TT's Lost in Tokyo — by TokyoTom

Along with Roderick Long‘s recent Cato Unbound piece on libertarianism and corporatism, Cato hosted a reaction essay by liberal Matthew Yglesias, in which Yglesias made the following side comment:

The free-market case for a revenue-neutral carbon pricing scheme seems fairly impeccable to me. But instead of organizing its climate change efforts around seeking to ensure that any future carbon pricing plan be as close to revenue neutral as possible, Cato prefers to steadfastly defend the rights of industry to unload air pollution unimpeded.

Yglesias’ comment on carbon pricing elicited a longer response by Cato senior fellow Jerry Taylor, who in Cato-at-Liberty argues that the case for carbon taxes was not at all “impeccable”.   Unfortunately, Taylor does exactly what Yglesias argues –

• Taylor ignores Yglesias’ implicit agreement that any carbon pricing should be as revenue-neutral as possible, which further implies support by Yglesias of the notion that the government should avoid using any carbon revenues to subsidize particular technologies;
• Taylor refuses to address the question of whether relatively slim, revenue-neutral carbon pricing approaches are much preferable to the heavy-handed, pork-ridden policy alternatives that are being floated before Congress; and
• by proffering arguments by Indur Goklany, Taylor in effect concedes that the best policy is for the government to do nothing, other than to encourage adaptation and to fund adaptation efforts in the developing world – thus conceding to industry a continuing “right to emit GHGs”. 

It is a puzzle that Taylor doesn’t explicitly address these points, particularly as the policy debate has very much shifted ground from whether the government should act to the question of what policy is preferable.   While I believe that Jerry Taylor and Indur Goklany make important points, they can hardly expect to be effectual in their efforts to stand against greater federal policy intervention if they ignore the change in political currents and fail to more directly engage obviously sympathetic observers like Matt Yglesias, to establish and build on common ground, or to more forcefully argue on the basis of principles.

Moreover, Taylor rather surprisingly compounds his disengagement by pulling an apparently skewed figure (the rather low mode rather than the higher mean) from a 2004 review of climate change cost-benefit studies by economist Richard Tol,  who has conducted further reviews and analyses and this year has come very strongly out in favor of carbon taxes.  In the August 12, 2008 issue of Economics — the Open-Access, Open-Assessment E-Journal, Tol concluded:

… the uncertainty about the social cost of carbon is so large that the tails of the distribution may dominate the conclusions
(Weitzman 2007b)—even though many of the high estimates have not been peer reviewed and use unacceptably low discount rates. …

There are three implications. Firstly, greenhouse gas emission reduction today is justified. Even the most conservative assumption lead to positive estimates of the social cost of carbon (cf. Table 1) and the Pigou tax is thus greater than zero. Yohe et al. (2007) argue that there is reason to reduce greenhouse gas emissions further than recommended by cost-benefit analysis. The median of … peer-reviewed estimates with a 3% pure rate of time preference and without equity weights, is $20/tC. …. The case for intensification of climate policy outside the EU can be made with conservative assumptions. … Secondly, the uncertainty is so large that a considerable risk premium is warranted. With the conservative assumptions above, the mean equals $23/tC and the certainty-equivalent $25/tC. More importantly, there is a 1% probability that the social cost of carbon is greater than $78/tC. This number rapidly increases if we use a lower discount rate—as may well be appropriate for a problem with such a long time horizon—and if we allow for the possibility that there is some truth in the scare-mongering of the gray literature.  Thirdly, more research is needed into the economic impacts of climate change—to eliminate that part of the uncertainty that is due to lack of study, and to separate the truly scary impacts from the scare-mongering.

Tol, R.S.J. (2008), ‘The Social Cost of Carbon: Trends, Outliers, and Catastrophes‘.

Taylor should be aware of this paper, as Richard Tol is well-known and -regarded, and Tol’s above paper was available as a draft in August 2007 and widely discussed (including here).  Consequently, Taylor’s quoting of old numbers that Tol has himself moved away from looks like cherry-picking and in any case will not convince anyone who has moved on from 2004.

Further, while Taylor refers readers to an excellent study by Indur Goklany, he fails to note that Goklany is a strong advocate for “adaptation”, namely, the view that:

The world can best combat climate change and advance well-being, particularly of the world’s most vulnerable populations, by reducing present-day vulnerabilities to climate-sensitive problems that could be exacerbated by climate change rather than through overly aggressive GHG reductions. 

But can’t one agree with Goklany’s preferences and yet kill two birds with one stone, by using domestic carbon taxes to fund contributions to global development efforts?  The “adaptation is preferable to mitigation” dichotomy simply fails.

Here’s to hoping for more constructive engagement from Jerry Taylor and from Cato.

Jim Manzi has just posted the close-out essay in the online forum (at Cato Unbound) that the Cato Institute has devoted recently to the issues of climate change risks and policy.  I alerted readers to the Cato effort and provide comments here, here and here.

My thoughts on Manzi`s final essay?  Briefly, while there`s much here to warm the cockles of any climate hysteric, misanthropic enviro-fascist or their dupes and co-religionists throughout the business and policy world [snark, to those not familiar with me or LvMI], I`m disappointed that Manzi has not tried to seriously explore libertarian approaches – involving serious de-regulation and tax changes – to climate change.

But let me let Jim Manzi speak for himself (emphasis added):

“I’d also like to thank Joseph Romm, Indur Goklany, Michael Shellenberger and Ted Nordhaus for their extensive efforts in considering and responding to my essay and subsequent comments.  It’s always inspiring to me to see people who’ve devoted so much time, work, and intellect to analyzing hard problems.

“Mr. Romm and I, in particular, have disagreed quite directly about the likely impacts of carbon dioxide emissions, and I’ll just refer interested readers to the series of detailed exchanges between us ….  I’d like to try to establish what I think is common ground between us.  I think that vigorous, but respectful and fact-based, disagreement is almost always a precondition for practical progress on complicated issues, but that ultimately some consensus needs to be achieved to get anything done.

“It seems to me that all contributors believe that anthropogenic global warming is real and poses a serious risk.  We all agree that an R&D program of the type that I have proposed is a component of a solution, and I hope that we all can get behind this idea.  I think that we would all support adaptation to weather problems that may arise as a wise investment of resources.  Most adaptation measures have the advantage that, in comparison with R&D or mitigation efforts, they can be executed in fairly short order and only in response to problems as they become manifest, and hence would likely have very attractive cost-benefit ratios.  Finally, I think that we would all agree that the ongoing efforts to analyze physical and economic trade-offs involved in various proposals through the IPCC and similar bodies are valuable and should be supported.   (In fact, I would like to see such processes incorporate case-by-case analyses of the kinds of incremental R&D/technology-deployment ideas that Messrs. Shellenberger and Nordhaus have proposed).  Improved science, along with increased structure and rigor in the debate of its implications, should enable further progress.”

A few days ago I concluded that Jim Manzi’s lead essay in Cato Unbound’s new climate issue exhibited rather weak “libertariarian sinews”.

Allow me to note a few additional remarks on Manzi`s arguments.

1.  It’s clear from Manzi’s essay that (i) he is actually quite concerned about the risks posed by anticipated climate change, even while he dismisses the “scare stories” and the “precautionary principle” and (ii) he believes that the risks warrant even greater investments by government in climate science and carbon sequestration/geo-engineering efforts. 

While I commend Manzi for addressing at close to face value the IPCC’s warnings (even while climate science does not provide a firm basis for precise temperature or climate change prognostications) and the advice offered by economists such as William Nordhaus and Martin Weitzman, it is puzzling that he does not see in climate change concerns the opportunity for a positive agenda of deregulation and tax reform that would liberate our economy and help to spur changes in capital investments.

2.  Manzi has underplayed both the possible degree of climate change under “business as usual”/non-aggressive policy scenarios and the absolute and relative magnitude of the concomitant risks and costs.

Manzi notes that the “current IPCC consensus forecast is that, under fairly reasonable assumptions for world population and economic growth, global temperatures will rise by about 3 °C by the year 2100.” Note that this implies a an AVERAGE global temperature increase of 5.4 °F, with even greater temperature increases in the US and elsewhere the further one gets away from the equator. The IPCC does not make “forecasts”, but has analyzed and released a number of projections based on various scenarios, most of which assume aggressive actions to deploy clean energy technologies.

As fellow contributor Joe Romm (undergrad and Ph.D. in physics at MIT, Senior Fellow at the Center for American Progress, where he writes and maintains the Climate Progress blog, and author of “Hell and High Water: Global Warming–the Solution and the Politics–and What We Should Do” ) argues, Manzi has seriously understated the risks of much higher temperatures by 2100 that the IPCC has noted.  Joe Romm notes that, in fact, the growth of actual global carbon emissions since 2000 has exceeded the IPCC’s most extreme A1F1 scenario, and argues that 

“the latest IPCC report finds that, absent a sharp reversal of BAU trends, we are headed toward atmospheric levels of carbon dioxide far exceeding 1,000 parts per million by 2100. IPCC’s “best estimate” for temperature increase is 5.5°C (10°F), which means that over much of the inland United States, temperatures would be about 15°F higher.” (emphasis in original)

Further, even using a very optimistic projection, Manzi has also seriously understated the impact and costs that the IPCC suggests may be felt in the US. Manzi, assuming that global temperatures rise “only” by 3 °C increase by 2100, refers to an IPCC summary that states that such a temperature increase would cause total estimated economic losses in the low end of a range of 1–5 percent of global GDP (and later uses an estimate of 3% of GDP). This ignores not only the much higher costs that will be faced if warming is even greater, but also ignores:

(1) that as global GDP is expected to substantially grow, the absolute magnitude of the annual GDP loss may be very large, indeed,

(2) that measures of “economic” losses include adaptation costs as a part of GDP but do not cover non-market damages, the risk of potential extreme weather, socially contingent effects, or the potential for longer-term catastrophic events and

(3) that the greatest negative effects of climate change are expected to be felt in developing countries that have a relatively insignificant share of GDP.

3.  Manzi notes that even with the low-ball assumptions, mainstream economists like Yale’s William Nordhaus have long argued on a standard cost-benefit analysis basis that the gains from implementing an escalating carbon tax would outweigh the costs (Nordhaus has for many years been at the low end of the benefits to be gained), but even so Manzi argues that “the real world of geostrategic competition and domestic politics” one leads him to greatly discount the basis for a policy the difficulties with implementing a carbon tax or similar policy.

But it looks like Manzi has put his thumb on the scale again. Manzi asserts that in order to have an effective GHG mitigation policy, we would have to agree to, and enforce, “for hundreds of years” a “global, harmonized tax on all significant uses of carbon and other greenhouse gases in any material form” that “would run directly contrary to the narrow self-interest of most people currently alive on the planet” and that “all the side deals that would be required to get this done would create enough economic drag to more than offset the benefit.” Manzi also points to the ineffectiveness of the Kyoto Protocol, the apparent unwillingness of developing nations to agree to GHG restrictions and the penchant for politicians for loading down climate change legislation with special deals as reasons to think that a globally-coordinated climate policy is not worth while.

But while these are serious concerns, it is relatively easy to counter that:

– the Kyoto Protocol is no failure, but that the Europeans have been waiting for the US to agree to similar action rather than blindly biting any bullet unilaterally;

– it is clear that China, India, Brazil and other developing countries are seriously concerned about climate change, but their initial participation is not needed for the developed nations to commence a meaningful mitigation deal, and there are trade and other levers (including a desire for cleaner energy technologies) to eventually bring them on boar;

– Manzi later acknowledges this in his own plan for an agreement among developed nations to invest in technology that can then be shared with developing ones;and

– effective climate policy can be initiated and implemented domestically without external coordination, such as power market deregulation, allowing immediate depreciation of capital investments, and replacement of income taxes with resource taxes.

Further, it’s clear that Manzi`s assertion that climate policies “run directly contrary to the narrow self-interest of most people currently alive on the planet” is simply an unfounded and unjustifiable conclusion.

All of mankind shares the atmosphere, as an open-access but indispensable commons. We are approaching the point that the costs and risks of inaction (or rather, the costs of continuing free use without responsibility for costs/risks shifted to others) merit the costs of shifting to a system of shared rules (and other investments) with respect to its management – the efforts in which people and firms of many nations are voluntarily engaging in this regard are themselves evidence that even narrow self-interest justifies coordination with our neighbors (even as gamesmanship remains).

4.  Manzi next, rightly, considers the “inherently unquantifiable possibility that our probability distribution itself is wrong,” so that “the case for a carbon tax or a cap-and-trade emissions rationing system is really that it would be a hedge against the risk that actual damages from warming would be much, much worse than current risk-adjusted projections indicate,” with the primary purpose of such a tax or rationing system being “not to encourage conservation per se, but rather to induce the development of new technologies that can de-link economic growth from damaging accumulations of atmospheric carbon dioxide”.

Oddly, though, Manzi simply concludes, with no analysis, that any carbon pricing program would be “insanely expensive” and yet even then “would very likely not be high enough to successfully incentivize the creation of the desired technologies.” One would like to know on what basis he concludes that markets do not respond to incremental changes in prices – so that the governments of developed nations ought to directly make certain climate change technology investments (or incentivize them via prizes, etc.)

5.  It is also odd that Manzi then turns immediately from the dismissal of a gradualist pricing approach to a focus on “rapid, aggressive emissions abatement” that would only be justified if “the outer edge of the probability distribution of our predictions for global-warming impacts is enormously conservative, and disaster looms if we don’t change our ways radically and this instant,” in which case Manzi agrees that “we really should start shutting down power plants and confiscating cars tomorrow morning.”

Manzi seems to be as alarmist as many enviros, and to have even less faith in the market than they do.

Manzi then briefly addresses – and conflates with the table-pounding of Al Gore and others – the more sophisticated argument (advanced by Harvard’s Marty Weitzman) that “the risk that actual damages from warming would be much, much worse than current risk-adjusted projections indicate” is quite large. Says Manzi, “any rationale for rapid emissions abatement that confronts the facts in evidence is really a more or less sophisticated restatement of the precautionary principle: the somewhat grandiosely named idea that the downside possibilities are so bad that we should pay almost any price to avoid almost any chance of their occurrence.” 

Manzi believes that worrying too much about climate change is “to get lost in the hothouse world of single-issue advocates, and become myopic about risk,” while ignoring “lots of other unquantifiable threats of at least comparable realism and severity”. Well, I beg to disagree. While we can certainly deal with more than one risk at a time, why is it that conservatives like throwing trillions at “defense” and can focus on bird flu, but need to write off climate change? Could it have anything to do with what industries are in favor with Republicans and the White House?

Climate change differs from the other risks Manzi raises in that it is a risk that our own activities generate (not an “external” threat) – and one that we can manage by focussing on who is generating risk and asking them to bear some of the cost. Like the others, though, action is in some ways a collective choice problem, but unlike blowing trillions unilaterally on “defense”, climate change is a risk that other developed nations have shown they are willing to co-invest in heading off.

So why is continuing to be the spoiler in our national self-interest? Manzi provides the answer with a strawman:

“The loss of economic and technological development that would be required to eliminate literally all theorized climate change risk would cripple our ability to deal with virtually every other foreseeable and unforeseeable risk.”

Those who are concerned about climate change have long concluded that we are already facing ongoing climate change, with further unavoidable change in the pipeline, so simply nobody is talking about “eliminate[ing] literally all theorized climate change risk”.

6.  Finally, Manzi trots out his own proposal, after against dismissing any carbon pricing policies (and ignoring all others, like deregulation) with un-established suppositions:

“IF there is a real, though unquantifiably small, possibility of catastrophic climate change, and IF we would ideally want some technological hedges as insurance against this unlikely scenario, and IF raising the price of carbon to induce private economic actors to develop the technologies would be an enormously more expensive means of accomplishing this than would be advisable, then what, if anything, should we do about the danger?”

Apparently, Manzi has introduced these suppositions to tone down the much firmer and more extensive proposals he has made and justified elsewhere:

“There is, however, massive uncertainty (rather than mere risk) in our ability to predict the impacts of AGW, and recognizing this reality should lead us to take at least two actions: (1) improve the science to better-specify these extreme risks, and (2) hedge this uncertainty by making “insurance-type” investments today that would provide protection if an extreme AGW scenario ends up happening.”

Manzi`s proposals? To avoid the “failed game of industrial policy” by creating a climate change DARPA with a “a very high-IQ staff” to make many small (but collectively substantial) investments related to “detecting or ameliorating the effects of global warming” that “serve a public rather than a private need” (viz., that provide “no obvious potential source of profit to investors if successful”). Manzi thinks investments of the following types are merited: “improved global climate prediction capability, visionary biotechnology to capture and recycle carbon dioxide emissions, or geo-engineering projects to change the albedo of the earth’s surface or atmosphere”. Does Manzi not see that carbon pricing, if structured to allow offsets, would encourage private investments in all of these areas?

Ironically, Manzi concludes that “attempt[ing] to use the government to control the evolution of the energy sector of the economy” is not a “prudent reaction” to risk, but “the opposite: an impractical, panicky reaction unworthy of a serious government”.

Well, Jim, nice try, and thanks for your impractical, imprudent and panicky reaction.

The Cato Institute has dedicated its entire current monthly issue of Cato Unbound, its online forum, to discussing policy responses to ongoing climate change. 

The issue, entitled “Keeping Our Cool: What to Do about Global Warming“, contains four relatively balanced essays from a wide range of authors and perspectives.  Here are excerpts from their lead in:

“While virtually no one doubts the reality of climate change, assessing its extent and crafting a prudent and proportional response raises problems of its own. …

“Which approaches offer the best value in terms of protecting property and natural resources, while generating the fewest risks and side effects of their own? In short: How much would we or should we pay today for a future without global warming?

“The problem grows more difficult when we realize that proposed global warming solutions have often been victims of the domestic political process — rightly or wrongly — or else have been unacceptable to developing nations. …

“To discuss the way forward on this complex and truly global issue, we have invited Jim Manzi, statistician and Chief Executive Officer of Applied Predictive Technologies, whose proposals to conservatives on the issue have generated significant discussion. In response to his essay, we have invited environmental expert and frequent Cato Institute author Indur Goklany; climate scientist Joseph J. Romm, a Senior Fellow at the Center for American Progress; and Michael Shellenberger and Ted Nordhaus, the co-founders of The Breakthrough Institute, a think tank whose mission includes encouraging an ‘equitable and accelerated transition to the clean energy economy.'”

Unfortunately, Cato has no online blog.  Feel free to leave comments here; I will also try to post my thoughts on the essays.

[UPDATE:  See my follow-up post.]

Cato Unbound’s new climate issue features a lead essay by Jim Manzi, who is an MIT- and Wharton-trained statistician and CEO of Applied Predictive Technologies (which uses pattern recognition and optimization models for sales and marketing).

Manzi is a newcomer to the climate commentary scene, but has made a splash in conservatives circles over the past year or so through a series of articles in the National Review and The American Scene.  Manzi’s bio at Cato states that Manzi’s position is that “global warming, while real, is a problem of limited magnitude, deserving a proportional response, not overreaction“.

Manzi’s essay at Cato is a polished rehashing of points that he has made elsewhere, tweaked shamelessly to appeal to libertarians, as in this lead-off paragraph:

“The danger of potentially catastrophic global warming is an almost paradigmatic case of decisionmaking under conditions of extreme uncertainty.  Of course, this is just another way of saying that many of the intellectual sinews of libertarianism are central to thinking through this problem.” (emphasis added)

While the essay is worth consideration, aside from this initial mention, it is painfully evident that Manzi’s “libertarian sinews” are rather flimsy; indeed, Manzi:

•  makes no mention of basic Lockean-based libertarian principles (rights to property in one’s own person, in the fruits of one’s own labor, and in resources taken from nature when mixed with one’s own labor; and duties to abstain from harming others, from taking property of others, and to leave enough and as good for others when taking from the commons) that are relevant to environmental and public policy issues (see Rothbard; Edwin Dolan has laid an application of Lockean principles to climate change here; );

• fails to acknowledge “environmental” problems as cases where resources are not clearly or effectively owned, either individually or on a community basis, so that some economic actors do not bear the costs or risks of their actions, which costs or risks are shifted to others against their will (see Cordato; Jon Adler makes similar points here); and

• provides only a rudimentary discussion of public choice issues that, while noting both the difficulties of reaching a global agreement and that government policies to prepare for climate change may be both inefficient and hijacked special interests, disregards the possibilities that effective international steps can be taken by just a few countries and completely fails to consider the role that special interests have played to date in manipulating government policies and in protecting the “GHG emissions/risk-shifting is free” status quo.

Rather, Manzi:

(1) argues that the estimates for future damages that the IPPC derives from models appear rather modest,

(2) downplays the widespread agreement by economists (like Nordhaus) and others that standard cost-benefit analysis provides ample support for carbon pricing (particularly in the form of carbon taxes) now,

(3) argues that we cannot adequately gauge the “massive uncertainties” regarding the “danger of potentially catastrophic global warming” (addressing but failing to mention Weitzman),

(4) argues that the US should not adopt “insanely expensive” measures to “force massive change in the economy” via “rapid, aggressive emissions reductions”,

(5) lumps climate change in with other, external risks (like pandemics and rogues states, which risks, oddly, we actually try to manage), and

(6) and tones down his earlier pieces by presenting an artificially weakened case that,

“if there is a real, though unquantifiably small, possibility of catastrophic climate change, and if we would ideally want some technological hedges as insurance against this unlikely scenario, and if raising the price of carbon to induce private economic actors to develop the technologies would be an enormously more expensive means of accomplishing this than would be advisable,” (emphasis added)

THEN the government might be justified in investing in “improved global climate prediction capability, visionary biotechnology to capture and recycle carbon dioxide emissions, or geo-engineering projects to change the albedo of the earth’s surface or atmosphere”.

Manzi concludes with a mix of a case for a surprisingly large government climate program (even if “rife with inefficiencies”) and a bashing of the worst case, while ignoring the middle ground:

“But consider that its costs would be on the order of 1/100th of the costs of imposing a large U.S. carbon tax. It could be massively inefficient and we would still be far better off in actually developing the long–lead-time technologies that we would want if faced with a currently unanticipated emergency.

Hedging against the risk to future generations of potential unanticipated impacts from global warming is a legitimate job for the U.S. government. Ideally, it would be tackled by the governments of the small number of countries with a sophisticated technology development capability acting in some kind of coordinated fashion. A massive carbon tax, a cap-and-trade rationing system, and the attempt to use the government to control the evolution of the energy sector of the economy are all billed as prudent reactions to this risk, but each is the opposite: an impractical, panicky reaction unworthy of a serious government.”

I hope to address later various aspects of Manzi’s piece, but I think it is fair to conclude initially that it is not libertarian nor, ultimately, a balanced discussion, but rather a somewhat strange conservative position that we ought to worry about climate change and so the government should throw even MORE money at it, while refusing to harness markets to accomplish the research tasks Manzi wishes to fund or to ask those who are generating climate risks to internalize or shoulder any of the burden.

While this stance might please fossil fuel interests and their defenders, it’s hard to see what, exactly, in Manzi’s analysis – other than his opposition to “massive” carbon taxes – will appeal to libertarians.

[This is a work in progress and largely taken from previous posts, but readers might find some value in it in the meanwhile.]

1. Heated but vacuous climate wars

On environmental issues in general and climate in particular, find me someone (like George Will) ranting about “Malthusians” or “environazis” or somesuch, and I’ll show you someone who doesn’t understand – or refuses to acknowledge – the difference between:

(1) wealth-creating markets based on private property and/or voluntary interactions/contracts protected by law, and

(2) the tragedy of the commons situations that result when there are NO property rights (atmosphere, oceans), when the pressures of developed markets swamp indigenous hunter-gather community rules, in many cases where governments formally own and purport to manage “public” resources, and when governments absolve purportedly “private” actors from liability for harms to others (such as via grants of “limited liability“).

So what’s the deal? Here’s a perfect opportunity for skeptics to educate the supposedly market ignorant, but they refuse, preferring to focus instead on why concerned scientists must be wrong, how concerns by a broad swath of society about climate have become a matter of an irrational, deluded “religious” faith, or that those raising their concerns are “misanthropes” or worse.

Such pigheadedness is met by those on the left likewise see libertarians and small-government conservatives as deluded and/or deliberate pawns of evil Earth-destroying corporations.

Both sides, it seems, prefer to fight – and to see themselves as right and the “others” as evil – rather than to reason.

While we should not regret that we cannot really constrain human nature very well, at least libertarian and others who profess to love markets ought to be paying attention to the inadequate institutional framework that is not only poisoning the political atmosphere, but posing risks to important globally and regionally shared open-access commons like the atmosphere and oceans (which are probably are in much more immediate and grave threat than the climate). And they also ought to recognize that there are important economic interests that profit from the current flawed institutional framework and have quite deliberately encouraged the current culture war.

2. Why the reflexive libertarian disengagement?

I have on numerous occasions tried to point out, to posters on the Mises Blog who have addressed climate issues, the stunning unproductivity of the approach that they have taken — that of focussing on science and dismissing motivations and preferences, rather than exploring root causes and middle ground, and have continued to scratch my head at the obstinacy and apparent lack of vision.

The following seem to be the chief factors at work in the general libertarian resistance to any government action on climate change:

– Many libertarians, as CEI’s Chris Horner has stated,  see “global warming [as] the bottomless well of excuses for the relentless growth of Big Government.”  Even libertarians who agree that is AGW is a serious problem are worried, for good reason, that government approaches to climate change will be a train wreck – in other words, that the government “cure” will be worse than the problem.

– Libertarians have in general drifted quite far from environmentalists (though there remain many productive free-market environmentalists/conservationists). Even though libertarians and environmentalists still share a mistrust of big government, environmentalists, on the one hand, generally have come to believe that MORE government is the answer, despite all of the problems associated with the socialized ownership of resources and/or inefficient bureaucratic management (witness the crashing of many managed fisheries in the US), the manipulation of such management to benefit bureaucratic interests, special interests and insiders (wildfire fighting budgets, fossil fuel and hard rock mining, etc.) and the resultant and inescapable politicization of all disputes due to the absence of private markets. On the other hand, many libertarians  reflexively favor business over “concerned citizens”, while other libertarians see that government “solutions” themselves tend to snowball into costly problems that work in favor of big business and create pressures for more government intervention. Thus, libertarians often see environmentalists as simply another group fighting to expand government, and are hostile as a result.

– Libertarians are as subject to reflexive, partisan position-taking as any one else. Because they are reflexively opposed to government action, they find it easier to operate from a position of skepticism in trying to bat down AGW scientific and economic arguments (and to slam the motives of those arguing that AGW must be addressed by government) than to open-mindedly review the evidence or consider ways that libertarian aims can be advanced by using the pressure from “enviro” goals.

This reflexive hostility – at times quite startingly vehement – is a shame (but human), because it blunts the libertarian message in explaining what libertarians understand very well – that environmental problems arise when property rights over resources are not clearly defined or enforceable, and when governments (mis)manage resources, and that there are various private steps and changes in government policy that would undo the previous government actions that are at the root of environmentalists’ frustrations.The reflexive hostility is also a shame because it has the effect, in my mind rather clearly, of rendering libertarians largely blind to the ways that large energy, power and certain manufacturing corporations continue to benefit from (and invest heavily in maintaining) the existing regulatory structure, in ways that shift large costs and risks to unconsenting third parties.

– There are some libertarians and others who profess to love free markets at AEI, CEI, Cato, IER, Master Resource and similar institutions that are partly in pay of fossil fuel interests, and so find it in their personal interests to challenge both climate science and policy proposals that would impose costs on their funders.

I felt particularly struck by the commonness of a refrain we are hearing from various pundits who prefer to question the good will or sanity of environmentalists over the harder work of engaging in a good faith examination and discussion of the underlying institutional problem of ALL “environmental” disputes:  namely, a lack of property rights and/or a means to enforce them. 

3. The whys of climate concerns and calls for “clean” energy

I want to get started with a list of policy changes that I think libertarians can and should be championing in response to the climate policy proposals of others.

The incessant calls for – and criticism of – government climate change policies and government subsidies and mandates for “green/clean power” both ignore root causes and potential common ground.  As a result, both sides of the debate are largely talking past each other, one talking about why there is a pressing need for government policy to address climate change concerns, while the other is concerned chiefly about the likelihood of heavy-handed mis-regulation and wasted resources. This leaves the middle ground unexplored.

There are plenty of root causes for the calls for legislative and regulatory mandates in favor of climate policies and clean / green / renewable power, such as:

• concerns about apparent ongoing climate change, warnings by scientific bodies and apprehensions of increasing risk as China, India and other developing economies rapidly scale up their CO2, methane and other emissions,
• the political deals in favor of environmentally dirty coal and older power plants under the Clean Air Act,
• the enduring role of the federal and state governments in owning vast coal and oil & gas fields and relying on the royalties (which it does not share with citizens, but go into the General Pork Pool, with a relatively meager cut to states),
• the unwillingness of state courts, in the face of the political power of the energy and power industries, to protect persons and private property from pollution and environmental disruption created by federally-licensed energy development and power projects,
• the deep involvement of the government in developing, encouraging and regulating nuclear power, and
• the frustration of consumer demand for green energy, and the inefficient and inaccurate pricing and supply of electricity, resulting from the grant by states of public utility monopolies and the regulation of the pricing and investments by utilities, which greatly restricts the freedom of power markets, from the ability of consumers to choose their provider, to the freedom of utilities to determine what infrastructure to invest in, to even simple information as to the cost of power as it varies by time of day and season, and the amount of electricity that consumers use by time of day or appliance.

4. Is a small-government, libertarian climate/green agenda possible and desirable?

So what is a good libertarian to suggest? This seems rather straight-forward, once one doffs his partisan, do-battle-with-evil-green-fascist-commies armor and puts on his thinking cap.

From my earlier comment to Stephan Kinsella:

As Rob Bradley once reluctantly acknowledged to me, in the halcyon days before he banned me from the “free-market” Master Resource blog, “a free-market approach is not about “do nothing” but implementing a whole new energy approach to remove myriad regulation and subsidies that have built up over a century or more.” But unfortunately the wheels of this principled concern have never hit the ground at MR [my persistence in pointing this out it, and in questioning whether his blog was a front for fossil fuel interests, apparently earned me the boot].

As I have noted in a litany of posts at my blog, pro-freedom regulatory changes might include:

• accelerating cleaner power investments by eliminating corporate income taxes or allowing immediate depreciation of capital investment (which would make new investments more attractive),
• eliminating antitrust immunity for public utility monopolies to increase competition, allow consumer choice, peak pricing and “smart metering” that will rapidly push large potential efficiency gains (as identified by McKinsey),
• ending Clean Air Act handouts to the worst utilities (or otherwise unwinding burdensome regulations and moving to lighter and more common-law dependent approaches),
• ending energy subsidies generally (including federal liability caps for nuclear power and allowing states to license),
• speeding economic growth and adaptation in the poorer countries most threatened by climate change by rolling back domestic agricultural corporate welfare programs (ethanol and sugar), and
• if there is to be any type of carbon pricing at all, insisting that it is a per capita, fully-rebated carbon tax (puts the revenues in the hands of those with the best claim to it, eliminates regressive impact and price volatility, least new bureaucracy, most transparent, and least susceptible to pork).

Other policy changes could also be put on the table, such as:

• an insistence that government resource management be improved by requiring that half of all royalties from mineral and fossil fuel development be rebated to citizens (with a slice to the administering agency), and
  
• reducing understandable NIMBY problems by (i) encouraging project planners to proactively compensate persons in affected areas and (ii) reducing fears of corporate abuses, by providing that corporate executives have personal liability for environmental torts (in recognition of the fact that the profound risk-shifting that limited liability corporations are capable of that often elicits strong public opposition and fuels regulatory pressure).

5. Other libertarian discussants

A fair number of libertarian commenters on climate appear to accept mainstream sciences, though there remain natural policy disagreements. Ron Bailey, science correspondence at Reason and Jonathan Adler, a resources law prof at Case Western, Lynne Kiesling at Knowledge Problem blog, and David Zetland, who blogs on water issues, come to mind.

I`m not the only one – other libertarian climate proposals are here:

• Jonathan Adler at Case Western (2000); he has other useful commentary here, here,
• Bruce Yandle, Professor Emeritus at Clemson University, Senior Fellow at PERC (the “free market” environmentalism think tank) and a respected thinker on common-law and free-market approaches to environmental problems, has in PERC’s Spring 2008 report specifically proposed a “A No-Regrets Carbon Reduction Policy“;
• Iain Murray of CEI; and
• Cato’s Jerry Taylor is a frequent commentator and Indur Goklany has advanced a specific climate change-targeted proposal.
•  AEI’s Steven Hayward and Ken Green together have provided a number of detailed analyses (though with a distinct tendency to go lightly on fossil fuels).

Several libertarians recently urged constructive libertarian approaches to climate change:

• Edwin Dolan, in his Fall 2006 Cato Journal essay, “Global Warming: Rethinking the Market Liberal Position“, analyzes relevant Lockean considerations and cautions that market liberals appear to be hamstringing their own analytic strengths by falling into a reflexive and conservative mind-frames that benefit established economic interests.
• Sheldon Richman of the Foundation for Economic Education also recommends Dolan’s essay and calls for less wishful thinking and greater engagement by libertarians in his piece The Goal Is Freedom: Global Warming and the Layman (December 8, 2006; The Freeman):
• Gene Callahan makes a similar warning in his essay “How a Free Society Could Solve Global Warming“, in the October 2007 issue of The Freeman.
• Ron Bailey of Reason Magazine, “Congratulations to Al Gore; But be wary of the man’s proposed solutions for global warming“,  October 12, 2007.
• One self-described libertarian group in California has specifically proposed carbon taxes, though their “Pay Your Air Share” proposal appears to be little-discussed.
• Dan C. Shahar, in his recent paper, “Justice and Climate Change: Toward a Libertarian Analysis” (The Independent Review, Fall 2009), notes that (i) libertarian arguments to the effect that, even if man contributes to climate change, mankind should just roll with the punches and adapt, presuppose that man-made climate change would not represent an injustice, and (ii) if climate change IS an injustice, libertarians should eagerly offer ideas about how best to protect the victims’ rights.

There have been several open disputes, which indicate a shift from dismissal of science to a discussion of policy; the below exchanges of view are worthy of note:

• The Cato Institute dedicated its entire August 2008 monthly issue of Cato Unbound, its online forum, to discussing policy responses to ongoing climate change.  The issue, entitled “Keeping Our Cool: What to Do about Global Warming“, contains essays from and several rounds of discussion between Jim Manzi, statistician and CEO of Applied Predictive Technologies, Cato Institute author Indur Goklany; climate scientist Joseph J. Romm, a Senior Fellow at the Center for American Progress; and Michael Shellenberger and Ted Nordhaus, the co-founders of The Breakthrough Institute.  My extended comments are here.

• Reason Foundation, posted an exchange on Climate Change and Property Rights June 12th, 2008 (involving Reason’s Shikha Dalmia, Case Western Reserve University law professor Jonathan H. Adler, and author Indur Goklany); discussed by Ron Bailey of ReasonOnline here; here`s my take.

• Debate at Reason, October 2007, Ron Bailey, Science Correspondent at Reason, Fred L. Smith, Jr., President and Founder of CEI, and Lynne Kiesling, Senior Lecturer in Economics at Northwestern University, and former director of economic policy at the Reason Foundation.

• Reason Foundation, Global Warming and Potential Policy Solutions September 7th, 2006 (Reason’s Shikha Dalmia, George Mason University Department of Economics Chair Don Boudreaux, and the International Policy Network’s Julian Morris).

• Readers might also find this upbraiding of Penn & Teller at a gathering of skeptics in 2008 to be interesting.

Finally, I have collected here some Austrian-based papers on environmental issues that are worthy of note:

Environmental Markets?  Links to Austrians

Ones such paper is the following: Terry L. Anderson and J. Bishop Grewell, Property Rights Solutions for the Global Commons: Bottom-Up or Top-Down?

[Folks, I hope you do a better job than I do at saving draft posts before they`re finalized; I just lost alot of work. This will necessarily be shorter.]

I have on numerous occasions tried to point out, to posters on the Mises
Blog who have addressed climate issues, the stunning unproductive approach. Rather than simply reiterating my criticisms, let me get started with a
list of policy changes that I think libertarians can and should be
championing in response to the climate policy proposals of others.

The incessant calls for – and criticism of –
government climate change policies and government subsidies and mandates for “green/clean power” both ignore root
causes and potential common ground.  As a result, both sides of the
debate are largely talking past each other, one talking about why there
is a pressing need for government policy to address climate change
concerns,
while the other is concerned chiefly about the likelihood of
heavy-handed mis-regulation and wasted resources. This leaves the
middle ground unexplored.

There are plenty of root causes for the calls for legislative
and regulatory mandates in favor of climate policies and clean / green / renewable power,
such as:

• concerns about climate change,
• the political deal in favor of dirty coal and older power plants under the Clean Air Act, 
• the enduring role of the federal and state governments in owning
  vast coal and oil & gas fields and relying on the royalties, which it do not go to
  citizens but into the General Pork Pool, with an unhealthy cut to states), 
• the unwillingness of state courts, in the face of the political
  power of the energy and power industries, to protect persons and private property from
  pollution and environmental disruption created by federally-licensed energy and power projects,
• the deep involvement of the government in developing, encouraging and regulating nuclear power, and
• the
  frustration of consumer demand for green energy, and the inefficient
  and inaccurate pricing and supply of electricity, resulting from the
  grant by states of public utility monopolies and the regulation of the pricing
  and investments by utilities, which greatly restricts the freedom of power
  markets, from the ability of consumers to choose their provider, to the
  freedom of utilities to determine what infrastructure to invest in, to
  even simple information as to the cost of power as it varies by time of day and season, and the amount of electricity that consumers use by time of day or appliance.

So what is a good libertarian to suggest? This seems rather straight-forward, once one doffs his partisan, do-battle-with-evil-green-fascist-commies armor and puts on his thinking cap.

From my earlier comment to Stephan Kinsella:

As Rob Bradley once reluctantly acknowledged to me, in the halcyon days before he banned me from the “free-market” Master Resource blog, “a
free-market approach is not about “do nothing” but implementing a whole
new energy approach to remove myriad regulation and subsidies that have
built up over a century or more.” But unfortunately the wheels of this principled concern have never hit the ground at MR [my persistence in
pointing this out it, and in questioning whether his blog was a front for
fossil fuel interests, apparently earned me the boot].

As I have noted in a litany of posts at my blog, pro-freedom regulatory changes might include:

• accelerating cleaner power investments by eliminating corporate
  income taxes or allowing immediate depreciation of capital investment (which would make new investments more attractive),
• eliminating antitrust immunity for public utility monopolies (to
  increase competition, allow consumer choice, peak pricing and “smart metering” that will
  rapidly push efficiency gains),
• ending Clean Air Act handouts to the worst utilities (or otherwise
  unwinding burdensome regulations and moving to lighter and more
  common-law dependent approaches),
• ending energy subsidies generally (including federal liability caps for nuclear power (and allowing states to license),
• speeding economic growth and adaptation in the poorer countries
  most threatened by climate change by rolling back domestic agricultural
  corporate welfare programs (ethanol and sugar), and
• if there is to be any type of carbon pricing at all, insisting that it is a per capita, fully-rebated carbon tax
  (puts the revenues in the hands of those with the best claim to it,
  eliminates regressive impact and price volatility, least new
  bureaucracy, most transparent, and least susceptible to pork).

Other policy changes could also be put
on the table, such as an insistence that government resource management
be improved by requiring that half of all royalties be rebated to
citizens (with a slice to the administering agency).

I`m not the only one – other libertarian climate proposals are here:

• Jonathan Adler at Case Western (2000); he has other useful commentary here, here,
  
• Bruce Yandle, Professor Emeritus at Clemson University, Senior Fellow at PERC
  (the “free market” environmentalism think tank) and a respected thinker
  on common-law and free-market approaches to environmental problems, has
  in PERC’s Spring 2008 report specifically proposed a “A No-Regrets Carbon Reduction Policy“;
• Iain Murray of CEI; and
  
• Cato`s Jerry Taylor is a frequent commentator and Indur Goklany has advanced a specific climate change-targeted proposal.
•  AEI`s Steven Hayward and Ken Green together have provided a number of detailed and relatively balanced analyses.

Several libertarians have recently been urging constructive libertarian approaches to climate change:

• Edwin Dolan, in his Fall 2006 Cato Journal essay, “Global Warming: Rethinking the Market Liberal Position“, analyzes
  relevant Lockean considerations and cautions that market liberals
  appear to be hamstringing their own analytic strengths by falling into
  a reflexive and conservative mind-frames that benefit established
  economic interests.
• Sheldon Richman of the Foundation for Economic Education also
  recommends Dolan’s essay and calls for less wishful thinking and
  greater engagement by libertarians in the December 8, 2006 edition of The Freeman:  The Goal Is Freedom: Global Warming and the Layman.
• Gene Callahan makes a similar warning in his essay “How a Free Society Could Solve Global Warming“, in the October 2007 issue of The Freeman.
• Ron Bailey, “Congratulations to Al Gore; But be wary of the man’s proposed solutions for global warming“,  October 12, 2007.

These discussions and exchanges of view are also worthy of note:

• The Cato Institute has dedicated its entire August 2008 monthly issue of Cato Unbound, its online forum, to discussing policy responses to ongoing climate change.  The issue, entitled “Keeping Our Cool: What to Do about Global Warming“, contains essays from and several rounds of discussion between Cato Institute author Indur Goklany; climate scientist Joseph J. Romm, a Senior Fellow at the Center for American Progress; and Michael Shellenberger and Ted Nordhaus, the co-founders of The Breakthrough Institute.  My extended comments are here.

• Reason Foundation, Climate Change and Property Rights June 12th, 2008 (Reason’s Shikha Dalmia, Case Western Reserve University law professor Jonathan H. Adler, and author Indur Goklany); discussed  by Ron Bailey of ReasonOnline here; here`s my take.

• Debate at Reason, October 2007, Ron Bailey, Science Correspondent at Reason, Fred L. Smith, Jr., President and Founder of
  CEI, and Lynne Kiesling, Senior Lecturer in Economics at
  Northwestern University, and former director of economic policy at the
  Reason Foundation.

• Reason Foundation, Global Warming and Potential Policy Solutions September 7th, 2006 (Reason’s Shikha Dalmia, George Mason University Department of Economics
  Chair Don Boudreaux, and the International Policy Network’s
  Julian Morris)

Finally, I have collected here some Austrian-based papers on environmental issues that are worthy of note:

Environmental Markets?  Links to Austrians

One such paper is the following: Terry L. Anderson and J. Bishop Grewell, Property Rights Solutions for the Global Commons: Bottom-Up or Top-Down?

[Note:  Although the giant snakes I mentioned in my preceding post may have fat tails, I didn’t want my description of the discussion between Harvard`s Martin Weitzman and Yale`s William Nordhaus of the limits of cost-benefit analysis to be overlooked, so I have largely copied it below.  I’ve added an introduction, as well as a few links.]

“Fat tails” seem to be the rage these days, as Bill Safire noted last week in the NYT.  But what are “fat tails”?  Notes Safire,

To comprehend what fat tail is in
today’s media wringer, think of a bell curve, the line on a
statistician’s chart that reflects “normal distribution.” It is tall
and wide in the middle — where most people and things being studied
almost always tend to be — and drops and flattens out at the bottom,
where fewer are, making a shape on a graph resembling a bell. The
extremities at the bottom left and right are called the tails; when
they balloon instead of nearly vanishing as expected, the tails have
been designated “heavy” and, more recently, the more pejorative “fat.”
To a credit-agency statistician now living in a world of chagrin, the
alliterative definition of a fat tail is “an abnormal agglomeration of angst.”

In
an eye-popping Times Magazine article last month titled “Risk
Mismanagement,” Joe Nocera, a business columnist for The Times, focused
on the passionate, prescient warnings of the former options trader
Nassim Nicholas Taleb, author of “The Black Swan” and “Fooled by
Randomness,” who popularized the phrase now in vogue in its
financial-­statistics sense. Nocera wrote: “What will cause you to lose
billions instead of millions? Something rare, something you’ve never
considered a possibility. Taleb calls these events ‘fat tails’
or ‘black swans,’ and he is convinced that they take place far more
frequently than most human beings are willing to contemplate.”

If I make quibble with Safire’s description; “fat” refers not to the probabilty distribution ballooning on either tail, but refers to the case that the tail probability does not decline quickly to zero (viz., probability approaches zero more slowly than exponentially).

*   *   *

The size of the giant snakes and the much higher temperatures (and GHG levels) at their time (60 million years ago) and shortly after during the PETM (a perod 56 million years ago temperatures shot up by 5° Celsius / 9° F in less than 10,000 years) tell us no simply that climate is sensitive
(on geological scales, sometimes rather short-term) to atmospheric
levels of carbon and methane, but  remind us that there is a “fat tail” of uncertain climate change risks
posed by mankind`s ramped up efforts to release as much as possible of
the CO2 that has been stored up in the form of fossil fuels, methane
and limestone over millions years.  

I have mentioned the issue of “fat tails” previously,
in connection with attempts at applying cost – benefit analysis (CBA)
to determine whether to tax CO2 emissions.  While economists like
Yale`s William Nordhaus who have applied CBA to climate policy have been saying for decades that taxing carbon makes sense on a net basis, our own Bob Murphy has criticized Nordhaus`s approach on rather narrow (and decidedly non-Austrian) grounds.

But Nordhaus has also been strongly criticized by economists such as Harvard`s Martin Weitzman,
who basically argue that Nordhaus has UNDERSOLD the case for carbon
pricing or that the results of such CBA imply a greater certainty of
knowledge (and complacency) than is deserved.  Weitzman points out
basic difficulties inherent in applying CBA to policies addressing
climate change, particularly where there seems to be a grave
possibility that we do not understand how drastically the climate might
respond to our influences.  Weitzman`s comments (scheduled to appear in
the February issue of The Review of Economics and Statistics) were the focus of the lead essay by Jim Manzi in Cato Unbound`s August 2008 issue, which I reviewed.

Nordhaus has since responded to Weitzman in a comment that became available in January; this time with Bob Murphy stepped in as a defender of CBA!  I note that Ron Bailey, science correspondent at Reason online, has just published a piece examining Weitzman’s paper last year and Nordhaus’s recent comments.

Weitzman has now replied to Nordhaus, and has kindly permitted me to
quote from a draft of his reply (which he has out for review).  It seems that Weitzman
provides a compelling statement of some the limits of CBA, as applied
to climate change.  (NB:  Weitzman`s draft response is a .pdf file that I cannot upload, though I have uploaded a version converted to .txt format.  I am happy to forward the .pdf to any interested readers.)

Weitzman`s criticisms of the limits of CBA ought to resonate with Austrian concerns about complexity, limits of knowledge and the difficulty of prediction — even as Weitzman (and Nordhaus and, indeed, Bob Murphy) completely fail to consider the fundamental problems of conflicting preferences in the absence of property rights and of the likelihood that rent-seeking with corrupt governmental policy responses.

The rest of the post sets those of Weitzman`s key points that I consider most salient to a discussion among laymen:

“there is enormous structural uncertainty about the economics of extreme climate change,
which, if not unique, is pretty rare. I will argue on intuitive grounds
that the way in which this deep structural uncertainty is
conceptualized and formalized should influence substantially the
outcomes of any reasonable CBA (or IAM) of climate change. Further, I
will argue that the seeming fact that this deep structural
uncertainty does not influence substantially outcomes from the
“standard” CBA hints at an implausible treatment of uncertainty.”

“The
pre-industrial-revolution level of atmospheric CO2 (about two centuries
ago) was

Normal
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0
2

false
false
false

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about280 parts per million (ppm). The ice-core data show that
carbon dioxide was within a range roughly between

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0
2

false
false
false

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≈180 and

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0
2

false
false
false

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≈280 ppm
during the last 800,000 years. Currently, CO2 is at

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0
2

false
false
false

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≈385 ppm, and
climbing steeply. Methane was never higher than

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0
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false
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false

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≈750 parts per billion
(ppb) in 800,000 years, but now this extremely potent GHG, which is
thirty times more powerful than CO2, is at

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0

0
2

false
false
false

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≈1,780 ppb. The sum total of
all carbon-dioxide-equivalent (CO2-e) GHGs is currently at

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0
2

false
false
false

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≈435 ppm.
Even more alarming in the 800,000-year record is the rate of change of
GHGs, with increases in CO2 being below (and typically well below)

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0
2

false
false
false

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≈40
ppm within any past sub-period of ten thousand years, while now CO2 has
risen by

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0
2

false
false
false

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≈40 ppm in just the last quarter century.

Thus, anthropogenic
activity has elevated atmospheric CO2 and CH4 to levels extraordinarily
far outside their natural range – and at a stupendously rapid rate. The
scale and speed of recent GHG increases makes predictions of future
climate change highly uncertain.  There is no analogue for anything
like this happening in the past geological record. Therefore, we do not
really know with much confidence what will happen next.”

“To keep atmospheric CO2 levels at twice pre-industrial-revolution levels would require not just stable but sharply declining emissions within a few decades from now. Forecasting
ahead a century or two, the levels of atmospheric GHGs that may
ultimately be attained (unless drastic measures are undertaken) have
likely not existed for tens of millions of years and the rate of change
will likely be unique on a time scale of hundreds of millions of years.

Remarkably,
the “standard”CBA of climate change takes essentially no account of the
extraordinary magnitude of the scale and speed of these unprecedented
changes in GHGs – and the extraordinary uncertainties they create for
any believable economic analysis of climate change. Perhaps even
more astonishing is the fact that the “policy ramp” of gradually
tightening emissions, which emerges from the “standard” CBA, attains
stabilization at levels of CO2-e GHGs that approach

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0

0
2

false
false
false

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≈700 ppm. The
“standard” CBA [of Nordhaus] thus recommends imposing an impulse or
shock to the Earth’s system by geologically-instantaneously jolting
atmospheric stocks of GHGs up to

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0

0
2

false
false
false

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≈21/2 times their highest past level
over the last 800,000 years – without even mentioning what an
unprecedented planetary experiment such an “optimal” policy would
entail.”

“So-called
“climate sensitivity” (hereafter denoted S1) is a key macro-indicator
of the eventual temperature response to GHG changes. Climate
sensitivity is defi…ned as the global average surface warming following
a doubling of carbon dioxide concentrations. … the median upper 5%
probability level over all 22 climate-sensitivity studies cited in
IPCC-AR4 (2007) is 6.4° C – and this stylized fact alone is telling.
Glancing at Table 9.3 and Box 10.2 of IPCC-AR4, it is apparent that the
upper tails of these 22 PDFs tend to be sufficiently long and heavy
with probability that one is allowed from a simplistically-aggregated
PDF of these 22 studies the rough approximation P[S1>10° C]

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false

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≈1%. The
actual empirical reason why these upper tails are long and heavy with
probability dovetails nicely with the theory of my paper: inductive
knowledge is always useful, of course, but simultaneously it is limited
in what it can tell us about extreme events outside the range of
experience – in which case one is forced back onto depending more than
one might wish upon the prior PDF, which of necessity is largely
subjective and relatively diffuse. As a recent Science commentary put
it: “Once the world has warmed by 4° C, conditions will be so
different from anything we can observe today (and still more different
from the last ice age) that it is inherently hard to say where the
warming will stop.”

“Exhibit C” concerns possibly disastrous releases over the long run of bad-feedback components
of the carbon cycle that are currently omitted from most general
circulation models. The chief worry here is a significant supplementary
component that conceptually should be added on to climate sensitivity
S1. This omitted component concerns the potentially powerful
self-amplification potential of greenhouse warming due to heat-induced
releases of sequestered carbon. … Over the long run, a CH4
outgassing-amplifier process could potentially precipitate a
cataclysmic strong-positive-feedback warming. This real physical
basis for a highly unsure but truly catastrophic scenario is my Exhibit
C in the case that conventional CBAs and IAMs do not adequately cover
the deep structural uncertainties associated with possible
climate-change disasters.  Other examples of an actual real physical
basis for a catastrophic outcome could be cited, but this one will do
here.  The real physical possibility of endogenous heat-triggered
releases at high temperatures of the enormous amounts of
naturally-sequestered GHGs is a good example of indirect carbon-cycle
feedback effects that I think should be included in the abstract
interpretation of a concept of “climate sensitivity” that is relevant
here. What matters for the economics of climate change is the
reduced-form relationship between atmospheric stocks of
anthropogenically-injected CO2-e GHGs and temperature change. … When
fed into an economic analysis, the great open-ended uncertainty about
eventual mean planetary temperature change cascades into
yet-much-greater yet-much-more-open-ended uncertainty about eventual
changes in welfare.”

“Exhibit
D” concerns what I view as an unusually cavalier treatment of damages or
disutilities from extreme temperature changes. The “standard” CBA
treats high-temperature damages by a rather passive extrapolation of
whatever specification is assumed (typically arbitrarily) to be the
low-temperature “damages function.”  … Seemingly minor changes in
the specification of high-temperature damages can dramatically alter
the gradualist policy ramp outcomes recommended by the “standard” CBA.
Such fragility of policy to postulated forms of disutility functions
are my Exhibit D in making the case that the “standard” CBA does not
adequately cope with deep structural uncertainty – here structural
uncertainty about the specification of damages.”

“An
experiment without precedent is being performed on planet Earth by
subjecting the world to the shock of a geologically-instantaneous
injection of massive amounts of GHGs. Yet the “standard” CBA seems
almost oblivious to the extraordinarily uncertain consequences of
catastrophic climate change.”

“Almost
nothing in our world has a probability of exactly zero or exactly one.
What is worrisome is not the fact that extreme tails are long per se
(reflecting
the fact that a meaningful upper bound on disutility does not exist),
but that they are fat (with probability density). The critical
question is how fast does the probability of a catastrophe decline
relative to the welfare impact of the catastrophe. Other things being
equal, a thin-tailed PDF is of less concern because the probability of
the bad event declines exponentially (or faster). A fat-tailed
distribution, where the probability declines polynomially, can be much
more worrisome. … To put a sharp point on this seemingly abstract issue, the
thin-tailed PDFs that Nordhaus requires implicitly to support his
gradualist “policy ramp” conclusions have some theoretical tendency to
morph into being fat tailed when he admits that he is fuzzy about the
functional forms or structural parameters of his assumed thin-tailed
PDFs – at least for high temperatures. … When one combines fat
tails in the PDF of the logarithm of welfare-equivalent consumption
with a utility function that is sensitive to high damages from extreme
temperatures, it will tend to make the willingness to pay (WTP) to
avoid extreme climate changes very large.”

“Presumably
the PDF in the bad fat tail is thinned, or even truncated, perhaps from
considerations akin to what lies behind the value of a statistical life
(VSL). (After all, we would not pay an infinite amount to eliminate
altogether the fat tail of climate-change catastrophes.) Alas, in
whatever way the bad fat tail is thinned or truncated, a CBA based upon
it remains highly sensitive to the details of the thinning or
truncation mechanism, because the disutility of extreme climate change
has “essentially” unlimited liability. In this sense climate change
is unique (or at least very rare) because the conclusions from a CBA
for such an unlimited-liability situation have some built-in tendency
to be non-robust to assumed tail fatness.”

“Reasonable
attempts to constrict the fatness of the “bad” tail can still leave us
with uncomfortably big numbers, whose exact value depends non-robustly
upon artificial constraints, functional forms, or parameters that we
really do not understand. The only legitimate way to avoid this
potential problem is when there exists strong a priori knowledge that
restrains the extent of total damages. If a particular type of
idiosyncratic uncertainty affects only one small part of an
individual’s or a society’s overall portfolio of assets, exposure is
naturally limited to that specific component and bad-tail fatness is
not such a paramount concern. However, some very few but very
important real-world situations have potentially unlimited exposure due
to structural uncertainty about their potentially open-ended
catastrophic reach. Climate change potentially affects the whole
worldwide portfolio of utility by threatening to drive all of planetary
welfare to disastrously low levels in the most extreme scenarios.”

“Conclusions
from CBA [are] more fuzzy than we might prefer, because they are
dependent on essentially arbitrary decisions about how the fat tails
are expressed and about how the damages from high temperatures are
specified. I would make a strong distinction between thin-tailed
CBA, where there is no reason in principle that outcomes should not be
robust, and fat-tailed CBA, where even in principle outcomes are
highly sensitive to functional forms and parameter values. For ordinary
run-of-the-mill limited exposure or thin-tailed situations, there is at
least the underlying theoretical reassurance that finite-cutoff-based
CBA might (at least in principle) be an arbitrarily-close approximation
to something that is accurate and objective. In fat-tailed unlimited
exposure situations, by contrast, there is no such theoretical
assurance underpinning the arbitrary cutoffs or attenuations – and
therefore CBA outcomes have a theoretical tendency to be sensitive to
fragile assumptions about the likelihood of extreme impacts and how
much disutility they cause.”

“My
target is not CBA in general, but the particular false precision
conveyed by the misplaced concreteness of the “standard” CBA of climate
change. By all means plug in tail probabilities, plug in disutilities
of high impacts, plug in rates of pure time preference, and so forth,
and then see what emerges empirically. Only please do not be surprised
when outcomes from fat-tailed CBA are fragile to specifications
concerning catastrophic extremes.  The extraordinary magnitude of the
deep structural uncertainties involved in climate-change CBA, and the
implied limitations that prevent CBA from reaching robust conclusions,
are highly frustrating for most economists, and in my view may even
push some into a state of denial. After all, economists make a living
from plugging rough numbers into simple models and reaching specific
conclusions (more or less) on the basis of these numbers. What are we
supposed to tell policy makers and politicians if our conclusions are
ambiguous and fragile?”

“It is
threatening for economists to have to admit that the structural
uncertainties and unlimited liabilities of climate change run so deep
that gung-ho “can do” economics may be up against limits on the ability of quantitative analysis to give robust advice in such a grey area. But if this is the way things are with the economics of climate change, then this is the way things are – and non-robustness to subjective assumptions is an inconvenient truth to be lived with rather than a fact to be denied or evaded
just because it looks less scientif…cally objective in CBA. In my
opinion, we economists need to admit to the policy makers, the
politicians, and the public that CBA of climate change is unusual
in being especially fuzzy because it depends especially sensitively on
what is subjectively assumed about the high-temperature damages
function, along with subjective judgements about the fatness of the
extreme tails and/or where they have effectively been cut off.
Policy makers and the public will just have to deal with the idea that
CBA of climate change is less crisp (maybe I should say even less
crisp) than CBAs of more conventional situations.”

“The
moral of the dismal theorem is that under extreme uncertainty,
seemingly casual decisions about functional forms, parameter values,
and tail thickness may be dominant. We economists should not pursue
a narrow, superficially precise, analysis by blowing away the
low-probability high-impact catastrophic scenarios as if this is a
necessary price we must pay for the worthy goal of giving crisp advice.
An artificial infatuation with precision is likely to make our analysis
go seriously askew and to undermine the credibility of what we say by
effectively marginalizing the very possibilities that make climate
change grave in the first place.“

“The
issue of how to deal with the deep structural uncertainties in climate
change would be completely different and immensely simpler if systemic
inertias (like the time required for the system to naturally remove
extra atmospheric CO2) were short (as is the case for SO2;
particulates, and many other airborne pollutants). Then an important
part of an optimal strategy would presumably be along the lines of
“wait and see.” With strong reversibility, an optimal
climate-change policy should logically involve (among other elements)
waiting to see how far out on the bad fat tail the planet will end up,
followed by midcourse corrections if we seem to be headed for a
disaster. This is the ultimate backstop rebuttal of DT given by some
critics of fat-tailed reasoning, including Nordhaus. Alas, the problem
of climate change is characterized everywhere by immensely long
inertias – in atmospheric CO2 removal times, in the capacity of the
oceans to absorb heat (as well as CO2), and in many other relevant
physical and biological processes. Therefore, it is an open question
whether or not we could learn enough in sufficient time to make
politically feasible midcourse corrections. When the critics are
gambling on this midcourse-correction learning mechanism to undercut
the message of DT, they are relying more on an article of faith than on
any kind of evidence-based scientific argument.

“I
think the actual scientific facts behind the alleged feasibility of
“wait and see”policies are, if anything, additional evidence for the
importance of fat-tailed irreversible uncertainty about ultimate
climate change.

“The
relevance of “wait and see”policies is an important unresolved issue,
which in principle could decide the debate between me and Nordhaus, but
my own take right now would be that the built-in pipeline inertias
are so great that if and when we detect that we are heading for
unacceptable climate change, it will likely prove too late to do
anything much about it for centuries to come thereafter (except,
possibly, for lowering temperatures by geoengineering the atmosphere to
reflect back incoming solar radiation). In any event, I see this whole
“wait and see” issue as yet another component of fat-tailed uncertainty
– rather than being a reliable backstop strategy for dealing with
excessive CO2 in the atmosphere.

Nordhaus
states that there are so many low-probability catastrophic-impact
scenarios around that ‘if we accept the Dismal Theorem, we would
probably dissolve in a sea of anxiety at the prospect of the infinity
of infinitely bad outcomes.’ This is rhetorical excess and, more to the
point here, it is fallacious. Most of the examples Nordhaus gives have
such miniscule thin-tailed probabilities that they can be written off.”

“Nordhaus
summarizes his critique with the idea there are indeed deep
uncertainties about virtually every aspect of the natural and social
sciences of climate change – but these uncertainties can only be
resolved by continued careful analysis of data and theories. I heartily
endorse his constructive attitude about the necessity of further
research targeted toward a goal of resolving as much of the uncertainty
as it is humanly possible to resolve. I would just add that we
should also recognize the reality that, for now and perhaps for some
time to come, the sheer magnitude of the deep structural uncertainties,
and the way we express them in our models, will likely dominate
plausible applications of CBA to the economics of climate change.”

(emphasis added)

Giant snakes?  What could a few colossal bones found in Colombia have to do with us now?

1.  A recent paper in Nature about the discovery of several specimens of a giant snake (“Titanoboa”) that lived in Latin America 60 million years ago captured attention last week, including among climate change bloggers (yes, “skeptics” too).  Why?  Not only because the snakes were enormous (more than 40 feet and over a ton) – making anacondas look like garter snakes – but because their size appears to tell us something about the climate about during the Paleocene.  Based on existing knowledge of the size, metabolism and temperature tolerances of  snakes, scientists believe that the size of the snake appears to indicate that not only was the world overall quite warm during the Paleocene (with palms growing at the poles), but that average temperatures in the tropics would have been from 3° to 5° Celsius (5° to 9° F) warmer than they are today in order for such large snakes to  survive.

The period in which these snakes lived was followed a few million years later by the Paleocene – Eocene Thermal Maximum (PETM) in 56 million BC, when a pulse of CO2 and methane drove already warm temperatures sharply higher (by 5° Celsius / 9° F) in less than 10,000 years. During the PETM, CO2 levels rose to about 2000 ppm, or roughly 6 times  where they are now. The PETM resulted in a massive extinction of species.

The size of the snakes and the temperatures at their time and shortly after during the PETM also tell us that climate is sensitive (on geological scales, sometimes rather short-term) to atmospheric levels of carbon and methane – and remind us that there is a “fat tail” of uncertain climate change risks posed by mankind`s ramped up efforts to release as much as possible of the CO2 that has been stored up in the form of fossil fuels, methane and limestone over millions years.  

2.  I have mentioned the issue of “fat tails” previously, in connection with attempts at applying cost – benefit analysis (CBA) to determine whether to tax CO2 emissions.  While economists like Yale`s William Nordhaus who have applied CBA to climate policy have been saying for decades that taxing carbon makes sense on a net basis, our own Bob Murphy has criticized Nordhaus`s approach on rather narrow (and decidedly non-Austrian) grounds.

But Nordhaus has also been strongly criticized by economists such as Harvard`s Martin Weitzman, who basically argue that Nordhaus has UNDERSOLD the case for carbon pricing or that the results of such CBA imply a greater certainty of knowledge (and complacency) than is deserved.  Weitzman points out basic difficulties inherent in applying CBA to policies addressing climate change, particularly where there seems to be a grave possibility that we do not understand how drastically the climate might respond to our influences.  Weitzman`s comments (scheduled to appear in the February issue of The Review of Economics and Statistics) were the focus of the lead essay by Jim Manzi in Cato Unbound`s August 2008 issue, which I reviewed.

Nordhaus has since responded to Weitzman, and this time with Bob Murphy stepped in as a defender of CBA.  Weitzman has now replied to Nordhaus, and has kindly permitted me to quote from the current draft of such reply.  It seems that Weitzman provides a compelling statement of some the limits of CBA, as applied to climate change. It seems to me that any Austrian ought to be sympathetic to Weitzman`s criticisms of the limits of CBA.

(NB:  Weitzman`s draft response is a .pdf file that I cannot upload, though I have uploaded a version convert to .txt format.  I am happy to forward the .pdf to any interested readers.)

The rest of the post sets out the most salient (for a layman) of Weitzman`s key points:

“there is enormous structural uncertainty about the economics of extreme climate change,
which, if not unique, is pretty rare. I will argue on intuitive grounds
that the way in which this deep structural uncertainty is
conceptualized and formalized should influence substantially the
outcomes of any reasonable CBA (or IAM) of climate change. Further, I
will argue that the seeming fact that this deep structural
uncertainty does not influence substantially outcomes from the
“standard” CBA hints at an implausible treatment of uncertainty.”

“The
pre-industrial-revolution level of atmospheric CO2 (about two centuries
ago) was

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about280 parts per million (ppm). The ice-core data show that
carbon dioxide was within a range roughly between

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≈180 and

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≈280 ppm
during the last 800,000 years. Currently, CO2 is at

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≈385 ppm, and
climbing steeply. Methane was never higher than

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≈750 parts per billion
(ppb) in 800,000 years, but now this extremely potent GHG, which is
thirty times more powerful than CO2, is at

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≈1,780 ppb. The sum total of
all carbon-dioxide-equivalent (CO2-e) GHGs is currently at

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≈435 ppm.
Even more alarming in the 800,000-year record is the rate of change of
GHGs, with increases in CO2 being below (and typically well below)

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≈40
ppm within any past sub-period of ten thousand years, while now CO2 has
risen by

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≈40 ppm in just the last quarter century.

Thus, anthropogenic
activity has elevated atmospheric CO2 and CH4 to levels extraordinarily
far outside their natural range – and at a stupendously rapid rate. The
scale and speed of recent GHG increases makes predictions of future
climate change highly uncertain.  There is no analogue for anything
like this happening in the past geological record. Therefore, we do not
really know with much confidence what will happen next.”

“To keep atmospheric CO2 levels at twice pre-industrial-revolution levels would require not just stable but sharply declining emissions within a few decades from now. Forecasting
ahead a century or two, the levels of atmospheric GHGs that may
ultimately be attained (unless drastic measures are undertaken) have
likely not existed for tens of millions of years and the rate of change
will likely be unique on a time scale of hundreds of millions of years.

Remarkably,
the “standard”CBA of climate change takes essentially no account of the
extraordinary magnitude of the scale and speed of these unprecedented
changes in GHGs – and the extraordinary uncertainties they create for
any believable economic analysis of climate change. Perhaps even
more astonishing is the fact that the “policy ramp” of gradually
tightening emissions, which emerges from the “standard” CBA, attains
stabilization at levels of CO2-e GHGs that approach

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≈700 ppm. The
“standard” CBA [of Nordhaus] thus recommends imposing an impulse or
shock to the Earth’s system by geologically-instantaneously jolting
atmospheric stocks of GHGs up to

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≈21/2 times their highest past level
over the last 800,000 years – without even mentioning what an
unprecedented planetary experiment such an “optimal” policy would
entail.”

“So-called
“climate sensitivity” (hereafter denoted S1) is a key macro-indicator
of the eventual temperature response to GHG changes. Climate
sensitivity is defi…ned as the global average surface warming following
a doubling of carbon dioxide concentrations. … the median upper 5%
probability level over all 22 climate-sensitivity studies cited in
IPCC-AR4 (2007) is 6.4° C – and this stylized fact alone is telling.
Glancing at Table 9.3 and Box 10.2 of IPCC-AR4, it is apparent that the
upper tails of these 22 PDFs tend to be sufficiently long and heavy
with probability that one is allowed from a simplistically-aggregated
PDF of these 22 studies the rough approximation P[S1>10° C]

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≈1%. The
actual empirical reason why these upper tails are long and heavy with
probability dovetails nicely with the theory of my paper: inductive
knowledge is always useful, of course, but simultaneously it is limited
in what it can tell us about extreme events outside the range of
experience – in which case one is forced back onto depending more than
one might wish upon the prior PDF, which of necessity is largely
subjective and relatively diffuse. As a recent Science commentary put
it: “Once the world has warmed by 4° C, conditions will be so
different from anything we can observe today (and still more different
from the last ice age) that it is inherently hard to say where the
warming will stop.”

“Exhibit C” concerns possibly disastrous releases over the long run of bad-feedback components
of the carbon cycle that are currently omitted from most general
circulation models. The chief worry here is a significant supplementary
component that conceptually should be added on to climate sensitivity
S1. This omitted component concerns the potentially powerful
self-amplification potential of greenhouse warming due to heat-induced
releases of sequestered carbon. … Over the long run, a CH4
outgassing-amplifier process could potentially precipitate a
cataclysmic strong-positive-feedback warming. This real physical
basis for a highly unsure but truly catastrophic scenario is my Exhibit
C in the case that conventional CBAs and IAMs do not adequately cover
the deep structural uncertainties associated with possible
climate-change disasters.  Other examples of an actual real physical
basis for a catastrophic outcome could be cited, but this one will do
here.  The real physical possibility of endogenous heat-triggered
releases at high temperatures of the enormous amounts of
naturally-sequestered GHGs is a good example of indirect carbon-cycle
feedback effects that I think should be included in the abstract
interpretation of a concept of “climate sensitivity” that is relevant
here. What matters for the economics of climate change is the
reduced-form relationship between atmospheric stocks of
anthropogenically-injected CO2-e GHGs and temperature change. … When
fed into an economic analysis, the great open-ended uncertainty about
eventual mean planetary temperature change cascades into
yet-much-greater yet-much-more-open-ended uncertainty about eventual
changes in welfare.”

“Exhibit
D” concerns what I view as an unusually cavalier treatment of damages or
disutilities from extreme temperature changes. The “standard” CBA
treats high-temperature damages by a rather passive extrapolation of
whatever specification is assumed (typically arbitrarily) to be the
low-temperature “damages function.”  … Seemingly minor changes in
the specification of high-temperature damages can dramatically alter
the gradualist policy ramp outcomes recommended by the “standard” CBA.
Such fragility of policy to postulated forms of disutility functions
are my Exhibit D in making the case that the “standard” CBA does not
adequately cope with deep structural uncertainty – here structural
uncertainty about the specification of damages.”

“An
experiment without precedent is being performed on planet Earth by
subjecting the world to the shock of a geologically-instantaneous
injection of massive amounts of GHGs. Yet the “standard” CBA seems
almost oblivious to the extraordinarily uncertain consequences of
catastrophic climate change.”

“Almost
nothing in our world has a probability of exactly zero or exactly one.
What is worrisome is not the fact that extreme tails are long per se
(reflecting
the fact that a meaningful upper bound on disutility does not exist),
but that they are fat (with probability density). The critical
question is how fast does the probability of a catastrophe decline
relative to the welfare impact of the catastrophe. Other things being
equal, a thin-tailed PDF is of less concern because the probability of
the bad event declines exponentially (or faster). A fat-tailed
distribution, where the probability declines polynomially, can be much
more worrisome. … To put a sharp point on this seemingly abstract issue, the
thin-tailed PDFs that Nordhaus requires implicitly to support his
gradualist “policy ramp” conclusions have some theoretical tendency to
morph into being fat tailed when he admits that he is fuzzy about the
functional forms or structural parameters of his assumed thin-tailed
PDFs – at least for high temperatures. … When one combines fat
tails in the PDF of the logarithm of welfare-equivalent consumption
with a utility function that is sensitive to high damages from extreme
temperatures, it will tend to make the willingness to pay (WTP) to
avoid extreme climate changes very large.”

“Presumably
the PDF in the bad fat tail is thinned, or even truncated, perhaps from
considerations akin to what lies behind the value of a statistical life
(VSL). (After all, we would not pay an infinite amount to eliminate
altogether the fat tail of climate-change catastrophes.) Alas, in
whatever way the bad fat tail is thinned or truncated, a CBA based upon
it remains highly sensitive to the details of the thinning or
truncation mechanism, because the disutility of extreme climate change
has “essentially” unlimited liability. In this sense climate change
is unique (or at least very rare) because the conclusions from a CBA
for such an unlimited-liability situation have some built-in tendency
to be non-robust to assumed tail fatness.”

“Reasonable
attempts to constrict the fatness of the “bad” tail can still leave us
with uncomfortably big numbers, whose exact value depends non-robustly
upon artificial constraints, functional forms, or parameters that we
really do not understand. The only legitimate way to avoid this
potential problem is when there exists strong a priori knowledge that
restrains the extent of total damages. If a particular type of
idiosyncratic uncertainty affects only one small part of an
individual’s or a society’s overall portfolio of assets, exposure is
naturally limited to that specific component and bad-tail fatness is
not such a paramount concern. However, some very few but very
important real-world situations have potentially unlimited exposure due
to structural uncertainty about their potentially open-ended
catastrophic reach. Climate change potentially affects the whole
worldwide portfolio of utility by threatening to drive all of planetary
welfare to disastrously low levels in the most extreme scenarios.”

“Conclusions
from CBA [are] more fuzzy than we might prefer, because they are
dependent on essentially arbitrary decisions about how the fat tails
are expressed and about how the damages from high temperatures are
specified. I would make a strong distinction between thin-tailed
CBA, where there is no reason in principle that outcomes should not be
robust, and fat-tailed CBA, where even in principle outcomes are
highly sensitive to functional forms and parameter values. For ordinary
run-of-the-mill limited exposure or thin-tailed situations, there is at
least the underlying theoretical reassurance that finite-cutoff-based
CBA might (at least in principle) be an arbitrarily-close approximation
to something that is accurate and objective. In fat-tailed unlimited
exposure situations, by contrast, there is no such theoretical
assurance underpinning the arbitrary cutoffs or attenuations – and
therefore CBA outcomes have a theoretical tendency to be sensitive to
fragile assumptions about the likelihood of extreme impacts and how
much disutility they cause.”

“My
target is not CBA in general, but the particular false precision
conveyed by the misplaced concreteness of the “standard” CBA of climate
change. By all means plug in tail probabilities, plug in disutilities
of high impacts, plug in rates of pure time preference, and so forth,
and then see what emerges empirically. Only please do not be surprised
when outcomes from fat-tailed CBA are fragile to specifications
concerning catastrophic extremes.  The extraordinary magnitude of the
deep structural uncertainties involved in climate-change CBA, and the
implied limitations that prevent CBA from reaching robust conclusions,
are highly frustrating for most economists, and in my view may even
push some into a state of denial. After all, economists make a living
from plugging rough numbers into simple models and reaching specific
conclusions (more or less) on the basis of these numbers. What are we
supposed to tell policy makers and politicians if our conclusions are
ambiguous and fragile?”

“It is
threatening for economists to have to admit that the structural
uncertainties and unlimited liabilities of climate change run so deep
that gung-ho “can do” economics may be up against limits on the ability of quantitative analysis to give robust advice in such a grey area. But if this is the way things are with the economics of climate change, then this is the way things are – and non-robustness to subjective assumptions is an inconvenient truth to be lived with rather than a fact to be denied or evaded
just because it looks less scientif…cally objective in CBA. In my
opinion, we economists need to admit to the policy makers, the
politicians, and the public that CBA of climate change is unusual
in being especially fuzzy because it depends especially sensitively on
what is subjectively assumed about the high-temperature damages
function, along with subjective judgements about the fatness of the
extreme tails and/or where they have effectively been cut off.
Policy makers and the public will just have to deal with the idea that
CBA of climate change is less crisp (maybe I should say even less
crisp) than CBAs of more conventional situations.”

“The
moral of the dismal theorem is that under extreme uncertainty,
seemingly casual decisions about functional forms, parameter values,
and tail thickness may be dominant. We economists should not pursue
a narrow, superficially precise, analysis by blowing away the
low-probability high-impact catastrophic scenarios as if this is a
necessary price we must pay for the worthy goal of giving crisp advice.
An artificial infatuation with precision is likely to make our analysis
go seriously askew and to undermine the credibility of what we say by
effectively marginalizing the very possibilities that make climate
change grave in the first place.“

“The
issue of how to deal with the deep structural uncertainties in climate
change would be completely different and immensely simpler if systemic
inertias (like the time required for the system to naturally remove
extra atmospheric CO2) were short (as is the case for SO2;
particulates, and many other airborne pollutants). Then an important
part of an optimal strategy would presumably be along the lines of
“wait and see.” With strong reversibility, an optimal
climate-change policy should logically involve (among other elements)
waiting to see how far out on the bad fat tail the planet will end up,
followed by midcourse corrections if we seem to be headed for a
disaster. This is the ultimate backstop rebuttal of DT given by some
critics of fat-tailed reasoning, including Nordhaus. Alas, the problem
of climate change is characterized everywhere by immensely long
inertias – in atmospheric CO2 removal times, in the capacity of the
oceans to absorb heat (as well as CO2), and in many other relevant
physical and biological processes. Therefore, it is an open question
whether or not we could learn enough in sufficient time to make
politically feasible midcourse corrections. When the critics are
gambling on this midcourse-correction learning mechanism to undercut
the message of DT, they are relying more on an article of faith than on
any kind of evidence-based scientific argument.

“I
think the actual scientific facts behind the alleged feasibility of
“wait and see”policies are, if anything, additional evidence for the
importance of fat-tailed irreversible uncertainty about ultimate
climate change.

“The
relevance of “wait and see”policies is an important unresolved issue,
which in principle could decide the debate between me and Nordhaus, but
my own take right now would be that the built-in pipeline inertias
are so great that if and when we detect that we are heading for
unacceptable climate change, it will likely prove too late to do
anything much about it for centuries to come thereafter (except,
possibly, for lowering temperatures by geoengineering the atmosphere to
reflect back incoming solar radiation). In any event, I see this whole
“wait and see” issue as yet another component of fat-tailed uncertainty
– rather than being a reliable backstop strategy for dealing with
excessive CO2 in the atmosphere.

Nordhaus
states that there are so many low-probability catastrophic-impact
scenarios around that ‘if we accept the Dismal Theorem, we would
probably dissolve in a sea of anxiety at the prospect of the infinity
of infinitely bad outcomes.’ This is rhetorical excess and, more to the
point here, it is fallacious. Most of the examples Nordhaus gives have
such miniscule thin-tailed probabilities that they can be written off.”

“Nordhaus
summarizes his critique with the idea there are indeed deep
uncertainties about virtually every aspect of the natural and social
sciences of climate change – but these uncertainties can only be
resolved by continued careful analysis of data and theories. I heartily
endorse his constructive attitude about the necessity of further
research targeted toward a goal of resolving as much of the uncertainty
as it is humanly possible to resolve. I would just add that we
should also recognize the reality that, for now and perhaps for some
time to come, the sheer magnitude of the deep structural uncertainties,
and the way we express them in our models, will likely dominate
plausible applications of CBA to the economics of climate change.”

(emphasis added)

[Update at bottom.]

Neocons, conservatives, libertarians and Exxon`s Rex Tillerson have recently joined arch-warmer Jim Hansen in calling for rebated carbon taxes in lieu of massive cap/trade rent-seeking and industrial planning.

I`ve blogged extensively on the reasons why I and others view carbon taxes – particularly if rebated to citizens – as a far better alternative to a domestic cap and trade program.

With the Obama inauguration looming, starting late last month a wide range of voices on the right have started to weigh in – each with their own reasons – in support of carbon or similar taxes, in order to shift the debate away from cap and trade and other extensive industrial policy.  Is it too late?  In any case, it`s worth taking a look at what people are saying recently:

Climate scientist Jim Hansen, who with his wife rather boldly sent to Barack and Michelle Obama a personal letter and background paper (with a discussion draft first made public in November).

Neocon Charles Krauthammer proposed a substantial “net-zero” gas tax in the December 27 (now updated to January 5) Weekly Standard, with intentions in part to cut off the flow of oil money to unfriendly (and Muslim) regimes abroad.

Republican Congressman Bob Inglis and economist Arthur Laffer argued in the December 28 New York Times  for a carbon tax coupled with tax-cut stimulus.

On January 9, the Wall Street Journal reported on ExxonMobil CEO Rex Tillerson`s recent speech in DC calling explicitly for Congress to enact a tax on greenhouse-gas emissions as a “more direct, a more transparent and a more effective approach” than cap and trade.  This is not as new as the WSJ would have it; as I note on an earlier post, ExxonMobil came out rather explicitly in favor of carbon taxes a year ago.

Libertarian and natural resources law prof – and NRO and Volokh Conspiracy blooger – Jonathan Adler applauds and explains these developments for various reasons, noting particularly that a train wreck seems headed our way, and that Congressional action is needed to avoid having the Obama EPA attempt to implement climate change policy via the Clean Air Act (for which a Supreme Court case last year paves the way).

Of course there is reasoned (both reasonable and passionate) disagreement, such as from businessman Jim Manzi at NRO on December 30 and blogger Tony Quain in response to Krauthammer, and by Chris Horner of the Competitve Enterprise Institute on January 7.

All are worth a look.

[Update:  Although liberal economists and commentators have tended to diss a carbon tax as a political non-starter, I note that in a December 27 New York Times op-ed, Thomas Friedman voiced support for a revenue-neutral carbon tax or gas tax on roughly the same grounds as Krauthammer.

Friedman and the others noted above join a long list of economists and political commentators on both sides of the political spectrum (including AEI, George Will and Barbara Thoring on the right) who strongly prefer carbon taxes over cap and trade.

I note that I do not buy all of the arguments for a carbon tax, particularly the argument that a gas tax would be an effective foreign policy tool.  However, I summarized previously some economists’s discussions of using a domestic tax to limit the flow of revenues to oil-exporting countries.

Dan Rosenblum of the Carbon Tax Center (which is a great complier of information on carbon taxes vs. cap and trade policies) has an excellent summary on recent developments in the December 30 Huffington Post.

My view is that a carbon tax would be much preferable to a cap and trade system and, if rebated or offset by reductions in income or other taxes, may improve incentives for savings and investment.  Further, it would undercut arguments and justifications for other obviously counterproductive market inverventions like the CAFE standards and subsidies for supposedly “green” sources of energy (including ethanol). 

Of course the fact that a carbon tax is much more transparent than a cap and trade and other policies interventions is one of the chief reasons that politicians and rent-seekers prefer more complex and obscure ways to provide favors to various industries and interest groups.]

[Further update:　I note that Cato devoted its August 2008 edition of Cato Unbound to a debate over climate change, anchored by an essay by Jim Manzi that specifically advocated substantial government in improved global climate prediction, carbon capture and storage, and  geo-engineering
projects.

In addition, libertarians Ed Dolan, Gene Callahan and Sheldon Richman all feel that climate change deserves serious consideration, Reason online`s Ron Bailey and libertarian/energy expert Lynne Kielsing supports climate change actions,  Bruce Yandle, CEI`s Iain Murray, Cato`s Indur Goklany has advanced a specific climate change-targeted proposal, and AEI`s Steven Hayward and Ken Green have provided relatively balanced analyses.]