Home > Economics - General, Environment > Diewert on Quiggin, Castles and Henderson

Diewert on Quiggin, Castles and Henderson

March 31st, 2006

A while back, I had an interesting debate with Ian Castles about the significance or otherwise of the choice between market and purchashing-power parity (PPP) exchange rates in the IPCC projections of global warming. You can read a number of contributions from Castles and David Henderson at the Lavoisier Institute website and their main article is published in Energy & Environment”, vol. 14, nos. 2 & 3: 159-85. They argue that the use of market exchange rates understates the income of poor countries and therefore overstates the growth in income and energy use that will occur as they catch up with rich ones.

My criticism is directed at the second part of this claim. I say that if the demand for energy is modelled using market exchange rates, the choice of income aggregate doesn’t matter much. If the income estimate is biased downwards, so will be the estimate of the rate at which energy use grows with income. I make this point in my submission to the Stern Review in the UK.

These debates are inevitably complicated, but someone with the right skills can make them a lot clearer. I can think of no one better than Erwin Diewert, who has been the leading researcher* in the theory of index numbers for the last thirty years (and a big name in other fields). So I asked Erwin for comments and was both surprised and pleased to receive not just comments but a whole paper, not quite by return mail, but after only a few days.

I think it’s fair to summarise by saying that Diewert agrees with my main point, but also agrees with Castles and Henderson that the IPCC should change its modelling approach.

I agree with everything in the comment, but there a couple of points of emphasis I would place differently, as noted in my response . In particular, I stress the importance of consistency. Using PPP numbers for income, then plugging in income elasticities derived from studies using market exchange rates, is a recipe for disaster.

* I should also mention Sidney Afriat who is famous for being both brilliant and esoteric. Afriat has made fundamental contributions to the field.

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  1. April 4th, 2006 at 02:55 | #1

    Hhhm. Scratches head. Umm.
    I’ll admit I got lost in the maths there. However, something else to think about.
    Simply comparing energy use per capita. Rich country uses x per head, poor y, with y being some fraction of x. Yes? We also assume that when poor country is as rich as the rich one, y becomes x. Yes? So energy consumption (and thus emissions) will be, globally, in 2100 on a par percapita globally with current US ones. Yes?
    (Given that in some of the SRES scenarios, we have convergence and thatthe world is at current US levels of wealth).
    So, quick test. Are the emissions figures used in the models actually comparable to this? Are the 7 billion times US current capita levels?(or 6, or 9, whichever exogenous population numberis used?)

    Secondly, how are we measuring current poor country energy use and emissions? Are we taking proper account of the informal sector? Do we really actually know what they are?

    Thirdly, does tying emissions to energy usage in this manner deal with the fact that some technologies are less emittive than others? That, say, kerosene lamps being replaced by electric lights might means a huge rise in energy usage but a fall in emissions?

    Or is this dealt with somewhere else in the models/calculations?

    Still glad to see that C&H were, sorta, correct, in that the calcualtions do need to be redone: sadly, as I hear, something that the upcoming revision doesn’t intend to do.

  2. jquiggin
    April 4th, 2006 at 07:00 | #2

    Tim, when I looked, the scenarios appeared to pass this test, subject to the observation that emissions intensity in the developed countries is expected to decline, a little in some scenarios and a lot in others.

  3. Terje
    April 4th, 2006 at 10:01 | #3

    My understanding is that per dollar of GDP (rather than per capita) the rich nations do a lot better than the poor nations in terms of efficency of energy use. They also do a lot better than they did 30 years ago.

    A lot of this is implied by John Quiggins views on Kyoto. He asserts that Kyoto will have little effect on global economic growth. I tend to agree. However John Quiggin has not yet responded to my concern that the low cost of Kyoto is part and parcel of its low benefit.

  4. jquiggin
    April 4th, 2006 at 10:06 | #4

    Terje, we’ve covered this many times, but I’ll repeat it. Kyoto has very low costs and low benefits, but is a first step to a program to drastically reduce CO2 emissions over several decades, which has low costs and substantial benefits. On the latter, see my submission to the Stern review, cited in the post.

  5. Terje
    April 4th, 2006 at 10:36 | #5

    John,

    Amazing! I asked you for this ages ago and you said that you would address it in detail at some future date. I asked again later and you said that you still intended responding in detail. Now you say that we have covered it all before. Surely you could have merely cited it and saved me all this waiting.

    In any case your paper does not address this issue.

    The Kyoto Protocol can be evaluated in terms of Costs. The Kyoto Protocol can be evaluated in terms of benefits. Ideally it should be evaluated in terms of both costs and benefits.

    You have insisted that the costs are low. I find that assertion agreeable. However you then argue that Kyoto is a first step and we should be in awe at the benefits that some post Kyoto emergent protocol will lead to.

    Your line of argument is like claiming that a railway 1% of the way from Adelaide to Darwin would not cost very much and it would be the first step towards a railway that goes all the way and such a railway that goes all the way would have vast benefits, so lets start building the first 1%.

    We agree that Kyoto is low cost and low benefit. If you think that some future protocol (lets call it KyotoPlus) will be of high benefit then lets see the costing for such a protocol so we can do a real cost/benefit analysis. My guess is that the cost of KyotoPlus will be very high. It may be a price we have to pay but it is annoying to see it trivialised.

    Regards,
    Terje.

  6. jquiggin
    April 4th, 2006 at 13:40 | #6

    “Your line of argument is like claiming that a railway 1% of the way from Adelaide to Darwin would not cost very much and it would be the first step towards a railway that goes all the way and such a railway that goes all the way would have vast benefits, so lets start building the first 1%.”

    Indeed, this is an excellent way of putting it. I believe this is the normal procedure with railroads and in fact with roads of all kinds. The first 1 % is built first, then the second 1 % and so on.

    As a general rule, part of a road is of some use, but the whole road is worth more than the sum of the parts and this is true for Kyoto, I suggest.

  7. Terje
    April 4th, 2006 at 16:00 | #7

    It is true that roads are built one step at a time. However a road that is 1% complete is mostly useless and it is kind of pointless going on about how cheap it is.

    If I asked a building company for a house and they came back with the plans for a beautiful 8 bedroom luxury home and quoted me the cost of laying the footings then I would be a fool to sign up for the project. Any reasonable person would want to know the cost of the complete project or else have a pretty good estimate. If the footings on their own had some utility you might proceed without the full costing but only if the cost of stage one was worth the utility. Kyoto as it stands may be cheap but as it stands it has next to no utility.

    Given your valid criticism of PPPs and the risks associated with open ended projects I would have thought all of this was self evident.

  8. jquiggin
    April 4th, 2006 at 16:14 | #8

    I think you’re missing the point here, Terje. You can’t build the road unless you build the first 1 %, and you can’t do anything timely about climate change unless you adopt Kyoto.

  9. Dogz
    April 4th, 2006 at 17:14 | #9

    …you can’t do anything timely about climate change unless you adopt Kyoto.

    Kyoto is the only solution? That’s an awfully big call. Anyway, as I understand it Kyoto is going to have bugger-all influence on global warming. We’re gonna need a better solution anyway.

    What of all the potential technological fixes? We’ve barely scratched the surface (so to speak) of the sequestration possibilitites. How about nanobots that scour the atmosphere for CO2 molecules, converting them to O2 and carbon. Be a little sooty for a while but once the dust settles we’ll be peachy.

    Or genetically engineered super-crops that convert atmospheric CO2 into diamond instead of wood.

  10. Terje
    April 4th, 2006 at 17:39 | #10

    John,

    No I don’t believe I am missing that point. I accept that you can’t build a house without footings and that the footings are a necessary cost if you are going to build a house. I know that you can’t build a road unless you build the first 1%. And I accept that Kyoto is one brick in the wall towards a possible climate change solution. I accept this and I indicated previously that I accept this.

    You and others have argued that the wall is essential. Others in the climate change debate have counter argued that the wall is too expensive. You have countered back again by saying that the cost of the first brick is actually quite cheap. You indicated that over a decade Kyoto defers economic growth by a mere few weeks.

    Kyoto is the first brick in a wall. The benefit of the wall may be high. The cost of the first brick may be low. However comparing the benefits of the wall to the costs of the first brick is not a meaninful comparison. You seem to reject this point of logic. And I have been seeking for a very long time to understand why.

    If the government proposed a PPP and said that the benefits over 20 years would be very high and the cost over the first year would be very low and then argued that on this basis the PPP should proceed, then surely you as an economist would see the problem?

    Regards,
    Terje.

  11. jquiggin
    April 4th, 2006 at 22:32 | #11

    Terje, I’ll try one last time. The argument in my Stern Report submission is about radical reductions in emissions and shows that costs exceed benefits. If you accept that, you accep the need for a first step, and htat means Kyoto or something similar.

    On tech fixes, I’m always surprised to see this kind of thing from supposed free-marketeers including the government. Where are these tech fixes going to come from and who is going to adopt them if there is no price incentive?

  12. Dogz
    April 4th, 2006 at 23:00 | #12

    The tech-fix mentality is really just an optimistic perspective. Most free-marketeers are fundamentally optimistic (no need to interfere – things have a habit of sorting themselves out). Most opponents of free markets are fundamentally pessimistic (people can’t be trusted to make the right decisions, we need a big state apparatus to decide for them).

    When it comes to solutions to global warming, the optimists amongst us would prefer to wait until the effects are obvious (they’re not yet), get a sense of the real cost, and then adjust the response accordingly.

    We’re optimistic in the sense that if the cost turns out to be truly enormous (as the pessimists would have us believe), then with a commensurate effort (no doubt involving huge price incentives and state sponsoring), we’ll come up with a good enough solution.

  13. Terje Petersen
    April 4th, 2006 at 23:31 | #13

    The argument in my Stern Report submission is about radical reductions in emissions and shows that costs exceed benefits.

    1. I assume that you mean “benefits exceed costs”.
    2. I have read your paper twice now and it seems to be entirely about the effects of PPP versus Market Exchange rates on the analysis of emmision scenerios. It is a fine paper but I don’t see any analysis or conclusions in it about costs relative to benefits. It merely asserts that the use of PPP or market rates is not material to the calculation process.

    If you accept that, you accep the need for a first step, and htat means Kyoto or something similar.

    Yes of course. If you accept that a wall must be built then you accept that bricks need to be laid. The costs of bricks is then interesting but not critical to the decision making process, the decision having already been made.

    However the earlier discussion that I am harking back to was a discussion about whether we need to build a wall and whether a wall is worth it. As such the costing of the first brick is insufficient and in fact misleading if it is touted as the cost of the complete wall. What I have been seeking is clarity that you want no part in misleading the debate and that you understand the risk of doing so. To date I have not been able to get that clarity from you.

    On tech fixes, I’m always surprised to see this kind of thing from supposed free-marketeers including the government.

    I agree entirely. I don’t have a clue where the government is going with this, except perhaps to use it as a political veil for inaction. I cheered when the Kyoto protocol emerged originaly because it was a market based approach. I am not convinced of the cost/benefit of the whole CO2 emission control exercise, and the exclusion of developing nations from the Kyoto protocol is a big missing piece, however if we are to reduce CO2 emissions I am all for a market based approach like Kyoto.

    Let me try a different take on this discussion by asking some short direct questions.

    Q1. Do you accept the view that the existing Kyoto Protocol (without modification) would deliver very few benefits and delay global warming over the coming century by only a few years?

    Q2. Do you accept that a Kyoto Protocol modified sufficiently to make a meaningful different over the coming century is going to be much more expensive than the unmodified version?

  14. Tom Davies
    April 5th, 2006 at 01:19 | #14

    Terje, Perhaps JQ is claiming that for any small amount of global warming abatement the benefit is greater than the cost, i.e. a wall made of only one brick is better than nothing (the wolf may stub his toe on it) and good value for the price of a single brick. That is, that there is no ‘threshold’ where abatement suddenly ‘starts to work’. That seems plausible to me.

    I’d be fascinated to see specific figures on the effects of Kyoto — rather than just saying ‘it will cost x% of GDP’ I’d like to know what the prices of petrol and electricity will be (given some assumptions about how the process might be managed, of course)

  15. The Lithophyte
    April 5th, 2006 at 10:30 | #15

    In response to posts about cost-benefit and Kyoto (or indeed any greenhouse gas mitigation strategy – here I use Kyoto as shorthand for cap and trade or similar, not necessarily as an endorsement of that particular formula), I’d like to make the following suggestions. This applies to both formal cost-benefit analysis (CBA) and to weighing up the effort expended in changing current economic, social and technological pathways in order to ensure that climate change does not result in serious risks occurring (i.e. going beyond the monetary to also take in social and environmental factors).

    There are two ways to look at this. One is conventional CBA and the other is a risk assessment approach.

    CBA is best suited for a single pathway into the future where the pathway is fairly well understood and the changes are marginal (marginal in the sense they don’t bust the underlying paradigm). If one takes a single pathway approach and looks at the costs of reducing GHG emissions and the consequent benefit, as has been done for average global temperatures and for simple approaches using damage functions that are little more than guesstimates, then the benefit in delayed warming is a few years and dollar for dollar it is difficult to show a reasonable return in net present value.

    There are several problems with this.

    One, that has been pointed out already in this thread and others is that as an increment, a first step such as Kyoto will have trouble satisfying a simple CBA approach. The only way that it can be justified is as a package deal, where significant changes will have significant benefits in terms of avoided damage. As a comparison, if I was investing in the R&D of a new widget, it would be silly for me to just build one component specific to that widget (i.e. that has no wider utility) then expect to get a return from it. The return is avoiding dangerous climate change; one needs to develop the whole pathway in order to do that, not a small part.

    Two. The damages of climate change can be considered as potentially being non-marginal. What are the costs of losing close to all the coral reef ecosystems, half of all species subject to extinction risk, melting the Greenland Ice-sheet and accentuating water stress in regions where people already do not have basic access to essentials? (These outcomes are more likely than not if we follow current pathways, in some cases much more so.) For many people, such impacts should not be monetised. This assumes a level of damage where marginal costs can be assessed with an upper limit of a threshold beyond which the costs are infinite. On a personal level, this is the difference between being ill and dying, and denotes the limits of substitutability. CBA cannot measure infinite costs. For more on this, see a paper by Gary Yohe: Yohe GW More trouble for cost-benefit analysis. Climatic Change 56 (3): 235-244 FEB 2003

    Three. The scientific uncertainty affecting outcomes in terms of mean global warming is about half of the total uncertainty, for biophysical impacts it is greater still and for socio-economic impacts, the uncertainty is even greater. The climatic and biophysical uncertainties are locked into the system – science can constrain their ranges, even produce subjective probabilities through Bayesian methods, but not predict them accurately. When will such uncertainties be reduced, and by how much? It is possible they may remain unknown for some decades. Some uncertainties may be intractable. Socio-economic uncertainties are further compounded by uncertainties in the underlying development pathway. Single pathway analysis cannot account for these uncertainties, even worse when “perfect foresight� is used to optimise cost benefit using guesstimated damage functions to assess the benefit.

    Many proponents of CBA are waiting until these uncertainties reduce sufficiently before they will act. It is debatable (see the points above) whether this problem will ever be tractable using CBA. Even if it is, the delay in seeing uncertainty reduced to specific levels (and no-one opposing actions on greenhouse will ever state what their maximum threshold for uncertainty is, it is all opposition and hand-waving), may mean that the time to act has already passed.

    It is interesting to note that the delay in implementing Kyoto on GDP (a few months) is much less than the delay gained in mean global warming (a few years), so in terms of time gained the balance is positive. Costs of Kyoto or similar that are relevant to the development of long-term strategies can also be seen as a down payment for the development of a low carbon-emission economy. A low carbon economy would eventually have the externalities of climate change risks factored into it – therefore low emission energy would ultimately be more cost-effective than high emission energy when factored into the market.

    Risk Assessment Approach

    The risk assessment approach does not take a marginal approach to cost-benefit, but looks at how much Kyoto or any mitigation scheme will reduce climate risks and attempts to balance these with the risks of taking a particular policy approach. This builds on the assumption that, in the climatic short term at least (next 20–40 years), the world is largely locked into a given pattern of economic, energy and emissions growth. This pattern may be interrupted by conflict and/or extreme events but serves as a reference for business as usual assumptions. Energy growth estimates by the International Energy Agency are significant in that they define a reference pathway, with recent high growth in India and China modifying some of those assumptions. New IEA projections, including those with emission reductions, will be available shortly.

    Because of the dependence of the near future on the past and current trends, these can be called reference, or business-as-anticipated, projections. New technologies under development (e.g. carbon capture and storage) will have their greatest impact after that period. Therefore, beyond the 20–40 year horizon, projected futures resemble the more classic scenario “what if� approach because of the wider range of possible alternatives. The reference projection/scenario construct is anticipated by the scoping paper developed by the IPCC Working Group on New Emissions Scenarios (http://www.ipcc.ch/meet/othercorres/ES2WSscopingpaper.pdf).

    It is the construction of these types of scenarios that is most important, not modifying the assumptions in the SRES scenarios according to how PPP/MER is handled. What is worrying, is that the ABARE reference scenario released for the AP6 conference earlier this year (http://www.abareconomics.com/rr06.1/pdf/RR06_1_ClimateAsia.pdf), and based on IEA energy projections to 2030, is at the upper end of the SRES envelope. Recent estimates that median climate sensitivity is around 3°C suggests that we are on track for warming in the upper half of the IPCC range derived from the SRES scenarios. Whether PPP or MER is used, this conclusion is rapidly becoming more evident.

    A risk assessment approach suggests utilises the plausible envelope of warming, up to and beyond 2100. Reducing GHGs from the business-as-anticipated reference will reduce the upper part of the warming envelope. This upper end contains the most damaging outcomes, including those that may be considered to be infinite in monetary terms (i.e. non-marginal costs). Therefore, if the probabilities of such events are reduced, in addition to reductions of high marginal costs from the upper limit of plausible climate change, then the benefits in terms of reducing risk can be assessed as much larger than the incremental cost-benefit approach.

    The significant difference between the two conceptual models is that the former is best suited for single pathways where changes are considered to be marginal and uncertainties are highly constrained. The latter risk assessment approach is much more suited to situations of high risk, large uncertainties and factor in multiple outcomes. The CBA approach deals with pathways one at a time, and often has to make assumptions about prior knowledge (e.g. perfect foresight to optimise costs). Most of those assumptions cannot be sustained in the face of climate change uncertainties.

    Therefore, the first steps to reduce GHGs, if sustained over the long term, and assuming they do not reduce the future capacity to mitigate climate, have the maximum benefit in reducing future risks, not the minimum marginal benefit in reducing damages (these damages at the lower end of climate change are inevitable and will need to be adapted to in any case). The remaining questions then come down to magnitude and timing.

  16. Terje
    April 5th, 2006 at 10:56 | #16

    It is interesting to note that the delay in implementing Kyoto on GDP (a few months) is much less than the delay gained in mean global warming (a few years), so in terms of time gained the balance is positive.

    My understanding is that Kyoto is projected to delay GDP growth by several weeks over the course of a decade. The benefit will be a delay of global warming by a few years over the course of a century. We might estimate that over a century if we do nothing more than Kyoto then we would have:-

    a) GDP growth delayed by a few years.
    b) Global warming delayed by a few years.

    In other words a largely break even exercise depending on your bias towards economic output and the state of natural systems.

    The significant difference between the two conceptual models is that the former is best suited for single pathways where changes are considered to be marginal and uncertainties are highly constrained. The latter risk assessment approach is much more suited to situations of high risk, large uncertainties and factor in multiple outcomes.

    Your analysis is insightful. However if we take the second approach we then need to work out how much insurance we want. And given differences in risk tolerance we will see differences in opinion on how to act. I might die from Kidney failure or from Global warming. Given a free choice I would probably rather insure against the former. In essence it becomes a very political exercise not an economic comparison of choices.

  17. Hans Erren
    April 7th, 2006 at 08:41 | #17

    I’ve been to a few debates in Holland, and the overall consensus [sic] between skeptics and warmers is that it is wise to be careful with our natural resources.
    Now as a user of fossil fuels I can only see a major breakthrough if I and my neighbours do have affordable alternatives for
    1) house heating with gas in winter (which is my biggest contribution to co2) and
    2) transport (yes I do drive a car).

    Furthermore these beautiful emerging economies in Asia need a lot of steel and concrete. And making steel still involves burning cokes.

    Any suggestions how we can tackle this?

  18. Ian Castles
    April 8th, 2006 at 11:09 | #18

    The Lithophyte, You say that the ABARE reference scenario released for the AP6 conference earlier this year was based on IEA energy projections to 2030 and that it’s at the upper end of the SRES envelope – and that it’s becoming rapidly more evident that ‘we are on track for warming in the upper half of the SRES range.

    I don’t know how ABARE did their sums, but the IEA projections don’t lead to this conclusion at all. According to the Agency’s latest Reference Scenario, as published in World Energy Outlook 2005, CO2 emissions from fuel combustion will show a lower increase to 2030 (compared with the 1990 base of the SRES) than the most optimistic of the SRES marker scenarios (B1). The A1FI scenario (which is similar to the ABARE scenario) projects fossil CO2 emissions in 2030 at 30% higher than B1.

    The IEA Reference Scenario is based on current policy settings. In the 2004 edition of World Energy Outlook, the Agency also published an Alternative Scenario, which ‘considers those policies and measures that countries are currently considering or might reasonably be expected to adopt taking account of technical and cost factors, the political and market barriers.’ For example, under the Alternative Scenario, ‘an additional 10% improvement is assumed in the efficiency of Chinese cars between 2008 and 2030. By about the 2020s, the efficiency of new cars sold in China will surpass the high standards currently in place in Europe.. The Alternative Scenario includes several other assumptions regarding China’s transport sector, including an increased adoption of alternative-fuel vehicles and a modal shift from road to high-speed and intra-city rail traffic.’

    Measures of this kind only become effective in reducing emissions growth towards the end of the IEA projection period, so their significance in containing emissions is best indicated by comparing the growth in CO2 emissions in the 2020-30 decade under various scenarios. The IEA Alternative Scenario shows a growth of 7% in this decade, compared with 12% for the B1 scenario, 13% for the IEA Reference Scenario, 23% for the A2 scenario (used to represent ‘business-as-usual’ in the Stern Review discussion papers) and 31% for the A1FI scenario (which, as noted above, is close to ABARE’s).

    Thus the Stern Review and ABARE assumptions are open to the interpretation that prospective CO2 emissions are being boosted above their likely levels in order to show large potential savings in emissions from possible measures to contain GHG emissions.

    I also need to comment on Terje’s statement that ‘My understanding is that per dollar of GDP (rather than per capita) the rich nations do a lot better than the poor nations in terms of efficency of energy use.’ This was claimed to be the case in the IPCC Special Report on Emissions Scenarios (see Figure 2-10 and the accompanying discussion), but is in fact incorrect. If PPP-based estimates of GDP are used (as John Quiggin and I agree they should be), there is no systematic relationship between countries’ per capita income levels and energy use per unit of GDP. Estimates provided by Angus Maddison to the recent House of Lords Committee inquiry The Economics of Climate Change show that energy used (tons of oil equivalent) per $000 of GDP in international dollars was lower in China (0.25) and India (0.27) than in the US (0.29). Energy use per dollar of GDP was lower than in all of these countries in Japan and Latin America (0.20).

    This week’s ‘Nature’ carries a letter in which two lead authors of the IPCC’s forthcoming Assessment Report (Arnulf Grubler and Detlef van Vuuren) defend the use of market exchange rate converters in the IPCC Special Report on Emissions Scenarios. This suggests that the IPCC is determined to continue to mislead the world’s policymakers by providing erroneous comparisons of intercountry differences in energy use.

  19. Ian Castles
    April 8th, 2006 at 12:04 | #19

    Of course I meant to say ‘erroneous comparisons of intercountry differences in energy used per unit of GDP.’

  20. Terje Petersen
    April 8th, 2006 at 21:26 | #20

    If PPP-based estimates of GDP are used (as John Quiggin and I agree they should be), there is no systematic relationship between countries’ per capita income levels and energy use per unit of GDP. Estimates provided by Angus Maddison to the recent House of Lords Committee inquiry The Economics of Climate Change show that energy used (tons of oil equivalent) per $000 of GDP in international dollars was lower in China (0.25) and India (0.27) than in the US (0.29). Energy use per dollar of GDP was lower than in all of these countries in Japan and Latin America (0.20).

    Thanks for the clarification.

    Can you tell me however when you refer to “tons of oil equivalent” are you refering to equivalence in terms of CO2 output or energy output. It is obvious that a nation that uses coal instead of oil will be more dirty in CO2 and one that uses nuclear will be more clean. If however we are comparing energy output we get a better sence of how an economy is dependent on energy rather than the type of energy that it happens to rely on.

  21. Ian Castles
    April 8th, 2006 at 22:43 | #21

    Terje, The figures I quoted from Maddison refer to equivalence in terms of energy output. However the IEA produces an annual publication ‘CO2 emissions from fuel combustion’ which includes tables beginning about 1970 showing CO2 emissions per unit GDP for large numbers of countries. Australia is high on both counts – high use of energy per unit GDP (because of relatively high production of energy-intensive products such as alumina/aluminium, base metals etc,, not because energy is used inefficiently), and power plants largely fuelled by coal. France on the other hand uses less energy per unit of GDP, and power stations are largely nuclear. Latin America has relatively low energy per unit GDP, and I think is even lower in terms of CO2 per unit GDP because much of the electricity is produced from hydro plants.

  22. May 3rd, 2006 at 11:31 | #22

    I’m with Terje. John: “costs exceed benefits. If you accept that, you accep the need for a first step, and that means Kyoto or something similar.”

    Seems to me that if Kyoto is no good, given the likelihood of increasing marginal costs and decreasing marginal benefits as it is scaled up, something bigger will be much worse.

    “On tech fixes, I’m always surprised to see this kind of thing from supposed free-marketeers including the government. Where are these tech fixes going to come from”

    How about from publicly funded R&D?

    “and who is going to adopt them if there is no price incentive?”

    If they are sufficiently compelling, they won’t need price incentives. Price incentives will only ever make a small difference to decisions about adoption anyway (i.e. they offset only a small proportion of the costs), so the new techologies will need to be pretty close to being economically attractive in their own right. It’s only a small step from there to being fully economically viable in their own right.

  23. Hans Erren
    May 8th, 2006 at 20:47 | #23

    wrt to my memory of Ice harvesting and Charley Chaplin.

    I stand corrected: it was Buster Keaton in the film Ditto (1937) where he plays the ice delivery man.
    http://www.imdb.com/title/tt0028789/

  24. December 4th, 2006 at 03:23 | #24

    I don’t read the Diewert paper as agreeing with your main point. He doesn’t seem to have any faith in the current estimates and I thought you were saying that your point showed that current estimates were reasonable.

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