Yesterday Business Spectator’s Robert Gottliebsen covered an interview he did with Bjorn Lomborg, of ‘Skeptical Environmentalist’ fame, suggesting that putting a price on carbon was bound to fail. Instead we should largely do nothing to reduce emissions in the short-term other than a small $5 carbon tax, and instead focus on scientific research into renewable energy funded through this small carbon price.
Apparently this is what Economics Nobel laureates advise as the only realistic and cost-effective approach to reducing greenhouse gas emissions (Why the carbon tax doesn't work, August 21).
Problem is that it’s not actually the view of all, or even most living Economics Nobel laureates, just one. (For example, laureates Kenneth Arrow, Joseph Stiglitz, William Sharpe, Thomas Sargeant, and Christopher Sims sent a letter in March 2012 to President Obama, supporting a carbon price; Paul Krugman also believes a carbon price is the way to go.) And it certainly isn’t the view of economists who actually study the specific topic of technological change, energy policy and climate change.
Lomborg is a great media operator that specialises in providing confident sound grabs about why we shouldn’t place any immediate meaningful controls over pollution. Because this message is what a lot of people want to hear, his views generally receive a large amount of airplay well out of proportion to the quality of the evidence he provides.
His standard method for making this case usually involves citing one or two respected economists that support this world view (some of whom have no background in the area of environmental economics), while conveniently ignoring a very large body of research literature on the history of environmental pollution. He then strips away all the caveats, broad assumptions and uncertainties that accompany the work he relies upon, and confidently pronounces that the costs of pollution controls outweigh their benefits, and that the problem will resolve itself anyway with time and technological innovation.
Also just to make it sound more authoritative he’ll attach a fancy label to his work like ‘The Copenhagen Consensus’. This gives the impression that he assembled a very large group of the academics with expertise in the area. In reality his so-called ‘Copenhagen Consensus’ was just a handful or two of people, several of whom have no background studying the issue of climate change, invited to spend an all expenses paid few days at an upmarket hotel.
Like all good PR men, Lomborg’s arguments have some grains of truth to them. For example I’d agree that we aren’t going to solve climate change through some United Nations love-in where several hundred countries, including Russia and Middle East oil and gas barons, agree on a globally binding target for emissions. I’d also agree that we shouldn’t rely solely on a carbon price, and need to put more effort into policies directed at accelerating technology.
But if you bother to scratch the surface of Lomborg’s confident pronouncements you’ll find the following two fatal flaws (amongst others):
1. His cost estimates on the impacts of climate change rely on highly questionable reasoning
Lomborg has historically relied heavily on the estimates of William Nordhaus to suggest that addressing global warming isn’t worth the costs.
Nordhaus was one of the first people to convert the projections of physical impacts from climate change into monetary values. The problem is that this is fraught with heroic moral judgements open to extremely broad interpretations and high uncertainty.
For example how do you place a value on a human life? Nordhaus did it initially based on people’s income. Now the people most vulnerable to climate change tend to be the poor of sub-Saharan Africa, South America and Asia. They earn a few dollars a week so in Nordhaus’ initial work if they died, it didn’t really count for much.
Nordhaus’ work also discounted the impacts imposed on future generations according to the market rates of interest you could earn on money. This meant impacts on people 50 years from now are basically worth nothing in his model.
Lastly the estimates of the cost imposed by climate change are subject to huge variation. This requires you to consider more than just the average estimate of likely outcomes. So based on Nordhaus’ estimates, the average dollar value of avoiding a tonne of CO2 today he might put at less than $10, but his model might also acknowledge that there is a 5 per cent chance of global warming being catastrophic and a 20 per cent chance of being seriously disruptive.
But Lomborg just plucks out the average cost impact and says ‘hey nothing to worry about here’.
The work of economists Martin Weitzman, Stephen DeCanio, and Nicholas Stern provide thorough critiques of Nordhaus’ analysis.
Lomborg’s recommended solution of focusing on scientific technological research won’t work
There are a number of economists that have dedicated their lives to analysing the process of technological change and innovation. The consensus is that scientists are good, but scientists capitalists market competition are an awful lot better.
Lomborg quite rightly points out in his interview with Gottliebsen that the cost of wind and solar technologies have come down by 50 per cent per decade. But he misunderstands that a large part of those reductions were only possible due to market deployment of those technologies thanks to government policy. People like Lomborg, that aren’t familiar with the history of technological advance in electricity technologies, don’t seem to realise these cost reductions have come not through radical scientific breakthroughs, but rather steady incremental improvement.
The ability to deploy these technologies in the field and earn an income from selling these technologies has been instrumental in improvement. It has acted to provide experience and learning and helped inject further private sector capital that has accelerated improvements by scientists and engineers.
The research of Michael Grubb, Timothy Foxon and the International Energy Agency illustrates that scientific research without market experience will end in failure.