change” by constraining the growth in greenhouse gas emissions

  1. That there will be a significant amount of global warming.
  2. That this is net harmful to the planet and the people on it.
  3. That the net harm of policies is less than the net harm of warming. To use a medical analogy, the pain and risks of treatment are less than the disease.

Lomberg, using the best cost model available, comes up with far less costs of global warming than, say, the Stern Review of 2006. He also uses actual policy costs to assess the net harm of global warming. Lomberg does not, however, challenge the amount of warming from a given quantity of CO2 rise, nor the adverse consequences of that warming. The Economist article
and editorial of March 30th conversely challenges the quantity of warming from arising from a given rise in CO2, but just sees it as “apocalypse delayed” and not “apocalypse debunked“.

Kevin Marshall

Costs of Climate Change in Perspective

This is a draft proposal in which to frame our thinking about the climatic impacts of global warming, without getting lost in trivial details, or questioning motives. This builds upon my replication of the thesis of the Stern Review in a graphical form, although in a slightly modified format.

The continual rise in greenhouse gases due to human emissions is predicted to cause a substantial rise in average global temperatures. This in turn is predicted to lead severe disruption of the global climate. Scientists project that the costs (both to humankind and other life forms) will be nothing short of globally catastrophic.

That is

CGW= f {K}                 (1)

The costs of global warming, CGW are a function of the change in the global average surface temperatures K. This is not a linear function, but of increasing costs per unit of temperature rise. That is

CGW= f {Kx} where x>1            (2)

Graphically


The curve is largely unknown, with large variations in the estimate of the slope. Furthermore, the function may be discontinuous as, there may be tipping points, beyond which the costly impacts of warming become magnified many times. Being unknown, the cost curve is an expectation derived from computer models. The equation thus becomes

E(CGW)= f {Kx}                (3)

The cost curve can be considered as having a number of elements the interrelated elements of magnitude M, time t and likelihood L. There are also costs involved in taking actions based on false expectations. Over a time period, costs are normally discounted, and when considering a policy response, a weighting W should be given to the scientific evidence. That is

E(CGW)=f {M,1/t,L,│Pr-E()│,r,W}    (4)

Magnitude M is the both severity and extent of the impacts on humankind or the planet in general.

Time t is highly relevant to the severity of the problem. Rapid changes in conditions are far more costly than gradual changes. Also impacts in the near future are more costly than those in the more distant future due to the shorter time horizon to put in place measures to lessen those costs.

Likelihood L is also relevant to the issue. Discounting a possible cost that is not certain to happen by the expected likelihood of that occurrence enables unlikely, but catastrophic, events to be considered alongside near certain events.

│Pr-E()│ is the difference between the predicted outcome, based on the best analysis of current data at the local level, and the expected outcome, that forms the basis of adaptive responses. It can work two ways. If there is a failure to predict and adapt to changing conditions then there is a cost. If there is adaptation to anticipation future condition that does not emerge, or is less severe than forecast, there is also a cost. │Pr-E()│= 0 when the outturn is exactly as forecast in every case. Given the uncertainty of future outcomes, there will always be costs incurred would be unnecessary with perfect knowledge.

Discount rate r is a device that recognizes that people prioritize according to time horizons. Discounting future costs or revenue enables us to evaluate the discount future alongside the near future.

Finally the Weighting (W) is concerned with the strength of the evidence. How much credence do you give to projections about the future? Here is where value judgements come into play. I believe that we should not completely ignore alarming projections about the future for which there is weak evidence, but neither should we accept such evidence as the only possible future scenario. Consider the following quotation.

There are uncertain truths — even true statements that we may take to be false — but there are no uncertain certainties. Since we can never know anything for sure, it is simply not worth searching for certainty; but it is well worth searching for truth; and we do this chiefly by searching for mistakes, so that we have to correct them.

Popper, Karl. In Search of a Better World. 1984.

Popper was concerned with hypothesis testing, whilst we are concerned here with accurate projections about states well into the future. However, the same principles apply. We should search for the truth, by looking for mistakes and (in the context of projections) inaccurate perceptions as well. However, this is not to be dismissive of uncertainties. If future climate catastrophe is the true future scenario, the evidence, or signal, will be weak amongst historical data where natural climate variability is quite large. This is illustrated in the graphic below.


The precarious nature of climate costs prediction.

Historical data is based upon an area where the signal of future catastrophe is weak.

Projecting on the basis of this signal is prone to large errors.

In light of this, it is necessary to concentrate on positive criticism, with giving due weighting to the evidence.

Looking at individual studies, due weighting might include the following:-

  • Uses verification procedures from other disciplines
  • Similarity of results from using different statistical methods and tests to analyse the data
  • Similarity of results using different data sets
  • Corroborated by other techniques to obtain similar results
  • Consistency of results over time as historical data sets become larger and more accurate
  • Consistency of results as data gathering becomes independent of the scientific theorists
  • Consistency of results as data analysis techniques become more open, and standards developed
  • Focus on projections on the local level (sub-regional) level, for which adaptive responses might be possible

To gain increased confidence in the projections, due weighting might include the following:-

  • Making way-marker predictions that are accurate
  • Lack of way-marker predictions that are contradicted
  • Acknowledgement of, and taking account of, way-marker predictions that are contradicted
  • Major pattern predictions that are generally accurate
  • Increasing precision and accuracy as techniques develop
  • Changing the perceptions of the magnitude and likelihood of future costs based on new data
  • Challenging and removal of conflicts of interest that arise from scientists verifying their own projections

    Kevin Marshall

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

Equity

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.

Conclusion

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

Introduction

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