Gernot Wagner's Blog, page 3

Council on Foreign Relations

The Economics of Climate Change

with Gernot Wagner and Martin L. Weitzman

May 11th, 2015, 6:00 – 8:15 pm, Cambridge, MA

Open to Council on Foreign Relations members.

Read our joint piece on “Why Environmental Action Is so Hard” on Foreign Affairs.com and Richard N. Cooper’s book review in Foreign Affairs.

Further Climate Shock book events.

New Climate-Economic Thinking

By Gernot Wagner

By Gernot Wagner and Martin L. Weitzman

Each ton of carbon dioxide emitted into the atmosphere today causes about $40 worth of damages. So at least says standard economic thinking.

A lot goes into calculating that number. You might call it the mother of all benefit-cost analyses. It's bean-counting on a global scale, extending out decades and centuries. And it's a process that requires assumptions every step along the way.

The resulting $40 figure should be taken for what it is: the central case presented by the U.S. Government Interagency Working Group on Social Cost of Carbon when using its preferred 3% discount rate for all future climate damages. But it is by no means the full story.

Choose a different discount rate, get a different number. Yale economist Bill Nordhaus uses a discount rate of slightly above 4%. His resulting price is closer to $20 per ton of carbon dioxide. The Stern Review on the Economics of Climate Change uses 1.4%. The resulting price per ton is over $80.

And the discount rate is not the only assumption that makes this kind of a difference. In Climate Shock, we present the latest thinking on why and how we should worry about the right price for each ton of carbon dioxide, and other greenhouse gases, emitted into the atmosphere. There are so many uncertainties at every step—from economic projections to emissions, from emissions to concentrations, from concentrations to temperatures, and back to economics in form of climate damages—that pointing to one single, final number is false precision, misleading, or worse.

Of course, that does not mean that we shouldn't attempt to make this calculation in the first place. The alternative to calculating the cost of carbon is to use a big fat zero in government benefit-cost calculations. That's clearly wrong.

Most everything we know about what goes into calculating the $40 figure leads us to believe that $40 is the lower bound for sensible policy action. Most everything we know that is left out would push the number higher still, perhaps much higher.

It's not over 'til the fat tail zings

As just one example, zero in on the link between carbon concentrations in the atmosphere and eventual temperature outcomes. We know that increasing concentrations will not decrease global temperatures. Thank you, high school chemistry and physics. The lower bound for the temperature impact when carbon concentrations in the atmosphere double can be cut off at zero.

In fact, we are pretty sure it can be cut off at 1°C or above. Global average temperatures have already warmed by over 0.8°C, and we haven't even doubled carbon concentrations from preindustrial levels. Moreover, the temperature increases in this calculation should happen 'eventually'—over decades and centuries. Not now.

What's even more worrying is the upper tail of that temperature distribution. There's no similarly definitive cut-off for the worst-case scenario. In fact, our own calculations (based on an International Energy Agency (IEA) scenario that greenhouse gas concentrations will end up around 700 parts per million) suggest a greater-than-10% chance of eventual global average warming of 6°C or above.

Focus on the bottom row in this table. If you do, you are already ahead of others, most of whom focus on averages, here depicted as "median Δ°C" (eventual changes in global average surface temperatures). The median is what we would expect to exceed half the time, given particular greenhouse gas concentrations in the atmosphere. And it's bad enough.

But what really puts the "shock" into Climate Shock is the rapid increase in probabilities of eventual temperatures exceeding 6°C, the bottom row. While average temperatures go up steadily with rising concentrations, the chance of true extremes rises rapidly:

That 6°C is an Earth-as-we-know-it-altering temperature increase. Think of it as a planetary fever. Normal body temperatures hover around 37°C. Anything above 38°C and you have a fever. Anything above 40°C is life-threatening.

Global average warming of 3°C wouldn't be unprecedented for the planet as a whole, in all of it geological history. For human society, it would be. And that's where we are heading at the moment—on average, already assuming some 'new policies' to come into play that aren't currently on the books.

It's the high-probability averages rather than low-probability extremes that drive the original $40 figure. Our table links greenhouse gas concentrations to worryingly high probability estimates for temperatures eventually exceeding 6°C, an outcome that clearly would be catastrophic for human society as we know it.

Instead of focusing on averages then, climate ought to be seen as a risk management problem. Some greenhouse gas concentration thresholds should simply not be crossed. The risks are too high.

This kind of focus on temperature extremes is far from accepted wisdom. We argue it ought to be.

Gernot Wagner and Martin L. Weitzman are co-authors of Climate Shock (Princeton University Press, 2015). First published by The Institute for New Economic Thinking.

Why Environmental Action Is so Hard

By Gernot Wagner and Martin L. Weitzman

Exactly how bad is climate change going to be? That’s no small question. It’s also the wrong one. It’s precisely the uncertainty—the unknowns and perhaps unknowables—that should really be driving action to curb greenhouse-gas emissions today.

Climate science has made significant strides over the past few decades. Based on a plethora of information and observations, the confidence of the Intergovernmental Panel on Climate Change (IPCC) that global warming is being caused by human activity has gone from “more likely than not” in 1995 to “likely” in 2001 to “very likely” in 2007 to “extremely likely” in 2013. This is all the more striking, given that, by professional preference, scientists are wary of coming to definitive conclusions. By now, however, denying the reality of human attribution amounts to nothing short of willful blindness.

It is also impossible to ignore the issue that the final temperature rise—exactly how bad it’s going to get—is not certain. Of course, there’s no doubt that global temperatures have already warmed by around 0.85°C (1.5°F). The increase has been at least twice as high at the poles: bad news for ice caps and beachfront properties alike. Arctic sea ice has already lost half its area and three-quarters of its volume in the past three decades alone. The Foreign Affairs article “The Coming Arctic Boom” takes all of that as a given. Global average sea levels have been increasing at faster rates, leading to average projections of one to three feet by century’s end.

But global warming doesn’t stop in 2100. That’s where the all-important climate sensitivity parameter comes in: what happens to eventual temperatures as concentrations of greenhouse gases in the atmosphere double. The verdict after decades of research and tens of thousands of model runs: a doubling of concentrations is expected to lead to “likely” warming of between 1.5° and 4.5°C (2.7° and 8°F). The lower end is bad enough. The upper end is far worse.

Here’s where it gets tricky: despite amazing advances in climate science, we’ve now been looking at this same range for 35 years. We have more confidence today that the range is correct, but we haven’t been able to narrow it. In 2007, the IPCC tried. Research at the time led them to conclude that the lower bound of 1.5° (2.7°F) seemed unduly optimistic. IPCC consensus narrowed the range to between 2° and 4.5°C (3.6° and 8°F). By 2013, however, new research prompted the IPCC to widen its range once again to include 1.5° (2.7°F). Cue the headline: “Global Warming Not as Bad as Feared”! If only.

Continue reading on ForeignAffairs.com. Essay adapted from Climate Shock (Princeton University Press, 2015).

[embed]https://www.youtube.com/watch?v=Q4Kmq...

C-Span BookTV from the Annapolis Book Festival

Extreme Weather and our Changing Climate
Saturay, April 25th, 2015, 11:00 am – 12:00pm

Panel with Adam Sobel, author of Storm Surge, moderated by Miles O'Brien and broadcast live by C-Span BookTV.



Further event info. More Climate Shock book events.

New Climate-Economic Thinking

By Gernot Wagner

By Gernot Wagner and Martin Weitzman

Each ton of carbon dioxide emitted into the atmosphere today causes about $40 worth of damages. So at least says standard economic thinking.

A lot goes into calculating that number. You might call it the mother of all benefit-cost analyses. It's bean-counting on a global scale, extending out decades and centuries. And it's a process that requires assumptions every step along the way.

The resulting $40 figure should be taken for what it is: the central case presented by the U.S. Government Interagency Working Group on Social Cost of Carbon when using its preferred 3% discount rate for all future climate damages. But it is by no means the full story.

Choose a different discount rate, get a different number. Yale economist Bill Nordhaus uses a discount rate of slightly above 4%. His resulting price is closer to $20 per ton of carbon dioxide. The Stern Review on the Economics of Climate Change uses 1.4%. The resulting price per ton is over $80.

And the discount rate is not the only assumption that makes this kind of a difference. In Climate Shock, we present the latest thinking on why and how we should worry about the right price for each ton of carbon dioxide, and other greenhouse gases, emitted into the atmosphere. There are so many uncertainties at every step—from economic projections to emissions, from emissions to concentrations, from concentrations to temperatures, and back to economics in form of climate damages—that pointing to one single, final number is false precision, misleading, or worse.

Of course, that does not mean that we shouldn't attempt to make this calculation in the first place. The alternative to calculating the cost of carbon is to use a big fat zero in government benefit-cost calculations. That's clearly wrong.

Most everything we know about what goes into calculating the $40 figure leads us to believe that $40 is the lower bound for sensible policy action. Most everything we know that is left out would push the number higher still, perhaps much higher.

As just one example, zero in on the link between carbon concentrations in the atmosphere and eventual temperature outcomes. We know that increasing concentrations will not decrease global temperatures. Thank you, high school chemistry and physics. The lower bound for the temperature impact when carbon concentrations in the atmosphere double can be cut off at zero.

In fact, we are pretty sure it can be cut off at 1°C or above. Global average temperatures have already warmed by over 0.8°C, and we haven't even doubled carbon concentrations from preindustrial levels. Moreover, the temperature increases in this calculation should happen 'eventually'—over decades and centuries. Not now.

What's even more worrying is the upper tail of that temperature distribution. There's no similarly definitive cut-off for the worst-case scenario. In fact, our own calculations (based on an International Energy Agency (IEA) scenario that greenhouse gas concentrations will end up around 700 parts per million) suggest a greater-than-10% chance of eventual global average warming of 6°C or above.

Focus on the bottom row in this table. If you do, you are already ahead of others, most of whom focus on averages, here depicted as "median Δ°C" (eventual changes in global average surface temperatures). The median is what we would expect to exceed half the time, given particular greenhouse gas concentrations in the atmosphere. And it's bad enough.

But what really puts the "shock" into Climate Shock is the rapid increase in probabilities of eventual temperatures exceeding 6°C, the bottom row. While average temperatures go up steadily with rising concentrations, the chance of true extremes rises rapidly:

That 6°C is an Earth-as-we-know-it-altering temperature increase. Think of it as a planetary fever. Normal body temperatures hover around 37°C. Anything above 38°C and you have a fever. Anything above 40°C is life-threatening.

Global average warming of 3°C wouldn't be unprecedented for the planet as a whole, in all of it geological history. For human society, it would be. And that's where we are heading at the moment—on average, already assuming some 'new policies' to come into play that aren't currently on the books.

It's the high-probability averages rather than low-probability extremes that drive the original $40 figure. Our table links greenhouse gas concentrations to worryingly high probability estimates for temperatures eventually exceeding 6°C, an outcome that clearly would be catastrophic for human society as we know it.

Instead of focusing on averages then, climate ought to be seen as a risk management problem. Some greenhouse gas concentration thresholds should simply not be crossed. The risks are too high.

This kind of focus on temperature extremes is far from accepted wisdom. We argue it ought to be.

Gernot Wagner and Martin L. Weitzman are co-authors of Climate Shock (Princeton University Press, 2015). This post was originally published by The Institute for New Economic Thinking.

Bailing out the planet

By Gernot Wagner and Martin L. Weitzman.

[caption id="attachment_2463" align="alignnone" width="571"] Credit: Oliver Weiss/Milken Institute Review[/caption]

In June 1991 and with a year to go, preparations for the Rio Earth Summit were in full swing. “Sustainability” was in vogue. Who could disagree that humanity ought to “ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs”?

The excitement was palpable. It might still be possible to achieve sustainable development “by the year 2000 and beyond,” as the General Assembly of the United Nations had called for. There was only one problem: the Earth’s atmosphere had already warmed by more than 0.5°C (0.9°F) since the industrial revolution, with all trends pointing higher still.

China had just emerged from a decade of market-based economic reforms and was on the cusp of pulling hundreds of millions of its citizens out of abject poverty. The best technologies available at the time meant that China would spend the next decade largely duplicating what the United States, Europe and others had done: Burn coal, oil, and natural gas—mostly coal—and dump the resulting carbon dioxide into the air, further heating the planet. There was only so much President George H. W. Bush could do by signing the 1992 Earth Summit declaration “Agenda 21,” other than give heartburn and a rallying cry to future generations of right-wing conspiracy theorists. But all that was still a year out. President Bush and over a hundred fellow heads of state would not fly to Rio until June 1992.

Meanwhile, Mount Pinatubo, a volcano in the Philippines that had been dormant for over 400 years, began to rumble on April 2, 1991. Two months later, volcanic activity went into overdrive, culminating in a final explosion on June 15. Ash, rocks and lava buried the surrounding area. To make things worse, Typhoon Yunya slammed the area that very same day. The resulting floods combined with the effects of the explosion displaced over 200,000 Filipinos. Over 300 died.

The costs were all too real. But so were the benefits: As a direct result of the volcanic eruption, global temperatures temporarily decreased by about 0.5°C (0.9°F), wiping out the entire temperature effects of human-caused global warming up to that point. The reduction in temperatures hit its peak just around the time of the Rio Earth Summit a year later.

Mount Pinatubo did all that by spewing some 20 million tons of sulfur dioxide into the stratosphere. That amount counteracted the global warming effect of around 585 billion tons of carbon dioxide that humans had managed to put into the atmosphere by then. (Now, more than two decades later, the total tonnage of carbon dioxide added to the atmosphere is around 940 billion, and still climbing.)

The leverage ratio of sulfur to carbon dioxide in terms of what’s called “geoengineering” is enormous. The sulfur dioxide released by Mount Pinatubo reduced temperatures by about the same amount as 30,000 times as much carbon dioxide increased them. It’s tempting to draw a link to nuclear technology: Little Boy, the atomic bomb dropped over Hiroshima, had roughly 5,000 times as much power as the same mass of traditional explosives.

The comparison to nuclear technology also suggests the possible path ahead. The Titan II intercontinental ballistic missile was developed just 15 years after Little Boy was dropped. It could carry a warhead with more explosive power than all the bombs dropped in World War II combined, including Little Boy. If geoengineering advanced even a fraction as quickly, it’s hard to imagine the technologies that could become available to counteract atmospheric warming by carbon dioxide. Even using today’s technology, a more targeted geoengineering intervention could possibly achieve leverage ratios near a million-to-one – that is, one ton of cooling material could offset the warming caused by one million tons of carbon dioxide.

The similarities to the leverage of nuclear bombs are striking. But there’s an important difference: Both nuclear and conventional explosives destroy, whereas geoengineering has the potential to do immense good.

The Promise and Problems of Geoengineering

Without considering the costs and lives lost, Mount Pinatubo’s effect on global temperature was presumably a good thing. If we could wipe out two centuries of accumulated, human-caused global warming by turning a knob, why not go for it?

There are a few problems with that simple picture. Mount Pinatubo decreased the indirect, if all-too-real, effects of carbon dioxide in the atmosphere: The 20 million tons of sulfur dioxide created a sunshade that dimmed the radiation from the sun by about 2 to 3 percent throughout the following year. But the eruption did nothing to counteract the direct effects of carbon pollution, like turning the oceans more acidic as they absorbed added carbon dioxide.
Moreover, as much as participants in the 1992 Earth Summit were presumably heartened by the cooling impact of Mount Pinatubo, they must have been distraught by the accompanying decrease in stratospheric ozone that protects us from ultraviolet light. Combine the volcano’s sulfur dioxide and other gunk with certain types of pollution that we humans send into the atmosphere, and you may get ozone depletion of the type that gave us the ozone hole over the South Pole—but now the depletion could occur over the tropics as well.

If that weren’t enough, Mount Pinatubo is also invariably blamed for weather extremes -- flooding along the Mississippi River in 1993 and for droughts elsewhere. The volcanic eruption coincides with the beginning of a remarkably global dry spell lasting about a year. Direct links are difficult to establish, but that only makes it more problematic. If we could draw a direct line from Mount Pinatubo to sub-Saharan African droughts, we’d at least know what to hold responsible. Without that link, speculation runs rampant.
What if, instead of a volcano, the cause of the climate change had been a group of scientists launching an experiment to counteract two centuries of global warming just in time for the Rio Earth Summit?

One can assume that such an experiment could have been designed in a way to avoid the 200,000 evacuations and 300 deaths. But even without those all-too-direct effects of the eruption, it would have been hard to imagine a university’s institutional review board, the group charged with overseeing the safety of research, approving the experiment. It’s often hard enough to get approval for a simple e-mail survey, asking test subjects to deploy their computer mice and answer a few benign questions. Now imagine intentionally injecting the stratosphere with tiny, custom-designed particles to mimic the effects of Mount Pinatubo, with the express purpose of altering the global climate.

Forget institutional review boards. The public might have a word or two to say here—as it should. Even if the only effect of releasing particles into the atmosphere were to cool the atmosphere with no regional difference whatsoever – an implausible outcome--it would still be hard to agree on the “right” amount of temperature-lowering.

If you live at higher latitudes, a few degrees of warming might not be all that bad for you personally. Why dial that back? On the other hand, if you live in Cape Town, San Francisco or along the Mediterranean, you pretty much enjoy the most stable, ideal climates anywhere on Earth. Why change that?

And if we did dial it back, where should we stop? Pre-industrial levels seem like a reasonable target. But today seems fine, too.
There is no right answer to any of these questions, other than to say that we would need strong, global institutions and well-formed governance processes to make these decisions in a way that considers a breadth of voices in a democratic, well-informed way. But we don’t have a global government. Instead, we need to work with what we have. That’s a fragmented global governance complex with imperfect representation and even more imperfect decision processes. Decision-making in Washington, D.C., may be at a standstill, but at least there is a formal process to make decisions. On a global level, we have yet to create the institutions that allow us to even have the conversation.

Fortunately, we are still far from having to make decisions about deploying geoengineering. Unfortunately, the failure to deal with global warming now is pushing us relentlessly in that direction.

Continue reading in the Milken Institute Review.

Excerpted from “Climate Shock: The Economic Consequences of a Hotter Planet” by Gernot Wagner and Martin L. Weitzman.

[embed]https://www.youtube.com/watch?v=Q4Kmq...

Managing Uncertain Climates

Abstract:

Climate change—and, by extension, climate policy—is beset with unknowns and unknowables. This “Reflections” presents an overview of approaches to managing climate uncertainties, in the hopes of providing guidance for current policy decisions as well as future research. We propose the following as guidance for policy makers: Treat climate change as a risk management problem; recognize that benefit-cost analysis is only the first of many steps in deciding on optimal climate policy; in assessing abatement choices, use a discount rate that declines over time; recognize the importance of framing, evidence, and connecting the dots; reward modesty. We suggest the following questions for consideration by researchers: Can we improve forecasting? Can we improve the way we address non-linearities and possible irreversibilities? What other (sub-)disciplines merit a closer look? How can we create the right incentives for updating and expanding economic damage functions and climate-economy models? What alternative decision criteria merit further exploration? What does ‘not knowing’ tell us?

Citation:

Convery, Frank J. and Gernot Wagner. “Reflections – Managing Uncertain Climates: Some Guidance for Policy Makers and Researchers.” Review of Environmental Economics and Policy (Summer 2015).

New Climate-Economic Thinking

By Gernot Wagner and Martin L. Weitzman

Each ton of carbon dioxide emitted into the atmosphere today causes about $40 worth of damages. So at least says standard economic thinking.

A lot goes into calculating that number. You might call it the mother of all benefit-cost analyses. It's bean-counting on a global scale, extending out decades and centuries. And it's a process that requires assumptions every step along the way.

The resulting $40 figure should be taken for what it is: the central case presented by the U.S. Government Interagency Working Group on Social Cost of Carbon when using its preferred 3% discount rate for all future climate damages. But it is by no means the full story.

Choose a different discount rate, get a different number. Yale economist Bill Nordhaus uses a discount rate of slightly above 4%. His resulting price is closer to $20 per ton of carbon dioxide. The Stern Review on the Economics of Climate Change uses 1.4%. The resulting price per ton is over $80.

And the discount rate is not the only assumption that makes this kind of a difference. In Climate Shock , we present the latest thinking on why and how we should worry about the right price for each ton of carbon dioxide, and other greenhouse gases, emitted into the atmosphere. There are so many uncertainties at every step—from economic projections to emissions, from emissions to concentrations, from concentrations to temperatures, and back to economics in form of climate damages—that pointing to one single, final number is false precision, misleading, or worse.

Of course, that does not mean that we shouldn't attempt to make this calculation in the first place. The alternative to calculating the cost of carbon is to use a big fat zero in government benefit-cost calculations. That's clearly wrong.

Most everything we know about what goes into calculating the $40 figure leads us to believe that $40 is the lower bound for sensible policy action. Most everything we know that is left out would push the number higher still, perhaps much higher.
It's not over 'til the fat tail zings
As just one example, zero in on the link between carbon concentrations in the atmosphere and eventual temperature outcomes. We know that increasing concentrations will not decrease global temperatures. Thank you, high school chemistry and physics. The lower bound for the temperature impact when carbon concentrations in the atmosphere double can be cut off at zero.

In fact, we are pretty sure it can be cut off at 1°C or above. Global average temperatures have already warmed by over 0.8°C, and we haven't even doubled carbon concentrations from preindustrial levels. Moreover, the temperature increases in this calculation should happen 'eventually'—over decades and centuries. Not now.

What's even more worrying is the upper tail of that temperature distribution. There's no similarly definitive cut-off for the worst-case scenario. In fact, our own calculations (based on an International Energy Agency (IEA) scenario that greenhouse gas concentrations will end up around 700 parts per million) suggest a greater-than-10% chance of eventual global average warming of 6°C or above.

Focus on the bottom row in this table. If you do, you are already ahead of others, most of whom focus on averages, here depicted as "median Δ°C" (eventual changes in global average surface temperatures). The median is what we would expect to exceed half the time, given particular greenhouse gas concentrations in the atmosphere. And it's bad enough.

But what really puts the "shock" into Climate Shock is the rapid increase in probabilities of eventual temperatures exceeding 6°C, the bottom row. While average temperatures go up steadily with rising concentrations, the chance of true extremes rises rapidly:



That 6°C is an Earth-as-we-know-it-altering temperature increase. Think of it as a planetary fever. Normal body temperatures hover around 37°C. Anything above 38°C and you have a fever. Anything above 40°C is life-threatening.

Global average warming of 3°C wouldn't be unprecedented for the planet as a whole, in all of it geological history. For human society, it would be. And that's where we are heading at the moment—on average, already assuming some 'new policies' to come into play that aren't currently on the books.

It's the high-probability averages rather than low-probability extremes that drive the original $40 figure. Our table links greenhouse gas concentrations to worryingly high probability estimates for temperatures eventually exceeding 6°C, an outcome that clearly would be catastrophic for human society as we know it.

Instead of focusing on averages then, climate ought to be seen as a risk management problem. Some greenhouse gas concentration thresholds should simply not be crossed. The risks are too high.

This kind of focus on temperature extremes is far from accepted wisdom. We argue it ought to be.

Gernot Wagner and Martin L. Weitzman are co-authors of Climate Shock (Princeton University Press, 2015). First published by The Institute for New Economic Thinking.

[embed]https://www.youtube.com/watch?v=Q4Kmq...

Harvard Coop

Climate Shock: The Economic Consequences of a Hotter Planet
May 1st, 2015, 7:00 pm - 8:00 pm
Harvard Coop, 1400 Massachusetts Ave., Cambridge, MA 02138

Further event details. Further Climate Shock book events.

Annapolis Book Festival

Extreme Weather and our Changing Climate

Saturay, April 25th, 2015, 11:00 am – 12:00pm

Panel with Adam Sobel, author of Storm Surge, moderated by Miles O’Brien.

Annapolis Book Festival

The Key School

534 Hillsmere Dr.

Annapolis, MD 21403

Directions and further event info. More Climate Shock book events.