To Solve Climate Change, Forget the Economic Models

March 4, 2022

Above: Queue of projects for the Texas grid shows that, a year after the blackout debacle, wind, solar and batteries dominate new generation coming on line.

A lot of people talk about climate models being unreliable, but in fact, they’ve been stunningly accurate.

You know what’s not reliable? Economic models.
Andrew Dessler, coming right off his ringing defense of climate science to Joe Rogan, now has a piece in Rolling Stone.

Andrew Dessler in Rolling Stone:

Cost-benefit analyses require economists to make judgements about what a “good” outcome looks like. For example, do we want to maximize wealth, or do we care about how the wealth is distributed? By carefully making these judgments, a motivated economist can reach any conclusion they want. During the Obama administration, the social cost of carbon (the damage from emitting a ton of carbon dioxide to the atmosphere) was estimated to be $35.  The Trump administration altered some of the assumptions that led to his estimate, particularly how much they valued future generations versus ours, and how much they valued people outside the U.S. versus those who live in America. They estimated the social cost of carbon to be as low as $1.

To be clear: economists have no idea how bad five degrees Fahrenheit of global average warming in 2100 will be (that’s about where we’re headed now) or what that will do to our economy. For context, the global average temperature during the last ice age was about 10 degrees Fahrenheit colder than today, and it was a world that would be literally unrecognizable to people living now. This means that five degrees Fahrenheit of warming by 2100 is about half an ice age — an enormous amount of warming that will likely remake the world.   

Any estimate of economic damage due to five degrees Fahrenheit of warming requires drawing from our experience with the present climate into a realm where we have no experience. As a result, impact estimates must be based on a large number of assumptions, many of which are arbitrary. Most economic estimates do not include reliable estimates of the costs of impacts to things for which good markets do not exist, such as ocean acidification or melting permafrost. They also do not account for catastrophic changes, tipping points, or many other factors. Faced with this reality, the new IPCC report concurs that we simply don’t know how expensive climate change will be. 

Just as one should be skeptical of estimates of the costs of climate impacts, one should also be skeptical of estimates of the cost of switching from fossil fuels to renewable energy. For these analyses also, economists can get any answer they want by simply changing the assumptions. Want to get a really high cost of reducing emissions? Just assume that future innovation in energy technology is slow. You can get the opposite conclusion by assuming a rapid rate of innovation. 

The fossil fuel industry has taken advantage of how easy it is to manipulate these cost estimates. Academic research has documented that economists hired by oil companies “used models that inflated predicted costs while ignoring policy benefits, and their results were often portrayed to the public as independent rather than industry-sponsored. Their work played a key role in undermining numerous major climate policy initiatives in the U.S. over a span of decades.”  

We can get some idea of how unreliable these cost estimates are by examining cost estimates of previously implemented environmental regulations, such as the phase out of ozone-depleting chlorofluorocarbons (CFCs) in the 1990s.  Prior to the phaseout, many suggested it would be an economic apocalypse. After the phase out, “The ease with which businesses have developed CFC substitutes makes it easy to forget how hard the tasks looked at the outset. Industries predicted doomsday scenarios,” Jessica Mathews wrote in The Washington Post in 1995. 

The lesson from the phaseout of CFCs is the power of the market to innovate. Once it became clear that CFCs would be banned, the free market rapidly produced cheap, effective substitutes. This is exactly the beauty of the free market and it’s ironic that economists who tout it are ignoring the power of government regulation to spur innovation.   

A more recent example was the debate over Obama’s climate bill, which died in the Senate in 2010. Opposition to the bill was intense, full of hyperbolic claims of an economic apocalypse if the bill was enacted. The conservative Heritage Foundation wrote that Obama’s proposed bill “raises energy prices by 55-90 percent. The higher energy prices push unemployment up by 844,000 jobs on average with peaks over 1,900,000. In aggregate, GDP drops by over $7 trillion. The next generation will inherit a federal debt pumped up by $33,000 per person.” 

Yet, even without the bill, the U.S. reached the emissions-reduction and clean-energy goals of the legislation. The economy didn’t burn down, energy prices didn’t soar, the GDP didn’t drop, and unemployment didn’t spike. We can now see that the predictions were not just wrong, but excessively so. The economists making these estimates are the true alarmists in the debate. 

In the end, we don’t need economics to answer the big question about climate change: Should we take aggressive action to reduce our emissions of greenhouse gasses? The physics makes clear that the increase of greenhouse gasses in our atmosphere is driving warming temperatures, more extreme heat waves, more extreme precipitation events, rising sea level, and the acidification of the ocean. The geological record tells us that the amount of warming the world is on track to experience is enormous and will transform our planet in unimaginable ways.   

As the latest IPCC report says, “The cumulative scientific evidence is unequivocal: Climate change is a threat to human well-being and planetary health. Any further delay in concerted anticipatory global action on adaptation and mitigation will miss a brief and rapidly closing window of opportunity to secure a liveable and sustainable future for all.”   

Do we really need a cost-benefit analysis to convince ourselves to address this threat? 

Rob Meyer in The Atlantic:

That 2009 climate bill, the one that President Barack Obama couldn’t pass? It required the U.S. to cut greenhouse-gas emissions 17 percent by 2020 as compared with their all-time high. Yet last year, our emissions were down 21 percent. The same bill said that the U.S. had to generate 20 percent of its electricity from renewables by 2020. Last year, we met that target. We will surpass it in 2021.

These numbers are not a mere fluke. Last year was a singular, awful moment in economic history, but even accounting for the effects of the COVID-19 recession, America’s real-world emissions last decade outperformed the Obama bill’s targets. From 2012 to 2020, real-world U.S. emissions were more than 1 billion tons below what the bill would have required, according to my analysis of data from Rhodium Group, an energy-research firm. (Of course, had the bill passed, the U.S. might have done even better.) Meanwhile, across the economy, companies are learning how to decarbonize. Ford is already producing more electric Mustang Mach-Es than gas-powered Mustangs; General Motors, Honda, Volvo, and Jaguar have promised to stop selling gas cars altogether by 2040. Royal Dutch Shell was court-ordered last month to cut its emissions, and shareholders just forced Exxon to replace a quarter of its board with climate-concerned activist investors. Most important of all, the costs of solar and batteries have declined in the United States by a factor of 10 over the past decade, and the cost of wind has fallen 70 percent. Ten years ago, virtually no analyst thought they would fall so low. The International Energy Agency made headlines this year when it called solar “the cheapest electricity in history,” but the entire apparatus of renewable energy has seen cost declines.

3 Responses to “To Solve Climate Change, Forget the Economic Models”

  1. ubrew12 Says:

    “the global average temperature during the last ice age was about 10 degrees Fahrenheit [5 C]… colder than today… This means that five degrees Fahrenheit [2.5 C]… of warming by 2100 is about half an ice age” I was under the impression that ice ages were, on average, about 3 C colder than pre-industrial temperature. This graph indicates such for the last 400,000 years:

    This graph indicates that at the end of the last ice age, temperature was 3.3 C colder (and I’m aware that the Shakun graph is from an attempt to measure global, rather than merely Antarctic, temperature):

    If correct, it means that five degrees F (2.5 C) is more like an entire ice age, rather than half of one.

    • rhymeswithgoalie Says:

      Look at the green CO2 line crossing up into the graph above it. It looks like a bad joke.

  2. Brent Jensen-Schmidt Says:

    It was such a beautiful world. So livable and productive. Shame it cost too much money to save.

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