Saturday, May 16, 2015

Monkeying with the Planet

William Nordhaus, Sterling Professor of economics at Yale and one of the most durable and respected students of the economics of climate change, has just published an article in the New York Review of Books, dated June 4, that merits the attention of anyone interested in the climate issue. Nordhaus is reviewing a new book called Climate Shock by two equally eminent academic economists, Gernot Wagner and Martin Weitzman, subtitled The Economic Consequences of a Hotter Planet, and in the technical terms of such analysis, the consequences are dire indeed: the authors postulate, among other effects, a 30% decline in global output over a brief time, an economic disaster of unimaginable severity. Nordhaus focuses on several particular issues within the larger framework, and I want to summarize his most salient points:

1) The authors,using statistical probability analysis, focus on 'tail' effects rather than the more predictable losses--often calculated at 5%/year--due to expected changes in rainfall, sea level, and other already visible factors. Tail effects--the term refers to the outlying parts of a bell curve distribution--are by their nature unpredictable. The authors don't pretend to describe them but rate the likelihood at 10% that mean temperatures will rise 6 degrees Celsius this century, and that some dire unforeseen events will produce "the end of the human adventure on this planet as we now know it." Imagine the 'trigger points' or negative feedback loops many have pointed to, or intensifying weather events, sudden collapse of the antarctic ice shelf ... or some other large event no one has thought of yet. These distinguished economists postulate--for reasons not really explained in Nordhaus's review--that the chance of such an occurrence is 10%, not  a certainty but not great odds either.

2) So why, in the face of the unprecedented global threat has the response of the world's nations and peoples been so ineffectual over the three decades we have been pretty sure of the problem? Nordhaus lists many reasons--scientific complexity, political expediency, and so on--but, economist that he is, he homes in on the 'freerider' problem: in effect, the nations and their policy makers are unwilling to make large sacrificial investments on behalf of the whole earth when others, 'freeriders,' would benefit without making the same sacrifices. He attributes the inertia of policymakers to this problem, which he considers virtually insoluble.  Interestingly, Nordhaus ignores the UNFCCC process and the Paris conference it is leading up to, even though the 'peer pressure' mechanism built into that process is intended to give incentives to national governments by making public their own proposals along with those of others, so that the relative 'fairness' of each national plan can be viewed. Will it work? Clearly there are bugs as the plans start to accumulate (I'll discuss these details in a future post). But Nordhaus dismisses the UNFCCC voluntary plan because he has something more muscular in mind--which I'll turn to in a moment.

3) A third salient point addressed in the book and the review is the possibility of 'geoengineering' as a silver-bullet solution in the absence of more measured but unobtainable ones. The primary silver-bullet the authors address is the fanciful proposal to load the stratosphere with tiny mirror-like particles to reflect away a portion of the solar radiation entering the atmosphere, and thus lower global temperatures. Nordhaus and the authors point out the obvious: the potential for disaster in such an experimental procedure is enormous, as is the possibility that geoengineering would lead to climate warfare. What is perhaps most notable is the increasing mention of such schemes--and there are others afoot--which have the merit of being relatively cheap, while leaving in place the hugely profitable energy sectors as we know them. Fending off such Frankenstein-like temptations will become an increasing part of the climate issue, as this book begins to make clear.

In response to the bleak picture of Climate Shock, Nordhaus, after reviewing the global policy failures from Rio to Kyoto to Copenhagen, has one positive suggestion, which he calls the "Climate Club." This would be a voluntary association of nations--like a membership club--who determine to undertake together the hugely expensive business of market-reduction of greenhouse gas, increasing by 10 or 20 times the cost of carbon emissions, and thus forcing rapid conversion from fossil fuels to renewables. Club members would agree to follow these draconian steps, but also agree to punish those nations who fail to join the club with drastic tariffs, thus excluding those rogue states from trade within the Club. The Club in effect becomes a stick to beat non-compliant nations into compliance, an enforcement tool to overcome the pernicious freerider factor. In effect, it's the UNFCCC plan with stricter policies and stringent enforcement.

Is Nordhaus's Climate Club politically feasible? At the moment it's hard to imagine. But so are those 'tail' effects. Might some version of a tail effect concentrate our attention, and thus pique our interest in the Climate Club solution, before all is lost? That seems to be Nordhaus's wager, and it's worth considering.

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