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« Green bloodbath | Main | Long-term trends in sea ice »
Thursday
Sep122013

The end of Sternonomics?

In a really good article in the New York Times, Eduardo Porter explains the economic end of the global warming debate in terms that even the most rabid green could understand. His starting point is the competing estimates of the social cost of carbon:

The estimate of $65 a ton is inspired by a moral stance: if warming will impose a cost of 1 percent of the world’s income in the future, we should spend about 1 percent of our income to prevent it — or perhaps somewhat less to account for the trend that people 100 years from now are likely to be much richer than people today.

By contrast, $13.50 a ton comes from the business world. Essentially, it requires that spending to prevent climate change should yield at least the same rate of return, in terms of reduced damages from warming, as any other capital investment.

The two outlooks lead to entirely different decisions. The government’s rendition of the moral approach implies that it is worth making every investment to reduce carbon emissions that has a rate of return of at least 2.5 percent, in terms of avoided damages. Businesss logic suggests that no investment should be made if the return — after taxes — is less than 5 percent.

He then takes readers through the science of discount rates and comes to a surprising conclusion:

...the burden American citizens and businesses will be called on to shoulder is likely to be modest — because business logic is likely to prevail.

Multiple challenges compete for the world’s resources, from economic development and ending poverty to eradicating AIDS and malaria. The climate is not the world’s only priority. Even if we were to agree that improving the well-being of future generations is worth an enormous investment, there might be better things to invest in than reducing greenhouse gas emissions.

If he's right then it may be that sanity has broken out in Washington. The Americans are going to reject Sternonomics out of hand. How long before politicians in Westminster follow suit?

[Whoops - not the WSJ - it's the NYT]

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Reader Comments (30)

Porter's piece is sound. The core argument is indeed that investment in greenhouse gas emission reduction is investment in other things foregone.

Stern, by the way, never had much traction in the USA.

Sep 12, 2013 at 9:22 AM | Unregistered CommenterRichard Tol

We don't actually end up in wildly different places.

"The government’s rendition of the moral approach implies that it is worth making every investment to reduce carbon emissions that has a rate of return of at least 2.5 percent, in terms of avoided damages. Businesss logic suggests that no investment should be made if the return — after taxes — is less than 5 percent."

Almost all of what is being done (onshore and offshore wind, current solar FiT s etc) don't even meet the 2.5% test. So they're still not worth doing.

Another way of looking at the same point is that of the price per tonne CO2. At that $65, the UK is already paying Pigou Taxes to cover that amount. APD, part of fuel duty, landfill tax, etc etc etc, all cover the amount that Stern says we should be paying in tax. This is before the FiTs etc. So, we're already done.

So as I say, whether we here take the 2.5 or the 5%, or the $65 or the $13.50, doesn't matter greatly. By the internal logic of the very arguments that give us those numbers we're already doing enough.

Sep 12, 2013 at 9:29 AM | Unregistered CommenterTim Worstall

It is alleged that Stern's influence in Lehman Bros bank as it bet the farm on carbon trading caused the 2008 financial collapse: http://www.ipa.org.au/publications/1438/did-global-warming-send-lehman-brothers-broke

Dodgy maths and innumerate bankers and politicians causes real problems. Stern appears to have been as dangerously out of control as Hansen.

Sep 12, 2013 at 9:40 AM | Unregistered CommenterAlecM

The New York Times???!!!!

I can understand your mistake!

Sep 12, 2013 at 10:06 AM | Unregistered CommenterGeckko

Off topic Bish but I heard this on the way home yesterday evening. I urge everyone to listen to it. The fun starts at 50 minutes 40 sec.

http://www.bbc.co.uk/programmes/b039q5fc

Sep 12, 2013 at 10:08 AM | Unregistered CommenterPaul

The investment/cost//risk a good argument, separate from the scientific argument.

I said some time ago that separating out the arguments into economic, business, moral, scientific from separate sources means hey can't dismiss one based on connections with the other. In more naïve times, good financial explanations of why it was foolish were 'tainted' by mentions of the science, allowing weak-minded readers to dismiss them as crank ideas.

Sep 12, 2013 at 10:10 AM | Unregistered CommenterTheBigYinJames

"So as I say, whether we here take the 2.5 or the 5%, or the $65 or the $13.50, doesn't matter greatly. By the internal logic of the very arguments that give us those numbers we're already doing enough."

We are already doing far, far too much Tim.

There is no threat, CO2 is a life giving gas, it is a minor GHG so vital to the planet's vitality its flora and consequently to us - its fauna but it is not NOW driving climate temperatures and it NEVER did.

Sep 12, 2013 at 10:13 AM | Unregistered CommenterAthelstan.

Paul

Thanks for the link, quite, quite amazing!

I trust you feel suitably evil going about shortening the life span of everybody on the planet!

A "Broom" trying to sweep in a new angle!

I agree with Paul and urge everyone to listen to it! I cannot possibly comment further.

Sep 12, 2013 at 11:03 AM | Registered CommenterGreen Sand

The saddest part is that this was all well known long before cAGW gained any traction with policy makers. Many of the "green" persuasion never were particularly numerate, yet somehow their less than half-baked arguments trumped the cold calculations of professional accountants and engineers.

I am led to conclude that the blame must ultimately be laid at the door of inadequate education in basic mathematics. Again, this is not really news that hasn't been heard before.

Sep 12, 2013 at 11:15 AM | Unregistered Commentermichael hart

Off topic Bish but I heard this on the way home yesterday evening. I urge everyone to listen to it. The fun starts at 50 minutes 40 sec.

http://www.bbc.co.uk/programmes/b039q5fc

Sep 12, 2013 at 10:08 AM | Unregistered CommenterPaul

A philosopher with a book to sell. It must be quite humiliating for him.

Sep 12, 2013 at 11:46 AM | Unregistered Commentermichael hart

Just listened to the John Broome interview on the BBC link.

Is there a word for bad philosophy where philosophy professors do not ask the right questions or think things through?

I thought they were clued up on the basics like how to get the right answer from a tribe of people who always lie? (You put a double question in like "What would a member of the other tribe say" then do the opposite)

Here is a group of deep greenies who take the opposite view on "offsetting".

Quite funny and worth a look

What is Cheat Offsetting?
When you cheat on your partner you add to the heartbreak, pain and jealousy in the atmosphere.

Cheatneutral offsets your cheating by funding someone else to be faithful and NOT cheat. This neutralises the pain and unhappy emotion and leaves you with a clear conscience.

Can I offset all my cheating?
First you should look at ways of reducing your cheating. Once you've done this you can use Cheatneutral to offset the remaining, unavoidable cheating

Sep 12, 2013 at 11:49 AM | Unregistered CommenterJack Hughes

Even though some sense might be trickling in, all these estimates still assume that the extra costs imposed in the name of "carbon reduction" or "saving the planet" (presumably this one) are achieving *some* good. I don't see the slightest evidence that they are. However anybody can see the harm done by these arbitrary impositions.

Any good that was achieved came from anti-pollution measures dating from before the "carbon reduction" craze.

Sep 12, 2013 at 12:00 PM | Unregistered Commenterkellydown

There was a philosopher on Radio 4 last night (PM, I think it was), who said global warming is going to reduce lifespans by six months.

Sep 12, 2013 at 12:02 PM | Unregistered CommenterRobinson

How many years ago did Lomborg (and many others) say as much?

Sep 12, 2013 at 12:05 PM | Registered Commenteromnologos

@Paul: John Broome won't last long in that job. He is talking about "questioning"!

Sep 12, 2013 at 12:12 PM | Unregistered Commentergraphicconception

Bishop: "The Americans are going to reject Sternonomics out of hand. How long before politicians in Westminster follow suit?"

A long time, given their own pace. One problem being that MPs *like* to defer decision-making to putative experts.

The second problem being that what really underpins Stern is not as much a method of cost-benefit analysis as it is a political argument. His a priori is that the first job of politics is the mitigation of risk. On that basis, you can make an argument for 'policy', or more precisely, political power, by identifying any risk. Of course, it's so much ideology. The argument for the regulation of crisps ('chips' in American) is the same as the argument for the regulation of carbon: people are simply too daft to understand the risks they are exposed to, in this crazy, complex chaotic world; but the disorientation belongs to those (like those who wield the Stern Report) who can neither make sense of the world nor an argument about how it ought to be. They know they should be the ones to make it, though.

Sep 12, 2013 at 12:24 PM | Unregistered CommenterBen Pile

The question is in just how much debt do the faux-greens want to leave the next generation in order to leave them short of energy too? Moralists my eye!

Sep 12, 2013 at 12:42 PM | Unregistered CommenterJamesG

Less-sternonomics notes that additional CO2 has been, on the macro scale, entirely beneficial by making the planet's vegetation more bountiful and, if the measurements are to be believed, more habitable in the higher latitudes without detriment to the lower ones. On the micro scale, cyclone energy is lower against an average and therefore human/animal suffering less in regions normally affected. Rainfall/drought has been little affected although drought is less extreme in its effects due to greater tolerance of plants to it because of their other response to additional CO2.

However, we are paying a huge price to prevent this happening. But will CO2 molest our children? On the evidence so far, no: it is a fevered imagining kept alive only by the saying of doom by the likes of Stern. The man's a menace.

Sep 12, 2013 at 12:44 PM | Unregistered Commenterssat

Good one, JH (Sep 12, 2013 at 11:49 AM)! That they are most definitely tongue in cheek can be seen from their tag-line: “Helping you because you can't help yourself”.

And, what about the Himalayas?

Sep 12, 2013 at 1:09 PM | Unregistered CommenterRadical Rodent

Hey! Linking doesn't work! Here is the reference in full: http://www.4liberty.org.uk/2013/09/12/snow-on-the-pashminas/?utm_source=rss&utm_medium=rss&utm_campaign=snow-on-the-pashminas

Sep 12, 2013 at 1:10 PM | Unregistered CommenterRadical Rodent

Paul (Sep 12, 2013 at 10:08 AM):

Interesting. But, I think the presenter was not taking it too seriously (note the earlier panda report) – he certainly seemed to be smothering laughter as he starts talking to that philosopher. I have a feeling that the BBC is beginning to back-pedal on the whole scam; how long before they are firmly in the “denial” camp?

And John Broome really wants to be taken seriously? When he comes out with ideas with, “what people lose when they die is the rest of their lives…” and, “…the date at which they day cannot possibly make any difference to the badness of their death”?

Sep 12, 2013 at 4:05 PM | Unregistered CommenterRadical Rodent

"If he's right then it may be that sanity has broken out in Washington."

No.

Want proof? Just look at the Syria debacle.

Sep 12, 2013 at 4:27 PM | Unregistered CommenterNoblesse Oblige

These estimates all miss the fact that the USA is shipping her coal and industry to China so there is ZERO impact on the climate even when you believe all the scary CAGW warming numbers.

If the politicians think China (or Russia) is going to cut their economic throats over this idiocy they are nuts. At Nopenhagen, China gave a clear signal to Obama they were having none of it. Too bad Obama and the rest of Washington was too dumb to pick up the clues.

Even the Guardian noticed the snub! How do I know China wrecked the Copenhagen deal? ... The truth is this: China wrecked the talks, intentionally humiliated Barack Obama, and insisted on an awful "deal" so western leaders would walk away carrying the blame. How do I know this? Because I was in the room and saw it happen....

Sep 12, 2013 at 4:56 PM | Unregistered CommenterGail Combs

"By contrast, $13.50 a ton comes from the business world."

The business world told the Chicago Climate Exchange that the intrinsic value was $0.05/ton (C or CO2, it doesn't matter). That is the same price as ONE Kingsford charcoal grill briquette.

Also-
“Certified Emission Reduction credits from the program closed unchanged yesterday at 58 euro cents ($0.78) a metric ton, according to data from ICE Futures Europe. They’ve plunged 97 percent since reaching a record high of 22.54 euros a ton in July 2008…”
Bloomberg, 09/04/2013

There's that pesky 97% again...

Sep 12, 2013 at 4:58 PM | Unregistered Commenterchris y

"it may be that sanity has broken out in Washington"
I disagree. The report "does not revisit other assumptions with regard to the ... equilibrium climate sensitivity," so they're still using AR4 values. And in a quick skim, I noticed "In FUND 3.8, the rate of temperature response has been updated to a quadratic function of the equilibrium climate sensitivity", which I find extremely strange, considering that the whole concept of ECS is grounded in linearizing responses.

Plus the whole idea of positing quadratic (or cubic, or whatever) functions of temperature for effects. It seems like fairly broad guesswork to me. However, it is well outside my range of expertise, and Hope and Tol, both sensible folks, believe that a case can be made for this approach.

Sep 12, 2013 at 5:15 PM | Registered CommenterHaroldW

Just a quick thank you to Paul for the link to the John Broome interview on PM. Another for the collection!

Sep 12, 2013 at 6:05 PM | Unregistered CommenterAlex Cull

John Broome's interview was interesting. How does he know that a lifetime's emissions will shorten life span for future generations by 6 months?

Surely if we all stop our emissions there won't be any future generations?

:)

Sep 12, 2013 at 7:13 PM | Unregistered CommenterRB

I've been saying for some time that calls for action and spending to "solve" the climate problem are always put forth in a vacuum, with no regard given to other major problems.

Worse, the problems climate is supposedly presenting to us are rarely supported by data and are almost exclusively based on model projections. Meanwhile evidence abounds for the real world problems facing humanity every day.

Sep 12, 2013 at 8:26 PM | Unregistered Commentertimg56

Broome is blind to his own circular reasoning. Assuming CO2 is harmful "begs the question". No wonder the IPCC likes him!

Sep 13, 2013 at 9:03 AM | Unregistered CommenterBrian H

I am less than amused when listening to someone like Broome spout off as to what is good or bad in a certain situation, simply because they have a degree in Philosophy. That's their first problem, which leads to the main problem. Back when I majored in pre-post modern Philosophy, our focus was on what people have said about "the good", what has been put forth as "known", etc., and especially what is wrong with what they are saying. This then leads to the question of how language even works, which in the end can probably be answered only by describing what people do to make language work. But one requirement for making language work in answering a question about ethics is that the language must relate or refer to reality, and it must be free from logical fallacies.That's why Broome should first try to find out what is wrong with what he says, instead of thinking what he says must carry weight just because he is a "Philosopher". So it's not much of a mystery as to why he sounds just like a "mainstream" Climate Scientist.

Sep 14, 2013 at 5:23 AM | Unregistered CommenterJPeden

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