Friday, November 09, 2007

The costs of mitigation

One thing about the posts I make is that I try to give references for all my claims so that others can check them.

This doesn't seem to be the case for some recent responses who appear to pluck figures from out of the air. Please could you - in the interests of making sure we're all talking about the same costs, etc., - cite your sources.

Here is one of mine, in addition to the Stern Report.

Sir David King, the UK Government Chief Scientist, said at the Sustainable Development UK conference this summer:

"Greenhouse gases are now present in the atmosphere at 383 parts per million. When the earth has been warm in the past the level was 230ppm. It was 100ppm in the ice ages. In the future, it could rise to 1500ppm. By 2030, the average European temperature will be the same as the hottest year on record - 2030,"

He then said - "Darfur is the first global conflict driven by climate change. We should expect more. There is no guarantee that runaway climate change won't happen, turning most of the planet into a hot desert as it was when the oil and gas were laid down in the Carboniferous era."

He then showed a graph from an article published in the McKinsey Quarterly 2007 (a service for leading businesses) which demonstrates that there is no net cost to tackling global warming if we start now.

[Click on the image for a larger version]
size and cost of measures to reduce greenhouse gas emissions

This is because there are economical savings and profits to be made which over this time balance out the costs.

Someone put on another blog entry that the cost of mitigating climate change was many trillions of dollars. Perhaps, but there are also financial benefits. The article linked to above explains all the assumptions and details. If you have issue with these let's hear about that in detail, and without insults.

13 comments:

Tim Worstall said...

That is one report which says there is no net cost, you are correct.
There is also Stern, which by using only the A2 family and assuming a discount rate of 0.1%, says very much the same thing.
You've then got well respected economists like Richard Tol and William Nordhaus stating the opposite, that anything other than a light carbon tax to tinker at the margins will cost trillions more than the benefits.
The thing is, at present, that the "scientific consensus" actually says that having the climate change and dealing with it is a better idea, economically, than attempting to avert it.
And we do all have to go with the "scientific consensus" don't we?

David T said...

I can only say, that in a case like this, if we haven't got the scientific consensus then what have we got? Blind faith? But that is NOT what the scientific consensus says!

If you read William Nordhaus' paper, you'll see why his conclusion is different from the one I cite. The difference is that he assumes a carbon price of $27 a ton.

European models work on at least $8 (or euros) more. The 35 Euro price is that at which nuclear power becomes cost-effective for example.

The price of carbon depends on the allocation of allowances. That is why, post-Kyoto, I believe all allowances should be auctioned, and the cap reduced severely. A higher carbon price - set by policy but then left to the market - makes all the meaures in the McKinsey report I cite cost-effective.

This is why getting the assumptions in a model right, and matching the policy implementations, is so crucial. The devil is in the detail.

Tim, you have lots of blogs about phones and celebreties. I'm so glad you have your priorities right. But you need to look at this detail before you go thrashing about with wild statements on serious matters.

Tim Worstall said...

You seem to have missed the point about Nordhaus. He's telling us that attempting to stop climate change isn't cost effective.

"The price of carbon depends on the allocation of allowances. That is why, post-Kyoto, I believe all allowances should be auctioned, and the cap reduced severely. A higher carbon price - set by policy but then left to the market - makes all the meaures in the McKinsey report I cite cost-effective."

That makes that idea not cost effective then, doesn't it?

Now I agree that auctioning all permits is better than giving them away as currently. However, what you can't do is determine both the cap and the price. We don't have sufficient information for that. We can either determine the price (by imposing a carbon tax) and thus leave the market to deal with the volume of emissions. Or, we can impose a cap and then leave the market to determine the price of the permits. But we can't do both.

Further, Nordhaus doesn't "assume" a price of $27 a tonne. He's trying to work out what is the cost effective price of a tonne. That's his result, not his assumption!

And as that is his assumption we get to the point that trying to stop emissions to stop climate change is not cost effective. Reducing them a little is, but not enough to stop rising atmospheric levels. So adaptation it has to be, not prevention.

As to my other blogs, the two where I do discuss climate change aren't on blogger so you won't have seen them from my sign in. Try google.

David T said...

Tim - you're right, in your analysis of hor the market works. The ETS does work by setting a cap ad letting the market set the price, which is why auctioning all permits is important, and setting the cap at the right level. The way I understand the McKinsey report is that it assumes the cap is set at the right level to deliver that price.
As does the UK Energy White Paper in reference to new nuclear build. I guess Nordhaus is setting the cap at a different level in his model- and it's important to see that it is a model. The point of modelling is to play wih the parameters to see what policies may be most effective to deliver the results desired.

I don't see how you can adapt to a level of climate change which results in sea leve rises of the sort prediced, and temperature rises which cause the number of deaths predicted. You have to do what you can to try to prevent them getting there.

Tim Worstall said...

"I don't see how you can adapt to a level of climate change which results in sea leve rises of the sort prediced, and temperature rises which cause the number of deaths predicted. You have to do what you can to try to prevent them getting there."

Sigh. That's what we're trying to work out.

How much will climate change cost us to avert. How much will it cost us to stop?

We should do as much averting as we can until the cost of averting is higher than the costs of suffering through the changes.

That's exactly what Stern, Nordhaus, Tol etc are all about.

By stating that we must do "anything" to prevent the changes you've missed the point of the entire subject being studied.

David T said...

Sorry, but I think we are talking at cross purposes. Of course I understand what these models are doing. I have not said we should "do anything". But in your first post you said "dealing with [climate change] is a better idea, economically, than attempting to avert it." That's adaptation - accepting a huge amount of damage and death. Now you're saying we should try to avert it as economically as possible. Which is what I am saying. I don't believe the deaths of tens of thousands is an acceptable price to pay for a few million to drive round in SUVs when it's perfectly possible to find more economic ways of travelling.

Tim Worstall said...

"That's adaptation - accepting a huge amount of damage and death. Now you're saying we should try to avert it as economically as possible."

Sigh. Again. We should try to avert that amount of climate change which it is possible to avert economically. That is, we should curtail emissions (and thus climate change) from the point where it costs us less to avert than it does to adapt, up to the point where it costs us the same to avert as to adapt.
After this point, where it costs us more to avert than it does to adapt, we should adapt, not avert.
And the scientific consensus is (with people like Stern very much an outlier) is that we should do not much averting and a great deal of adapting.

David T said...

I'd like to see the reference for your 'scientific consensus'. It doesn't look like that from where I sit. The cost of adaptation will rise the longer we wait to avert. It must take account of species loss, habitat loss, water conflicts, deaths such as those in the hot summer in Europe in 2005, etc. It's hard to put a price on much of this. However it is attempted. One (rather out of date now) attempt is at UKCIP:
http://www.ukcip.org.uk/resources/tools/costings.asp
It is being updated:
http://www.ukcip.org.uk/scenarios/ukcip08/

The difficulty of assigning monetary value and risk levels to such things makes your attempt to stick a rule somewhere rather dificult. It does depend on the models and their assumptions, and you can tweak these is what I'm saying.

I agree with the New Economics Foundation stance that "If one accepts that every individual has an inherently equal share of (or stake in) the global atmosphere, people in wealthy nations are using up far more than their fair share of the global atmospheric carbon budget. In doing so, and by not paying for the consequences of global warming, rich countries are running up huge ecological debts to the poor, majority world. So far, the international response to climate change has failed to fully account for this ecological debt."

Ref: http://www.neweconomics.org/gen/climate_ecodebt.aspx

David T said...

I'd like to see the reference for your 'scientific consensus'. It doesn't look like that from where I sit. The cost of adaptation will rise the longer we wait to avert. It must take account of species loss, habitat loss, water conflicts, deaths such as those in the hot summer in Europe in 2005, etc. It's hard to put a price on much of this. However it is attempted. One (rather out of date now) attempt is at UKCIP:
http://www.ukcip.org.uk/resources/tools/costings.asp
It is being updated:
http://www.ukcip.org.uk/scenarios/ukcip08/

The difficulty of assigning monetary value and risk levels to such things makes your attempt to stick a rule somewhere rather dificult. It does depend on the models and their assumptions, and you can tweak these is what I'm saying.

I agree with the New Economics Foundation stance that "If one accepts that every individual has an inherently equal share of (or stake in) the global atmosphere, people in wealthy nations are using up far more than their fair share of the global atmospheric carbon budget. In doing so, and by not paying for the consequences of global warming, rich countries are running up huge ecological debts to the poor, majority world. So far, the international response to climate change has failed to fully account for this ecological debt."

Ref: http://www.neweconomics.org/gen/climate_ecodebt.aspx

Tim Worstall said...

I don't believe anything that comes from the nef, sorry, they're kooks. They are, you will recall, the people who held up Vanuatu as an example of the good life.

The "scientific consensus" on this is people like William Nordhaus and Richard Tol. TRy reading them.

Low Carbon Kid said...

I have read some of them, as discussed earlier. Their articles are about the economics of change not about the science of global warming. It's important to distinguish the difference.

The science is evolving, and being debated even as we write by the scientists at the IPCC conf.

The economics as I was trying to say, depend on what costs you attach to what actions, and what other things you attach value to. That was what I was trying to discuss.

How do you attach a value to a human life at risk from climate change effects? If your home and community were under threat by rising sea levels, wouldn't you want the world to do whatever it could?

Economics is evolving too, and monetary values are being attached to things which were not perceived to be part of the balance book before.

The policy trick is to identify or develop a mechanism for achieving what you want to achieve.

Me, I want to see as few lives sacrificed as possible, and not just human lives. I regard the loss of a species as a terrible thing. Our actions are killing off thousands of them, but I don't believe humans as a species will die out for a long time whatever happens.

A final note as regards the cost of attacking global warming. It has enered this week that the cost of the Iraq war to the US is 2% of GDP. The cost identified by Stern (in your view discredited though I'm not sure why - is it because his conclusion is too expensive?) is 1% of GDP.

You'd rather have the war ?

QED.

Tim Worstall said...

"Their articles are about the economics of change not about the science of global warming. It's important to distinguish the difference."

Of course we're talking about the economics! That's where the "cost" bit somes in.

"How do you attach a value to a human life at risk from climate change effects? If your home and community were under threat by rising sea levels, wouldn't you want the world to do whatever it could?"

You attach a value to a human life the same way about climate change as you do about medicine. QALY: quality adjusted life years. If you're going to claim that a value cannot be assigned then sorry, we're not having an economic discussion any more, we're off in woo woo land. We have limitwed resources and economics is the science of how those are allocated.

As to my house going under the waves? Sure, I'd want the world to do "whatever". But does the world want to do "whatever" for me? No, clearly not. And it wouldn't be sensible for them to do so either.

Take one example: a half acre of Bangladeshi rice paddy disappearing under the oceans. What should we do? All of us stop using oil forever more? Build a dyke? Buy that farmer a half acre somewhere else?

Insistence upon " whatever" is simply economic illiteracy.

Low Carbon Kid said...

What a load of rubbish. Talk to a Bangla Deshi about 'QALY: quality adjusted life years', when they have no health care, no insurance, poor life expectancy, shit weages and living conditions, they'd laugh in your face. Yes, Tim, it all comes down to economics doesn't it, and we just have to do what the economists say, and that's it. But economics is a form of magic. It can be made to do whatever you want. The fact is, you don't want to save their lives because you think nobody cares about your life. And that's a veyr revealing argument.