Getting the price of climate change right

I’m not sure what the right GHG tax is, but it sure ain’t zero.

Robert Frank offers a calculation about why we ought to act now on global warming, and some speculations about why we’re not doing so.

The calculation is that for a GHG tax equivalent to about $2.60 a gallon of gasoline, we could eliminate something like a 10% risk of a 7° C. temperature increase by 2100, a truly catastrophic outcome. The speculation is that climate change doesn’t trigger strong moral emotions. Frank quotes Daniel Gilbert: “If climate change were caused by gay sex, or by the practice of eating kittens, millions of protesters would be massing in the streets.”

I think that captures an important piece of the puzzle. But it doesn’t fully explain the irrationality of regarding uncertainty an argument against action rather than for it. Perhaps the problem is that in the usual case action is risky relative to inaction. In this case, it’s sitting on our hands while lawyers, economists, pundits, and lobbyists pretend to be climate experts that’s the wild-ass gamble, while a GHG tax or the equivalent in the form of cap-and-trade, plus some R&D subsidies for non-GHG-releasing energy sources, represents a conservative (in the portfolio-analysis sense of that term) risk-management strategy.

One of the worst habits of poor-country governments is subsidizing food and fuel for city-dwellers. Such policies are demonstrably inefficient (compared to giving money) and one of the central tenets of the (discredited but not abandoned) neo-liberal Washington Consensus was “Getting Prices Right” (without, of course, actually replacing commodity subsidies with income transfers). “Conservatives” approved; the fact that such policy changes often couldn’t be imposed democratically never bothered them much.

But our current climate-change policy – allowing people to continue to release greenhouse gases to an unlimited extent without any charge – constitutes a gross mispricing of a scarce resource. We can argue about what the charge should be, and how quickly or slowly it should be phased in. But unless the voices tell you that the warming problem is entirely imaginary, you have to know that zero is the wrong price. (Even if you believe in Imhofe’s conspiracy theory about climate scientists massively fudging the data, that still wouldn’t suggest that the risk is zero.)

And as long as the American right wing would prefer risking the planet to cooperating with a liberal President, there’s not much we can do about it. Not much, that is, other than remembering that electing Democrats this fall and in 2012 is literally a matter of life and death, which allows us to put the tensions between “progressives” and the Obama Administration in perspective. The difference between not wanting to do “enough” about climate change and not wanting to do anything about it but “Drill, baby, drill!” is all the difference in the world.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact:

12 thoughts on “Getting the price of climate change right”

  1. Numerous studies have shown that people are more content to face a risk from omission (failure to act) than they are from commission (acting wrongly). By doing nothing (allowing business as usual to continue) people don't feel like they have chosen — even though they're actually just choosing "whatever happens as a result of business as usual" — and so they feel like that's safer than making a choice and perhaps choosing wrong.

    See for more info about his book "What's The Worst That Could Happen: A rational response to the climate change debate." Craven did "The Most Terrifying Video You'll Ever See" (google it) to present his argument. In a nutshell, it's that we won't ever have perfect knowledge about the risks of climate disruption until it's far too late. Thus, we should stop worrying about it as a problem of science and start worrying about it as a problem in risk management …

    Viewed that way, it's not who you believe, "alarmists" or "deniers," but rather, which would you rather be if we got the science wrong — a denier who acted as if climate change was a real threat or an alarmist who acted as if there was no threat.

  2. Are you connecting this to the massive subsidies for SUV&cheeseburger lifestyle of obesity (being a real american)?

  3. I suppose you can subject this sort of thing to mathematical analysis if the numbers you're slinging around, like a 10% chance of a 7 degree rise in 100 years, are really reliable. If the reliability of the numbers you're slinging around is up for grabs, not so much.

    I suppose you consider it a terrible injustice that Climategate has so strengthened the hand of the 'denialists', but it has, and pretending it hasn't won't make it go away. The very foundations of climate science need to be rebuilt, in the harsh light of day, with every little step shown and documented. "Trust me" doesn't work anymore.

    It never should have, really.

  4. Well, I don't see myself as right wing. Maybe 'raging centrist' would do for me. I see the path dependency of going down this path of payoffs to backers with free carbon rights as being squarely in the tradition of ADM subsidies for stupid ethanol plants and the Cornhusker Kickback for health care. And the mortgage tax credit, a major factor in our gross overbuilding of housing. And, and – you screw it up at the beginning, and you keep going down the wrong path forever. If you get it wrong right out of the box, free credits for the favored uses, you create a whole new class of rentiers who like getting paid and want to keep getting paid. AND you have Goldman (Great Vampire Squid) getting the fees for trading these things! It's dreadful, I'd rather have blocking capability on the current plan and come back in a couple of years when people are serious about getting tax revenue and tax carbon.

  5. Brett, how are your two forms of cancer doing? Seems like you have lots worse things to think about then trumped up "climategate," no?

    Dave, I agree with you (and James Hansen) that cap-and-trade schemes are inferior to carbon taxes. Definitely don't agree that we have "a few years" to wait. Actually, I think we've screwed the pooch on climate and won't do anything meaningful at all and we'll continue past trigger points for positive feedback loops.

  6. Pretty well, actually; The surgery caught the prostate cancer in time, and my lymphoma is shrinking in response to the chemo. I'll be getting a PET scan in a few weeks so they can decide the future course of my treatment.

  7. Insurance companies sling around uncertainly uncertain numbers all the time, and generally quite profitably so. (And, of course, insurance companies are among those raising the alarm about climate change, because redlining large parts of the globe is not a good business model.)

  8. Interestingly I had an interaction with such an American of right wing persuasion recently. Very smart guy (tax attorney, former US Army officer, Republican).

    His view was that doing anything about GW, whilst China and other countries are not, would simply disadvantage the USA and US business. And therefore would be a bad thing. So he would want a worldwide Treaty (which he admits is not likely).

    So basically the risk of damage to the USA exceeds any benefit that might be obtained by the USA doing something.

    It's not that I agree with this line of logic, but you see the conservative fundamentals in the view: US-centric, the (valid) point about China (I tried the line of argument that China would surely do nothing unless richer countries do something– no dice with him), the risks are overstated, it is individual action that is required (he did favour incentives to develop cleaner technologies).

    The reality is maybe 30% of us really fear global warming, another 30% are not sure. 40% not so much.

    So unless we can come up with some way of getting the middle ground onboard, and speaking in a language that they understand, this one is not a flyer.

    I despair, because the Clear and Present Danger seems so obvious to me, and the uncertainties make me more scared, not less.

    But this is what we are dealing with. Fundamental Attribution Fallacy (I make decisions because of necessity, my opponent is Evil personified) at work. They are not Evil. But they are immobile.

    I sense some of Robert Altmeyer's work about Authoritarian and Conservative Personalities. Their world view means that they just cannot see what is exorcising us.


    Nevertheless, there is no connection between authoritarianism and either low or high intelligence. In terms of the five factor model of personality, authoritarians generally score lower on openness to experience and slightly higher on conscientiousness.[11] unquote

    There are, to me, echoes of the fight against slavery or the US Civil Rights fight. The other side is not evil, but it is serving evil ends. History must discard them. (we could be wrong of course, but the consequences of us spending a few hundred billion unwisely are much much less than the bad consequences of failing to head off a major shift in global climate)

    But I don't know how we get to that place. Do we wait 30 years until it is a real crisis?

    'On the water of the lillies,

    Christ was born from Galilee

    As he died to make us Holy

    Let us fight to make men Free'

    I don't know how we get there. I really don't.

  9. Electing more Democrats isn't going to help. It might not hurt as much as electing Republicans, but it's pretty obvious at this point that the Dems don't really mean half of what they say. Witness long national nightmare that has been the "debate" on "healthcare reform."

    Assuming the projections are right, we're screwed anyway. The developing world isn't going to listen to us scold them about energy use when they're just starting to do the (enjoyable) things we've been doing for the past 50+ years. The environmentalism of the developed world must sound like "I've got mine, screw you" to them.

    I'm not in the "do nothing" camp on this, but I have to admit I'm highly skeptical that there will be any effective collective action. I'm pretty sure Cap & Trade will end up being gamed.

  10. Rob in CT

    'the developing world will do nothing'

    So let's look at the key players:

    – India – huge civilian nuclear programme. Ripe for solar power if we can get the cost effectiveness right. Huge loser from global warming. Indian scientists leaders on the IPCC. Public statements that they need help and technology from the West on carbon capture.

    – China – major shift in intentions the last 2 years. Concentrating on more efficient coal-fired stations. Huge nuclear programme. Largest installer of wind power in the world. Major drive towards energy efficiency. Public statements they want the US to commit to serious CO2 reductions before they do anything.

    – Brasil and Indonesia – major GHG emitters due to one factor. Deforestation. (they are the 8th and 9th largest CO2 emitters in the world). Note Brasil is the world's leading producer and consumer of biofuels. The REDD (forestry credits system) is one of the few survivors of Copenhagen which is going forward. Avoided costs per tonne of CO2 as low as $4-5.

    So in essence, the world's 4 biggest emerging markets contributors are all signalling that they are ready to do a deal. Not one which commits them to absolute cuts (China and India) in the short term, but one which commits them to stabilisation of emissions in the long term.

    'game' cap and trade? Yes in terms of shifting the burden (how many permits are given away, free?). No in terms of total emissions (the total is relatively easy to control).

    I agree with all the risks of coordination failure, but the reality is a deal is in each country's own self-interest, in the long run. All of these countries have more to lose from global warming than the developed west.

  11. Mark is right. A zero price on carbon is way worse than a too-small price on carbon. It made me very very sad that so many environmental groups failed to support Waxman-Markley. The simple fact was this was the best we were going to get for a good long time– too little, too late, but a whole lot better than nothing.

    Two addenda, to corroborate the main idea:

    a) Arrhenius calculated the effects of a doubling of CO2 in the atmosphere…A HUNDRED YEARS AGO! This science is not new, or in any doubt. He said 6-8 degrees C, and now, after tons of data collection and much more sophisticated modeling, we say…4-8 degrees C. Hmm…

    b) Even if you don't believe in global warming, most of our carbon emissions go into the ocean, where they acidify the water and create other problems. Therefore, even if you were 100% sure that global warming is malarkey, you should still support a non-zero price on carbon.

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