A couple of years ago, I published an article on why “extremely unlikely” climate events matter. The central point was that climate outcomes with a probability of 5 per cent or less (“extremely unlikely” in IPCC terminology) were still much more likely than risks we take seriously in our daily life, like dying in a car crash). As an illustration, at the time the piece was written, it seemed less than 5 per cent probable that, within two years, many countries in the world (including Australia) would see catastrophic fires on the scale of those that have actually happened.
I made this point in an interview for an ABC story on economists’ views of the likely costs of 3 to 4 degrees of climate change. Most of those interviewed agreed with me that the costs were likely to be much higher than suggested by economics Nobelist William Nordhaus (with whom John Horowitz and I had a debate in the American Economic Review quite a while ago). We pointed out, among other problems, that a paper he had co-authored implied an optimal July temperature of -146 degrees Fahrenheit.
Nordhaus declined an interview, but his viewpoint was represented by Richard Tol. Longstanding readers will remember Tol as a commenter here who eventually wore out his welcome.
The other point I made in the interview was that the abstruse debate about discount rates central to much of the debate between Nordhaus and Nicholas Stern has turned out to be largely irrelevant. The premise of that debate was that the costs of unmitigated climate change would be felt decades into the future while the costs of mitigation would be immediate.
As it’s turned out, the costs of climate change have arrived much sooner than we expected. And the only mitigation options adopted so far have been low cost or even negative cost choices like energy efficiency and abandoning coal (more than justified by the health costs of particulate pollution).
That doesn’t mean discount rates are completely irrelevant. If we manage to decarbonize the global economy by 2050, benefits will keep accruing well after that. But even if we stopped the analysis at 2050, we would still have a substantial net benefit. The likely cost of near-complete decarbonization now looks to be less than a two per cent reduction in national income. Reducing the frequency and severity of disasters like the bushfires will more than offset that.