Climate Change and Back to Drawing Board for Economists
NYT article Pace of Climate Change Sends Economists Back to Drawing Board, Lydia DePillis, Aug. 25, 2022, a reporter on the Business desk at The New York Times. Previously, she covered federal agencies at ProPublica, the national economy at CNN, the Texas economy at The Houston Chronicle, labor and business at The Washington Post, the technology industry at The New Republic and real estate at the Washington City Paper. She grew up in Seattle and graduated from Columbia University with an undergraduate major in history.
They underestimated the impact of global warming, and their preferred policy solution floundered in the United States.
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The dynamics of this article reveal two conflicting and (maybe three?) opposing views. Opposing as they are approaching a solution from different directions. This isn’t the fault of economics. Fault lies with Congress, outside moneyed influences, and political interests. I am not sure how much closer we must get to catastrophe before the public take notice.
Rather than imposing a tax, the legislation offers tax credits, loans and grants to reflect a higher cost for inefficiency. As the author states, we are left with technology-specific carrots that have historically been seen as less efficient than the stick of penalizing carbon emissions more broadly. They will take the money and run.
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Reprinted from the New York Times, August 25, 2022,
Economists have been examining the impact of climate change for almost as long as it’s been known to science.
In the 1970s, the Yale economist William Nordhaus began constructing a model meant to gauge the effect of warming on economic growth. The work, first published in 1992, gave rise to a field of scholarship assessing the cost to society of each ton of emitted carbon offset by the benefits of cheap power — and thus how much it was worth paying to avert it.
Dr. Nordhaus became a leading voice for a nationwide carbon tax that would discourage the use of fossil fuels and propel a transition toward more sustainable forms of energy. It remained the preferred choice of economists and business interests for decades. And in 2018, Dr. Nordhaus was honored with the Nobel Memorial Prize in Economic Sciences.
But as President Biden signed the Inflation Reduction Act with its $392 billion in climate-related subsidies, one thing became very clear: The nation’s biggest initiative to address climate change is built on a different foundation from the one Dr. Nordhaus proposed.
Rather than imposing a tax, the legislation offers tax credits, loans and grants — technology-specific carrots that have historically been seen as less efficient than the stick of penalizing carbon emissions more broadly.
The outcome reflects a larger trend in public policy, one that is prompting economists to ponder why the profession was so focused on a solution that ultimately went nowhere in Congress — and how economists could be more useful as the damage from extreme weather mounts.
A central shift in thinking, many say, is that climate change has moved faster than foreseen, and in less predictable ways, raising the urgency of government intervention. In addition, technologies like solar panels and batteries are cheap and abundant enough to enable a fuller shift away from fossil fuels, rather than slightly decreasing their use.
Robert Kopp, a climate scientist at Rutgers University, worked on developing carbon pricing methods at the Department of Energy. He thinks the relentless focus on prices, with little attention paid to direct investments, lasted too long.
“There was an idealization and simplification of the problem that started in the economics literature,” Dr. Kopp said. “And things that start out in the economics literature have half-lives in the applied policy world that are longer than the time period during which they’re the frontier of the field.”
Carbon taxes and emissions trading systems have been instituted in many places, such as Denmark and California. But a federal measure in the United States, setting a cap on carbon emissions and letting companies trade their allotments, failed in 2010.
At the same time, Dr. Nordhaus’s model was drawing criticism for underestimating the havoc that climate change would wreak. Like other models, it has been revised several times, but it still relies on broad assumptions and places less value on harm to future generations than it places on harm to those today. It also doesn’t fully incorporate the risk of less likely but substantially worse trajectories of warming.
Dr. Nordhaus dismissed the criticisms. “They are all subjective and based on selective interpretation of science and economics,” he wrote in an email. “Some people hold these views, as would be expected in any controversial subject, but many others do not.”
Heather Boushey, a member of the White House’s Council of Economic Advisers who handles climate issues, says the field is learning that simply tinkering with prices won’t be enough as the climate nears catastrophic tipping points, like the evaporation of rivers, choking off whole regions and setting off a cascade of economic effects.
“So much of economics is about marginal changes,” Dr. Boushey said. “With climate, that no longer makes sense, because you have these systemic risks.” She sees her current assignment as similar to her previous work, running a think tank focused on inequality: “It profoundly alters the way people think about economics.”
To many economists, the approach pioneered by Dr. Nordhaus was increasingly out of step with the urgency that climate scientists were trying to communicate to policymakers. But a carbon tax remained at the center of a bipartisan effort on climate change, supported by a panoply of large corporations and more than 3,600 economists, that also called for removing “cumbersome regulations.”
In his Nobel speech in 2018, Dr. Nordhaus pegged the “optimal” carbon price — that is, the shared economic burden caused by each ton of emissions — at $43 in 2020. Gernot Wagner, a climate economist at Columbia Business School, called it a “woeful underestimate of the true cost” — noting that the prize committee’s home country already taxed carbon at $120 per ton.
By that time, progressive organizations in the United States had started to take another tack. Carbon prices, they reasoned, tend to hit lower-income people hardest. Even if the proceeds funded rebates to taxpayers, as many proponents recommended, similar promises by supporters of trade liberalization — that people whose jobs went offshore would get help finding new ones in a faster-growing economy — proved illusory. Besides, without government investment in low-carbon infrastructure, many people would have no alternative to continued carbon use.
Rhiana Gunn-Wright, director of climate policy at the left-leaning Roosevelt Institute and an architect of the Green New Deal:
“You’re saying, ‘Things are going to cost more, but we aren’t going to give you help to live with that transition. Gas prices can go up, but the fact is, most people are locked into how much they have to travel each day.”
At the same time, the cost of technologies like solar panels and batteries for electric vehicles — in part because of huge investments by the Chinese government — was dropping within the range that would allow them to be deployed at scale.
For Ryan Kellogg, an energy economist who worked as an analyst for the oil giant BP before getting his Ph.D., that was a key realization. Leaving an economics department for the public policy school at the University of Chicago, and working with an interdisciplinary consortium including climate scientists, impressed on him two things: that fossil fuels needed to be phased out much faster than previously thought, and that it could be done at lower cost.
Just in the utility sector, for example, Dr. Kellogg recently found that carbon taxes aren’t meaningfully more efficient than subsidies or clean electricity standards in driving a full transition to wind and solar power. And as more essential devices can be powered by batteries, affordable electricity becomes paramount. Dr. Kellogg:
“If you want to get rid of some of the carbon but you don’t think it’s worthwhile to invest in deep decarbonization, keeping a price on carbon is probably a good idea. If you’re going to zero, and really cleaning the grid, you want to use that clean electricity to electrify other stuff, and you want it to be cheap.”
That’s why the Inflation Reduction Act wasn’t only a concession to the political reality that taxes are a hard sell. The Biden administration’s original Build Back Better plan emphasized innovation and deployment of renewable energy capacity, with particular attention to the interests of workers and communities of color, rather than taxing carbon and letting the market do its thing. On the regulatory side, progressives are also pushing clean-energy standards for utilities, buildings and vehicles — including, in California, a ban on the sale of new gasoline-powered vehicles by 2035.
To be sure, most economists still think there’s an important place for carbon pricing, and squirm when the White House pushes for lower gas prices. James H. Stock, an economist who serves as vice provost for climate and sustainability at Harvard University;
“We all cringe, but all things considered, a $7,500 tax credit and reliable charging network might be as powerful as high gas prices in getting someone to buy an electric vehicle.”
In that sense, subsidies are a variant of pricing policy: They effectively raise the cost of fossil fuels relative to renewable alternatives. Only recently did the supply of those alternatives reach the point where a tax credit would make the difference, on a large scale, between buying an electric vehicle or not. Dr. Stock said.
“Economists could be faulted for not shifting quickly enough as these prices have fallen so surprisingly. My criticism wouldn’t be ‘Why did you start with a carbon tax?’ but ‘Why didn’t we embrace the investment strategy five years ago?’”
Technologies like solar panels and batteries have become cheap and abundant enough to enable a fuller shift away from fossil fuels, rather than slightly decreasing their use.
Experts working on climate change issues say there are plenty of ways for economists to help. For example, the damage from climate change is often specific to geographic characteristics like topography, soil quality, tree cover and the built environment. Building on those granular factors to identify systemic risks may be more useful for policymakers than broad, top-down economic models. Madison Condon, an associate professor at Boston University School of Law who focuses on financial risk:
“People who know what’s going on are engineers and insurers. Rather than doing this completely ridiculous thing, which is not mathematically possible in any way, we could just read the science about what’s going to happen literally in the next decade.”
Another strain of research revolves around whether models that gauge the economy’s performance should be revised to incorporate the rising cadence of weather disasters. Sarah Bloom Raskin, a former Federal Reserve governor and deputy Treasury secretary, noted that until recently, the Fed had considered climate change — like economic inequality — to be a political and social issue outside its purview. But ignoring the developments, she said, looks increasingly irresponsible.
Ms. Raskin, speaking of the calculations Fed economists perform in order to derive their closely watched projections:
“Does consumption act the same way when you have these kinds of events? Does business investment? Does government spending have the same multipliers? That to me is exactly the discussion that needs to happen around climate. Are these equations doing what they need to do to stay credible?”
The Congressional Budget Office has begun to look at the relationship between extreme weather and federal revenue. But because it’s still not clear how best to do that, other institutions are trying as well.
Carter Price, a mathematician at the nonprofit RAND Corporation, is working on a budget model that will incorporate the latest social science research, as well as climate science, to inform long-term policy decisions. Dr. Price:
“This is a space where having more models early on would be better. Rather than someone has an assumption, that assumption goes into a model, nobody questions it and, 10 years later, we realize that assumption is pretty powerful and maybe not right.”
The larger lesson is that modern climate policy is a complex endeavor that calls for large, interdisciplinary teams — which is not historically how the economics field has operated.
Dr. Kopp of Rutgers:
“You can only do so much by writing things down on a single sheet of paper from your office at Yale. That’s not how science gets done. That’s how a lot of economics gets done. But you run into limits.”
Pace of Climate Change Sends Economists Back to Drawing Board – The New York Times (nytimes.com)
Climate chaos lends new meaning to Keynes’s “In the long run we are all dead.” What is the price of existence? Is Soylent Green the future of recycling? Economists are useless on the prevention side of climate change, but maybe they could be useful on the land and water management side of climate chaos mediation policy if first the US had a real government rather than a corporate advocacy consortium.
IOW, where the lowest cost alternative could lead to human species extinction, then economics might not provide the best rationale for policy decision making.
Previously posted in the ‘Open Thread’ of August 23.
Along with this:
Climate disasters are unfolding all over the planet. Here’s a look at some of them.
Boston Globe – August 25
Torrential downpours in Texas. Historic heat in China. Rising hunger in Africa. Europe’s worst drought in 500 years. Glacial melting in Antarctica.
Each of these events bear the fingerprints of climate change, providing yet more evidence that this crisis isn’t some far-off threat — it’s here right now. …
See also:
The Science of Climate Change Explained
Facts, Evidence and Proof
Definitive answers to the big questions. …
Dr. Nordhaus’s model
So now we are applying discounted values to human life?
I assume there is a presumption that mitigations will be found sometime in the future. Because none of the catastrophic events caused by climate change are going to be less expensive 100 years from now, and it is very unlikely there will be fewer of them.
Why would we look to economists?
Economists often find themselves on the defensive in debates over climate policy
Their favorite tools, carbon taxes and emissions trading, are viewed as dangerous political distractions. “Climate economists have blown it pretty comprehensively,” writes one critic. Some of the criticism is deserved. …
Good question. I am heading over to Eric Kramer’s post with the same question.
Economists have a mind-set that makes it physically impossible for them to “solve” the climate problem.
Changes have consequences that result in more changes that result in more changes that render the assumptions of economic models wrong, irrelevant, and ridiculous,
The only hope would be a recognition by people that life is more important than money, and to make “lifestyle” changes that would dramatically reduce all forms of pollution. The role of government here should be to do whatever it can to make those changes possible. Building more freeways, mining more lithium, or uranium…are not going to help that. Just make the road to hell faster and cheaper.
Or, people in general would have to be at least as smart as frogs.
Boiling Frog Theory
… if (a) frog is put in tepid water which is then brought to a boil slowly, it will not perceive the danger and will be cooked to death. The story is often used as a metaphor for the inability or unwillingness of people to react to or be aware of sinister threats that arise gradually rather than suddenly.
While some 19th-century experiments suggested that the underlying premise is true if the heating is sufficiently gradual, according to modern biologists the premise is false: a frog that is gradually heated will jump out. … (Wikipedia)
maybe modern frogs are just smarter than nineteenth century frogs.
the opposite is true with people. you had to be smart to survive in the stone age. in the industrial age you just have to be obedient.
Don’t expect too much from metaphors.
A problem with the frog metaphor is that we wouldn’t really have a place to (all) climb out to. Maybe what we are looking for is a few McGyver types to climb out and turn off the heat. (Elon Musk maybe. Maybe it counts if a few of us are saved in a sustainable outpost on Mars.)
Yes, Putin has sort of a solution, that we can assist him with.
If you consider blowing up & irradiating the planet a solution.
56 degrees Centigrade is not boiling. it’s about 130 degrees fahrenheit, which i think is enough to give you a scald.. and might be enough to kill a frog if he did not get out pretty quickly. i might even believe that if you raised the temp slow enough you might kill the frog…probably by disabling him at a lower temperature before he actually died.
but i am not going to try the experiment. and i hope you don’t either.
people die of heatstroke because they didn’t quit working in the noonday sun soon enough.
we are on schedule to reach temperatures …well below boiling…that will kill most life as we know it, but there is no way to jump out.
i hear Putin has a plan to stop global warming after a brief sudden increase in temperature.
You may want to look into this…
Dressing for Hot
NY Times – Sep 3
Shirts made from the same polymer as plastic bags. Jeans infused with crushed jade. Garments constructed using computerized knitting for superior ventilation, or made with cooling technology designed for astronauts by NASA.
As climate change brings more intense heat waves, the next frontier in climate resilience is the clothing we wear, with innovations that promise to cool and dry the hot and sweaty masses. They could make life more bearable for construction workers, farmers, soldiers, and others who can’t retreat indoors as days and nights get hotter.
Clothing designed for heat is moving from a niche product into the mainstream, said Lorna Hall, director of fashion intelligence for WGSN, a company that tracks and forecasts consumer trends. …
i don’t expect much from metaphors, even from people who don’t know that their “logic” is entirely based on a metaphor.
here is another figure of speech: i don’t really give a damn if any of “us” are saved. i was hoping to save the planet and all creatures great and small…even the green ones.
Thought experiments are pretty much just metaphor.
Fred
a science fiction book you may not like: “Out of the Silent Planet” has something to say about saving a few of “us”. it’s by C.S.Lewis.
Read this long ago, and the others in the trilogy.
CS Lewis is better known for Chronicles of Narnia, but he was way toreligious for my tastes.
Out of the Silent Planet, science-fiction novel by C.S. Lewis, published in 1938, that can be read as an independent work or as the first book in a trilogy that includes Perelandra (1943) and That Hideous Strength (1945). Out of the Silent Planet gives voice to Lewis’s concerns about the secularization of society and affirms that a return to traditional religious belief is the only means of its salvation. …
Out of the Silent Planet
Silent Planet can be read as standard science fiction no more religious than Star Trek.
Or it can open you up to other possibilities. The review above exaggerates the “religious” element far more than Lewis does, although you would be right that it is informed by his religious views….including the idea that killing people and enslaving (or eliminating) the natives in order that the human race (“a few of us”) might survive forever and conquer the universe is evil.
Clive Staples ‘Jack’ Lewis was a writer, scholar and theologian who is widely regarded as one of the most influential Christian authors of the 20th century. …
CS Lewis – Christianity
… he wrote a number of popular novels, including the ‘Chronicles of Narnia’ series and ‘The Screwtape Letters’. These deal with Christian themes such as sin, humanity’s fall from grace and its saving through faith in Jesus Christ. His work ‘Mere Christianity’ is a classic piece of apologetics – a defence of the Christian faith …
CS Lewis was raised as a Christian but he rejected faith in his teens. He rediscovered Christianity in a profound, personal way in his 30s while a tutor at Oxford under the guidance of his close friend and fellow academic JRR Tolkien. …
Addaboy, Fred Dude. Embrace the complexity of reality.
We seem to be wavering (doddering?) way off topic.
Sorry about that.
Coberly,
Regardless of one’s own beliefs, then religion has played far too large a role (both good and bad) in human social evolution to merely be discounted out of hand on account of educated atheism, which is still a minority amongst professed beliefs. We cannot know true beliefs other than our own. IOW, C.S. Lewis was something other than the Spanish Inquisition and should not be conflated as being similar.
At the very least, CS Lewis was the doddering old professor who provided Lucy Pevensie and her siblings with access to that wonderful old ‘wardrobe’ (dresser) in WW2 Britain, sheltering from the Blitz.
Ron
thank you. you give me faith.
Fred
interesting that you supply “doddering.” there is actually nothing in the story that suggests doddering. just an old professor with other things to do than spoil children’s fun.
Coberly,
For the truly faithful, then veracity is next to godliness while cleanliness is often simply an unaffordable luxury.
Ron,
I don’t think I meant that kind of faith. Faith when applied to religion usually seems to mean “believing in what you don’t believe.” I think it has more to do withthe kind of faith it takes to take the first step in the direction you want to go. I am inclined to believe that when Jesus tells John to have faith he is only tryint to reassure a somewhat fearful person to have faith in the sense that you might trust a friend who knows which bus to take to get downtown… that it, it was personal faith not “Faith” in some eyes squinted fingers crossed determination to “believe” lest an angry god smite you for not believing in him.
That said, i think i meant that you give me faith that no all humans are unreasonable.
As for cleanliness as a luxury, i first heard that in a book by Sigrid Undset, a Nobel Prize novelist…coincidentally enough in one of her small novels about a man becoming a Christian because he thought it would be better for his children if they grew up with (that) religion than with the casual atheism/materialism then (just after WW1) becoming popular. This is not a very good description. I doubt you would care for the book (The Burning Bush) but it did have an effect on me.
Entirely independent of both the book and any religous tendency whatsoever, when i was contemplating what were the important things we (I) would want to keep in a world with much leas “wealth” as we know it, a hot bath was high on the list.
I’m not so sure about veracity. I don’t like the fact that human society seems to be built around successful liars, but I see a lot of people who think they are telling the truth while they are causing unnecessary hurt…not just of feelings. I try not to lie to myself, or be the victim of others’. losing the zeal to convert others to what i think is “the truth,”
Coberly,
OK.
Read this long ago, and the others in the trilogy.
CS Lewis is better known for Chronicles of Narnia, but he was way toreligious for my tastes.
Out of the Silent Planet, science-fiction novel by C.S. Lewis, published in 1938, that can be read as an independent work or as the first book in a trilogy that includes Perelandra (1943) and That Hideous Strength (1945). Out of the Silent Planet gives voice to Lewis’s concerns about the secularization of society and affirms that a return to traditional religious belief is the only means of its salvation. …
Out of the Silent Planet
Fred,
I read that entire trilogy when a young man and admired it for its non-traditional religious interpretations and symbolism. I was raised traditional Southern Baptist; one man’s ceiling is another man’s floor and all that. I was self-excommunicated for my desire to have inter-racial church services and my acceptance of Buddhism and Hinduism as valid religious belief systems. Our older reverend had been fired for agreeing with me only to be replaced by a younger firebrand whose highest ambition was to prohibit the sale of alcohol at Bowl America.
C.S. Lewis was besties with J.R.R. Tolkien, a far better and more widely embraced author of books for young people.
I find ‘religious interpretations and symbolism’ pretty tiresome.
But, since I like pasta, I am something of a pastafarian.
Pastafarianism
Fred
I suppose I would find them tiresome too. especially ones i don’t like. There are religions and there are other religions. Some are on a higher intellectual plane than others.
But as I said you can read Lewis with no religious interpretations whatsoever, unless you regard any moral point of view as “religious.” On the other hand if your religion is “i hate all religions” you will not be able to read anything without finding a “religious” interpretation. There is no point in our arguing about this. Enjoy your pasta.
When I read ‘Chronicles of Narnia’ (to my kids as I recall), I did not appreciate that there was much Christian symbolism contained therein. I suppose that Lewis’s ‘deeper magic’ was all about that.
After my physics training, for me deeper laws have nothing to do with religion, though they may seem magical, as AC Clarke said.
The Deeper Magic from Before the Dawn of Time was a hidden law written on the Stone Table before the beginning of time.
It effectively acted as an addendum to The Deep Magic from the Dawn of Time; if an innocent being willing offered his own life in place of a traitor’s, the Deeper Magic would reverse death itself and restore them to life.
Deeper Magic from Before the Dawn of Time
As most atheists would tell you, I think, morality need not & should not have anything to do with religion.
As for ‘hating all religions’, I continue to wonder why there are so many, and I make it a point (not all atheists do) to respect them all.
Dobbs
yes, Lewis and traditional (church) Christianity seems to need the idea of a life for life sacrifice to atone for sin etc.
I think this is a holdover from primitive, pagan, “religion.” It needs to be true no more than phlogiston needs to be true for modern physics to be useful (or true) My own take on “greater love hath no man than to give his life for his friends” has more in common with a soldier putting himself in danger of (certain) death so his comrades can escape from a bad situation,
You might be able to separate morality from religion, but you should probably recognize that morality his historically entwined with religion. My own take is that when you are talking about morality you are not talking about physics. I don’t see where physics excludes the “unseen” from being part of the nature of reality. But I took physics seriously.
Dobbs
well, i certainly don’t respect them all. The so called Christian Right is pretty much the same as the worship of Moloch.
Christianity..the masses and the churches, not to mention the politicians, have always had a fatal tendency to fall into pagan superstitions and find excuses to hate..and kill. It is simple ignorance to confuse that with what Jesus was trying to teach people…or at least suggest possibilities to them. I suppose there are other religions that are trying to do something similar…with about as good results.
Ron
yes and yes. “better” is an invidious word. i am pretty sure Lewis would agree with you. even I would agree with you, while still having enjoyed and profitted from Lewis. He did teach me that the devil did not have all the best arguments.