Dear Member of Congress: Why You Should Vote Against Waxman-Markey
It appears that years of debate about climate change and energy may now come down to a vote on an actual bill, the American Clean Energy and Security Act of 2009 (ACES). As I write this, the vote is scheduled for Friday. If it occurs, you will be asked to vote to implement carbon rationing in the United States.
Without regard to party or ideology, I believe that the evidence is clear that this law would be contrary to the public interest. Here is why, in a nutshell:
1. It would be a terrible deal for American taxpayers. According to the Environmental Protection Agency, it is projected to impose annual costs of about $1,100 per household (a little less than 1% of total consumption) by 2050. The benefits we will get in return? If the law works precisely as intended, in about one hundred years we should expect surface temperatures to be a about one-tenth of one degree Celsius lower than they otherwise would be. The expected costs are at least ten times the expected benefits, even using the EPA’s cost estimates and assuming achievement of the primary goal of the legislation.
2. The argument that “OK, it’s a terrible deal standalone, but we need to lead the world by example” is extremely unconvincing. First, while you are probably not a climate science expert, I bet you’ve negotiated a few things in your life. What do you think about the negotiating strategy of unilaterally giving away our most obvious leverage – namely “we’ll reduce our emissions if you reduce yours” – and instead hoping that those nice men who rule China will be guilted into sacrificing their perceived economic self-interest if we just go first? Second and more fundamentally, as per many detailed analyses, the global deal that we would theoretically be chasing isn’t even attractive, even if we assume every technical climate change prediction by the UN IPCC is correct.
3. Contrary to early expectations that auctioning cap-and-trade permits would generate $80 billion per year of government revenue, this law would not contribute materially to deficit reduction. You’ve seen the internal negotiations up close. Because so many allowances have been given away to special interests to try to get the votes needed to pass ACES, the CBO now estimates that it will bring in a net of a little over $2 billion per year over the next decade. As you know, this is about one one-thousandth of this year’s budget deficit.
4. A further effect of all of these deals (which are entirely predictable in a democracy) is that ACES is very unlikely to achieve even the limited benefits that are claimed for it. The details of the bill mean that there is now not a hard cap on emissions for at least the first decade of its existence. What do you think the odds are that this will change at some undetermined point in the far future when all of the normal interest group pressures of a democracy are supposed to magically disappear?
5. In short, Waxman-Markey would impose costs at least 10 times as large as its benefits, would not reduce the deficit, and doesn’t even really cap emissions.
(cross-posted to The Corner)
Does this make sense to anyone else? Why would China give a crap if we reduce our emissions or not? Stewardship of the world’s climate doesn’t seem to be their thing. Their thing seems to be “economic exploitation of people and resources, no matter who or what gets hurt.”
From China’s perspective, this seems a lot like saying “shoot yourself in the foot. No, don’t worry – I’ll do it to!” Well, I don’t imagine China cares if we do it or not. Never mind that in reality it’s more like necessary surgery than shooting off your toes; China doesn’t appear convinced that carbon-based industry and power generation is an illness.
— Chet · Jun 24, 05:28 PM · #
It’s a shame they don’t have any “efficacy provisions” in these things. If it ends up not achieving its intended consequences and is spewing a bunch negative unintended consequences, just sunset the thing out of existence.
— Geoff · Jun 24, 06:27 PM · #
So suppose that you’ve convinced me. What’s the alternative? What’s a realistic path forward?
— Chris · Jun 24, 06:27 PM · #
Chris:
Here’s what I said at the end of a long essay on this:
So if there is a real, though unquantifiably small, possibility of catastrophic climate change, and if we would ideally want some technological hedges as insurance against this unlikely scenario, and if raising the price of carbon to induce private economic actors to develop the technologies would be an enormously more expensive means of accomplishing this than would be advisable, then what, if anything, should we do about the danger?
One obvious approach is to have the government fund technology research directly. The danger here, of course, is that we end up back in the failed game of industrial policy. Such dangers are not merely theoretical. The federal government was the key sponsor of, for example, the shale oil and large-scale wind turbine debacles in response to the energy crisis thirty years ago. Setting the right scope for such a program and managing the funding process carefully would each be essential to prevent it from becoming corporate welfare.
We should limit government investments to those topics that meet specific criteria. They should be related to detecting or ameliorating the effects of global warming, should serve a public rather than a private need, and should provide no obvious potential source of profit to investors if successful. Important examples include improved global climate prediction capability, visionary biotechnology to capture and recycle carbon dioxide emissions, or geo-engineering projects to change the albedo of the earth’s surface or atmosphere. On the other hand, most technologies that would contribute to the ongoing long-run transition of the economy away from fossil fuels, like more efficient fuel cells for autos or lower-cost solar power sources, need no government funding, since there is ample profit motive to develop them. As evidence, massive amounts of venture funding and large-company internal capital allocations are flowing to these opportunities right now. Government attempts to direct such development would almost certainly destroy value through political allocation of resources.
The agency for funding any government-sponsored research should be explicitly modeled on the Defense Advanced Research Projects Agency (DARPA). The character of such an agency would be a very high-IQ staff with wide flexibility in providing small grants. In addition, this program should have a heavy emphasis on large prizes for accomplishing measurable and audacious goals. As an example, the British entrepreneur Richard Branson has offered a $25 million dollar prize to anyone who demonstrates a device that removes carbon from the atmosphere — what if the U.S. government upped the ante to $1 billion and pledged to make any resulting technology freely available to the world? That would hold the potential for solving any global warming problem that might develop to a one-time cost of less than 0.01% of U.S. GDP.
The incremental cost of this research program could be single-digit billions per year, hopefully with partially offsetting spin-off benefits. DARPA’s total annual budget is about $3 billion, and unlike Al Gore it really did invent the Internet (original name, ARPANet). In fact, it’s important that the honeypot be kept small enough, and be doled out in small enough increments, that it’s not worth it for either Congress or Fortune 100 companies to try to direct the spending politically.
Of course, it would still be a government program, and therefore rife with inefficiencies. But consider that its costs would be on the order of 1/100th of the costs of imposing a large U.S. carbon tax. It could be massively inefficient and we would still be far better off in actually developing the long–lead-time technologies that we would want if faced with a currently unanticipated emergency.
Hedging against the risk to future generations of potential unanticipated impacts from global warming is a legitimate job for the U.S. government. Ideally, it would be tackled by the governments of the small number of countries with a sophisticated technology development capability acting in some kind of coordinated fashion.
— Jim Manzi · Jun 24, 07:05 PM · #
That’s essentially the equivalent of “Take two aspirin and call me in the morning” is it not? Since that approach doesn’t seem likely to reduce emissions in the near future (next few decades), is it your hope that we’ll naturally transition away from carbon-based energy before the climate problem gets too extreme?
That might be a tenable solution if it weren’t for the lag in the climate system. If we proceed with business as usual, we may well find that we’re past the climate tipping point before we realize it.
— Chris · Jun 24, 09:21 PM · #
Chris:
This will sound flip, but I don’t mean it to: replace climate change with an undetected killer asteroid headed for the earth. It might be true that not devoting several % of gloabl GDP to building a detection and intercept system will turn out to be a big mistake. (In fact, this also isn’t a carzy worry – the US gov’t spoends on the order of $100MM per year on exactly this).
I believe that a rational response to any risk needs to, in some way, handicap odds and severity and match this to a deployment of resources. If you read the link in the prior comment, it will give you my take on that. There is a very technical post here at TAS from a couple of years ago called “Formalism Run Amok”, whihc tries to address this at an very rigorous level.
— Jim Manzi · Jun 24, 09:41 PM · #
The problem with that analogy is that the probability of asteroid impact isn’t increasing over time due to the action of humanity. On the other hand the climate is changing due to humanity’s action. Don’t you agree that at some point humanity must significantly reduce its carbon emissions into the atmosphere? The only questions are (a) when does this need to start and (b) will it happen naturally (either due to the depletion of fossil fuels or due to discovery/development of cheaper non-carbon-based fuels) or by mandate. Aren’t those the real questions that face us?
We may get lucky and the changeover may occur naturally with minimal adverse consequences for the climate. But if that’s not the case, it seems likely to me that the costs of delay will greatly outweigh the costs of smaller steps taken sooner (i.e., ounce of prevention, pound of cure). It seems to me that you’re essentially basing your position on the supposition that the growth rate of the upside of inaction is greater than the growth rate of the downside of inaction. I don’t see how you can know that.
— Chris · Jun 24, 10:55 PM · #
Two lines of inquiry Jim.
1) Given that you’ve CBA’ed this out to 10:1 on a 3% estimated loss, it only becomes neutral at 30%. So if you honestly believed that the expected loss to GDP would be on the order of 25% in 100 years, would you still vote against this bill? At that point, it would still fail the analysis – which makes me worried about this line of inquiry.
2) I don’t know all the ins-and-outs of CBA, but your previous summary is a risk-neutral measure. Given that people are risk averse, and given that this is about lowering losses, shouldn’t you up your numbers to account for a risk-adverse valuation? People are willing to pay to reduce uncertainty.
2.a) How does the fact that, to change where we are standing in 100 years will be much more costly than changing now, fit into CBA? In CBA, if you build a factory and it was a terrible decision and you want it to go away, you simply eat the sunk costs and have to pay for some dynamite to blow it up. Estimating the cost of that dynamite strikes me as being an essential part of CBA (is it?); the cost to “dynamite” global warming 100 years from now to get us back to base one will be very expensive. How does that fit in?
— Rortybomb · Jun 24, 11:05 PM · #
Chris:
Let me put it to you this way – what is your break-even cost? In other words, to simplify the real situation, if you were emperor of the world and you could pay one lump sum now to avoid any possibility of AGW-related future damages, what is the maximum amount of money you would pay?
— Jim Manzi · Jun 24, 11:44 PM · #
Rortybomb:
I was careful to say that this was the expected impact. If expected GDP loss approached 25%, then the global coordination probelm would be (I expect) very different and more managable – by force if necessary. This changes the payout ratio susbtantially, as per the artciles linked to in the piece.
It is certainly true that we pay to reduce uncertainty (ie, buy insurance). But we won’t pay an unlimited amount for this. Once again, the longer articles go into this in some detail.
The quick version of it was in the linked post on the CBA for W-M:
If you go to this very long post from a couple of years ago, you can click through to Weitzman’s paper, which is highly technical (though I’m sure you’ll have no problem with it) that is the most rigorous version of the objections that you are raising. even though it comes to just about exactly the opposite conclusions as I do, I still think it is the best single academic paper ever written on the economics of climate change. You can read my very long response here. If you’re interested there’s some video somewhere of him presenting the paper at AEI, and me presenting a rebuttal in the same room.
— Jim Manzi · Jun 25, 12:01 AM · #
I don’t quite understand your question, or see its relevance, because that’s not the way the world works. I dunno, one year of global GDP? Why does my answer matter?
Here’s my analogy. Suppose a 20 year old came to you for nutritional advise. He currently weighs 150 lbs, but his diet is such that he gains 15 lbs per year, and will continue to do so indefinitely without changes. (So under business as usual he’ll weigh 300 at age 30, 450 at 40, 600 at 50, etc.) Let’s also suppose you don’t know his ideal weight or his maximum healthy weight, but you do know that eventually his weight gain will cause him health problems, and that some of these may be irreversible. What would you advise, and why? Should he make changes to his diet now, or wait? If he waits, how long, and why?
I’m also still curious, do you think that at some point a climate change intervention will be necessary?
— Chris · Jun 25, 12:22 AM · #
Chris:
The reason it matters, IMHO, is that unless your answer is infinity, then there’s some point at which you would rather just roll the dice and take the risk. If your answer is infinity, then the problem is that you have no resources left to insure yourself against other problems.
— Jim Manzi · Jun 25, 01:46 AM · #
I’m with the first Chris here – the “how much would you pay to avoid climate change” hypothetical is a bad one, mostly because Jim seems to be putting a far greater certainty on knowing exactly how much climate change will cost us than seems reasonable. Jim and I have gone back and forth on how inaccurate future warming estimates are before, but I’ve never really seen him take to heart the idea that, if those estimates are inaccurate, then any economic analysis arising from those analyses must be even more inaccurate. And that being the case, talk of a break-even point for WM seems rather pointless to me.
What’s more, IIRC, Jim’s admitted that his economic projections don’t really take into account the damage done by ocean acidification due to increased CO2. Nor has Jim, or any other anti-WM person I’ve seen, really gotten into an idea that Matt Yglesias, among others, has talked about – the idea that there simply isn’t enough oil for enable robust global economic growth in the future.
That is to say, Jim seems to imagine a world where the free and unrestricted burning of fossil fuels will make us all rich enough so that we’ll be able to deal with global warming relatively easily. But it seems likely that the >$4 gas prices we saw last summer may have had at least something to do with our current economic situation, and it seems likely that the return of those prices will hinder future growth. And yes, there are other sources of fossil fuels – tar sands, oil shale, coal – but those other sources aren’t nearly as cost-effective as plain crude oil, and many of them will require their own substantial infrastructure. That being the case, it seems far more reasonable to me to discourage fossil fuel use via WM (which is only the first step) and encourage sustainable, carbon-neutral tech, which seems likely to be cost competitive with, say, oil shale, and has the added benefit of being something we can pursue without getting into resource wars with China.
— (some other) Chris · Jun 25, 03:15 AM · #
If it’s true that there’s not enough oil, then the market will account for it. I mean, right? Markets are pretty good at fixing publicized, foundational inefficiencies.
— Sargent · Jun 25, 06:00 AM · #
Sargent, you may be right. However, my gut feeling is that if it were that easy for us to switch of of fossil fuels as an energy source, guys like Jim wouldn’t be fighting this as hard as they are. There are not, right now, any alternate sources that offer the price/performance/ease-of-use mix that crude oil does. That’s not to say one or more alternatives couldn’t be developed, but developing those alternatives will take a great deal of time and effort (and money) – and although Jim doesn’t think the tradeoff’s worth it, such development would almost certainly be speed up by legislation such as WM, which penalizes fossil fuel use over time.
There’s also the issue of network effects – even if something were to be developed that’s nearly as good as crude, the fact that the entire world is already set up to use crude means it’s still the default choice. Which is yet another reason for us to move away from heavy dependence on oil – so that we’re not a monoculture utterly dependent on one irreplaceable resource.
— (some other) Chris · Jun 25, 06:29 AM · #
That’s it? You’re asking me if I understand that the world’s resources are finite, and that there are always opportunity costs associated with any choice that we make? Yes, I do. That’s why I think we should devote our resources to things that (a) we know will be a problem, (b) we know is getting worse, © we know the cause of, (d) we know how to solve, and (e) we actually can solve. Climate change is one of these.
Sargent, the markets will eventually account for the shortage of oil, but there’s no guarantee that they will do so in a timely manner, or that we will like the consequences. This is something that most free market advocates seem to forget (or don’t understand, or sweep under the rug). They portray markets as if they were systems that were constantly in equilibrium, but that’s not how markets operate. Markets can easily get out of equilibrium, and overestimate or underestimate things. See, for example, the recent bubble(s) that burst. I think that if you like the market’s fix for those, you’ll love their fix for the coming oil shortage.
— Chris · Jun 25, 12:10 PM · #
Chris:
No, that’s not it. IMHO, you need to stop dealing in metaphors. The question here is numerical: how much consumption should we give up to prevent how much expected damage from AGW? Until one is able to answer that question quantitatively (again, in my view), he can’t really have an informed opinion on this topic.
— Jim Manzi · Jun 25, 12:22 PM · #
(some other) Chris:
OK, “innacurate predictions” mean that “talk of a break-even point” is “rather pointless”? [Let’s leave aside the point for a momemnt that every prediction is “innacurate”, in that we can never predict the future with certainty, so that all predictions embed both a probability distribution of possible outcomes plus uncertainty about the accuracy of this distribution.] So on what rational basis would you evaluate whether a proposed program to ameliorate AGW should be supported? Suppose I told you it would (prior to the AGW mitigation benefits it would create) reduce gloabl economic consumption 1%? 2%? 5%? 10%? 25%? 50%? 90%? At what point, if any, would you say that it just costs too much versus your expectation of its benefits? What is that other than a “break-even point”?
You mean, other than this, this, this and this?
It’s cost-competitiveness presumably explaining why we must ration the alternative.
— Jim Manzi · Jun 25, 12:36 PM · #
Jim, I gave you an answer, what are you going to do with it?
To put it in more personal terms, I got a 3% raise this year (starts July 1, beginning of our fiscal year). If I gave that up to solve climate change (which I would), when integrated over the next 25 years, that would roughly equal my current annual salary. Why is that answer interesting? What are you going to use it for?
Do you really think that the climate change problem is going to dry up and blow away? Where’s the argument that solving it by waiting is going to be less expensive than starting now?
— Chris · Jun 25, 12:59 PM · #
Chris:
I didn’t want to try to hold you to it, because it seemed very casual, but OK.
One year of global economic consumption is on the order of $60 trillion. Let me first try to put that into some perspective.
One widely discussed benchmark for a “safe” level of emissions is to set a target limit for atmospheric concentration of CO2 of no more than 150 percent of its current level. Suppose we did this via what most economists believe is the most efficient imaginable means: a globally harmonized and perfectly implemented worldwide tax on carbon. According to the modeling group led by William Nordhaus, a Yale professor widely considered to be the world’s leading expert on this kind of assessment, we, humanity, could expect to spend about $17 trillion more under such a regime than the benefits that we would expect to achieve. To put that in context, the annual GDP of the United States of America is about $13 trillion. That’s a heck of an insurance premium for an event so unlikely that it is literally outside of a probability distribution. But I can find major public figures who say that this level of atmospheric carbon dioxide is still too dangerous. Al Gore has proposed an even lower target for emissions that if implemented through an optimal carbon tax is expected to cost more like $23 trillion in excess of benefits.
Of course, even going beyond Al Gore wouldn’t eliminate all risk, and I can find highly credentialed scientists who say we need to reduce emissions even faster. Once we leave the world of odds and trade-offs and enter the Precautionary Principle zone, there is no nonarbitrary stopping point. We would be chasing an endlessly receding horizon of zero risk. On what rational basis do you argue that we should stop at the risk elimination produced by $60 trillion of inevstment?
— Jim Manzi · Jun 25, 01:09 PM · #
The comments about risk are interesting. It does make sense, on one level, to say that “if this happens, it will have this cost to us, therefore we should take action now to avoid having this happen.” What’s left out, however, is the cost of the shift in priorities. We are diverting billions of our finite number of dollars away from known risks to address a possible risk. Here’s only one minor example: http://www.bclocalnews.com/surrey_area/surreyleader/news/47823327.html in British Columbia health care groups (health care is government run) face over $2 million this year in global warming taxes and offsets despite spending taking significant efforts reduce emissions. So we see an agency tasked with providing you health care today that is instead spending significant cash, time, and energy to address a potential threat in the future. It is quite fair to ask how much of that you want to do.
— Jeff Nelson · Jun 25, 01:29 PM · #
On the rational basis that in a world of finite resources and competing demands, you do what you can. I think I’ve explained above why climate change is a problem worth addressing. I’m not sure why you haven’t engaged those arguments, except to scold me for using a metaphor. (Which is ironic, since your analysis is essentially a metaphor that reduces all of life down to a few numbers.)
I’m also curious, since you cite Nordhaus, why your conclusion is so different from his:
Lastly, if I were to write this post, I would write something “Dear member of Congress: It doesn’t matter how you vote on Waxman-Markey.” As has been pointed out everywhere, W-M doesn’t require much in the first decade. Whether it’s passed or not, events will over take us. Once we have another decade of data and a couple more IPCC reports, we’ll be in a better position politically to get started on the problem.
— Chris · Jun 25, 01:41 PM · #
“Do you really think that the climate change problem is going to dry up and blow away? Where’s the argument that solving it by waiting is going to be less expensive than starting now?”
@ Chris:
Your whole rebuttal to Jim’s detailed rationale as to why WM may be bad policy is the focus on “now.” Your risk analysis is time-dependent, and by the way you phrase it your time intervals seem to be in minutes.
Jim clearly explains the the US government has a responsibility for climate change policy, however we don’t need to accept a shitty bill right now that may have way more costs than benefits acheived in the future.
Yes, the costs of the impact of climate change will increase if we wait until another solution presents itself. However, the benefits acheived may supercede those predicted for Waxman-Markey, making it a superior solution. That’s why it’s called a “cost-benefit” analysis. How is this hard to comprehend?
— Matt C · Jun 25, 01:53 PM · #
Chris:
Assuming “what you can” doesn;t mean “anything you can”, don;t you see that the whole debate is about how much we should do? I suspect we’ve taken this about as far as we’re going to.
If you read the links in the post, you’ll see a very detailed answer to that question.
— Jim Manzi · Jun 25, 02:06 PM · #
@Jim,
Of course, that’s why I was (and am still) confused about your question. Why is my personal response to that important? (BTW, I’m going to have to call foul on your previous response. If you look back at your original question “if you were emperor of the world and you could pay one lump sum now to avoid any possibility of AGW-related future damages, what is the maximum amount of money you would pay?” you’ll see that my answer was for the zero-risk case. You can’t then ask the question you later did “On what rational basis do you argue that we should stop at the risk elimination produced by $60 trillion of inevstment?”)
@Matt,
Actually, my argument is just the opposite (though I haven’t articulated it this way), that the CBA is potentially flawed because of its finite time line. That’s not necessarily appropriate (though there are obvious practical reasons that it’s done this way) in a situation like this when we know that the climate situation is worsening over time.
Go back to my nutrition analogy (sorry Jim). Suppose you did a CBA over one decade. It seems to me that would favor no change in diet (subject can eat anything he wants, but remains at a relatively healthy weight (300 lbs)). But if you extend the CBA to two or three decades, you see that business as usual for one decade leads to major changes in the following decades to avoid disaster. Then you have a very different situation. Maybe small changes in diet now, even if they don’t meet the CBA requirement in one decade, are really best for the long term. In terms of the economic climate models it’s up to proponents of any particular CBA to explain why they’ve chosen the appropriate time-frame to analyze the problem, and why a CBA at one particular point in the future is an appropriate metric for deciding our course.
Of course, this all presumes I accept the CBA as being accurate. Unfortunately, we can never know if that’s true or not. Anyway, as I said before, I expect the situation will look pretty different in another decade or so.
— Chris · Jun 25, 03:11 PM · #
Chris:
You’re correct about that. Apologies; I’m doing this quickly.
The (corrected) question still stands: what if you were presneted with a program to eliminate AGW risk that cost $70 trillion, and there were no alternatives available other than this or do nothing – would you support it?
— Jim Manzi · Jun 25, 03:49 PM · #
It’s ok, I didn’t think you did it on purpose.
The short answer to your question is: I want more information. (You probably knew that was coming.) Let’s flesh this out a bit—-what am I getting for my $60 trillion? (I assume the switch from 60 to 70 is a typo, anyway it’s not really important.) I’ll make the following assumptions. First, assume we somehow know what the ideal climate is (may be hotter or cooler than our current climate), and that our solution will bring the planet to that climate after some transient. Second, assume that the cost of that transient is $X trillion, where $X can be positive or negative. So my understanding of your proposition is that there’s a one-day offer whereby I get an ideal long-term climate for a total cost of $(60+X) trillion (the cost of the remediation plus the cost of the transient).
The information I want is: suppose we do nothing for 10 years. What will these values be in 2019? Will they go up or down, and by how much? Actually, what I really want is a graph of how these two values change over time. Maybe that information is implicitly in your CBA, I don’t know, but I don’t see how I can give an informed answer to the question without that information. (Not that figuring out the answer is particularly simple even with that information!)
— Chris · Jun 25, 04:24 PM · #
Chris:
Thanks.
$70 trillion was not a typo.
The elimination of all risk from AGW. That is, the climate wiill proceed starting today with either no increase in CO2 concentration or somehow all of the future effects of any increase in CO2 concentration will be eliminated.
But you already have answered this. You’ve told me that, incorporating these and all other considerations, your answer is that it’s worth $60 trillion.
— Jim Manzi · Jun 25, 04:53 PM · #
“The question here is numerical: how much consumption should we give up to prevent how much expected damage from AGW? Until one is able to answer that question quantitatively (again, in my view), he can’t really have an informed opinion on this topic.”
Jim I should have bunkered down and learned this debate a while ago, but why are we viewing this as zero-sum? We add a pigouvian tax to carbon, and markets adapt. The Cost-Benefit Analysis isn’t at the global level over a century but instead at an immediate firm level, and where they were previous indifferent between high/low carbon emission (since they were not having to pay a pollution cost they were using) now they optimize, especially with research and innovation, in a carbon-reducing manner. These innovations have spill-over effects, which makes a virtuous cycle happen.
The magic of markets is that we don’t have to sit down, Soviet planner style, and say “Give up X for Y.” We simply say “We want to penalize X and let the market optimize for Y.” The central gear in your CBA is that W-M will only reduce Global Warming by a very small number, but that’s a Soviet type planner estimate – we simply don’t know how well markets will work here once they are forced to incorporate a cost they are skimping on (and in so much as it is a genuine cost X they are not paying for their production, I don’t even care about Y). And I bet we’d be surprised.
— Rortybomb · Jun 25, 05:51 PM · #
Rortybomb:
Well, that would certainly be the optimistic case!
I think you’re on the horns of the following, however. If you think that it’s a reasonable approximation to say that markets efficiently allocate resources to derive maximum utility of consumption prior to externalities, it’s very hard to see that if you compare two worlds – (1) has a tax added to one class of activity, namely emitting carbon dioxide, and (2) identical to (1), but no carbon tax – that you would not agree that prior to any AGW externality reduction that world 2 has greater utility of consumption than world 1.
The obvious way out is to argue that “but this would not be the only difference – it would be fairer to assume that the net tax burden would the same because other non-carbon taxes should be lower by an exactly offsetting amount”. This is, of course, the revenue-neutral carbon tax. Please see my take on that from a couple of years ago here.
— Jim Manzi · Jun 25, 06:14 PM · #
I’ll check that out (as well as the Weitzman paper). Thanks for responding to all these questions thoughtfully and critically.
— Rortybomb · Jun 25, 06:29 PM · #
Jim, the issue here is that you’re pretty clearly thinking of the costs involved here – costs from global warming, costs from fighting global warming – as estimates with nice, straightforward probability distributions that you can graph, weigh against each other, and act on. I think that’s bunk – I think the uncertainties involved here are big enough that your pretensions of balancing costs and benefits are about as meaningful as flipping a coin.
Or maybe I’m overreacting here, but if so, please take a moment to explain to me how the models you’re citing quantify the economic cost of the sudden, Katrina-style flooding of Bangladesh? Or of Amsterdam? How do these models determine the economic interactions between ocean acidification causing massive crashes in fishing stocks at the same time a dust bowl hits the US? How do these models figure out the cost of a China/India war over shrinking water supplies from the Himalayas?
And more importantly, how do you quantify the probability that such events will occur? Because it’s not enough just to figure out the cost of a potential event – you’ve got to figure out how likely each of those events is to get your range of costs and probabilities. Now, I’m not saying that any of those events is certain, or even all that likely to happen. But I’m fairly comfortable saying that they’re all non-zero probabilities, so any model that doesn’t explicitly deal with such events isn’t all that meaningful, and certainly isn’t worth the kind of confidence you seem to be putting in it. (And note that these aren’t really the “black swan” events you’ve talked about hedging against in the past – that would be something truly odd, like runaway warming turning the Earth into something like Venus within a few thousand years.)
As to your point on peak oil, I apologize. I phrased that poorly – you have talked about it in the past. What you haven’t done, as near as I can see, is talk about how an early onset of peak oil would interact with the economic and geopolitical effects of global warming. What’s more, Yglesias’ point isn’t about peak oil per se, but rather about the increasing cost of oil on the speculative market during economic boom times, which seems likely to throttle back growth for some time to come, regardless of how much oil we’re actually extracting from the ground. That being the case, it seems only fair to ask if your baseline for comparison against Waxman deals with the likelihood of such stuff occurring.
No, it’s not, actually. You’re looking at this like a giant expected-utility problem, I’m looking at this like an engineering problem, where the question isn’t “which option is more cost effective” but rather “which option is structurally unsound?” The course of action you’re supporting – unencumbered burning of fossil fuels – runs the risk of major systemic disruption to both our global civilization and our ecosystem via some of the scenarios I mentioned above. Even if you could accurately quantify the probability of such events occurring – which you can’t – it’d still be a risk too scary to contemplate. (Dick Cheney’s line about treating a catastrophe with only a 1% chance of occurring the same as a certain catastrophe seems apt here. )In contrast, moving towards green, sustainable infrastructure may make us less money in the short run (the short run being the next few decades, or even the next century) but it’s a far sounder model for the long term.
— (some other) Chris · Jun 26, 05:32 AM · #
(some othe) Chris:
With regard to your first three paragraphs, you are raising the (intelligent) concerns that Weitzman raises in extremely rigorous form in his paper referenced in the earlier comments to rortybomb. They contains links to his paper and my very long response to it. Rather than try to repeat it here, I’ll just suggest that.
With regard to Peak Oil, when (not if) it occurs, the price of oil will rise. This will induce the conservation, technological subsituttes etc. that you are looking for. Trying to pull this pricing event forward because we “know” that its on the verge of happening better than the market does (otherwise the price of oil would rise) is a political allocation of resources with a long track record of creating less economic utility of consumption than market pricing.
— Jim Manzi · Jun 26, 12:59 PM · #
Actually, Jim, Weitzman’s concerns, while legitimate, are not mine, and that’s not the argument I’m making. He’s saying that there’s a much greater chance of really extreme warming than most other people are, and he tries to quantify that chance – you, on the other hand, disagree with his probability distribution, but you’re still basically doing cost benefit analysis.
What I’m saying instead is that even with only “moderate” warming – 5 degrees C by the end of the century – there’s lost of economic and geopolitical stuff that can go horribly wrong. I’m sure you can count up the net economic loss if, say, Amsterdam gets flooded out by adding up the per-capita GDP of Amsterdam’s residents, the capital therein, the trade that goes on via Amsterdam, etc. I’m not at all sure that you can accurately quantify what the sudden loss of Amsterdam would really mean for the global economy – dislocations, markets scrambling for second-best alternatives, unpredictable political reactions and effects, etc. – and unless you can do that, there’s no point talking cost/benefit.
Again, Jim, that’s not really my argument – peak oil implies that we’ll pump less oil, and the price will go up because there’s less to go around. I’m noting that the price looks to go up regardless of whether we technically hit an oil peak or not because even if oil volume doesn’t decline in absolute value, it’s not going up at the same rate global demand is. In other words, we got $140-a-barrel oil last summer not because of peak oil, but because that’s simply what happens when China, Europe, the US and India are all trying to grow simultaneously. And that’s a problem, regardless of what happens to the absolute production of oil, because this current recession won’t last forever.
As for the relative wisdom of the market, post-housing bubble, I’m less than enthused with that idea. But even if we grant that meddling in the market creates less economic utility of consumption in the long run, it’d still be well worth considering if we can see a slow weaning process off of oil rather than a sudden price shock, purely from the standpoint of considering how nasty going from $3-a-gallon to $20-a-gallon would be for most folks.
— (some other) Chris · Jun 27, 09:14 PM · #
Jim,
As you say, Cap and Trade is an expensive roundabout way of achieving… not very much.
Whatever one’s attitude to greenhouse gas emissions, they can be lowered just by changes in electricity and transport that have advantages in themselves (and together they are responsible for 4/5 of emissions, US EPA data!).
This gives the following – regardless of also lowering CO2:
1. Local environmental benefit from less pollution of sulphur and all else that’s in the emissions, regardless of the less certain or immediate global benefit from CO2 reduction – and that is one reason why the focus on carbon trading is wrong, compared with the focus on reducing fuel combustion emissions.
2. Electricity supply alternatives which together with improved grid distribution gives better conmpetition and keeps down electricity bills for consumers.
3. Transport alternatives (using electricity, hydrogen and other energy sources), which also reduces the dependency on oil imports.
In 2020, from then available evidence, either
1. There is increasing consensus that global warming can’t be stopped anyway, and that further specific reduction attempts have no value: In that case little has been lost, since the described changes in electricity and transport industry carry their own benefit, or
2. Consensus remains that CO2 emission reduction should continue, in which case America is on track, and may continue with more specific emission reduction efforts for the years 2030 and 2050 that also bring in agriculture, cement, steel and other industry whose businesses hitherto did not need disruption.
Cost to businesses – and the consumers – is kept to a minimum,
by equity and long term loan finance, the latter can be fed/state guaranteed to keep down interest rates, with slow payback anyway giving little affected consumer electricity bills or car costs.
No disruption of American business practice and planning, by emission trading.
No volatile extra emission trading costs for a range of businesses, passed on to consumers.
Understanding Cap and Trade + why it is bad for America, see
http://ceolas.net/#cce5x
ALSO:
Let’s not forget the energy efficiency regulation that’s supposed to so good because it lowers electricity bills – according to the CBO you mention, and others.
Right!
Ban consumers from buying what they want and applaud the savings!
(Little savings in banning impopular products, and inefficient products need to be popular or noone would buy them, classic example Edison’s light bulb, bought 19 times out of 20 in the USA – and therefore a banning priority with a big section 211 all to its own in the Waxman-Markey Bill!).
The fact is that efficiency regulation on a product sacrifices performance, construction, appearance and price features, and does not necessarily give the savings suggested anyway.
See
http://ceolas.net/#cc2x
onwards regarding efficiency regulation effect on buildings, lightbulbs, cars, dishwashers and other products in the legislation proposals.
.
— ceolas · Jun 27, 09:32 PM · #
(some other) Chris:
Weitzman talks about what he calls “cascading uncertainty” in the predictions of emissions concatenated with the predictions of warming given emissions cascading with the predictions of damages given warming.
I think that one is faced with one of two possibilities: (1) there is some meaningful quantiative prediction (with ranges, uncertainty and so on) for the reults of AGW, or (2) no such meaningful quantitative prediction is feasible. Which is your positon (or am I missing a possibility? If it’s (1) what is your prediction for damages, and what is your rationale for developing it?
I agree that last year’s oil prices were, at a minimum, influenced by rapid demand growth without commensurate supply growth. As per the very long post I linked to on this, it’s unlcer (to me) whether we will see a return to these prices when and if global demand growth resumes, since I don’t know what production will be.
— Jim Manzi · Jun 29, 01:14 AM · #
It’s (2), at least as far as thinking you can safely put an upper bound on how bad the political and economic fallout from AGW will be.
Nor do I, but do we at least agree that there’s a non-trivial possibility that we will see such prices again, either as a permanent fixture or as periodic price spikes? And if such commodity pricing really is detrimental to economic growth (and you arguing high carbon prices are bad is basically the whole point of your AGW talk) then doesn’t it make sense to get started on driving down the costs of renewable energy now, rather than waiting for the market to decide to do it? Especially if part of that action includes putting a well-defined, widely-known floor on the price of oil, thereby allowing businesses to commit to long-term plans to move away from oil and towards renewables?
Or, if you don’t agree to any of that, do you at least agree that oil, if it does return to $140-a-barrel pricing, will not be the economic enabler that you assume in your growth predictions? And if that’s the case, how does that change your cost/benefit analysis for WM?
— (some other) Chris · Jun 29, 07:29 AM · #