Geoffrey Heal writes:
Sterner and Persson…talk about the effect of changes in relative prices rather than consumption of produced and environmental goods, but the point is the same. If we consume both produced goods and the services of the environment…then we can expect that with climate change environmental services will become scarce relative to produced goods and therefore their price will rise relative to that of produced goods. Consequently, the present value of an increment of environmental services may be rising over time, and the consumption discount rate on environmental services may thus be negative…This could be the case even with a positive pure rate of time preference…
Here is the paper. Here is an ungated version. In the interests of fairness to both sides of this debate, I should note that while I believe the costs of climate change are higher than most people think, I also believe that the costs of fixing the problem are higher than people think.
Tyler,
I’m curious why you have such certainty about the impact of warming being a net negative. Before I ask why I’d like to check joint assumptions.
Some warming has occurred over the last 50+ years – a magnitude of about 0.6 Celsius. If we double that to a total of 1.2 Celsius it would defy most physics. Larger numbers assume that climate has some run away process – which is silly if you think about it.
So, being conservative 2 degrees Celsius may in fact net increase both productive land and overall productivity while lowering energy use by decreasing the amount of home heating necessary to sustain everyone. How does lowering costs and increasing output hurt? To illustrate my point historically, during the Medieval Warm Period it appears that the weather lead to stronger GDP growth then.
-Gene
If climate were an extreme tipping point phenomenon, then the plausibility of that tipping point being reached in previous periods should be very high – yet over long periods of time all the historical data we have show evidence of gradual change.
The problem with the run away process model of climate is that it doesn’t know with any certainty what the impact of water vapor – clouds – is on global temperature. Increased temperature should lead to increased water vapor. More water vapor is more clouds and more clouds lead to cooling and precipitation. Run away temperature models assume that more clouds lead to a positive feedback loop that drives more warmth – which kind of ignores the effect that additional cloud cover has on reflecting sunlight back into space. Some will argue that water vapor is the actual cause of out of control warming. The point here is that the real questions in climate science is what sign (positive or negative) to put on the net effect of water vapor in climate models.
I’m however skeptical that a natural process is as fragile or as runaway as some models currently suggest.
-Gene
In addition to the cost you have the risk of failure of mitigation.
Are the first steps to reduce warming costly at all?
A carbon tax should be a benefit rather than a cost as it displaces more distortionary income / payroll taxes. Is the concern that a new tax will inevitably lead to new spendings? Is there any research to support that?
Mitigating expenses is also much easier over the long-term than the short-term (e.g. building patterns, powerplant lifespans …). Reducing emissions in 2050 will be much easier if we start shifting course now and making it clear that absent a better solution carbon taxes will continue to rise.
Tom
Gene, your argument about it not making sense for the climate to be run away because it probably would have already reached the tipping point… makes sense if the only parameter for the climate of Earth was the temperature. But presumably this run away effect would also depend on the concentration of carbon in the atmosphere. High levels of carbon may have never been reached in the billions of years Earth has been around, for obvious reasons, until just recently. Also, don’t we have at least one example that there is some other equilibrium that would be very undesirable to us? Venus? I’m not saying Earth is going to turn into Venus overnight but this should give some evidence that there can be positive feedback in terms of temperature.
I have the same question as Tom G. If there are costs to global warming and other environmental damage, and they aren’t being paid by the producers of the damage, then there is a negative social surplus involved in these activities. A tax that distributes this cost to the producer would align the incentives in trade with the total costs.
Secondly, regarding the question relative cost of mitigating damage if done by different generations:
While future generations may have better technology, allowing them to mitigate damage more inexpensively than the current generation, the relative difference of this cost is related to the amount spent on R&D now. So, any money spent now to mitigate costs, would presumably also result in decreased costs for future generations. Thus, a policy that creates a market for mitigating environmental damage, like carbon taxes or carbon-offset trading, would mitigate damage now, while also reducing the price to mitigate in the future.
Does this make sense? Other than the obvious question of whether there is social surplus lost to reduced trade levels based on higher costs of industrial production, is there anything else that I am missing?
Don,
Here is where the water vapor uncertainty shows up in the IPCC: http://www.grida.no/climate/ipcc_tar/wg1/268.htm
This is not a scientific background of certainty in the least.
-Gene
btw, re bangladesh, obviously we look at the global net. if not, US, canada, russia, etc., have little reason to do anything. that is, if we’re going to consider cost/benefit at the level of nation states in this discussion, nothing’s going to get done (because many of the most powerful have little reason to care).
1. um, i mentioned net. so obviously you consider transition costs (along with everything else — benefits, harms, practicability, etc.)
2. w/o a fairly conclusive answer — not just on whether it’s getting warmer cause of us, but whether it’s worth caring — it seems like inaction is probably the best course, leaving the future to fend for itself, which it generally does (unless you buy the precautionary principle).
3. lomborg (both books).
Why are so many readers of economist’s blogs so ignorant of climate science, yet so willing to pretend that they know more than the climate science community itself. If you think you can contribute to the debate – please – write an paper for nature – and stop trying to convince the public that you’re right.
Why do people seem to think that Bangledesh will stop sinking if the globe warms less?
not bad,give more samples will be better
it is useful for me
It seems to me that the discount rate for an individual and even a group of individuals would change as they age. Infants and children are notorious for wanting instant gratification. As the child grows he learns to defer gratification in hopes of a higher reward. However, as one ages and comes to toward the end of life, as in my case, instant gratification becomes more attractive again. Observing other elderly I often sees things like the purchase of a new luxury car shortly before death, whereupon it is sold to settle the estate. Perhaps with the aging baby boomers now in power, a discount rate approaching one is appropriate. I know I don’t have much interest in long term investing any more.
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