Economic Modeling and Climate Change

[JayB]

Just came across an interesting article by Freeman Dyson in the New York Review of Books, which summarizes the content of a recent book by William Nordhaus, a Yale economist.

 

Nordhaus doesn't take issue with the scientific consensus concerning global warming. Instead, his purpose is to attempt to determine the optimal response to rising CO2 levels. Optimal, in this case, means the response that maximizes human well-being, by comparing the costs and benefits associated with approaches ranging from CO2 emission-limitation schemes ranging from those far more restrictive than Kyoto, to doing nothing.

 

Here's (most of) Dyson's summary of Nordhaus's model and its outputs:

 

"William Nordhaus is a professional economist, and his book A Question of Balance: Weighing the Options on Global Warming Policies describes the global-warming problem as an econ-omist sees it. He is not concerned with the science of global warming or with the detailed estimation of the damage that it may do. He assumes that the science and the damage are specified, and he compares the effectiveness of various policies for the allocation of economic resources in response. His conclusions are largely independent of scientific details. He calculates aggregated expenditures and costs and gains. Everything is calculated by running a single computer model which he calls DICE, an acronym for Dynamic Integrated Model of Climate and the Economy.

 

Each run of DICE takes as input a particular policy for allocating expenditures year by year. The allocated resources are spent on subsidizing costly technologies—for example, deep underground sequestration of carbon dioxide produced in power stations—that reduce emissions of carbon dioxide, or placing a tax on activities that produce carbon emissions. The climate model part of DICE calculates the effect of the reduced emissions in reducing damage. The output of DICE then tells us the resulting gains and losses of the world economy year by year. Each run begins at the year 2005 and ends either at 2105 or 2205, giving a picture of the effects of a particular policy over the next one or two hundred years.

 

The practical unit of economic resources is a trillion inflation-adjusted dollars. An inflation-adjusted dollar means a sum of money, at any future time, with the same purchasing power as a real dollar in 2005. In the following discussion, the word "dollar" will always mean an inflation-adjusted dollar, with a purchasing power that does not vary with time. The difference in outcome between one policy and another is typically several trillion dollars, comparable with the cost of the war in Iraq. This is a game played for high stakes....

 

....................

 

Here are the net values of the various policies as calculated by the DICE model. The values are calculated as differences from the business-as-usual model, without any emission controls. A plus value means that the policy is better than business-as-usual, with the reduction of damage due to climate change exceeding the cost of controls. A minus value means that the policy is worse than business-as-usual, with costs exceeding the reduction of damage. The unit of value is $1 trillion, and the values are specified to the nearest trillion. The net value of the optimal program, a global carbon tax increasing gradually with time, is plus three—that is, a benefit of some $3 trillion. The Kyoto Protocol has a value of plus one with US participation, zero without US participation. The "Stern" policy has a value of minus fifteen, the "Gore" policy minus twenty-one, and "low-cost backstop" plus seventeen.

 

What do these numbers mean? $1 trillion is a difficult unit to visualize. It is easier to think of it as $3,000 for every man, woman, and child in the US population. It is comparable to the annual gross domestic product of India or Brazil. A gain or loss of $1 trillion would be a noticeable but not overwhelming perturbation of the world economy. A gain or loss of $10 trillion would be a major perturbation with unpredictable consequences.

 

The main conclusion of the Nordhaus analysis is that the ambitious proposals, "Stern" and "Gore," are disastrously expensive, the "low-cost backstop" is enormously advantageous if it can be achieved, and the other policies including business-as-usual and Kyoto are only moderately worse than the optimal policy. The practical consequence for global-warming policy is that we should pursue the following objectives in order of priority. (1) Avoid the ambitious proposals. (2) Develop the science and technology for a low-cost backstop. (3) Negotiate an international treaty coming as close as possible to the optimal policy, in case the low-cost backstop fails. (4) Avoid an international treaty making the Kyoto Protocol policy permanent. These objectives are valid for economic reasons, independent of the scientific details of global warming."

 

I'm not sure what the degree of uncertainty associated with an economic model of the sort that Nordhaus has devised is, but I can't help but wonder how well it compares with the uncertainties inherent in the computer models that have served as the basis upon which to argue for many of the calls for subjecting carbon emissions to strict regulatory limits established and enforced by national governments, either alone or in some kind of confederation with one another.

 

Whether it's something as trivial as asking people to imbibe a shot or two of first-world eco guilt on their fossil-fuel powered trips to the mountains, or as weighty as asking the hundreds of millions of the world's poorest people to forgo the many comforts and advantages of first-world life in order to "save the planet" (IMO the planet and life will be just fine, irrespective of whether we're around to observe either, but this is perhaps a topic for another conversation), it seems strange to me that a serious attempt to reconcile the costs and benefits of various approaches to climate change hasn't become part of the standard, non-specialist discussion of this issue.

 

 

Review: http://www.nybooks.com/articles/21494

Book: http://yalepress.yale.edu/book.asp?isbn=9780300137484

 

[Hugh Conway]

I'd be much more curious to read criticism of this, than this work

[olyclimber]

I didn't read anything, but i'm pretty sure that his conclusion is the way best to maximize human well being is to invest heavily in extraplanetary travel.

 

NN3MGN899yE

[JayB]

Is this based on something that you know about Nordhaus in particular, or something else?

 

In any event, I think there's a good debate at realclimate.org, which, from my skimming, comes down to a disagreement about whether or not it's ethical to apply a "discount rate" when considering the costs and benefits of various responses to limiting CO2 emissions.

 

I'm not sure that it's completely accurate, but I've always thought that questions about the "discount rate" always came down to whether it makes the most sense to spend a dollar of money on something now, or if you'd be better off investing the dollar now and buying the same thing at some point in the future, after accounting for inflation. The higher the discount rate (which I think of as something analogous to an interest rate), the more likely it is that you'll be better off investing the money now and making the purchase later. E.g, would you have been better off if you had spent a thousand dollars to buy a state-of-the art VCR in 1981, or invested the $1000 in T-Bills and bought a VCR or its technological equivalent in 2008, then kept whatever was left over in the bank? Easy call now, but in 1980 I suppose that one could make the case that the answer depended on your assumptions about the rate of technological change, productivity growth, the fate of civilization/mankind, etc.

 

Most economists believe that it's insane to leave assumptions about discount rates out of calculations that will serve as the basis for constructing rational policies to address global warming, while it seems that there are many passionate environmentalists who have a variety of objections to making assumptions about the "discount rate" a central component of any plan to address the risks and costs of global warming.

 

As I see it, amongst those who are convinced that we should do *something* to reduce anthropogenic CO2 emissions, there's a wide spectrum of ideas, with an extreme at either end. On one on side, there are people who believe humanity will be better off if we embark on a program that requires immediately spending a significant proportion of the total wealth that humanity has accumulated to combat global warming now, and forgoing the accumulation of far more wealth in the future (to combat global warming). Then there are those who believe that humanity will ultimately be better off if we stick to the least expensive, least economically constrictive means of reducing CO2 emissions now, and consider the resources that we don't use now (or deprive ourselves of in the future) an "investment" that we've dedicated to increasing human material and technological wealth in the immediate and long-term future, which will ultimately leave people in the future better able to cope with and adapt to any climate changes that resulted from a low-cost approach to dealing with CO2 emissions before they were born.

 

I fall into the latter category, and think that there's a strong practical/moral case to be made for taking whatever we propose to spend on limiting carbon emissions in any given year (even with the lowest cost scenario), and spend the money instead on efforts to provide the world's poorest people with improved drinking water, education (especially women), vaccinations, improved agricultural practices, etc - then spend whatever's left over on curtailing C02 emissions. I'd also like to see it used to eliminate trade barriers, which sustain much of the poverty that results in all of the above, but that's a different conversation...

[Hugh Conway]

Why?

 

For the simple reason that all models of environmental impact associate some $ with resources. I attribute a very high $ to glaciers in the N. Cascades, prodigious snow in winter, and a snow capped Kilimanjaro. Most of the economists I met, don't.

[JayB]

Hasn't the snow loss on Kili been at least partially attributed to defortestation of the adjacent lowlands by people who are chopping down the trees and burning them because they have no other options? If that's the case, economic development that provided them with enough income to buy their food from more productive farmers who grow their crops in less sensitive areas, and kerosene/propane/methane/etc for their cooking and washing would be a much better way to keep the snow on Kili than adopting policies that are more likely to insure that wood is the only source of fuel that they can get their hands on....

 

I'm not so sure that people conducting economic analyses put *no* value on glaciers/snowpacks, but I'd imagine that but within the scope of any analysis that they conducted, the majority of the value they assign to them is related to their importance for providing for irrigation, habitat, drinking-water, industry, etc rather than their aesthetic/recreational value.

[akhalteke]

I dont see his model taking such things into consideration. His hypothethis took one person's idea about the correlation of monetary losses and increased emissions and set up a fomula to show possible outcomes with diffrent solutions. I doubt such a complex system could be predicted to any certainty at all. Too many variables. Also seems to demonstrate bias in his writing and it is hard to believe that didn't transfer into his work.

[prole]

Like most of these game-theory type models, the results are rigged from the very beginning. The outcomes are predetermined by their implicit assumptions about "rational" behavior, how it defines "human well-being" and what constitute real benefits. Wow, how hard would it have been to guess that this is "how an economist would manage a response to global warming" admittedly ignoring the threat to human and animal populations and "the damage that it may do". Translation: lowest cost possible/unrestricted profit-maximization full steam ahead. "Yeah, you know, if we just make some more money we can fix all these problems later. Yeah, don't worry we're like saving up all this money to use later on, you know, for important stuff." Glaciers gone, birds gone, ice gone, entire ecosystems gone. What a joke. Your reading of marginalized populations and environmental exploitation is just as bad. As usual it lacks any historical basis whatsoever. But as you say, that's for another discussion.

 

 

 

[Hugh Conway]

Hasn't the snow loss on Kili been at least partially attributed to defortestation of the adjacent lowlands by people who are chopping down the trees and burning them because they have no other options? If that's the case, economic development that provided them with enough income to buy their food from more productive farmers who grow their crops in less sensitive areas, and kerosene/propane/methane/etc for their cooking and washing would be a much better way to keep the snow on Kili than adopting policies that are more likely to insure that wood is the only source of fuel that they can get their hands on....

 

Source please? Given taxation burden of $100 dollars a day for a climber on Kilimanjaro I'd say there's plenty of value, just most of it's wasted on the corrupt, Western supported, government.

 

I'm not so sure that people conducting economic analyses put *no* value on glaciers/snowpacks, but I'd imagine that but within the scope of any analysis that they conducted, the majority of the value they assign to them is related to their importance for providing for irrigation, habitat, drinking-water, industry, etc rather than their aesthetic/recreational value.

 

Given the insularity of most, I'd say the vastly underestimate the value of them for those as well. California without snowpack would cease to function; there goes the 5th largest economy in the world; there goes the food basket of the world.

[prole]

I'm not so sure that people conducting economic analyses put *no* value on glaciers/snowpacks, but I'd imagine that but within the scope of any analysis that they conducted, the majority of the value they assign to them is related to their importance for providing for irrigation, habitat, drinking-water, industry, etc rather than their aesthetic/recreational value.

 

Given the insularity of most, I'd say the vastly underestimate the value of them for those as well. California without snowpack would cease to function; there goes the 5th largest economy in the world; there goes the food basket of the world.

 

Dude, giant pipes from Canada's lakes. Free-trade in fresh water don't you know!

[STP]

I'm curious, do any of the models take into account any wildcard variables that might complicate the projected outcomes? For instance:

 

Study finds Arctic seabed afire with lava-spewing volcanoes

Sun goes longer than normal without producing sunspots

 

I wouldn't suppose they do. Wouldn't it be ironic if despite our best efforts the mitigated effects were neglible? Who can predict the future with a great degree of certainty?

 

I know from some studies in coral reef ecology that periodic perturbations are beneficial for the system. I'm not extrapolating this to our human system just making an observation.

 

 

[Hugh Conway]

I'm curious, do any of the models take into account any wildcard variables that might complicate the projected outcomes? For instance:

 

Study finds Arctic seabed afire with lava-spewing volcanoes

Sun goes longer than normal without producing sunspots

 

I wouldn't suppose they do. Wouldn't it be ironic if despite our best efforts the mitigated effects were neglible? Who can predict the future with a great degree of certainty?

 

I know from some studies in coral reef ecology that periodic perturbations are beneficial for the system. I'm not extrapolating this to our human system just making an observation.

 

 

I haven't heard the "we are stupid we shouldn't do shit" line of reasoning since KK & pink last posted

[STP]

That's funny because "we are stupid we shouldn't do shit" came from your towering intellect.

[Hugh Conway]

That's funny because "we are stupid we shouldn't do shit" came from your towering intellect.

 

oh, sorry, "our human modeling is to imprecise to gauge the exact impacts of our human induced causes"

[STP]

I don't dispute the human impact just as Nordhaus. It's just that hubris is the classic tragedy.

[prole]

Exactly! So keep your head down, forget the past, keep buying shit, and trust that the technocrats will make the best decisions for you. Oh yeah, don't forget to vote!

[Hugh Conway]

Exactly! So keep your head down, forget the past, keep buying shit, and trust that the technocrats will make the best decisions for you. Oh yeah, don't forget to vote!

 

Kodos for President!

[prole]

The Trap is rad.

[JayB]

Like most of these game-theory type models, the results are rigged from the very beginning. The outcomes are predetermined by their implicit assumptions about "rational" behavior, how it defines "human well-being" and what constitute real benefits. Wow, how hard would it have been to guess that this is "how an economist would manage a response to global warming" admittedly ignoring the threat to human and animal populations and "the damage that it may do". Translation: lowest cost possible/unrestricted profit-maximization full steam ahead. "Yeah, you know, if we just make some more money we can fix all these problems later. Yeah, don't worry we're like saving up all this money to use later on, you know, for important stuff." Glaciers gone, birds gone, ice gone, entire ecosystems gone. What a joke. Your reading of marginalized populations and environmental exploitation is just as bad. As usual it lacks any historical basis whatsoever. But as you say, that's for another discussion.

 

 

 

 

I don't think that this is an especially accurate summary of Nordhaus's work, which you are clearly intelligent enough to understand if you try to - despite the cogniyive handicaps you've been fettered with by your education.

 

Here's a brief summary from that notorious Necon rag, "Science,"

http://nordhaus.econ.yale.edu/nordhaus_stern_science.pdf

 

and a slightly longer journal article that you can peruse at your leisure.

http://nordhaus.econ.yale.edu/nordhaus_carbontax_reep.pdf

 

I personally think that the balance of probabilities is now on the side of those who have concluded that the world will eventually settle on and enact a mechanism to limit carbon emissions. I also think it's likely that assumptions about how to best allocate humanity's resources to reduce carbon emissions in a manner that maximizes human well-being, both in the present and the future, will play a central role in determining which mechanism we end up with. Assumptions about discount rates are likely to be a critically important part of those mechanisms, whether the general public understands them or not - and economists are going to be at least as much a part of creating these mechanisms as climate scientists, and likely considerably more so. Technocrats who care about these things are going to play a considerable role in determining your future, for better or worse.

 

The question becomes which kind of technocrat you are more comfortable with, and how much power you'd like them to have over your life. Are you most comfortable with a framework in which a central authority makes decisions about which technological solutions to allocate resources to and when, which alternate uses for the same resources get neglected, tells you how much, how often, and for what purposes you may engage in activities that require fossil fuel consumption, and imposes fixed, arbitrary limits on CO2 emissions irrespective of the cost? Then fixed-emission schemes are the way to go. I personally think that such schemes will simply be too costly and onerous to get anywhere, and will be promptly ignored or abandoned.

 

Squeeze the people in the present too hard, and they stop caring about the future. Even the relatively mild perturbation of fuel prices means that people have to expend more resources to grow the same amount of food, and the result is that hundreds of millions of people have less to eat. Artificially jack the price of energy up too high, and you'll see significantly more hunger and sufferng, and the political pressure to eliminate or relax the constraints will simply be too great to resist.

 

I personally prefer the kind of technocrat that has as little power over my life as possible, that favors creating tangible incentives for people to voluntarily reduce their C02 emissions, for others to profit via innovations that enhance efficiency and exploit new sources of energy, but that leaves them free to make their own choices about what they do and don't wish to sacrifice instead of relying on rationing and quotas. I'm even less enamored of the idea of granting *any* government the power that'd be necessary to monitor and enforcement that any such rationing scheme requires, much less the power to decide who gets what, or that creates massive new incentives for influence peddling and corruption.

 

The other point worth considering when pondering the question of discounting is whether it makes sense to invest so much of humanity's existing wealth foisting a contemporary solution on a problem that will persist well into the future. If someone had been able travel back to the 1950's with a set of figures that showed the number of calculations per second that it'd take to keep the global economy running in 2008, what would the most sensible response have been? Attempting to construct a death-star sized ENIAC with five septillion vacuum tubes? Or allowing the demand for calculations to drive the technological evolution necessary to generate the desired output to work over time?

 

Some solutions to climate change are objectively worse than doing nothing (I suspect that the corn ethanol fiasco is just the opening act), at least in terms of mitigating human suffering, and I'm personally glad that there are at least a few smart and influential people out there who are aware of this fact, so that someone puts the brakes on before evironmental equivalent of the planet-sized ENIAC gets too far underway.

[JayB]

Hasn't the snow loss on Kili been at least partially attributed to defortestation of the adjacent lowlands by people who are chopping down the trees and burning them because they have no other options? If that's the case, economic development that provided them with enough income to buy their food from more productive farmers who grow their crops in less sensitive areas, and kerosene/propane/methane/etc for their cooking and washing would be a much better way to keep the snow on Kili than adopting policies that are more likely to insure that wood is the only source of fuel that they can get their hands on....

 

Source please? Given taxation burden of $100 dollars a day for a climber on Kilimanjaro I'd say there's plenty of value, just most of it's wasted on the corrupt, Western supported, government.

 

I'm not so sure that people conducting economic analyses put *no* value on glaciers/snowpacks, but I'd imagine that but within the scope of any analysis that they conducted, the majority of the value they assign to them is related to their importance for providing for irrigation, habitat, drinking-water, industry, etc rather than their aesthetic/recreational value.

 

Given the insularity of most, I'd say the vastly underestimate the value of them for those as well. California without snowpack would cease to function; there goes the 5th largest economy in the world; there goes the food basket of the world.

 

1.

http://www.geo.umass.edu/faculty/bradley/kaser2004.pdf

 

2.

Fact. Agriculture counts for like ~2% of the state's GDP.

Prediction: changes to the water infrastructure and more efficient farming techniques and more appropriate crop choices would mitigate much of the impact, and production elsewhere will pick up whatever drops off in California, and perhaps Tvash's hobby garden will become more valuable, and the local boutique farms he's so enamored of will become more competitive relative to the mega-farms in the Central valley.

 

 

[Dechristo]

for many, a paucity of aplomb and patience prevents a sale

[Hugh Conway]

Fact. Agriculture counts for like ~2% of the state's GDP.

 

Fact: California is the world's fifth largest supplier of food and agriculture commodities

 

Your link doesn't support your assertion about local fires

[olyclimber]

the human virus must survive. seek interplanetary colonization and adaptation of the human organism to other forms of being. direct all resources to genetic modification to suit alternate environments, up to and including staying on the 3rd planet. the prime directive should include, however, travel to similar planets prior to invention of the combustible engine (or just prior to invention of the liberal mind)

[prole]

As usual your filibustering generally boils down to a Hobson's Choice, bland truisms, and a generalized disconnection from reality. The first is that technocracy is inevitable so pick your poison. Sorry Jay, but leaving the real policymaking to egghead economists with warped assumptions about humanity running computer games programs while the "political sphere" is entirely made up of stage-managed celebrity candidates whose messages are determined by the results of focus-groups doesn't sound very democratic. Not surprising coming from someone with so much love for the "Great Communicator" and an unhealthy contempt for democracy in practice.

 

The second is the well-worn adage about the "government which governs least". I think we'd all agree about corruption and the like. However, what is astounding is that in your technocratic vision, power simply disappears or disipates through the marketplace. Ironic considering that if anything in the age of neoliberalism the bonds between State and the corporate elite have expanded and intensified tremendously. Cheney's energy policy example is only the tip of the iceberg. Corporations enabled by the State are to be where real decision-making takes place, "the people" (oops, sorry I forgot, "there is no society, only individuals") are reduced to a conglomerate of product preferences and lifestyle choices.

 

The bit about discounts basically still boils down to what I suggested: an excuse for politicians to sit on their hands, timber companies, real-estate developers, mining companies, oil companies, agribusiness, and the rest to continue making money hand over fist with their eyes on the short-term gain, and "consumers" to keep stuffing their gullets and leaving future generations to clean up the mess. All with the stamp of approval of a real live computer model and all based on the facile assumption that the gravy train of technological innovation and improvements in efficiency bringing us closer (to what, I'd love to hear) will never ever stop. I'm not sure if global warming is "the greatest challenge humanity has ever faced", but as with all the great challenges and endeavors human beings have undertaken, an economist is probably the last person I'd ask to help.

[akhalteke]

reminds me of that movie with Jennifer Jason Leigh... Wargames.