Thursday, November 02, 2006

So Hot

Here is an article on Global Warming, one of my pet topics. The author, a professor at the Copenhagen Business School, is a believer in warming and also believes that it stems from human behavior. His purpose is to critique a recent study that he considers sloppy and ill-prepared, entitled the Stern Review on the Economics of Climate Change.

Bjorn Lomberg writes:

The review is also one-sided, focusing almost exclusively on carbon-emission cuts as the solution to the problem of climate change. Mr. Stern sees increasing hurricane damage in the U.S. as a powerful argument for carbon controls. However, hurricane damage is increasing predominantly because there are more people with more goods to be damaged, settling in ever more risky habitats. Even if global warming does significantly increase the power of hurricanes, it is estimated that 95% to 98% of the increased damage will be due to demographics. The review acknowledges that simple initiatives like bracing and securing roof trusses and walls can cheaply reduce damage by more than 80%; yet its policy recommendations on expensive carbon reductions promise to cut the damages by 1% to 2% at best. That is a bad deal.

Mr. Stern is also selective, often seeming to cherry-pick statistics to fit an argument. This is demonstrated most clearly in the review's examination of the social damage costs of CO2--essentially the environmental cost of emitting each extra ton of CO2. The most well-recognized climate economist in the world is probably Yale University's William Nordhaus, whose "approach is perhaps closest in spirit to ours," according to the Stern review. Mr. Nordhaus finds that the social cost of CO2 is $2.50 per ton. Mr. Stern, however, uses a figure of $85 per ton. Picking a rate even higher than the official U.K. estimates--that have themselves been criticized for being over the top--speaks volumes.

He continues his criticism:

The Stern review's cornerstone argument for immediate and strong action now is based on the suggestion that doing nothing about climate change costs 20% of GDP now, and doing something only costs 1%. However, this argument hinges on three very problematic assumptions.

First, it assumes that if we act, we will not still have to pay. But this is not so--Mr. Stern actually tells us that his solution is "already associated with significant risks." Second, it requires the cost of action to be as cheap as he tells us--and on this front his numbers are at best overly optimistic. Third, and most importantly, it requires the cost of doing nothing to be a realistic assumption: But the 20% of GDP figure is inflated by an unrealistically pessimistic vision of the 22nd century, and by an extreme and unrealistically low discount rate. According to the background numbers in Mr. Stern's own report, climate change will cost us 0% now and 3% of GDP in 2100, a much more informative number than the 20% now and forever.
In other words: Given reasonable inputs, most cost-benefit models show that dramatic and early carbon reductions cost more than the good they do. Mr. Stern's attempt to challenge that understanding is based on a chain of unlikely assumptions.

Moreover, there is a fourth major problem in Mr. Stern's argument that has received very little attention. It seems naive to believe that the world's 192 nations can flawlessly implement Mr. Stern's multitrillion-dollar, century-long policy proposal. Will nobody try to avoid its obligations? Why would China and India even participate? And even if China got on board, would it be able to implement the policies? In 2002, China decided to cut sulfur dioxide (SO2) emissions by 10%--they are now 27% higher despite SO2 being nationally a much bigger health and environmental problem than climate change.

Read the rest for more.


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