Saturday, June 27, 2009

Something doesn't seem right

Jim Manzi responds to Conor Clarke's post on the costs of climate change:
...But Conor goes on to argue that the costs that Waxman-Markey is expected to impose on American consumers by 2050 – about $1,100 per household per year, or a little less than 1% of total consumption – are pretty trivial, because we should expect to be so much richer by then. (I’ll note in passing that, as per my posts on this, there are very good reasons to believe that the EPA cost estimate is low, and also that costs are also virtually certain to rise between 2050 and roughly 2100 when we would expect to start getting some offsetting benefits.)

He then shows a chart making the point, basically, that 1% is a small fraction of 100%. But of course, this cuts both ways. We hear constantly about the existential threat posed by global warming – Cities underwater! Drought! Famine! Think about his graphic. The expected benefits don’t even outweigh these costs. That ought to make you stop and think.
This does make me stop and think, but not for the same reasons as Manzi. Instead, I wonder: if there is a nonnegligible chance of famine, widespread droughts, and coastal cities falling underwater, how the hell does spending 1% of GDP outweigh the costs of climate change?

This isn't reason to be immediately dismissive of Manzi's analysis, of course. We're often very bad at comparing large costs and benefits. Large numbers all seem to blur together, and we can't really intuit the difference between a risk of 0.1% and 1%. But in this case, our intuition captures an important truth. The only reason Manzi manages to arrive at such low cost estimates is that his modeling framework makes a host of questionable assumptions, all of which dramatically push down the costs of global warming:

1. His sole welfare criterion is per capita world economic consumption. This ignores distributional considerations: if, in an extreme case, the consumption of the poorest nations in the world was completely wiped out, the world would be only "slightly poorer" according to this line of analysis. It also presumes that the environment only influences welfare through its effect on economic consumption.

2. He calculates the present value of future costs from climate change using high discount rates that make losses beyond 100 years practically meaningless, and dramatically lessen the importance of the future in general.

3. He dismisses the role that extreme uncertainty plays in our understanding of climate change, on the grounds that this is an untenable application of the Precautionary Principle.

Regarding the third point, remember that we know that the North Pole was once subtropical. We're not sure how this happened, but our best guess is that a smaller climactic change triggered a massive wave of amplifying feedback, as carbon dioxide and other greenhouse gases were released into the atmosphere and caused more and more warming. What reason do we have to think that this won't happen again, especially when we're attempting an unprecedented natural experiment where the atmospheric concentration of greenhouse gases will skyrocket in a geologically instantaneous timeframe? Sure, this risk is difficult to quantify and model, which is why geological feedbacks aren't included in the IPCC estimates that Manzi likes to use, but that's hardly a reason to pretend it doesn't exist.

2 comments:

Anonymous said...

Matt:

Thanks for the detailed comments. With regard to:

1. I used global consumption per capita as my sole welfare criterion in this specific post, reacting to one that implicitly used US raw GDP.

2. I don't think I used any present value calcualtions or discount rates in that post.

3. As you know, I've addressed the question of the role of uncertaintty (which I see as central to this problem) at length in other much more comprehensive posts and articles.

Best,
Jim Manzi

Aaron said...

Nate Silver did a humorous analysis that is related to your point #1:

http://www.fivethirtyeight.com/2009/06/how-to-destroy-almost-half-planet-for.html