Economist William Nordhaus Slams Global Warming Deniers, Explains Cost of Delay is $4 Trillion
But Nordhaus’s blunt piece — “Why the Global Warming Skeptics Are Wrong” – is worth reading because he is no climate hawk. You may recall his October article that found “Oil and Coal-Fired Power Plants Have Air Pollution Damages Larger Than Their Value Added.” It use an uber-low, uber-lame, uber-outdated “price” for CO2:
We use the social cost of carbon for the year 2000. This cost will rise over time as greenhouse gases accumulate and marginal damages increase. We assume that the central estimate of the social cost of carbon is $27 per ton of carbon (Nordhaus 2008b).
The actual social cost of carbon today is at least 5 times that price and more than 10 times that in the near future (or now, see here). The International Energy Agency (IEA) noted back in 2008 that just to stabilize at 550 ppm (roughly 3°C or 5.4F warming), which would likely still be catastrophic for humanity, you’d need a price of “$90/tonne of CO2 in 2030,” which is to say $330 a metric ton of carbon. You need a 2030 CO2 price of “$180/tonne in the 450 Policy Scenario” — $660 a metric ton of carbon.
So when a guy like Nordhaus slams disinformers hard, that’s a big deal. Let me excerpt his key rebuttals and then his economic analysis:
The first claim is that the planet is not warming…. The finding that global temperatures are rising over the last century-plus is one of the most robust findings of climate science and statistics.
A second argument is that warming is smaller than predicted by the models…. In reviewing the results, the IPCC report concluded: “No climate model using natural forcings [i.e., natural warming factors] alone has reproduced the observed global warming trend in the second half of the twentieth century.”
The sixteen scientists next attack the idea of CO2 as a pollutant. They write: “The fact is that CO2 is not a pollutant.”… In short, the contention that CO2 is not a pollutant is a rhetorical device and is not supported by US law or by economic theory or studies.
The fourth contention by the sixteen scientists is that skeptical climate scientists are living under a reign of terror about their professional and personal livelihoods…. The idea that climate science and economics are being suppressed by a modern Lysenkoism is pure fiction.
A fifth argument is that mainstream climate scientists are benefiting from the clamor about climate change…. One of the worrisome features of the distortion of climate science is that the stakes are huge here—even larger than the economic stakes for keeping the cigarette industry alive. Tobacco sales in the United States today are under $100 billion. By contrast, expenditures on all energy goods and services are close to $1,000 billion. Restrictions on CO2 emissions large enough to bend downward the temperature curve from its current trajectory to a maximum of 2 or 3 degrees Centigrade would have large economic effects on many businesses. Scientists, citizens, and our leaders will need to be extremely vigilant to prevent pollution of the scientific process by the merchants of doubt.
Nordhaus’s final point concerns himself and the 16 poser-dentists misrepresentation of his own work, where they claimed “economics does not support policies to slow climate change in the next half-century.” They wrote:
A recent study of a wide variety of policy options by Yale economist William Nordhaus showed that nearly the highest benefit-to-cost ratio is achieved for a policy that allows 50 more years of economic growth unimpeded by greenhouse gas controls. This would be especially beneficial to the less-developed parts of the world that would like to share some of the same advantages of material well-being, health and life expectancy that the fully developed parts of the world enjoy now. Many other policy responses would have a negative return on investment. And it is likely that more CO2 and the modest warming that may come with it will be an overall benefit to the planet.
Not. As the International Energy Agency explained last year, the world is on pace for 11°F warming, and “Even School Children Know This Will Have Catastrophic Implications for All of Us.”
Here is Nordhaus’s answer in full:
On this point, I do not need to reconstruct how climate scientists made their projections, or review the persecution of Soviet geneticists. I did the research and wrote the book on which they base their statement. The skeptics’ summary is based on poor analysis and on an incorrect reading of the results.
The first problem is an elementary mistake in economic analysis. The authors cite the “benefit-to-cost ratio” to support their argument. Elementary cost-benefit and business economics teach that this is an incorrect criterion for selecting investments or policies. The appropriate criterion for decisions in this context is net benefits (that is, the difference between, and not the ratio of, benefits and costs).
This point can be seen in a simple example, which would apply in the case of investments to slow climate change. Suppose we were thinking about two policies. Policy A has a small investment in abatement of CO2 emissions. It costs relatively little (say $1 billion) but has substantial benefits (say $10 billion), for a net benefit of $9 billion. Now compare this with a very effective and larger investment, Policy B. This second investment costs more (say $10 billion) but has substantial benefits (say $50 billion), for a net benefit of $40 billion. B is preferable because it has higher net benefits ($40 billion for B as compared with $9 for A), but A has a higher benefit-cost ratio (a ratio of 10 for A as compared with 5 for B). This example shows why we should, in designing the most effective policies, look at benefits minus costs, not benefits divided by costs.
This leads to the second point, which is that the authors summarize my results incorrectly. My research shows that there are indeed substantial net benefits from acting now rather than waiting fifty years. A look at Table 5-1 in my study A Question of Balance (2008) shows that the cost of waiting fifty years to begin reducing CO2 emissions is $2.3 trillion in 2005 prices. If we bring that number to today’s economy and prices, the loss from waiting is $4.1 trillion. Wars have been started over smaller sums.1
My study is just one of many economic studies showing that economic efficiency would point to the need to reduce CO2 and other greenhouse gas emissions right now, and not to wait for a half-century. Waiting is not only economically costly, but will also make the transition much more costly when it eventually takes place. Current economic studies also suggest that the most efficient policy is to raise the cost of CO2 emissions substantially, either through cap-and-trade or carbon taxes, to provide appropriate incentives for businesses and households to move to low-carbon activities.
See, for instance, “IEA’s Bombshell Warning: We’re Headed Toward 11°F Global Warming and “Delaying Action Is a False Economy.” Nordhaus continues:
One might argue that there are many uncertainties here, and we should wait until the uncertainties are resolved. Yes, there are many uncertainties. That does not imply that action should be delayed. Indeed, my experience in studying this subject for many years is that we have discovered more puzzles and greater uncertainties as researchers dig deeper into the field. There are continuing major questions about the future of the great ice sheets of Greenland and West Antarctica; the thawing of vast deposits of frozen methane; changes in the circulation patterns of the North Atlantic; the potential for runaway warming; and the impacts of ocean carbonization and acidification. Moreover, our economic models have great difficulties incorporating these major geophysical changes and their impacts in a reliable manner.
See, for instance, Harvard economist: Climate cost-benefit analyses are “unusually misleading,” warns colleagues “we may be deluding ourselves and others.”
Policies implemented today serve as a hedge against unsuspected future dangers that suddenly emerge to threaten our economies or environment. So, if anything, the uncertainties would point to a more rather than less forceful policy—and one starting sooner rather than later—to slow climate change.
The group of sixteen scientists argues that we should avoid alarm about climate change. I am equally concerned by those who allege that we will incur economic catastrophes if we take steps to slow climate change. The claim that cap-and-trade legislation or carbon taxes would be ruinous or disastrous to our societies does not stand up to serious economic analysis. We need to approach the issues with a cool head and a warm heart. And with respect for sound logic and good science.
Kudos to Nordhaus for speaking up and setting the record straight.