Archive for the ‘Tol’ Category

Richard Tol and Marty Weitzman on The Costs of Ignoring Carbon

December 15th, 2007 No comments

There is a new paper out by economist Richard Tol that summarizes all of the economic work on climate change over the past two decades, in light of recent analyses, particularly the ground-breaking new work by Harvard’s Marty Weitzman on how the “fat tail” of climate risk affects cost-benefit analysis.  Tol is attached to the Economic and Social Research Institute (Dublin), the Institute for Environmental Studies, Vrije Universiteit (Amsterdam), and the Department of Engineering and Public Policy, Carnegie Mellon University.


 Tol`s conclusions?

There are three implications.

Firstly, greenhouse gas emission reduction today is justified. The median of the Fisher-Tippett kernel density for peer-reviewed estimates with a 3% pure rate of time preference and without equity weights, is $20/tC. This compares to a future price of carbon permits of $8/tC in the European Union (and a spot price of ¢3/tC).  The case for intensification of climate policy can be made with conservative assumptions. One does not have to rely on dodgy analysis as in Schneider et al. (2007) and Stern et al. (2006).

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. Papers often conclude with a call for more research, and often this is a call for funding for the authors or a justification for further papers by the authors. In this case, however, quality research by newcomers in the field would be particularly welcome.

Tol drew these conclusions from the principal results of his research, which were as follows:

Besides more data and more advanced statistical analysis, this paper offers four results.

Firstly, there is a downward trend in the estimates of the social cost of carbon – even if the IPCC (Schneider et al., 2007) would like to believe the opposite.

Secondly, the Stern Review (Stern et al., 2006) is an outlier – and its impact estimates are pessimistic even when compared to other studies in the gray literature and other estimates that use low discount rates.

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tails of the distribution may dominate the conclusions (Weitzman, 2007) – even though many of the high estimates have not been peer-reviewed and use unacceptably low discount rates.

Fourthly, if everyone were to pay a carbon tax equal to the social cost of carbon (but not reduce emissions), there is a fair chance that annual taxes would exceed annual income for many people.

(emphasis added)

The recent Marty Weitzman paper that Tol refers to is here:

Marty Weitzman: “On Modeling and Interpreting the Economics of Catastrophic Climate Change”, December 5, 2007 [Update: Weitzman has revised; the latest version is dated Februaru 8, 2008];

Categories: AGW, carbon pricing, climate, CO2, Tol, Weitzman Tags:

"Heroic" contrarians, proven wrong on AGW, make another slick cry for relevance at Bali

December 14th, 2007 No comments

On the main blog, Sean Corrigan posts the latest missive of what he considers the brave dissenting voices on climate science.

The letter nods briefly at the concerns summarized by the IPCC reports about warming and the role of human economic activity, and raises good issues about how global society should react, including the respective merits of public policy and private measures directed towards mitigation and adaptation.

But Sean does not examine any of these issues, but simply (i) touts the supposed “heroism” of the dissenters, (ii) complains about the supposed unfairness of the Bali conference sponsors (the 180+ states that are party to the UN Framework Convention on Climate Change) for not providing them a soapbox, (iii) cries about the supposed hysteria of the UN Secretary General (Mr. “Barking-at-the” Moon”!) [okay, points for being clever, anyway] and (iv) finally, for good measure, tries to sweep away the undeniable and rapid climate change in the Arctic with a link that tells us about a possible localized factor but nothing about the wider scale changes, which just MIGHT be due to the fact that air temperatures over the Greenland ice sheet have increased by about seven degrees Fahrenheit since 1991

Interestingly, while Corrigan seems to think his ongoing rants on “carbolic socialism” helps to clarify the issues and the interests of all parties, he constantly fails to note how a large and powerful group of rent-seekers packages the items that he swallows whole. In this case, only a modicum of research shows that these brave dissenters have been smoothly packaged by yet another new “grassroots” organization established to influence policy for the benefit of energy interests.

The whole issue deserves much better discussion, but it seems that many Miseseans are fundamentally not interested, either in conducting a serious analysis or even in being taken seriously.  Instead, they would rather be taken in, either by one group of rent-seekers or by themselves, by swallowing all manner of uninformed science (see my preceding post;  This kind of cantankerous self-delusion and naivete is hardly the best way to show the strengths of Austrian analysis to the world.

I`m getting tired of what I see as the Mises blog fundamentally counterproductive approach to this and related problems – which surely will NOT go away until some sort of management regimes are extended to important global and regional open-access “commons”.

Below is a copy of my initial response on Wrong-Way Corrigan`s thread: [snark on]

Heroes, Sean? Really?

This is an eclectic group (weighted towards social sciences and others outside of climate science) but still more like a bunch of grumpy emerituses who have been wrong time and again over the past thirty years (and don`t even agree with each other) but now wish to assert relevance by reluctantly conceding that change is in the cards and arguing that, given our long delay, sunk costs in current infrastructure and long lead times to change changes, our best course is to simply start getting ready for the ride.

Well, if even these folks think we need to start getting ready, then perhaps even the most skeptical should admit some slight concern. (I note that climate science “skeptics” John Christy and Pat Michaels didn`t sign on; can you guess why?)

 – Our most respected scientific bodies have been stating unequivocally that global warming is occurring, and that human economic activity is a significant factor. The U.S. National Academy of Sciences, which in 2005 the White House called “the gold standard of objective scientific assessment,” issued a joint statement with 10 other National Academies of Science saying “the scientific understanding of climate change is now sufficiently clear to justify nations taking prompt action. It is vital that all nations identify cost-effective steps that they can take now, to contribute to substantial and long-term reduction in net global greenhouse gas emissions.” (Joint Statement of Science Academies: Global Response to Climate Change [PDF], 2005);

I know; they and all of the other scientists who participated in the IPCC process are all hysterical misanthropes, whom freedom-loving rationalists can sweep away, in favor of this hero`s lot, who are now clearly changing tactics to argue adaptation instead of mitigation. (The lack of stomach in this second group is enough to make one wonder whether we might be better off without ALL scientists, isn`t it?)

– You and others are good at pointing out evil and rent-seeking motives on the part of everyone you disagree with – practically everyone now, it seems – but do you ever to trouble to notice how you`re being played by this letter? Like a string of others (this is the fourth in the past five years), it was started in Canada, organized and pushed by smooth PR professionals via a sophisticated vehicle (that are designed to provide “balance” while conducting “grassroots” campaigns) that clearly has significant backing from energy interests; this campaign differs in that it was perhaps more polished – for example, though the core signers remain the same over all four letters, this one was “by invitation only”:;;;

While energy firms have entirely legitimate interests, they too are rent-seekers and it behooves one to note that when they speak they certainly have their own interests in mind. Even more so when they try to hide who they are and pretend to be impartial, grassroots groups concerned only about the pubic interest.

– The letter itself argues that we’d be better off adapting to/managing the effects of climate change rather than trying to prevent it. This is no slam dunk, but clearly there are more iummediate returns from investments in adaptation than in trying to mitigate future climate change. But serious standard cost-benefit analysis has clearly shifted in the past two years to the conclusion that investments in mitigation also make sense:


Marty Weitzman/Harvard: “On Modeling and Interpreting the Economics of Catastrophic Climate Change”, December 5, 2007;

Richard Tol: “THE SOCIAL COST OF CARBON: TRENDS, OUTLIERS AND CATASTROPHES”, August 9, 2007;; Yohe, G.W. and R.S.J. Tol (2007), Precaution and a Dismal Theorem: Implications for Climate Policy and Climate Research,

These are the papers that the policy crowd is reading.