"System change is now inevitable. Either because we do something about it, or because we will be hit by climate change. '...

"We need to develop economic models that are fit for purpose. The current economic frameworks, the ones that dominate our governments, these frameworks... the current economic frameworks, the neoclassical, the market frameworks, can deal with small changes. It can tell you the difference, if a sock company puts up the price of socks, what the demand for socks will be. It cannot tell you about the sorts of system level changes we are talking about here. We would not use an understanding of laminar flow in fluid dynamics to understand turbulent flow. So why is it we are using marginal economics, small incremental change economics, to understand system level changes?"

Wednesday, May 5, 2010

Trust in Models

rustneversleeps a.k.a. Tidal notes via email:

Stanton and Ackerman also have a working paper out on their own economics model (CRED) that is based on DICE but is meant to address the various shortcomings they identified. Again, I've just glanced at it, but this one statement just caught my eye on Stanton's site announcing it:
What the model shows is that the most cost-effective way to reduce global emissions and maximize the yield of “green” investment is to target developing countries: Because the impact of every dollar is bigger in a lower-income economy, shifting capital from rich to poor regions has the best payoff.

Developing nations have advocated this approach for years, but industrialized nations have resisted, not wanting climate mitigation to become a vehicle for the redistribution of wealth. In fact, widely used economic models specifically correct for this “problem,” and focus on climate solutions that leave global inequality untouched by design.
So, er, even if the other models show the most cost-effective solutions are X, the modellers get to override X with Y if X disagrees with their worldview? And its the climate modellers that get accused of fiddling with their models and fine-tuning to get the results they "want"???? Geez...

Rust also notes, in giving me permission to share this, that "all I am going on right now is their say-so... I suspect entirely valid but you know - caveat emptor!"

Anyone out there have any insight into this?


manuelg said...

quoting "rustneversleeps"'s email

> Because the impact of every dollar is bigger in a lower-income economy, shifting capital from rich to poor regions has the best payoff.

Global emissions or not, this is already happening. Capital is desperately trying to enter the developing world. China and India are taking *great* pains to keep a lot of it out, to keep their economies from overheating (no pun intended).

The nice thing about valid economic models is that it is impossible to keep the smart investors from re-creating them.

tidal said...

Again, I'm just skimming their paper, but it appears that the DICE and PAGE models basically assume that, yes, there are intertemporal equity issues - i.e. it is generally better to focus on this generation than future generations... because this generation is (presumably) poorer than future generations! And this, of course, gets reflected in the discount rate...

But in terms of present-day contemporaneous interpersonal equity, the current allocation seems to be presumed optimal by assumption...

So it seems more a case that the "correction" for "the problem" isn't so much an after-the-fact fix, but rather basic - and arbitrary - assumptions that essentially preclude anything but the status quo equity from being considered in solution sets...

I see that Paul Baer's work is in the references, so maybe Paul has some other insights. I'll try to read the paper further tonight...

Moth Incarnate said...

Sounds a bit like a NZ economist that's been spamming my blog because he doesn't like my argument in that there are numerous other environmental issues and not just AGW that get us to the same point regarding action and change.
He's also mentioned (on his space) that green policies will collapse the western while offering no solution to that fact that we are almost entirely reliant on non-renewable energy resources and continuing to breed like rabbits.. It is terrible that economics and ecology find it so difficult to discuss issues that effect them both.

Paulina said...

FYI for people in the Boston area:

Hear Frank Ackerman speak about CRED at an SEI-U.S. Brown Bag Lunch Lecture next Wednesday, May 12, from 12 to 1:30pm at Tufts University, in the Cabot Intercultural Center, Room 70d, 170 Packard Ave., Somerville, MA. For more information, contact Kim Shaknis at kshaknis@sei-us.org.

SEI-U.S. Working Paper
CRED: A New Model of Climate
and Development

CRED: A New Model of Climate and Development Climate change is a global problem, and addressing it inevitably raises questions about development and equity.
Our new model, Climate and Regional Economics of Development (CRED), uses data about different regions' economies and vulnerability to climate change to predict the consequences of various climate and development choices. It finds more equitable scenarios have better climate outcomes.

gravityloss said...

How can you reduce emissions in a developing country which doesn't have coal or oil?

Mal Adapted said...


"How can you reduce emissions in a developing country which doesn't have coal or oil?

Are you one of the deniers who think climate scientists claim it's all down to fossil-fuel burning? The principal energy source in many third-world societies is charcoal. Deforestation ensues. The net result is a reduced rate of CO2 sequestration in biomass.

Did you really not know this?

Michael Tobis said...

GL, MA, watch.