|THE CLIMATE CASINO
Risk, Uncertainty, and Economics for a Warming World
William D. Nordhaus
New Haven: Yale University Press, 2013
In every crisis, there are at least two courses of action. If a war impends, you can choose to enlist or to claim Conscientious Objector status. Should disease strike your community, you can choose to have yourself and your family vaccinated, or to rely on luck. When it comes to the global crisis that is climate change, the options are simple: to accept the gravity of the situation and accede to measures designed to mitigate its effects, or to continue with business as usual, trusting in providence to make things turn out all right.
Dr. Nordhaus, the Sterling Professor of Economics at Yale University, explains and expands on the methods by which climate change can be dealt with. Using the techniques of economic modeling, and integrating them as appropriate with physical science models, he demonstrates the utility of placing a price on carbon emissions, thereby eliminating the marketplace distortion currently induced by those emissions — as an externality.1 He shows that economic methods are in fact the most effective ways of bringing about a reduction of greenhouse-gas (GHG) emissions.
This book examines but one of the issues that we must address to preserve our world—global warming. Humans have been contributing to a warmer world on a small scale for centuries. But the present century is a critical period in which we must curb the unchecked growth in greenhouse gases, particularly those that come from fossil fuels. If we have not largely reduced the impact of these gases by this century's end, the environmental future of Earth is grim.
– Page 132
Reviewing the scientific case for concern about the future of human civilization as Earth's climate changes, Nordhaus discusses such evidence as the melting of the Arctic icecap and the rise of sea levels during the twentieth century. In addition to the obvious harm due to the sea encroaching on coastal communities, the impacts if present trends continue are likely to include stronger storms, larger and more frequent wildland fires, the spread of tropical diseases, and impaired agricultural productivity for at least some crops.
The grimness of the picture is lessened somewhat by noting that impacts on managed systems, at least for developed countries, are likely to be small for most of this century. A managed system is one that we largely control. Agriculture and health care are the most important examples. You can see from today's news broadcasts how tropical diseases like west nile virus are being dealt with in the U.S. On the other hand (the gripping hand), hurricanes and tornadoes are largely unmanageable at present. So is the rising sea. So is ocean acidification. So are the potential tipping points which we may soon pass.
A DICE marries climate science and economics. Though it sounds ungrammatical, it is not. The acronym stands for Dynamic Integrated model of Climate and the Economy. Most DICE models are fairly simple, in the interests of generating results for the entire globe without excessive running times. Parameters might include per-capita GDP ($/person), tons of CO2/GDP (carbon intensity), and population.3
Output could be growth rate of the economy over time. It is possible to factor in policy changes like a $25/ton CO2 tax and see their effect on growth or emissions. (See pp. 29-30.) There are online version such as DICE-2012 that anyone can use.4
By way of illustration, at left I reproduce his Table 1 (p. 31), showing the results of a DICE calculation for the United States and the world. I added the colors: Blue background for USA, yellow background for world.
(% per year)
|GDP/Pop (2005 $/person)||42,300||83,700||1.7|
|CO2/GDP (tons/$1 million)||432||226||-1.6|
|Total CO2 emissions (millions of tons)||5,640||7,550||0.7|
|GDP/Pop (2005 $/person)||9,780||22,400||2.1|
|CO2/GDP (tons/$1 million)||522||278||-1.6|
|Total CO2 emissions (millions of tons)||34,900||57,600||1.3|
The author is decidedly more sanguine about the prospects for human health and agriculture during the twenty-first century than I expected. He finds it likely that adjustments will tend to offset the deleterious effects of changing climate over that period, as rising per-capita incomes worldwide allow more people access to modern health-care methods, and as farmers modify their practices to deal with the changes. Additionally, a modest (under 3°C) rise in temperature is expected to increase crop yields overall, and while some areas will become unproductive, others should be able to take up the slack.
Another factor that will tend to offset impacts that are short of catastrophic is the fact that future societies can be expected to be richer than our current ones. This ties into the question of discount rates, by which the value of an investment made today drops incrementally as the years roll along. (It is something like depreciation AIUI.) There are two schools of thought on the matter: prescriptive and descriptive. I'm not going to say much about this until I understand it better. Suffice it to say that I tend toward the prescriptive school, with Sir Nicholas Stern, who advocates a low discount rate.
The lesson here is that we are likely to overestimate the economic impacts if we simply impose estimated climate changes on current societies. In considering the impacts of climate change in the late twenty-first century, two major trends can be seen—even through the fuzzy telescope. The first is that, under the scenarios that produce dangerous climatic change, most countries will be much richer than they are today. Clearly we should not assume that African countries will have incomes comparable to those of North America today and also assume that large numbers [of their people] will still be nomads herding cattle across the desert.
Second, one of the regularities of economic development is that societies increasingly insulate their populations from all kinds of adverse shocks. We see this in the area of public and private health, agricultural shocks, environmental disasters and degradation, and violence. We would expect that adaptation to the dangers of future climate change would be added to this list of tasks for the modern state.
– Pages 103-4
Nevertheless, he is careful to caution that many aspects of the problem are poorly understood and there may be surprises, perhaps involving the crossing of tipping-point thresholds. "Always in motion is the future." And farms, hospitals and clinics are managed systems, where adverse impacts are likely to be dealt with — especially in developed countries. But the greatest risks come from the unmanaged systems, to which he now turns.
Tornadoes and hurricanes are essentially unmanaged systems. While stronger structures and better warning systems help more people survive these storms, they cannot guarantee safety. Only the ability to manage such weather disturbances could do that, and science is unable as yet to provide it. Similarly, flooding and sea-level rise are unmanaged and currently unmanageable, despite levees and sea walls. Add in ocean acidification and species extinction, and you begin to understand how big a problem unmanaged systems can be.
Professor Nordhaus's writing is somewhat dry, occasionally stilted or clumsy. Also, I found the book troublesome to read because its text runs too close to the binding; I often had to press down the pages to see the words tucked away there. (That, of course, is the fault of the publisher, not the author.) But these are minor shortcomings that I can easily set aside. The important thing is that Dr. Nordhaus provides in this book a very clear explanation of the subtleties of climate-policy economics; that it is well supplemented by numerous graphs and informative tables; and that it is one of the most even-handed treatments of the vexing problem I have read (and I've read a good many.) The index is good, and the endnotes contain a wealth of sources for those who seek more depth on any of the topics discussed. I have no hesitation about giving it top marks, and I will be adding a copy to my library (but I probably will wait for the paperback.)