Farm subsidies, disaster relief, and broken incentives

From the "Discarding the Environment Desk Will Actually Improve Our Coverage" NYTimes:

WASHINGTON — The worst drought in 50 years could leave taxpayers with a record bill of nearly $16 billion in crop insurance costs because of poor yields.

The staggering cost of the program has drawn renewed attention, as the Obama administration and Congressional Republicans wrangle over ways to cut the deficit. Last month, Treasury Secretary Timothy F. Geithner said that reducing farm subsidies was one way that the administration could cut government spending. But Congress has resisted.

The Agriculture Department, which runs the program, said that the total losses from crops harvested last year would not be known for weeks, but that costs from the program were estimated to be $15.8 billion, up from $9.4 billion in 2011.

Separately, a record $11.4 billion in indemnities for crop losses has been paid out to farmers, and officials say that number could balloon to as much as $20 billion. In 2011, a then-record $10.8 billion was paid out in indemnities.

 In other news, the House passed an additional $50.7 billion in hurricane Sandy relief. And to be clear, I believe in social insurance. I believe in communal obligations. But numbers like this make me worry: how is the public ever going to see or feel the costs of climate change if they are scattered, unheralded, across dozens of bills? How are we ever going to see the rational adaptation to climate change economists assume if we distort market pressures to the tune of tens of billions of dollars at the drop of a hat?

Worldwide, governments spend $280 billion per year on agricultural subsidies. Remember that number the next time someone tells you low-carbon electricity is "uneconomic." But it's not just the direct cost: it's the distortion. Farmers should be the first to respond to changes in rainfall, in temperature, in the length of the growing season, in the odds of destructive storms. And in suffering with those changes, we would expect they would be a voice for stronger action on climate change, as indeed some of them are.

The same can be said of the tens of millions of Americans living on the coastline, or on floodplains. Countries that can afford it tend to generously help the victims of natural disasters. But what happens then to the incentive of the people most vulnerable to climate change to accept -- to demand -- effective action to mitigate the threat and adapt to the remaining damaging changes?

Santorum 2012!

Climatecrocks points to this eloquent call for a carbon tax from a conservative icon, none other than Arthur B. Laffer:

We need to impose a tax on the thing we want less of (carbon dioxide) and reduce taxes on the things we want more of (income and jobs). A carbon tax would attach the national security and environmental costs to carbon-based fuels like oil, causing the market to recognize the price of these negative externalities.

Nuclear power plants would then compete with coal-fired plants. Wind and solar power would have a shot against natural gas. Trains would compete with trucks. We would clean the air, create wealth and jobs through a new technology boom and drastically improve our national security.

The United States can’t solve climate change alone. The Kyoto climate treaty was rightly rejected by the Senate because China and India weren’t subject to its provisions. If China and India join the United States in attaching a price to carbon, their goods should come into this country without a carbon adjustment. But if they do not, every item they place on our shelves should be subject to the same carbon tax that we would place on our domestically produced goods, again offset by a revenue-neutral tax cut.

If World Trade Organization rules entitle members to an unwarranted exemption from such a carbon tax, then we should change them. Outliers should not be allowed to frustrate the decision-making of the countries that are trying to prevent the security and environmental train wrecks of this century.

Former Representative Bob Inglis, interviewed above, co-authored the piece quoted.

Inglis and Laffer illustrate why we need more conservatives on the right side of this issue, and need them front and center. Their arguments effortlessly hit a number of the major hot-button concepts needed to connect with conservatives and low information voters of all stripes. Fairness. Competitiveness. Climate change migitation imposed by American power, not conceded to an international agreement:

If China and India join the United States in attaching a price to carbon, their goods should come into this country without a carbon adjustment. But if they do not, every item they place on our shelves should be subject to the same carbon tax that we would place on our domestically produced goods, again offset by a revenue-neutral tax cut.

I love this. Instead of a hypothetical multinational agreement, you have instead a hypothetical international trade war with hypothetical punitive tariffs. (Notice that the possibility of an agreement with other powers is there, but deemphasized -- essentially, and agreement is reduced to "They are going to do their share and pull their weight or they'll pay the price (assessed and exacted by us).

This is good. Yes! I'm not kidding. Hopefully the belligerence gets taken down a notch in the execution, but we need proposals that make Americans feel empowered, not impeded; like leaders, not followers, leveling the playing field, not meddling in the market. These are the only sorts of programs that have any chance of coming to fruition.

Obviously the conservative radicalism in this country is going to have to take a pretty epic faceplant in national elections -- maybe a couple -- before strong action on climate change has a chance to be recognized as the essentially conservative program that it is. Michigan Democrats for Santorum, godspeed.

Minor myths: Do some economists think global warming will be beneficial?

The cost of climate change. Interactive version here.

Several times recently, I've read or had it put to me that we don't know if global warming is going to be harmful or costly, and, specifically, that some economists think it may produce a net benefit.

To investigate this claim, I went to Google Scholar with the search terms "cost climate change." I ignored any article that wasn't about the cost of climate change, and also ignored any article not either written by a trained economist or published in their literature. I took only articles from 2009 onwards, picking up where this interesting study left off (Tol looks at 211 estimates of the cost of climate change, finding eight negative estimates (out of 211) from the work of just three authors, including Tol himself. He concludes -- and, as background, he is unquestionably the most respected and accomplished of the "skeptical" economists -- "Firstly, greenhouse gas emission reduction today is justified. Even the most conservative assumption lead to positive estimates of the social cost of carbon (cf. Table 1) and the Pigou tax is thus greater than zero.")

So onwards towards the present:
1. I quickly found out Martin L. Weitzman is not sanguine:

It is difficult to imagine what +10C–20°C might mean for life on Earth, but such high temperatures have not been seen for hundreds of millions of years and such a rate of change over a few centuries would be unprecedented even on a timescale of billions of years. Global average warming of 10°C–20°C masks tremendous local and seasonal variation, which can be expected to produce temperature increases greater than this at particular times in particular places. Because these hypothetical temperature changes would be geologically instantaneous, they would effectively destroy planet Earth as we know it. At a mini- mum such temperatures would trigger mass species extinctions and biosphere ecosystem disintegration matching or exceeding the immense planetary die-offs associated in Earth’s history with a handful of previous geoenvironmental mega-catastrophes. There exist some truly terrifying consequences of mean temperature increases +10°C–20°C, such as disintegration of Greenland’s and at least the western part of the Antarctic’s ice sheets with dramatic raising of sea level by perhaps thirty meters or so, critically important changes in ocean heat transport systems associated with thermohaline circulations, complete disruption of weather, moisture and precipitation patterns at every planetary scale, highly consequential geographic changes in freshwater availability, and regional desertification.

All of the above-mentioned horrifying examples of climate- change mega-disasters are incontrovertibly possible on a timescale of centuries.

Geez, Martin, thanks for the pep talk.

2. Burniaux et al, writing for the OCED, are less terrified but equally convinced:

The benefits of mitigation policies are difficult to quantify and fully monetise. Nevertheless, OECD analysis finds that when non-market impacts and risks of inaction are factored in, ambitious mitigation action is found to be economically rational – i.e. to result in net benefits – at the global level. This is the case even though the analysis does not factor in the co-benefits from mitigation action (e.g. in terms of human health, energy security or biodiversity), which previous OECD analysis estimated to be large (Burniaux et al. 2008).

 3. I found Richard Tol had done another meta-analysis:

I review the literature on the economic impacts of climate change, an externality that is unprecedentedly large, complex, and uncertain. Only 14 estimates of the total damage cost of climate change have been published, a research effort that is in sharp contrast to the urgency of the public debate and the proposed expenditure on greenhouse gas emission reduction. These estimates show that climate change initially improves economic welfare. However, these benefits are sunk. Impacts would be predominantly negative later in the century. Global average impacts would be comparable to the welfare loss of a few percent of income, but substantially higher in poor countries. Still, the impact of climate change over a century is comparable to economic growth over a few years. There are over 200 estimates of the marginal damage cost of carbon dioxide emissions. The uncertainty about the social cost of carbon is large and right-skewed. For a standard discount rate, the expected value is $50/tC, which is much lower than the price of carbon in the European Union but much higher than the price of carbon elsewhere. Current estimates of the damage costs of climate change are incomplete, with positive and negative biases. Most important among the missing impacts are the indirect effects of climate change on economic development; large-scale biodiversity loss; low-probability, high-impact scenarios; the impact of climate change on violent conflict; and the impacts of climate change beyond 2100. From a welfare perspective, the impact of climate change is problematic because population is endogenous, and because policy analyses should separate impatience, risk aversion, and inequity aversion between and within countries.

4. Bollen et al revisit a longtime hobbyhorse of IT, the additional benefits to human health and welfare of cutting fossil fuel burning, a major cause of asthma, lung cancer and other respiratory diseases. They think the air pollution benefits may be the larger benefit! But, again, there's no suggestion than global warming isn't a significantly costly event:

We attempt to cover at least part of the existing gap in the literature by assessing how costs and benefits of technologies and strategies that jointly tackle these two environmental problems can best be balanced. By using specific technological options that cut down local air pollution, e.g. related to particulate emissions, one may concurrently reduce CO₂ emissions and thus contribute to diminishing global climate change. Inversely, some of the long-term climate change strategies simultaneously improve the quality of air in the short run. We have extended the well-established MERGE model by including emissions of particulate matter, and show that integrated environmental policies generate net global welfare benefits. We also demonstrate that the discounted benefits of local air pollution reduction significantly outweigh those of global climate change mitigation, at least by a factor of 2, but in most cases of our sensitivity analysis much more. Still, we do not argue to only restrict energy policy today to what should be our first priority, local air pollution control, and wait with the reduction of greenhouse gas emissions. Instead, we propose to design policies that simultaneously address these issues, as their combination creates an additional climate change bonus. As such, climate change mitigation proves an ancillary benefit of air pollution reduction, rather than the other way around.

5. Hill et al, who are primarily concerned with analyzing the utility of biofuels, cleverly use estimates of the cost of CCS (carbon capture and storage) to set an upper limit on carbon costs:

We generate a monetary cost for GHG emissions based on independent estimates of carbon mitigation costs, carbon market prices, and the social cost of carbon. Carbon mitigation (capture and storage) costs for an integrated gasification combined-cycle electricity generating plant are $92–$147 Mg⁻¹ C (18); we use the midpoint of this range, $120 Mg⁻¹ C. This estimate is in the range of recent prices on the European carbon market [€23–28 Mg⁻¹ CO₂, or U.S. $133–$162 Mg⁻¹ C at an exchange rate of $1.58 €⁻¹ in July 2008, and €18–23 Mg⁻¹ CO₂, or U.S. $88–$112 Mg⁻¹ C at an exchange rate of $1.33 €⁻¹ in October 2008] (molecular weight ratio of CO₂:C = 44:12). It is also within the range of estimates for the “social cost of carbon,” which represents the expected future damages from enhanced climate change (e.g., damages from sea level rise, increased storm intensity, and crop losses from more intensive drought). The mean estimate of the social cost of carbon from peer-reviewed studies was $43 Mg⁻¹ C (19), although there was large variation in the estimates from below $0 to >$300 Mg⁻¹ C. The large variation in estimates occurs largely because of disagreement on how to weigh future costs and benefits relative to the present (“discounting”) and how to weigh costs and benefits accruing to poor and rich countries (“equity weights”). In addition, there are large uncertainties about climate forcing impacts and future human adaptability.

 6. Anthoff, Hepburn, and Tol (him again!) find that equity-weighting increases the estimated damages of climate change. What is equity weighting? I have no idea (the downside of wading through the economists' literature). My usual approach is useless -- there's no Wikipedia page. At any rate, they use a damages estimate that is positive, based on Tol's earlier work.

Climate change will give rise to different impacts in different countries, and different countries have different levels of development. Equity-weighted estimates of the (marginal) impact of greenhouse gas emissions reflect these differences. This paper analyses the impact of equity weighting on the marginal damage cost of carbon dioxide emissions, and reaches four main conclusions. First, equity-weighted estimates are substantially higher than estimates without equity-weights; equity-weights may even change the sign of the social cost estimates. Second, estimates differ by two orders of magnitude depending on the region to which the equity weights are normalised. Third, equity-weighted estimates are sensitive to the resolution of the impact estimates. Depending on the assumed intra-regional income distribution, estimates may be more than twice as high if national rather than regional impacts are aggregated. Fourth, variations in the assumed inequality aversion have different impacts in different scenarios, not only because different scenarios have different emissions and hence warming, but also because different scenarios have different income differences, different growth rates, and different vulnerabilities.

 7. Ackerman et al feel existing estimates of the economic damages of climate change systematically underestimate the problem:

The integrated assessment models (IAMs) that economists use to analyze the expected costs and benefits of climate policies frequently suggest that the “optimal” policy is to go slowly and to do relatively little in the near term to reduce greenhouse gas emissions. We trace this finding to the contestable assumptions and limitations of IAMs. . . . A better approach to climate policy, drawing on recent research on the economics of uncertainty, would reframe the problem as buying insurance against catastrophic, low-probability events. Policy decisions should be based on a judgment concerning the maximum tolerable increase in temperature and/or carbon dioxide levels given the state of scientific understanding. The appropriate role for economists would then be to determine the least-cost global strategy to achieve that target. While this remains a demanding and complex problem, it is far more tractable and epistemically defensible than the cost-benefit comparisons attempted by most IAMs. 

8. Anthoff and Tol are back, "Discounting for Climate Change":

. . . However, if we probabilistically constrain the parameters to values that are implied by observed behaviour, we find that the expected social cost of carbon, corrected for uncertainty and inequity, is approximate 60 US dollar per metric tonne of carbon (or roughly $17 per tonne of CO2) under the assumption that catastrophic risk is zero. 

. . . the problem with that being that catastrophic risk isn't zero. In any case, again the cost is positive.

9.Heltberg et al don't give us a number, but they don't give any hint they think climate change will be of net benefit in "Addressing human vulnerability to climate change: Toward a ‘no-regrets’ approach":

Recent evidence and predictions indicate that climate changes are accelerating and will lead to wide-ranging shifts in climate variables. There will be changes in the mean and variance of rainfall and temperature, extreme weather events, food and agriculture production and prices, water availability and access, nutrition and health status. The most adverse impacts are predicted in the developing world because of geographic exposure, reliance on climate sensitive sectors, low incomes, and weak adaptive capacity. Socio-economic impacts, though generally not well- understood, are likely to be profound and will impact humans through a variety of direct and indirect pathways (IPCC, 2007; Cline, 2007; Stern, 2007). The indirect risks are often hard to predict (they are the consequences of consequences) but could have the worst impacts.

 10. Jamet and Corfee-Morlot (love those French names) round out our top ten with a nice review: "Assessing the Impacts of Climate Change":

On the whole, estimates of the global impact of climate change have not changed much over the last 10 years according to the IPCC (Figure 3). However, the Stern review estimates are much larger than in other studies. As already mentioned, this is mainly due to a low discount rate, and to a lesser extent to new information regarding the impacts (Nordhaus, 2007a; Dasgupta, 2007). Nevertheless, use of a low discount rate may involuntarily yield more plausible estimates than those in the rest of the literature (Weitzman, 2007). This is in part because there are large uncertainties on the impacts of climate change, which are explained in more detail in the following section.

So what have we learned from this exercise? For my part I am reminded again that it is much easier to be a liar than to defend the truth. It's easy for a denier to causally toss off the assertion that some economists think climate change will be of net benefit. Maybe they are thinking of Lomborg (who supports a carbon tax, and anyhow is not actually an economist) or Tol (who is also on record supporting a carbon tax.) Maybe they are just repeating something they've heard; maybe they think it sounds plausible and no one is likely to check. But in any case the misinformation is the work of a moment; fact-checking it takes weary hours.

At any rate: economists more or less universally believe that the impact of global warming will be a net negative. They differ as to the magnitude of the damages expected, but for the most part they are in broad agreement with the climate scientists that global warming on a business as usual pathway will be expensive and destructive in the best case and utterly catastrophic at the worst.

Air conditioners all the way down

A well-known scientist (some say it was Bertrand Russell) once gave a public lecture on astronomy. He described how the earth orbits around the
sun and how the sun, in turn, orbits around the centre of a vast collection of stars called our galaxy. 

At the end of the lecture, a little old lady at
the back of the room got up and said: "What you have told us is rubbish.
The world is really a flat plate supported on the back of a giant
tortoise." 

The scientist gave a superior smile before replying, "What is
the tortoise standing on?" 

"You're very clever, young man, very clever,"
said the old lady. "But it's turtles all the way down."

I came across this interesting inaction rationale in the latest Economist analysis of Durban:

Recent work by, among others, Michael Greenstone at the Massachusetts Institute of Technology backs that approach. It shows that hot spells kill few people in air-conditioned America; but in India, where 300m have no access to electricity, the death toll is huge. India’s priority is to provide its people with electricity, and one day air-conditioners. That this will increase its emissions is less a problem for India than for the world. It therefore views any suggestion that it should be bound to curb its emissions as a threat.

Assuming that is indeed a line of argument in India (and the Economist is usually quite reliable) I was interested in how practical this approach might be, so I did some back-of-the-envelope calculations. Readers should feel free to point out obvious errors. Here we go:

There are about 1.2 billion people in India. That number is expected to rise to 1.6 billion by 2050. Let's say we want to protect them from global warming by providing them with central air in their homes and businesses (we could preserve their lives by, say, cooling a single room in their homes and making them all rest and sleep there, but let's assume they don't want to lead that sort of miserable existence.) Let's estimate about 200 million households needed residential air; there will probably be more than that by 2050, but let's be conservative. Some of them may live in cool regions; some already have air conditioning, factoring in to India's current power costs and greenhouse gas emissions, which for the record are:

India (thousands of tons of CO2): 1,742,698

We will also give them 50m commercial systems; they can't spend all day in their houses. We don't need people dropping from heat stroke in the factories, offices, the call centers and the banks.

Using this helpful wikipedia article, I estimated the residential systems would need about 3 tons of refrigeration, while I estimated the commercial systems very conservatively at 10 tons. One ton of refrigeration consumes 3,517 Watts whilst in operation (assuming an seasonal energy efficiency ratio (SEER) of 10). So residential systems consume roughly 10,000W, and commercial systems 35,000W (there is no point in false precision when we are throwing around estimates like this.)

A standard estimate for the use of air conditioning is a thousand hours per year (eight hours a day times a hot season of 125 days). That seems reasonable. That puts us at (10Kw * 1000 hours * 200,000,000 systems) = 2.0 * 10^12 Kw-h for the residential, plus (35Kw * 1000 hours * 50,000,000 systems) = 1.75 * 10^12 Kw-h for the commercial, totaling 3.75 * 10^12 Kwh of electricity required.

So how much is that? Well, at eight cents a Kwh, that power will run you $300 billion dollars a year (20% of India's present-day GDP; even if the economy grew by 300% in short order, they would still be spending 5% of their GDP on air conditioners). But more importantly, at an average emissions density for fossil fuel electricity of 750g (I love wikipedia) that air conditioning generates greenhouse gas emissions of:

India air conditioning alone (thousands of tons of CO2): 2,812,500

That's two and a half times India's current emissions. It's roughly 10% of the total global emissions in 2010. In other words, relative to the 80% emissions cut needed by 2050 to (hopefully) stabilize the climate in the short term, the CO2 emissions of Indian air conditioning would consume half of humanity's global CO2 budget.

The alternative is to keep emitting and keep warming -- and keep building air conditioners, and burning fossil fuels to power them, accelerating the warming further. Eventually we will need to run the air conditions harder, and longer, to deal with warming of +4C, +5C, or even more -- driving the cost and the emissions even higher (while we are also paying to resettle climate refugees, relocate coastal towns, and fight the spread of tropical diseases). Of course, we can't air condition our crops, we can't air condition every home in Africa or South America or the rest of Asia. But other than that, smooth sailing. It's air conditioners all the way down.