Gernot Wagner's Blog, page 9

Global Kids Institute, Council on Foreign Relations

Featured speaker at tenth annual Global Kids institute on U.S. foreign policy at the Council on Foreign Relations. See 2010 news release.

World Congress of Environmental and Resource Economists

Session chair and presenter: “Climate Change: Risk, Uncertainty and Values.”

Presentation of “Expecting a Black Swan and Getting a Dragon: Rational Responses to Ignorance,” joint paper with Richard Zeckhauser.

Cleaner air gave Americans a $4,300 pay raise

Published on EDF Voices.

Spend too much time with economists, and you’ll be convinced that there’s no such thing as a free lunch. Life is full of tradeoffs.

Take the Clean Air Act of 1970, for which benefitsconsistently trump costs to the tune of thirty to one: $30 in benefits for every dollar spent on protecting the air we breathe. This past decade alone, benefits for the average major clean air rule trumped costs to the tune of 10 to one.

This is worth remembering as opponents of the Obama administration’s Clean Power Plan to reduce carbon pollution from power plants are ramping up claims that it will gut our nation’s economy.

Ten and 30 to 1 are benefit-cost slam dunks, but they still aren’t free lunches. There are costs. They are small, and dwarfed by the benefits, but they are real. We can’t – and shouldn’t – hide that fact.

Enter the latest study courtesy of the National Bureau of Economic Research, which details the benefits and costs of the Clean Air Act of 1970.

Cleaner air, added income

In this study, Adam Isen, Maya Rossin-Slater and Reed Walker focus on total suspended particulates: smoke, soot, and dust.

That’s by far not everything the Clean Air Act has helped remove from our air. But even that narrow focus comes up with a striking conclusion: by removing these particulates from the air our children breathe, the law increases each affected child’s lifetime income by $4,300.

That’s better than a free lunch. It’s a lifetime of additional income, and it doesn’t even value the fact that reducing childhood asthma and other illnesses is good in and of itself.

Not seeing your child suffer from a preventable disease and instead breathe more easily provides clear benefits to children and their parents alike. Such social benefits aren’t included here. In true economist fashion, the study focuses on what economists do best: tallying dollars and cents of hard-earned income.

So happens, that income just went up – thanks to cleaner air.

GDP grows, too

The result won’t come as a complete surprise to those studying the full effects of the Clean Air Act. Harvard’s Dale Jorgenson projected years ago that America’s gross domestic product would be 1.5 percent higher in 2010, because of this law.

The mechanism there was similar: Cleaner air makes for healthier lives, greater productivity on the job and, thus, higher income.

What distinguishes the latest study is how personal the numbers get.

If you were born into a county that complied with the Clean Air Act, your average lifetime income will have been $4,300 higher than for someone not as lucky.

By the same token, if you were born into a non-compliant area, moving to clearer skies later on made no difference. Your average lifetime income will still have taken a hit.

Some opponents of clean air regulations sometimes make the argument that while we may have dirtier air, we have the jobs and factories that more than make up for the foul air. Not so.

Having to suffer from childhood asthma is no mark of distinction in support of the greater economic good. It’s bad for health, and for the economy.

Pollute less – and strengthen the economy as a result.

Carbon pricing vs. regulation: An economist weighs in

Published on EDF Voices.

Ask any economist about the most efficient way to tackle climate change, and the response will be clear: put a price on carbon. Cap or tax carbon pollution, and then get out of the way. It’s the most effective policy. It’s cheap. It works.

Except for when politics gets in the way.

A price on carbon may be the obvious choice for policymakers in Beijing, Brussels and Sacramento. Yet, Washington is playing a different game.

It’s where more than three years of work on a common-sense, bipartisan energy-efficiency bill dies the Senate filibuster death because of election-year politics. And where a senator and likely presidential candidate denies climate science in the same news cycle that gave us two independent studies showing that the melting of the West Antarctic ice sheet is likely irreversible – and expected to flood large parts of his own state of Florida over the coming centuries.
When a price on carbon isn't an option
All this political craziness limits the White House to pursue climate policy through executive action, largely via the Clean Air Act of 1970. One incarnation comes in form of long-overdue carbon pollution standards for new and existing power plants.

Are they any economist’s first choice for limiting carbon? No, but given that pricing carbon via a federal cap or tax isn’t on the table at the moment, the only relevant question now is whether carbon pollution standards are good in and of themselves. Yes, they clearly are.
Do benefits of environmental rules outweigh costs?
The Clean Air Act of 1970 and its 1990 Amendments consistently pass benefit-cost tests with flying colors.

Overall, average benefits exceed costs to the tune of 30 to 1. We can’t wish costs away, but investing $1 to get $30 makes sense in any book. (Amazingly, the latest study points to how the small costs themselves turn into direct economic benefits of well over $4,000 added to each affected child’s lifetime income due to cleaner air: less pollution; fewer sick days; more education; more income.)

These benefit-cost calculations don’t yet include carbon pollution standards, though we can already say one thing: The number crunchers at the Office of Management and Budget will make sure that benefits of any rule do, in fact, outweigh the costs.

Over the past decade, the average environmental rule enacted by two Administrations – George W. Bush and Barack Obama – has passed the benefit-cost test by more than 10 to 1. That ratio for the Environmental Protection Agency, by the way, is higher than any other government agency, including, for example, Homeland Security.

Of course, costs would be lower with a direct price on carbon. But the benefits of regulating carbon will be all the same. Each ton of carbon dioxide pollution causes at least about $40 of damages to health, ecosystems, and the economy. Overall, there are billions of tons of carbon pollution that can be removed at low, no, or even negative costs – well below the $40 or more in benefits.
Who pays? And with what consequences?
Pollution comes with a price. The only question is who pays, and with what consequences. Instead of pushing the costs onto all 300 million of us – all 7 billion, really – it’s clear that polluters can and should pay for the full costs they cause. Whether the policy of choice is carbon caps, taxes, or power plant carbon pollution standards, that principle is all the same.

When it comes to carbon, pay now or pay more later

By Gernot Wagner

(This post originally appeared on ensia.com) 

Economics is largely just organized common sense, and it doesn’t get much more common sense than benefit-cost analysis. Want to decide whether to buy that apple, make that investment or pass that clean air rule? Tally up the benefits. Tally up the costs. If benefits outweigh costs, do it.

Although in many ways climate change is a problem in its own league, the same principles apply. Secretary of State John Kerry recently said, “The costs of inaction are catastrophic,” and they most likely would be. While climate change ought to be a risk management problem — an existential risk management problem on a planetary scale — that realization alone may not always be good enough. Despite the inherent risks and uncertainties, sometimes we need a specific number that we can plug into a benefit-cost analysis.

The U.S. government makes lots of regulatory decisions that have important implications for the climate. Any benefit-cost analysis of these decisions ought to include their climate impact. If a particular decision will lead to more greenhouse gas emissions — building the Keystone XL pipeline, for example — that figure ought to go on the cost side of the ledger. If the decision will lead to fewer greenhouse gas emissions — such as carbon pollution standards for power plants — that figure adds to the benefits side.

Such benefit-cost analyses require a dollar figure for the social cost of carbon pollution. The best we currently have is around $40 for each ton of carbon dioxide emitted, calculated by averaging results from the three of the most prominent and well-established climate-economic models. Uncertainties around the $40 value notwithstanding, putting in $0 is not an option. That, sadly, is what some with clear stakes in the outcome are arguing, however weak the ground they stand on.

In fact, $40 is very likely on the low end of the true cost of CO2. By definition, it only includes what is known and currently quantifiable. It doesn’t include many things we know are linked to a changing climate that aren’t so easily quantified, such as respiratory illness from increased ozone pollution, the costs of oceans turning ever more acidic and impacts on labor productivity from extreme heat. If these were factored in, the $40 figure would certainly be higher.

And the list of what’s missing in the current calculation goes on, as a recent commentary in Nature points out. For example, the models used to calculate the $40 figure are based on costs associated with higher average temperatures rather than costs of increased weather extremes. Taking extreme events seriously in the social cost calculation would increase the $40 figure further still.

We know climate change is and will be costly. How costly exactly is up for discussion, but it’s clear that we should at the very least use the $40 per ton figure in any benefit-cost analysis that involves climate impacts. That’s common sense, too.

Pay Now or Pay More Later

Economics is largely just organized common sense, and it doesn’t get much more common sense than benefit-cost analysis. Want to decide whether to buy that apple, make that investment or pass that clean air rule? Tally up the benefits. Tally up the costs. If benefits outweigh costs, do it.

Although in many ways climate change is a problem in its own league, the same principles apply. Secretary of State John Kerry recently said, “The costs of inaction are catastrophic,” and they most likely would be. While climate change ought to be a risk management problem — an existential risk management problem on a planetary scale — that realization alone may not always be good enough. Despite the inherent risks and uncertainties, sometimes we need a specific number that we can plug into a benefit-cost analysis.

The U.S. government makes lots of regulatory decisions that have important implications for the climate. Any benefit-cost analysis of these decisions ought to include their climate impact. If a particular decision will lead to more greenhouse gas emissions — building the Keystone XL pipeline, for example — that figure ought to go on the cost side of the ledger. If the decision will lead to fewer greenhouse gas emissions — such ascarbon pollution standards for power plants — that figure adds to the benefits side.

Such benefit-cost analyses require a dollar figure for the social cost of carbon pollution. The best we currently have is around $40 for each ton of carbon dioxide emitted, calculated by averaging results from three of the most prominent and well-established climate-economic models. Uncertainties around the $40 value notwithstanding, putting in $0 is not an option. That, sadly, is what some with clear stakes in the outcome are arguing, however weak the ground they stand on.

In fact, $40 is very likely on the low end of the true cost of CO2, as a recent commentary in Nature points out. By definition, it only includes what is known and currently quantifiable. It doesn’t include many things we know are linked to a changing climate that aren’t so easily quantified, such as respiratory illness from increased ozone pollution, the costs of oceans turning ever more acidic and impacts on labor productivity from extreme heat. If these were factored in, the $40 figure would certainly be higher.

And the list of what’s missing in the current calculation goes on. For example, the models used to calculate the $40 figure are based on costs associated with higher average temperatures rather than costs of increased weather extremes. Taking extreme events seriously in the social cost calculation would increase the $40 figure further still.

We know climate change is and will be costly. How costly exactly is up for discussion, but it’s clear that we should at the very least use the $40 per ton figure in any benefit-cost analysis that involves climate impacts. That’s common sense, too.

Published on Ensia.com on April 10th, 2014.

Columbia Earth Institute

Presentation at workshop on “Advancing International Climate Change Cooperation,” organized by Scott Barrett, Alexander Ovodenko, and Johannes Urpelainen.

My slides: “Linking with Politics.”

Climate change and risk management

From Dr Gernot Wagner and Prof Martin L Weitzman.

Sir, Richard Tol asserts that “Bogus prophecies of doom will not fix the climate” (Comment, 1 April). He’s right to highlight the importance of adaptation measures to deal with the worst, but he’s wrong in presenting climate change as a problem with seemingly certain temperature outcomes.

It’s not the near-certain warming of 2C that should worry us the most, though that might be damaging enough. The core problem is that we are deeply unsure of the relationship between high greenhouse gas concentrations and eventual high temperature changes like 4C or 6C (or possibly higher). And we are even more unsure about the relationship between high temperature changes and future climate-change damages, or how to discount these future damages into today’s values.

Climate change, in the end, is a risk management problem. A lot of it has to do with buying insurance against worst-case outcomes. Far from declaring the notion of existential risk “laughable,” as Dr Tol does, we should focus seriously on these high-impact events to help drive our decisions around pricing carbon today. And price carbon we must.

Gernot Wagner, Senior Economist, Environmental Defense Fund

Martin L Weitzman, Professor of Economics, Harvard University, Cambridge, MA, US

Published as Letter to the Editor in the Financial Times on April 3rd, 2014.

Recalibrating Conservation Science Incentives

Intro:

The gap between research and practice is well known in environmental sciences and policy, particularly by practitioners. It is one thing to define important research questions and set priorities (Sutherland et al. 2009; Fleishman et al. 2011; Braunisch et al. 2012); it is quite another to create the right incentives to pursue them.

Pressure to publish in top-tier, disciplinary journals is intense (Card & DellaVigna 2013). And because top-tier journals reflect the insular nature of the scientific process, where excellence is defined by novelty, elegance, and conceptual advance, rather than specific, applicable solutions to difficult problems, decks are often stacked against scientists exploring areas with immediate policy relevance. There is clear recognition—both within some academic institutions and within civil society organizations—that this condition reduces the impact and relevance of science on conservation policy and practice (Uriarte et al. 2007).

Civil society organizations depend on knowledge creation from academic disciplines. If or because these organizations want a larger portion of academics to work on solutions to difficult problems with immediate relevance, they need to reduce the direct and indirect costs of that relevance. Civil society must provide stronger and more creative incentives to bring disciplinary experts together around the complex issues that will have the greatest impact on conservation success, and they need to work harder to define and communicate what these complex issues are.

This issue extends beyond conservation, and in other domains, substantial investment has been put into building appropriate incentives. Examples include solution-centered competitions in global health and development (Novy-Hildesley 2010), prizes for grand innovation challenges (Brunt et al. 2012; Murray et al. 2012), and young innovator awards.

Conservation communities can learn from these models, though clearly not without adapting them. Conservation issues are diverse, and many of the most important require coordination across many disciplines.

Full text: “The Role of Civil Society in Recalibrating Conservation Science Incentives.”

Citation:

Tewksbury, Joshua and Gernot Wagner. “The Role of Civil Society in Recalibrating Conservation Science Incentives.” Conservation Biology (2014). doi: 10.1111/cobi.12288

Yale Law School

Background reading:

Howard Shelanski, “Refining Estimates of the Social Cost of Carbon,” Office of Management and Budget blog (November 1, 2013).

“Comments on the U.S. Social Cost of Carbon to the Office of Management and Budget,” Docket ID No. OMB-2013-0007, jointly submitted by Environmental Defense Fund, Institute for Policy Integrity at New York University School of Law, Natural Resources Defense Council, and Union of Concerned Scientists on February 26, 2014.

“Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866,” United States Government Interagency Working Group on Social Cost of Carbon (November 1, 2013).