Friday, October 25, 2013

Some People Are Just Lucky

In a review of William Nordhaus' new book, Climate Casino: Risk, Uncertainty and Economics for a Warming World,  Paul Krugman reveals that he was Nordhaus' undergraduate research assistant at Yale for the first Integrated Assessment Model. 

Forty years ago a brilliant young Yale economist named William Nordhaus published a landmark paper, “The Allocation of Energy Resources,” that opened new frontiers in economic analysis.1 Nordhaus argued that to think clearly about the economics of exhaustible resources like oil and coal, it was necessary to look far into the future, to assess their value as they become more scarce—and that this look into the future necessarily involved considering not just available resources and expected future economic growth, but likely future technologies as well. Moreover, he developed a method for incorporating all of this information—resource estimates, long-run economic forecasts, and engineers’ best guesses about the costs of future technologies—into a quantitative model of energy prices over the long term.

The resource and engineering data for Nordhaus’s paper were for the most part compiled by his research assistant, a twenty-year-old undergraduate, who spent long hours immured in Yale’s Geology Library, poring over Bureau of Mines circulars and the like. It was an invaluable apprenticeship. My reasons for bringing up this bit of intellectual history, however, go beyond personal disclosure—although readers of this review should know that Bill Nordhaus was my first professional mentor. For if one looks back at “The Allocation of Energy Resources,” one learns two crucial lessons. First, predictions are hard, especially about the distant future. Second, sometimes such predictions must be made nonetheless.
Of course, these models have both their uses and abuses like any model.  One of the problems, of course, is that damages are a non linear function of the warming and that is hard to capture if the economic world, the one we function in has never experienced such conditions.  For example, since progress, encapsulated as an increase in world GDP, is assumed to grow, one finds that economic damage in IAM models tends, shall one say, to be charitable, to be limited for even global warmings of 10 C.  There is a lot of misplaced confidence by practisioners of IAMism.  Krugman explains
However it’s done, how ambitious should an emissions reduction program be? There’s an international consensus that we should aim to limit the temperature rise to 2°C; sure enough, Nordhaus goes into full debunking mode here: “The scientific rationale for the 2°C target is not really very scientific.” Instead, he argues for cost-benefit analysis—but this leads him to an only slightly higher target: his best estimate of the optimal climate policy if done right would limit the temperature rise to 2.3°C.

The qualifier “if done right” is important. Stabilizing temperature rise in the 2–3 degree range already requires very large reductions in CO2 emissions, albeit reductions that Nordhaus (and just about all serious energy economists) believe can be achieved at only moderate cost, given sufficient lead time.
While the NYRB does not have a comments section, Krugman has written a lead in on his blog where bunnies can comment

9 comments:

Russell Seitz said...

"Krugman explains… The qualifier “if done right” is important. "

Trying very, very, hard to forget everything said in righteous praise of the Club of Rome model forty years ago, I shall proceed to Krugman's website to see what sooth he says.

Anonymous said...

"First, predictions are hard, especially about the distant future. Second, sometimes such predictions must be made nonetheless."

Unfortunately, Krugman is perpetuating the all too common confusion between "predictions" and "projections".

Like the IPCC, economists don't "predict" anything.

They "project", based on assumptions about future emissions.

“The scientific rationale for the 2°C target is not really very scientific.” Instead, he argues for cost-benefit analysis"

This again confuses "predictions" (which science actually does not do) with "projections".

And given the fact that the CO2 is almost 400ppm (out of 560 doubling of pre-industrial) temperature has already risen 1C, and that there is inertia in the system, it's pretty unlikely at this point that the @ 2 C (over preindustrial) target is even achievable.

One would think that would be an important consideration if one is doing "risk" analysis, which really has to include some estimate not only of the cost, but also of the probability of each particular scenario.

Anonymous said...

i dont understand. do you 'project' or 'predict' that it will be more than 2 or
less than 2 ?

Anonymous said...

btw
http://dictionary.reference.com/
has this for prediction
synonyms:forecast, augury, prognostication, divination, projection.

Anonymous said...

So, if they are indeed the same thing (as many seem to believe), why do you suppose the IPCC makes the distinction and calls them projections?

Hint: because they are not the same thing

"A prediction is a probabilistic statement that something will happen in the future based on what is known today. A prediction generally assumes that future changes in related conditions will not have a significant influence. In this sense, a prediction is most influenced by the "initial conditions" – the current situation from which we predict a change. "

"In contrast to a prediction, a projection specifically allows for significant changes in the set of "boundary conditions" that might influence the prediction, creating "if this, then that" types of statements. Thus, a projection is a probabilistic statement that it is possible that something will happen in the future if certain conditions develop. The set of boundary conditions that is used in conjunction with making a projection is often called a scenario, and each scenario is based on assumptions about how the future will develop. For example, the IPCC recently projected a range of possible temperature changes that would likely occur for a range of plausible emissions scenarios and a range of model-derived estimates of climate sensitivity (the temperature change that would result from a CO2 doubling). This is clearly a projection of what could happen if certain assumed conditions prevailed in the future – it is neither a prediction nor a forecast of what will happen independent of future conditions. For a decision maker, a projection is an indication of a possibility, and normally of one that could be influenced by the actions of the decision maker."

Anonymous said...

well, Mike MacCracken says it on a guest post on 'weatherzine' so it must be so.

Mal Adapted said...

Our host: "While the NYRB does not have a comments section, Krugman has written a lead in on his blog where bunnies can comment."

Krugman's review in the NYRB suffers not at all for lack of a comments section. I was a little surprised, though, how relatively free of noise his blog post is. Maybe Revkin is providing a public service by making deniers welcome at his place.

dhogaza said...

Anonymous:

People who refuse to acknowledge the existence of jargon are boring.

Aaron said...

I would accept 2.3C - after ALL carbon feedback, but none of our models include any carbon feedback.

Clathrates have been formed at equilibrium for the last while. Raise the equilibrium temperature by 1C, and all the clathrates and permafrost formed at temperature within 1C of the 1800 temperature will decompose. That included stuff formed 3 million years ago that has just been sitting in cold storage. I am not convinced that clathrates formed during more recent colder periods will protect older deposits.