Preview: Paul Krugman And The End Of The World (As We Know It)

Driving past Valero service stations without stopping, or cheering when Valero's stock heads for the crapper, isn't, in my estimation, doing enough for the concept of building a green economy. I got rid of my Mercedes and bought a Prius and that's not enough for me either. I feel I get closer by having decided in the 1960s to not eat meat. That's a big contribution in terms of what it actually accomplishes for the planet. If we'd all do it there would be no man made climate change problem. And this coming Sunday Krugman is going to be warning NY Times readers in no uncertain terms that "we are facing a rise in global temperatures that will be little short of apocalyptic," although I'm not sure where he gets the "short" from. He handles it from the political perspective-- how to wean ourselves away from fossil fuels without destroying an economy based on... fossil fuel consumption.

Like the debate over climate change itself, the debate over climate economics looks very different from the inside than it often does in popular media. The casual reader might have the impression that there are real doubts about whether emissions can be reduced without inflicting severe damage on the economy. In fact, once you filter out the noise generated by special-interest groups, you discover that there is widespread agreement among environmental economists that a market-based program to deal with the threat of climate change-- one that limits carbon emissions by putting a price on them-- can achieve large results at modest, though not trivial, cost. There is, however, much less agreement on how fast we should move, whether major conservation efforts should start almost immediately or be gradually increased over the course of many decades.

...Just as there is a rough consensus among climate modelers about the likely trajectory of temperatures if we do not act to cut the emissions of greenhouse gases, there is a rough consensus among economic modelers about the costs of action. That general opinion may be summed up as follows: Restricting emissions would slow economic growth-- but not by much. The Congressional Budget Office, relying on a survey of models, has concluded that Waxman-Markey “would reduce the projected average annual rate of growth of gross domestic product between 2010 and 2050 by 0.03 to 0.09 percentage points.” That is, it would trim average annual growth to 2.31 percent, at worst, from 2.4 percent. Over all, the Budget Office concludes, strong climate-change policy would leave the American economy between 1.1 percent and 3.4 percent smaller in 2050 than it would be otherwise.

Economists who analyze climate policies agree on some key issues. There is a broad consensus that we need to put a price on carbon emissions, that this price must eventually be very high but that the negative economic effects from this policy will be of manageable size. In other words, we can and should act to limit climate change. But there is a ferocious debate among knowledgeable analysts about timing, about how fast carbon prices should rise to significant levels.

On one side are economists who have been working for many years on so-called integrated-assessment models, which combine models of climate change with models of both the damage from global warming and the costs of cutting emissions. For the most part, the message from these economists is a sort of climate version of St. Augustine’s famous prayer, “Give me chastity and continence, but not just now.” Thus Nordhaus’s DICE model says that the price of carbon emissions should eventually rise to more than $200 a ton, effectively more than quadrupling the cost of coal, but that most of that increase should come late this century, with a much more modest initial fee of around $30 a ton. Nordhaus calls this recommendation for a policy that builds gradually over a long period the “climate-policy ramp.”

On the other side are some more recent entrants to the field, who work with similar models but come to different conclusions. Most famously, Nicholas Stern, an economist at the London School of Economics, argued in 2006 for quick, aggressive action to limit emissions, which would most likely imply much higher carbon prices. This alternative position doesn’t appear to have a standard name, so let me call it the “climate-policy big bang.”

I find it easiest to make sense of the arguments by thinking of policies to reduce carbon emissions as a sort of public investment project: you pay a price now and derive benefits in the form of a less-damaged planet later. And by later, I mean much later; today’s emissions will affect the amount of carbon in the atmosphere decades, and possibly centuries, into the future. So if you want to assess whether a given investment in emissions reduction is worth making, you have to estimate the damage that an additional ton of carbon in the atmosphere will do, not just this year but for a century or more to come; and you also have to decide how much weight to place on harm that will take a very long time to materialize.

In a corporate economy geared towards quarterly results, a political culture polarized into a life-and-death struggle around a 2 year electoral cycle (if not a 24 hour news cycle) and a popular culture that has enthroned instant gratification, Krugman's warnings are likely to be almost completely ignored-- when not being scoffed at and demonized. It's tragic since it means the end of the world as we know it.