We hardly noticed

A somewhat recent, but hardly noticed paper (open link) has appeared in Energy and Environment 18 (5) 2007 emitted by William Nierneberg’s accomplice in killing off early, and less expensive action on climate change, Gary Yohe, Eli’s old friend Richard Tol who thought Nicholas Stern should be stood up against the wall and striped of his economic stripes,

Really, climate policy would have been in a better place without Nick Stern.

and Dean Murphy, who for now will remain glissless. The conclusions are extraordinary given the source

The Stern Review and the Fourth Assessment Report of the IPCC together seem to have silenced the public debate on the reality of the risks of climate change. We do not know which contributed more, but the Stern Review clearly put the economics of climate change in the public attention.

Not that anyone noticed over here, or over here, or over there or even in never never take action land and certainly not anywhere near the wizard of denial and his acolytes.

On the one hand, this is a good thing. Economists have a technocratic streak, and public scrutiny of their policy advice is absolutely necessary (Funtowicz and Ravetz, 1994; Funtowicz et al., 1998). On the other hand, successful emission reduction will require a global, century-long effort.

On the one hand is required in every paper written by an economist. FDR was rumored to have a standing reward of a thousand dollars for a one handed economist. But then dear bunnies, come the kids who killed their parents to plea for mercy on the grounds they are orphans

The Stern Review enflamed rather than enlightened the discussion from which the effort will emerge. Where consensus is needed, controversy was flamed. This was true for the immediate aftermath of the publication of the Stern Review, and it may still be true.

Eli is inclined to be not very nice on this point, as those who stirred the flames now find that they were wrong, as we shall see, not for the right reasons. Still they did get there, and publication in E&E brings this point home. The bottom line is the place Eli has been since he came up with Eli Rabett’s Simple Plan to Save the World.

Let us hope that this is not the case for the future. Let us hope that Leonardt’s (2007) final observation from his day at Yale carries the day now that the dust is settling: “In other words, it’s time for a tax on carbon emissions”.Here is the beginning of my post.

Yohe, Tol and Murphy (YTM) argue that of the two possible choices, cap and trade and taxing emissions, taxing emissions is the best. Eli agrees, with the caveat that the tax has to deal with the free rider problem, something not considered in this paper. With the nice nice out of the way readers can now proceed to the snark. The purpose of this paper appears to be to provide cover to the authors for their previous nasty nasty about Stern. The bottom line is that Stern was right, but the report was not written as they would have liked, and that all misunderstandings were caused by Nick Stern not providing them with a personal explanation and writing a report that was not crystal clear to every idiot on the street. For the last, Eli will take their word. As YTM put it

The numerical results reported in the Review are controversial and value-laden, but that is the nature of the economic science. In some instances, the controversy has been created by people who want to undermine confidence in the Review’s fundamental conclusion - the economics of climate policy tells us unambiguously that it is time to act.

A very important point, which needs to be driven home

YTM go on to say

In other instances, the controversy can be attributed to economists being economists – arguing over every point to make sure that this fundamental conclusion is built on solid analytical and empirical ground. In both cases, unusually harsh words have been said about the Stern Review. We have participated in this discussion in large measure because we are convinced that the Review provides sufficient evidence to support its fundamental conclusion with very high confidence. We are, though, concerned that this confidence may not have been as influential as it could have been because the Review may be right for reasons for the wrong reasons.

It is amusing to troll through the net searching for the kind words that YTM said about the Stern report when it was issued, especially in the light of this paper being written only four months afterwards.

YTM provide a list of conclusions from Stern and the IPCC AR4 report which should drive policy responses

a. Climate is changing faster than was anticipated only 5 years ago in the Third Assessment Report of the IPCC (2001); indeed, the signs of human-induced climate change are now being observed.

b. Significant climate impacts have been calibrated in terms of multiple metrics, and the thresholds of associated climate risk have been identified in terms of changes in global mean temperature; some of these metrics are economic, but many of them are not.

c. Many of the temperature thresholds for critical impacts are, regardless of the metric, now thought to be lower than anticipated only 5 years ago; it follows that we are approaching them more quickly than we thought, and so we will reach them sooner than we thought.

The sharpening of the AR4 on these points with respect to the TAR and the Stern report answer Stoat’s question about why the AR4 makes Stern even more pessimistic about climate change then he was in Fall 2006.

The next point is one the Pielke Jr. does not get, although it has been explained to him multiple times by multiple people, some even nicely, at least the first few times.

d. Achieving any concentration threshold cannot guarantee that we will be able to keep increases in global mean temperature below any specific target; in fact, achieving a concentration target can only reduce the likelihood of keeping temperature increases below any target at any point in time in the future.

e. Achieving any concentration threshold may, therefore, only delay inevitable increases in temperature unless persistent policy intervention over the entire century and perhaps beyond is undertaken.

They refer to the chart of damages in the Stern Report (and by inference in the AR4) loosely relating greenhouse gas concentrations, which

. . . in terms of warming, are the basis for believing that the debate over the science of whether or not there is climate risk is over. To be more precise, while none of these thresholds is known with certainty, it is now impossible to argue that all of them are completely implausible. . . . While one may quibble about the precise numbers, their order of magnitude is not disputed.

Of course, we have heard the roar of quibble from the denialist side.

Our orphan ecomists, then make their argument for absolution without acknowledging their role aiding and abetting, even in stirring up.

The Stern Review’s estimates of economic damages and the cost of mitigation have been controversial within the economics research community in part because they are difficult to understand

YTM, Nordhaus and Co, are paid the big bucks supposedly because they are supposed to understand such things and explain them to us. They then, as usual attempt to place the blame elsewhere,

It is important to note in passing, however, that much of the controversy might have been avoided if the Review had been subject to a proper peer review before its release. This point was made by William Nordhaus at what was, in effect, a day long, public, and ex post peer review hosted by Yale University on February 15, 2007. The Stern author team admitted as much during that event, but they expressed concern that pre-publication review would have meant that bits of the Review would have been inappropriately leaked to the press.

OTOH, perhaps YTM, N and others could have held their tongues until they understood what the Stern Report said. Eli is a dreamer. But enough of this, let us summarize the policy that YTM recommend because of climate risk, policy makers should focus on

“buying insurance” against economic consequences of climate change and the economic consequences of rapidly ramping-up climate policy in the future. As soon they recognize that some sort of policy will be required . . .simple economics says that taking the least cost approach means starting now.

This conclusion is true in large measure because atmospheric concentrations of greenhouse gases depend on cumulative emissions over time. As a result, achieving any targeted concentration limit (and thus a corresponding range of possible temperature increases and associated climate risks) is fundamentally an exhaustible resource problem.

Such issues have known policy solutions where one starts by specifying

an initial price of carbon (or perhaps setting targeted permit price for a cap and trade system). This price should be designed to get the attention of the business community and to show political leadership in the face of a serious problem. It need not, however, be set so high that it would cause undue economic harm in the short-run. Allowing the carbon price to increase at the rate of interest year after year (following Hotelling) and acknowledging that adjustments for new knowledge about performance and risk will have to be accommodated over time will give the policy traction.

Evidently, YTM have read J. Willard Rabett’s dicta about climate change, that there are infinite procrastination penalties, and that the world has to start addressing the man made climate change issue now, things that adaptation does not address

Because the expected costs of adjusting to more pessimistic climate news sometime in the future if we delay taking action are higher than the expected costs of doing too much too soon (even with discounting at the market rate of interest).

. . . Since no policy created in 2007 will “solve the climate problem”, it is perhaps even desirable to step out from under that burden to confront a more manageable near-term problem while still making progress towards an ultimate response to an evolving understanding of climate risk. The answer to “What to do in the near-term?” is to design something that will (1) discourage long-term investments in energy, transportation, and construction that would lock in high carbon intensities for decades to come and (2) encourage development of alternative energy sources, carbon sequestration technologies and efficiency.

An example is provided where emissions can be cut by encouraging a change over to natural gas

Because natural gas is a considerably more expensive fuel than coal, it takes a substantial CO2 cost to overcome this fuel cost disadvantage – about $30/ton, on current fuel price expectations in the U.S. On the other hand, consider pending investments to add new generating capacity in the United States over the next few decades. Much of this capacity is currently planned as conventional coal-fired technology. What would it take, in terms of CO2 price, to make it economic to install new gas-fired capacity instead, thereby cutting by half the carbon emissions from this new capacity? On current gas price expectations, a CO2 price of only $5 per ton would be sufficient to make new gas-fired generators as economical as new coal-fired plants, based on the present value of fixed and variable costs. This number is much lower for new plants than the $30/ton seen above for existing plants because the lower cost of building a new gas plant compensates for some of its higher fuel cost.

Providing a floor price of carbon to safeguard and encourage investments in lower emission technologies is a key and often lost point. Carbon taxes and cap and trade regimes are not punitive but mechanisms to drive investment toward lower emissions and eventually a carbon neutral economy. They make explicit the costs to the world of high carbon emissions.

Eli is greatly encouraged that the world´s best economists have finally caught up to a stuffed bunny. He is sure they will agree but only after accusing him of being obtuse