Wednesday, October 24, 2007

Save the Earth in Six Hard Questions: What Al Gore doesn't understand about climate change.

Gosh, I felt "Save the Earth in Six Hard Questions: What Al Gore doesn't understand about climate change." (reposted below) was a rather simplistic article, particularly by the author’s and Slate's usually high standards.

It makes leaps of assumptions itself that would like to lump things into nice round numbers, a point off growth here, another there, to size up the effects of climate change neatly.

And that's the problem.

Eminent pro-market Nobel economists like Kenneth Arrow say
(Economist Explains Forests' Costs and Benefits") that today we don't cost pollution correctly by many order of magnitude.

And as Arrow explains:

It’s very typical all over the world for fisherman to limit their catch, because they know that if they catch too much there won’t be any next year. Or the nets have big meshes so that the young will escape. It has been very well documented that, for fishing, people tend to create a market, not like we ordinarily have, but a market that understands what costs that you’re imposing.

It’s the idea that, at least for the resources you use, you should at least pay the cost to society. What you do today may not be so serious today, but it affects tomorrow. Of course, the typical situation is using up fossil resources, for example oil and coal. Or the degradation of farmland.

Those things are profitable today, but don’t take the future into account. Or consider dumping carbon dioxide into the atmosphere, which for many years, didn’t create any significant problems. Now the dumping, which has been going on since the 1800s, since the Industrial Revolution began, is beginning to show up. The point being, once stuff goes in, you can’t take it out.

So, the result is that there is a permanent effect, and – from the perspective of an economist – you don’t pay for it. You don’t pay a tax, a price for putting carbon dioxide into the atmosphere. This is what you call a dynamic effect, an effect over time.

So just because we don't doesn't mean we shouldn't. Without an eye-blink people seek insurance for cars, earthquakes, dismemberment, and floods, some of which are fairly unlikely to ever take place for most people, but just in case....

Most people, bubbly (pun intended) as folks seem to be these days, naively assume we can treat Mother Nature as a free garbage dump and don't support efforts to hedge, assess and mitigate one of the most potentially catastrophic large-scale risks and costs ever. Schizophrenic. Not what the conservative Teddy Roosevelt would have done.

It also demonstrates plenty of naive and wishful thinking. Just because we don't know everything doesn't mean we don't take time, effort, and resources to learn and mitigate. We do it for a bunch of lot less likely risks of life. Yet we apply a double-standard for the environment, which today amounts to a molecule of water in a bucket.

The environment should trump most issues for our collective attention and resources.

And to even imagine summing up the environment and assuming we can arrive at a well-informed present-value dollar cost misses a key point. Obviously, conserving and engendering green technologies is a cost. But conversely it is also an intrinsically very valuable exercise and work product in of itself (as with most things worth doing).

Society spends money to learn how to make a widget with less parts, less costs, and less resources yet with more functionality and features - standard fare for most technological advances. They typically feature upfront R&D costs with huge gains amortized well into the future.

Take CFL's for instance. Compact Fluorescent Light bulbs are the size of a regular light bulb. Costco now sell a 6-pack 120-watt equivalent compact fluorescent bulbs for $5:

- It only consumes 20 watts of energy, basically cutting out about 100 watts worth
of heat. Yet it’s whole lot brighter and has a purer white light than regular
incandescent and emits a lot less heat.

- That 6-pack also cuts out over 7,230 lbs of CO2 over its lifetime. It saves 4,700 kWh of electricity, enough to light up an avg. home for 2 yrs.

- And greenhouse gases forgone equal to planting 80 trees.

- Average 10,000 hr lifetime (1-3 yrs) is lot longer than a regular bulb.

- Now, there’s a bunch of wattage options available – all a lot greener, fantastic ROI
and better all around.

- Not to mention the $564 you save over the lifetime of use.

Less (and smarter) is (a lot) more. Now more business are taking part of green as they should. It’s a strategic investment.

Conservatives typically are comfortable with the status quo and thus seek to keep it intact.
What I dislike about this type of nit-picking is it gives [neo]conservatives ammunition and excuse to continue doing as little as possible. In uncertain times like these, we need progressives and liberals who see the world colored as it really is, not black and white lumps of numbers and choice facts that fit into nice, easy to sound-bite bullets on paper. And write-off the big chunk of reality that is altogether nuanced and inconvenient [or difficult] to grok at the moment.

At least without hard rigorous thought, effort and science applied over prolonged, sustained periods of time. Quite liberal and open-minded, a pre-requisite for the innovations necessary.

And just to be clear: we're not the ones doing Mother Nature any favors. Rather, she’s doling us a big one, putting up with our crap, so to speak, while not asking for payment upfront though the IOUs will need to be paid, no free lunches and all. Else she’ll stop picking up the trash and just let us die off. As we rightly deserve if we can't come to our common senses.

Which I'm sure Mother Nature will be fine with, as she’s been for the last 4 billion years.

Slate - everyday economics: How the dismal science applies to your life.
Save the Earth in Six Hard Questions What Al Gore doesn't understand about climate change.
By Steven E. Landsburg
Posted Monday, Oct. 22, 2007, at 7:44 AM ET

Barring a last-minute intervention by the Supreme Court, the 2007 Nobel Peace Prize will be shared by Albert Gore Jr. Admittedly, Gore has been less of a menace to world peace than some previous laureates (think Henry Kissinger). But there is nothing particularly peaceable about Gore's rhetorical approach to climate policy.

At his most pugnacious, Gore has depicted the fundamental trade-off as one between
environmental responsibility and personal greed. Of course, as everyone over the age of 12 is perfectly aware, the real trade-off is between the quality of our own lives and the quality of our descendants'.

In other words, climate policy is almost entirely about you and me making sacrifices for the benefit of future generations. To contribute usefully to the debate, you've got to think hard about the appropriate level of sacrifice. That in turn requires you to
think hard about roughly half a dozen underlying issues.

1. How much does human activity affect the climate? This is actually a whole menu of questions: What can we expect given the current level of carbon emissions? What if we cut those emissions by half? By two-thirds? And so on. These are questions for
physical scientists, not economists or politicians.

2. How much harm (or good!) is likely to come from that climate change? This is partly a matter of physical science and partly a matter of economics. If the world temperature rises 3 degrees, agronomists try to predict the wheat yield in Oklahoma; economists try to predict when Oklahomans will turn to alternate ventures—and when it will become profitable to grow wheat in Alaska. Climatologists estimate what it takes to put New York underwater; economists estimate the cost of moving New York inland.

3. How much do we—or should we—care about future generations? Edmund
Phelps, the 2006 Nobel laureate for economics, argued long ago that you (and I)
should care exactly as much about a stranger born 1,000 years hence as we do
about a stranger who's alive today. Phelps' view has been highly influential
among economists, who now take it as more or less the default position. But even
economists are sometimes wrong, and there are powerful arguments for
"discounting" the welfare of future generations.

First, many people (myself excluded, however) believe we should care more about our countrymen than about a bunch of foreigners—hence the sentiment for a border fence. If we are allowed to care less about people who happen to be born in the wrong country, why can't we care less about people who happen to be born in the wrong century?

And second: Few of us feel morally bound to churn out as many children as we possibly can, which means we think nothing of denying future generations the gift of life. If it's OK to deny them their very lives, shouldn't it be OK to deny them a temperate climate?

There is a ton more to be said in response and counter-response, but in the end, you've got to take a stand. Does the next generation count 100 percent as much as our own, as Edmund Phelps demands? Or 99 percent? 95 percent? 90 percent? I'll show you later how much the answer matters.

4. How likely are those future generations to be around, anyway? If you think life on Earth will be destroyed by an asteroid in 200 years, it makes little sense to worry about the climate 300 years from now. (Of course, the issue is complicated by the fact that our climate policies change the survival odds.)

5. Just how rich are those future generations likely to be? If you expect economic growth to continue at the average annual rate of 2.3 percent, to which we've grown accustomed, then in 400 years, the average American will have an income of more than $1 million per day—and that's in the equivalent of today's dollars (i.e., after correcting for inflation). Does it really make sense for you and me to sacrifice for the
benefit of those future gazillionaires?

6. How risk-averse are we? This matters not just because of uncertainty about the effects of climate change but because it affects the way future generations want us to behave. Imagine yourself as a disembodied soul, waiting in line to be born—possibly next year, possibly 100 years hence. If you have little tolerance for risk, you'll want us to pursue policies that make life about equally good at all times; if you're
willing to roll the dice, you might prefer a policy that allows some generations
to live riotously at the expense of others.

Only after you've addressed each question in turn can you say something sensible about climate policy. To carry out that program in detail would indeed be a Nobel-worthy achievement. I don't propose to earn my Nobel Prize in this column space, but I can at least offer a quick back-of-the-envelope calculation to show you how this stuff works.

First, I'll make the extreme assumption that our environmental recklessness
threatens to shave 1 percentage point off economic growth forever. Because of
compounding, our disposable incomes will be reduced by 9.5 percent a decade from
now and by 63 percent a century from now—perhaps because we'll spend 63 percent of our incomes relocating coastal cities. Now toss in some standard (but arguable) assumptions about risk aversion and discounting. (Note to econogeeks: I assumed a risk-aversion coefficient of 1, and I discounted future generations' welfare at an annual rate of 5 percent, partly because we might care less about them and partly because we're not sure they'll exist.) Run this through your calculator, and you'll find we should spend up to about 17 percent of our incomes on climate control—provided that our investment is effective. That's an expenditure level that I expect would satisfy Al Gore.

Change the numerical assumptions, and you'll change the numerical conclusion. Make the discount rate 1 percent instead of 5 percent, and you can justify spending up to a whopping 62 percent of our incomes on climate control; lower the discount rate to 10 percent, and you can't justify spending more than 8 percent of our

The moral of that story is not that economists can justify anything;
it's that assumptions really matter. Therefore you need to be clear about your
assumptions, and you need to be prepared to justify them. If you're not talking
about discount rates and levels of risk aversion, you're blathering.

The most thoughtful assessment of climate change is the Stern Review, prepared in October 2006 at the behest of the British government. The Stern Review reaches
conclusions generally compatible with Al Gore's worldview, but only after laying
out the underlying assumptions so clearly that skeptics like me can tinker
around with them and see how the conclusions change. In other words, they've
taken a hot-button issue and reduced it to its constituent pieces so that
opposing parties can stop yelling at each other and say, "Let us calculate."
That's what I call a contribution to world peace. I wish the Nobel Committee had