"Our greatest responsibility is to be good ancestors."

-Jonas Salk

Tuesday, March 8, 2022

 While I am a bit disengaged on climate right now, largely because I think we have more immediate existential threats than climate, I want to say a few things in case we don't succumb to our present dysfunctions.

In brief, I am NOT saying we don't need cost-benefit analysis, nor am I saying that money isn't important. What I AM saying is, hmm, five things.

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mt's position summarized:

1) Money tells you nothing on century time scales.

2) Even if money did tell you something on long time scales, IAMs tell you nothing about money on those timescales.

3) If we take climate change seriously, we are entering a HIGH growth period, not a low growth one! People get this backwards.

4) Every decarbonization policy is a carbon tax. We're only debating details.

5) Economics as currently constituted can help us reach our objective but can't help us set it. We should just just stick to 2 C.

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1) Money tells you nothing on century time scales.

Money is a metric that is valuable in the short term but meaningless in the long. We don't know what the cost function we ought to be that we're optimizing for. Total dollar equivalent wealth or total dollar equivalent economic throughput are signs of thriving in the short run but there is no reason to believe that across scenarios the world with the greatest gross economic product or the greatest constant-dollar denominated wealth will be the one we prefer. 


2) Even if money did tell you something on long time scales, IAMs tell you nothing about money on those timescales.

We need economists to think about these things, and we need ways to evaluate tradeoffs and outcomes over the long run, but I see very little sign that economics (or the IAM community if regarded as separate from economics) as currently constituted has any meaningful skill at doing so. The fact that we WISH IAMs were useful, and that IAMs are indeed an inevitable exercise, in no way indicates that their results are useful. I have looked under the hood of DICE. Its approach is risible, and anyone familiar with conceptual modeling and simulation of physical systems would (or at least should) dismiss it as worthless. 

Look. I read Asimov's Foundation series as a child. I love the idea that the future could somehow be predictable using statistical methods. But Salvor Hardin's dream is obviously impossible. And even if in some universe it were possible, it wouldn't be possible in an Excel spreadsheet taking ten year time steps. 

IAMs are toys. You can't be basing policy on them. Just because you wish they were useful doesn't make them so.


3) If we take climate change seriously, we are entering a HIGH growth period, not a low growth one! People get this backwards.

Following on point 1, there's a bit of a conundrum in the observation that short term policy (to me, obviously) optimizes for increasing economic throughput aka "growth" and long term policy (to me, obviously) does not. This requires a direction of serious thinking from specialists of which I have seen precisely none; instead there's some rather simple-minded polarization between "pro" and "anti" growth. I despair for the academy sometimes. It may have once been a bit less stupid; I suspect so.

Fortunately, as Tidal has convinced me in our conversations, there is no rush in resolving this if we take decarbonization seriously. The amount of economic activity required to replace our energy infrastructure in a reasonable time is immense. If we take this on, it will be an enormous, sustained, multi-decadal stimulus to growth, whether we should or do wish it were so or not. 

This is a recent change in my perspective.


4) Every decarbonization policy is a carbon tax. We're only debating details.

I'm opposed to relying on a direct proportional carbon tax as the sole method to achieve carbon neutrality; it puts the burden on small users rather than large ones. It will exacerbate already fierce competition between rural conservative/reactionary impulses and urban liber/radical ones. It basically amounts to a wealth transfer from rural areas to urban ones. It's only going to make the politics of the situation that much harder.

But that said, some people think it's a bad thing when the price of fossil energy goes up and at the same time are concerned about climate. This doesn't work. Any adequate policy of any sort *will* create an artificial scarcity which *will* drive prices up. Any policy which keeps prices down will encourage continued use. This totally obvious to anyone with the slightest sense of what economics is. It isn't Nobel-worthy economics! (I'm not sure, though, that anything is.) 


5) Economics as currently constituted can help us reach our objective but can't help us set it. We should just just stick to 2 C.

One might wish that it were otherwise, but (see points 1 and 2) we don't have enough skill in economics to set a target. Consequently we need to set a target (GMST, CO2 concentration, emissions pathway) more or less intuitively. For a number of reasons I think 2 C is a good one. I would suggest that one reason for using it as a stretch goal is that twenty years ago it was being talked about as a worst case. 


1 comment:

Phil said...

I slightly disagree.

"Any adequate policy of any sort *will* create an artificial scarcity which *will* drive prices up. Any policy which keeps prices down will encourage continued use."

A lower cost replacement will drive prices lower. Any policy that encourages a lower cost in volume low carbon replacement will discourage continued use of the current high carbon release good or service.


Economic systems can have multiple equilibriums. Consider two goods, Xclean and Xdirty. They do the same thing. Xclean is both cleaner and cheaper in large volume production. Xdirty owns the market now as Xdirty is already in volume production and Xclean is not in volume production. Any policy that increases Xclean production to the point where the costs are equal will likely lead to full replacement of Xdirty, even if any incentives, grants, and/or taxes are then removed.

Examples might include incandescent vs LED light bulbs. A much larger and much slower example is internal combustion engine vehicles vs battery electric vehicles.

More than half of the time, your statement is correct. The lower carbon release goods and services are likely more expensive than the higher release carbon good and services.

Yet as a practical political matter, promoting this limited set of replacement goods may be possible when other policies are not possible. The LED production prize was cheap relative to the payouts of both lower lighting prices and less pollution. I do hope that the BEV boom underway now looks similar after the 30 years required to replace most of the cars on the road. Solar/wind might take up a large fraction of electric generation, again over perhaps the next 30 years.