Applying cost-benefit analysis to global warming by mattsteinglass
July 7, 2009, 5:08 am
Filed under: Economics, Environment

Kevin Drum had a very trenchant post the other day responding to Jim Manzi’s much-discussed back-of-the-envelope cost-benefit analysis on the Waxman-Markey bill. Drum’s point was basically that long-term economic estimates are extremely inaccurate, while long-term scientific predictions are fairly accurate. So trying to counterpose a reasonably solid scientific prediction of severe damage to the global climate against an extremely foggy guess about the future of the world economy is bound to yield garbage results.

I thought about this again the other day while talking to an acquaintance here in Amsterdam who’s a senior executive in strategic planning at the Dutch national railroads (Nationale Spoorwegen, or NS for short). He was talking about the different perspectives one has at state-owned companies and pure private ones, and as an example, he noted that the NS’s strategic planning generally runs many decades into the future, and often up to a century. They perform cost-benefit analyses on such long-term projects, he said, but they don’t set much store by them. “They’re so dependent on interest rates,” he said. “You make one tiny change in your expectations about future interest rates, 0.3% one way or the other over 50 years, and suddenly your project is profitable, or not.”

Sasha on train near Amsterdam. © Matt Steinglass

The problem with performing cost-benefit analyses on major infrastructure projects is that you’re actually reshaping the society whose economy is going to be creating those profits or losses. This is particularly vivid in the Netherlands, because the entire country is an infrastructure project. In the picture above of my daughter Sasha on the train south of Amsterdam, one’s subconscious assumption is that the interior of the train represents “state infrastructure” while the exterior represents “natural (private) enterprise”. But this is the Netherlands. The fields those cows are munching on were pulled out of the Rhine delta by exactly the same kind of public investment that created the railroad network. To submit the railroad project to a cost-benefit analysis makes only a little more sense than submitting the entire country to a cost-benefit analysis. Should the Netherlands exist at all? Could the money and labor that was spent pumping those polders free of water, and building the dikes to keep out the sea, have been better employed elsewhere, resulting in a richer global economy? How could one even begin to make such a calculation? Is this a question that even makes sense?

This isn’t to say that cost-benefit analyses on huge infrastructure projects aren’t necessary at all. The NS has made at least one major mistake in the last 20 years, pumping billions into a high-speed freight line to Germany that may never be profitable (though the main problem may have been poor cost control rather than miscalculation of demand). And another major Dutch infrastructure proposal to build an artificial island for a new airport in the North Sea has been rightly rejected as too expensive. But when you’re addressing these kinds of existential questions over a period of many decades and centuries, the cost-benefit analysis seems like an exercise in smoke and mirrors that pretends to hard-headed objectivity.

Border adjustments in cap-and-trade by mattsteinglass
July 1, 2009, 2:17 pm
Filed under: Development, Environment, Uncategorized

Like Paul Krugman and Ezra Klein, I think the border adjustment amendment to the Waxman-Markey bill, which would impose tariffs on countries that have no carbon emissions limits beginning about a decade from now, makes perfect sense. It seems particularly logical with regard to China and Southeast Asia. The whole anxiety over imposing cap-and-trade carbon emissions limits has been that China will refuse to go along. What better incentive to encourage them to join the rest of the world and impose some limits? The potential tariffs appear to be legal under WTO rules, and economic theory argues they make perfect sense — they simply equalize the playing field by preventing countries from exploiting a lower environmental standard to gain an unfair advantage.

If there’s any reason for the US to fear the idea of border adjustments for carbon reductions, one would think the fear should be directed towards Europe and Japan, rather than China. If Europe and Japan get they idea that they could impose tariffs on US goods based on their much lower carbon emissions per dollar of GDP and the US’s vastly lower gas taxes, that might hurt US exports. But it would also be good for the planet.

Oh, on the subject of sea-level rise by mattsteinglass
June 30, 2009, 5:07 pm
Filed under: Environment, Netherlands

I’m now posting from my wife’s home country, the Netherlands, where we’ll be for the next 3 weeks or so.

Nice country they’ve got here. Shame if something were to happen to it.

The “Waxman-Markey by itself will do nothing” critique by mattsteinglass
June 30, 2009, 4:55 pm
Filed under: Environment

Andrew Sullivan correctly explains where I am coming from in responding to the reader whose critique is that the specific effects of Waxman-Markey don’t justify its cost. That reader wrote:

By all accounts, the bill’s not nearly radical enough to cause the sorts of changes that would save Venice, or the polar bear, or the snows of Kilimanjaro.  If Waxman-Markey is the end of the story, polar bears are still a goner by the end of the century, and probably much sooner than that.

We’re standing here after 30 years of debate over the effects of man-made global warming and what we ought to do about it. We have finally come to a consensus (most of us, anyway) that something has to be done. (I have to restrain myself, each time, from writing “about a problem that threatens to destroy the Earth as we know it.” But that’s not hyperbole. As Joe Romm summarizes, MIT’s mainstream predictions now put CO2 at 866 ppm by the end of the century, while the Copenhagen meeting of 2000 climate scientists last December put it at 1000 ppm  – more than double the unacceptable 450 ppm level at which scientists envision an ice-free planet. The ultimate trajectory in such scenarios is for sea levels 250 feet higher than today. Of course it would take centuries for enough ice to melt to raise sea levels by 20 feet or more — or maybe not, according to more recent research.)

Anyway, at this point in this miserable, far-too-slow process, we finally have grudging agreement that something has to be done. And Waxman-Markey is the something that we can get done, at current levels of political willingness. So now, mutatis mutandi, the argument being raised is that Waxman-Markey is insufficient to accomplish the things that need to be done. Of course this argument will always be raised against whatever step we try to take first, no matter what it should be.

And here, that Matthew Yglesias post from a while back is right: this really is precisely one of Parfit’s “Mistakes in Moral Mathematics” — namely, the idea that a measure which, by itself, is insufficient to achieve a moral goal unless everyone else takes similar measures is therefore without moral value. In Parfit’s example, it remains moral for each person to individually try to save a group of trapped coal miners, even if the absence of any one of those individuals would make no difference in the end. To say that there is no point trying to rescue the miners because it will have no effect unless everyone else tries, too, is to embrace an obvious moral monstrosity.

We are trying to arrest global warming before it destroys the planet as we know it. The bill we have is nowhere near sufficient to do that, but it is a first step. It is always possible to argue against taking the first step in a task that appears tremendously difficult. Two familiar arguments of this form are “But no one else will join us, they will abandon us,” and “The task is too great, so better to accept reality and make the best of things while we still can.” In Tolkien, these arguments are respectively illustrated by the characters of Wormwood and Denethor.

The latest up-to-date science on global warming by mattsteinglass
June 29, 2009, 1:21 am
Filed under: Environment

This is the summary of a report from a mainstream US Government research body formed by the Department of Energy.

We have examined the principal attempts to simulate the effects of increased atmospheric CO2 on climate. In doing so, we have limited our considerations to the direct climatic effects of steadily rising atmospheric concentrations of CO2 and have assumed a rate of CO2increase that would lead to a doubling of airborne concentrations by some time in the first half of the twenty-first century. As indicated in Chapter 2 of this report, such a rate is consistent with observations of CO2 increases in the recent past and with projections of its future sources and sinks. …When it is assumed that the CO2 content of the atmosphere is doubled and statistical thermal equilibrium is achieved, the more realistic of the modeling efforts predict a global surface warming of between 2°C and 3.5°C, with greater increases at high latitudes.

So there you go. Sounds about par for the course, right? Seems to fit the predictions you see in other studies, like that MIT study published in May that predicts global warming of 5.2 degrees Celsius by 2100, and so on. Probably a middle-of-the-road study from last December or so, eh?

Except in fact the above report dates from 1979. It’s called “Carbon Dioxide and Climate: A Scientific Assessment,” and it’s the report of the Carbon Dioxide Effects Research and Assessment Program, formed by James Schlesinger, who became the first Secretary of Energy after President Carter created the department in 1977. This is well before James Hansen delivered his celebrated warnings to Congress in the mid-1980s.

We’ve known about all this stuff for 30 years now. Everything one might have expected to occur based on the report has, in fact, happened in the subsequent 30 years. The scientific consensus has become overwhelming as the data and models become orders of magnitude more convincing and sophisticated. Yet there are still people wandering around arguing it’s not happening, and it’s taken us 3 decades to even begin to do anything about it. Talk about a procrastination problem.

Voting “no” on Waxman-Markey because it’s too weak by mattsteinglass
June 27, 2009, 7:38 pm
Filed under: Environment

Waxman-Markey passed the House by 7 votes, 219-212. 44 Democrats voted against the bill. Many no doubt did so because they thought the bill did too much to protect the environment. But did any Democrats vote against Waxman-Markey because it doesn’t do enough?

Well, at least one did: Pete DeFazio of Oregon. If you follow the link, you’ll find DeFazio’s extremely cogent argument against cap-and-trade. In particular, he’s strongly opposed to CDM-style carbon “offsets”, where companies get to buy permits to emit carbon from other companies with projects that supposedly reduce atmospheric greenhouse gases. DeFazio thinks it’s liable to massive scamming and that it will eviscerate up to two-thirds of any planned carbon emissions reductions. He likens the trading of emissions credits to the trading of financial derivatives. And he has an alternative plan: cap and don’t trade. Just cap. Plain old cap. It’s the Jim McDermott climate change bill, which DeFazio supports.

I prefer the McDermott regulatory approach because of its certainty.  Under this alternative we will reduce emissions here in the United States of America; we won’t be engaged in buying phony offsets offshore; and we won’t create new exotic financial vehicles like “carbon default swaps” and “carbon tranches.”

It’s an honorable position. Unfortunately it has absolutely no chance of passing. It’s worth noting that Jim McDermott himself voted for Waxman-Markey. But we need people like DeFazio out there, because the next step, if Waxman-Markey passes the Senate, will be to come back next year or the year after, and make it tougher.

Add.: I should say that I don’t agree with DeFazio — I think CDM carbon offsets are a good thing, I don’t agree that scamming is as widespread as claimed, and I think a lot of the problems can be resolved by setting a percentage limit to the amount of carbon reduction that can be derived from offsets. But DeFazio’s opposition is responsible in that he has an alternative proposal and he’s genuinely seeking a better system for carbon emissions reductions. There are a lot of people out there who just use skepticism on the effectiveness of cap-and-trade as an excuse to throw up their hands and do nothing, which is an approach that makes the folks at Acme Coal-Fired Electric Power Plant Inc. very happy.

The problem with measuring climate change impact in GDP by mattsteinglass
June 27, 2009, 1:44 pm
Filed under: Environment

Jim Manzi writes:

The expected impacts of human-induced climate change are marginal as compared either to the sloppy, sentimental and self-righteous rhetoric that surrounds this issue…

There will be no snow left on Kilimanjaro within a few years. The economic cost of that change to US GDP is zero. There will be no year-round snow left in the Himalayas in 100 years. The economic cost of that change to US GDP is tiny. There will be no Everglades in 100 years. The economic cost of that change to US GDP is marginal. There will be no Venice in 100 years. The economic cost of that change to US GDP is tiny. There will be no New Orleans in 100 years. The economic cost of that change to US GDP is extremely small.

There are two issues here. First, GDP measures income, not wealth. If your house burns down, it will most likely not change your income. Does that mean you should spend nothing to protect your house from burning down? Second, GDP only measures things that can be measured in money. But the worth of many precious things cannot be measured in money: Yellowstone National Park, the independence of one’s country from foreign rule, the existence of elephants and polar bears, clean air, the ruins of the city of Ur, the fact that humans have traveled to the moon, etc.

As far as I know, the only reasonable way to measure the worth of these things is to find out how much people are willing to pay to preserve or get them. The economic value of clean air in 1965, before the passage of the Clean Air Act, was zero. How much is the cleaner air we have today worth? You could say it’s worth nothing, since we breathe it for free; and indeed it doesn’t really show up in GDP figures. But if you’ve ever lived in a city without any pollution controls, you know that in fact its value is immense, and probably the best way to measure how much clean air is worth would be to measure how much the American people have been willing to spend over the past 40 years to get it. And the only way to find out how much it’s worth to keep snow on Mt. Everest, keep Florida above water, keep polar bears in existence, and so forth, is to find out how much Americans are willing to spend on these things. I would bet it’s actually far more than $50 a year per person for the next 100 years.

Cap and Trade by mattsteinglass
June 27, 2009, 10:28 am
Filed under: Environment

I had a post up for about five minutes about supporting cap and trade which I decided was poorly written, so I took it down. But Andrew Sullivan linked to the abortive post, so if you’re coming here for that post and not seeing, this is why. The essence was that this is the bill we’re going to get, and it defies logic and experience to believe that we’ll get a better one within the needed time frame by vetoing it and coming back for another try. I’ll try and write something more to-the-point on this shortly.

GlobalPost: Electric motorbikes will save us by mattsteinglass
June 22, 2009, 3:43 pm
Filed under: Environment

Just wanted to point to my article on GlobalPost about the fantastic new nanocrystal-core superpowered electric motors made by KLD Energy of Austin, TX, and how they’re going to save first Vietnam, then the world. 0 to 50 mph in under 10 seconds! Top speed over 60 mph! Zero emissions! An electric motorbike that drives like a Harley! Get me some of that.

The third world will get on board with climate change reduction. by mattsteinglass
May 21, 2009, 9:52 am
Filed under: Development, Environment

Those ignorant hippies at MIT have just published their new revised climate change projections in some crazy socialist peer-reviewed scientific journal, the American Meteorological Society’s Journal of Climate. As Joe Romm summarizes, they’re projecting 5.1℃ average warming by 2095, with 12℃ at the poles and 866 ppm of CO2. (Via Kevin Drum.) That’s double their 2003 estimates, and it’s well above the catastrophic 450 ppm level and ultra-catastrophic 700 ppm limits people often refer to when they’re talking about the upper bound humanity can afford. (CO2 levels of 450 ppm probably mean “an ice-free planet”, according to a recent study by NASA and Yale authors.) The reasons: the carbon “sinks” are maxed out, and positive feedback loops are stronger than previously understood. Romm writes: “How could Greenland’s ice sheets possibly survive that?” Melting the Greenland ice sheet would raise global sea levels by 7 meters.

The latest fad among climate-change “skeptics” and “non-orthodox” thinkers has been to throw up one’s hands and declare that China, India and the rest of the developing world will never go along with serious efforts to reduce greenhouse gases, so there’s no point trying to stop the warming. We should just adapt. On another front, orthodox environmentalists are saying that China will never voluntarily go along with serious efforts to reduce greenhouse gases, so we should threaten them with trade sanctions.

I think this is wrong. Paul Krugman has talked to far more influential people in China than I have. But here in Vietnam, influential people are extremely worried about climate change and eager to participate in international efforts to slow it down. Climate change is spelling disaster for Vietnam, and people are already starting to feel it. A 1-meter sea level rise, which is now considered less than the mean forecast for 2100, would sink the entire Mekong Delta, which produces the overwhelming majority of rice in Vietnam — the world’s second-largest rice exporter. Rice producers are already suffering from salinization caused by rising sea levels, and fishing villages are caving into the sea. Typhoons have been unusually devastating in each of the past three years. Strange cold spells have hit the mountainous northern regions; in the winter of 2008 they had week-long frosts in areas where the temperature almost never falls below 0, killing water buffalo, wrecking the winter-spring rice crop, and threatening famine in remote regions.

These weather events are always covered in Vietnam’s press as effects of climate change. And politicians and the public are paying attention. A month ago at the press conference held by Sens. McCain, Graham and Klobuchar in Hanoi, the Vietnamese press didn’t ask a single question related to McCain’s Vietnam War experiences. They asked Klobuchar about references she’d made to anti-climate change cooperation. Three weeks ago I talked to the chairman of the relevant committee in the National Assembly, and he said Vietnam has to start setting CO2 emissions limits in accordance with international efforts. I asked what the benefits for Vietnam were — after all, Vietnam’s tiny $85 billion economy hardly has any influence on global climate change, and if the Mekong goes under it won’t be because of Vietnamese emissions. He said: If we expect the rest of the world to do anything about climate change, we have to show that we are doing our part.

Caveats: As a small country, Vietnam is exceptionally conscious of the need to cultivate international goodwill. And to some extent Vietnamese receptivity to action against greenhouse emissions benefits from the fact that the world’s biggest CO2 emitter is China (the ancient frienemy!). The nice talk on greenhouse-gas reductions hasn’t yet been matched by action, but that’s in part because the global community hasn’t really started to lay out terms yet for the developing world to take part. First, the US needs to get on board. But once the world’s leading developed economies can present a united front on the need to curb greenhouse emissions, I am dead sure that developing nations will get on board as well. And perhaps Krugman is right and China will be the last to come around. But come around it will.

First-world climate change skeptics and freethinkers who deny that third-world countries will reduce greenhouse emissions often make a big mistake: they conflate the interests and capabilities of individuals in the developing world with the interests and capabilities of developing-world governments. This comes out clearly in the Nordhaus and Shellenberger article referenced above. In much of the developing world — think sub-Saharan Africa — governments are weak, and so the fact that individual villagers aren’t going to stop using wood-burning cookstoves to save the planet really is the dominant factor. But developing-world governments like Vietnam and China, and increasingly Indonesia and Thailand and India, are not weak. They can act to fight perceived collective threats in ways that their individual citizens can’t. And when they do take action, their effectiveness can shock the world. In 2004, when avian influenza began cropping up in Southeast Asia, the widespread prediction was that it would be almost impossible for third-world governments to fight it; their farmers were too scattered and poor, they lived intimately with their animals, it was a cultural thing. Two years later, Vietnam was vaccinating every domestic fowl in the entire country. China has a similar capacity to effect staggering shifts in behavior on issues the government views as a national priority. The question is: does the government view global warming as a national priority? At the moment, no. But that is going to change. It’s going to change rapidly. And when it does, I firmly believe that the question will not be whether China can change its economy fast enough. The question will be whether the US can keep up.


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