Stern on discounting and risk

John Quiggin21 Comments

One of the crucial issues in any assessment of climate change policy is how to handle discounting and risk. The Stern review (Ch 2) goes back to first principles and gets the main issues exactly right. The reason for both discounting and risk premiums, in economic analysis, is that the marginal value of a dollar of income is lower when we are rich than when we are poor. Hence, we’re prepared to pay for insurance when we are well off in order that it will pay out when we are badly off. Similarly, if we expect income to rise over time, a dollar of income now is worth more, at the margin, than a dollar in the future. The same points are relevant in considering income distribution but this isn’t covered in the parts of the report I’ve read so far.

In addition, there’s a justification for “inherent discounting”, reflecting the fact that some future event (most probably bad, but perhaps good) may mean that “all bets are off” in relation to future consumption levels. Individuals should have reasonably high inherent discount rates, since we may not be around next year, but the appopriate rate for a community is much lower, being confined to the risk of catastrophes like nuclear war.

The Stern review also has a good discussion of probabilities, including the recent literature on problems where there do not exist well-defined probabilities.

The quality of the economics here is very high, and sets a new bar for discussion of these issues.

There’s more on Stern from James Wimberley

Stern on the cost of climate stabilisation

John Quiggin49 Comments

As I said in the previous post, I plan to focus on the economics of responses to climate change from now on and the obvious place to start is the Stern report.

There’s a lot in the Stern report, and I’m going to assess it a part at a time, starting with the issue I’ve been most interested in, the cost of stabilizing atmospheric CO2 levels. I’ll focus on the case considered by Stern, and in my submission of stabilising levels at 550 parts per million, which implies a reduction in emissions of around 60 per cent, relative to business as usual, by 2050. This should be enough to avoid severe damage.
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The debate really is over now

John Quiggin115 Comments

The scientific debate over the reality of anthropogenic global warming has been over for some time, but as long as the opponents of science continued to dominate the political process, it was necessary to combat their claims.

But with the Howard government now supporting emissions trading, at least in principle, and with the overwhelming majority of the public convinced of the need for action, that necessity has now passed, at least in Australia. The main task now is to encourage the government to adopt the most efficient and effective strategies for mitigation and adaptation, in co-operation with other countries. That obviously includes signing Kyoto (with the latest change in position and with Bush a lame duck there’s no reason not to), but it could also include getting the (so-far merely decorative) AP6 process to do some work.

Of course, at least some of the denialists will keep on denying. But they’re in a hole and I’m happy to let them keep on digging. At this point, they’ll do less harm banging on about the hockey stick than they would if they accepted the reality of global warming and used what’s left of their credibility in an attempt to derail any positive response.

So from now on, I’m not going to bother refuting the absurdities of Bolt, the Lavoiser Group and other denialists. Rather than make all those who’ve enjoyed the stoush here go cold turkey, I may put up more open threads from time to time, but my future posts will be about the economics and politics of our response.

Sleaze

John Quiggin22 Comments

With a string of financial and sexual scandals affecting State Labor governments, and “corruption” being listed as one of the factors contributing to the Republicans defeat in the US, it’s worth thinking about whether issues of this kind are ephemeral events, making the headlines and then disappearing, or whether they have longer-term implications. It’s possible to point to examples going both ways. The British Conservatives acquired a reputation for sleaze in the declining years of the Thatcher-Major governments, and it took them at least a decade to recover, even up against a government that is scarcely an exemplar of probity. On the other hand, the Howard government hasn’t suffered much from a string of scandals, of which AWB is just the most recent.

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More amateur climatology from Andrew Bolt

John Quiggin109 Comments

Andrew Bolt cites NASA data from the troposphere and stratosphere to show that global warming isn’t happening. He starts with the troposphere and makes what’s now a standard denialist talking point, that global temperatures “peaked in 1998” (a year of an exceptionally strong El Nino). Of course, until the last few years, denialists were (correctly for once) making the point that you couldn’t attribute all of the exceptional temperatures of 1998 to long-term climate change.

But Bolt’s new ace is the stratosphere, which is actually cooling. The graph here looks pretty convincing. Has Bolt discovered something that all the scientists have missed? Should he be publishing his findings in Nature. Well, no.

As NASA explains here, stratospheric cooling is also the result of human activity. The most important effect is from the destruction of the ozone layer, but CO2 emissions also play a role. Remember that the effect of greenhouse gases is to trap heat. This warms up the atmosphere below (in the troposphere), but reduces it above (in the stratosphere). There’s disagreement over the magnitude of this effect, but the direction is clear.

It would have taken Bolt five minutes with Google to find this out. Does he not know, or not care? Either way, he ought not to have a job with any responsible media organisation.

Note on comments: If you want to disagree with NASA, complain about the hockey stick, or otherwise dispute mainstream climate science, please follow the course I’ve suggested for Bolt and write to Nature. Or, if you really must attack science here, ask me nicely and I’ll put up an open thread. But for the purposes of this post, I’m going to take the assessment of the scientific evidence as presented by NASA and the IPCC as definitive. Comments disputing the science will be deleted.