By Institute for Energy Research ——Bio and Archives--June 23, 2015
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For climate change…the temptation of free-riding will push policies toward minimal investments in slowing emissions.… An illustrative calculation will show why. Suppose that, as the US government estimates, the total global cost of CO2 emissions (called the “global social cost of carbon” or SCC) is $40 per ton. This is calculated from models that trace the impact on all countries of higher carbon emissions on the climate, in the rise of sea levels, in agricultural production, health, storms, and many other factors. In other words, the $40 is the sum of the different national social costs per ton of carbon. Perhaps the national numbers might be $4 per ton for the US, $7 per ton for China, and $1 per ton for Japan. The $40 estimate is uncertain, but the exact number does not matter for this discussion. A policy to optimize the global benefits of emissions reductions would require a universal carbon price of $40 per ton. Under this policy, countries might set a carbon tax of $40 per ton on all carbon-emitting activities. This would lead to significant reductions in emissions... Contrast the globally optimal policy I have just described with a free-riding policy. Suppose Japan decides to invest in abatement of CO2 emissions to optimize its own national interest. It would reduce emissions only to the point where the cost would be justified by its national benefits; on this basis, the cost would be no more than its social cost of $1 per ton reduced. It might have a carbon tax of $1 per ton. This would produce far smaller investments than would be justified if Japan had global interests in mind, where it would invest up to a cost of $40 per ton reduced. If the same logic based on national interest is followed by all countries, then the average level of abatement would be only a tiny fraction of what would be involved in the global policy. Economic models suggest that the average carbon tax based on national interest would be closer to $4 than $40. In other words, when countries look only to their national interest in setting their climate policies, the level of abatement will be close to zero. And this is approximately where we are today. [Nordhaus, bold added.]Here Nordhaus is simply echoing a point that we at IER have been making for years: When the Obama Administration announces that the “social cost of carbon” is a particular figure, that is a global estimate. The relevant figure for the “social cost of carbon” to people in the United States—using the Obama Administration’s own numbers—could be as low as 7 percent of the global number. It violates standard Office of Management and Budget (OMB) guidelines when analysts plug the official “social cost of carbon” numbers into analyses of federal regulations, because they are supposed to tally up the costs and benefits to Americans of such policies.
There are two ways to slow climate change, and thereby to reduce the likelihood of catastrophic damages. One is the hard slog of reducing emissions. The other is to use geoengineering that attempts to offset the CO2-induced warming. Wagner and Weitzman provide an illuminating discussion of the dilemmas of geoengineering. Geoengineering here means management of solar radiation—techniques that reflect sunlight back into space and prevent it from warming the earth’s climate. You can think of the process as making the earth “whiter” or more reflective, so that less sunlight is absorbed by the surface of the earth. This cooling effect will offset the warming that comes from the accumulation of CO2 in the atmosphere. The whitening process is similar to what occurs after large volcanic eruptions. After Mount Pinatubo in the Philippines blasted 20 million tons of sulfur dioxide into the stratosphere in 1991, global temperatures fell by about half a degree centigrade because the particles reflected sunlight away from the earth. Geoengineering can be understood as creating artificial volcanic eruptions, where several artificial Pinatubo-sized eruptions may be needed every year to offset the warming effects of CO2 accumulation. Many proposals have emerged to whiten the earth. These, along with many of the ethical, political, national security, and environmental dimensions of such projects, are discussed in a recent report by the National Academy of Sciences. The standard approach is to deliver sulfur-bearing compounds, presumably specially engineered ones that would act as small mirrors, into the lower stratosphere. A number of techniques have been proposed to do this, such as using naval guns, aircraft, or rockets. Recent studies indicate that such geoengineering can lower global temperatures at very low cost relative to other approaches, such as reducing carbon emissions. Even though the costs are low and the average impacts on temperature are clear, the dangers are frightening, as is emphasized by Wagner and Weitzman as well as by the National Academy report. The NAS committee concludes that climate “modification strategies are limited primarily by considerations of risk, not by direct costs.” Among the risks are the facts that geoengineering does nothing to reduce the ocean acidification caused by increased CO2; that countries would need to keep a program going virtually forever; that there is a mismatch between the cooling and heating effects; and that there is a high likelihood for redistribution of precipitation in the different regions of the world. An effective program would require virtual unanimity in international governance so as to reduce political frictions among countries. [Nordhaus, bold added]What is fascinating is that if you go to the actual book review and read the full discussion, you will see that people like Weitzman and Nordhaus are discussing whether people should even be conducting cursory research into geoengineering options. Why in the world would interventionists who think the fate of humanity hangs in the balance not want scientists to broaden the options at our grandchildren’s disposal? What they fear is that if the public realizes there are techniques “on the shelf” that could very quickly and cheaply bring down global temperatures, then it would be hard to get humanity whipped up into a frenzy in spending trillions of dollars to merely reduce the probability of a future unlikely “fat tail” catastrophe. Remember, the cutting-edge case for aggressive intervention against emissions has stopped trying to claim that a high carbon tax will likely produce large net benefits. For example, in this post I use the latest IPCC report to show that in the most likely future scenario, the economic costs of limiting temperature to 2 degrees Celsius of warming will exceed the benefits of avoided climate change damage. So already the aggressive interventionists have to make the “fat tail” argument of Weitzman and others—they have to say a disaster might occur if humans keep pumping lots of carbon dioxide into the atmosphere. But then in that case, it becomes very relevant to know that one of the leading geoengineering proposals would cost $250 million total to limit Earth’s warming. That’s less than Al Gore’s foundation is spending to “raise awareness” on the issue of climate change. In contrast, if governments around the world implemented Nordhaus’ suggested “optimal carbon tax,” then his own model (in the 2008 calibration which I study here) shows that it would impose economic costs on the world of $2.2 trillion (see Table 4 at the link) in present-value terms. Does anyone like that deal? Spending $2.2 trillion (in the form of forfeited conventional economic growth) merely to reduce the probability of catastrophe—because after all, we still might have a disaster even with a carbon tax—rather than waiting a bit longer to get more information, knowing that we’ve got the ability to indefinitely postpone global warming for a total cost of $250 million?
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