"Never Waste a Good Crisis"

Reuters reports:

[U.S. Secretary of State Hillary] Clinton told young Europeans at the European Parliament that global economic turmoil provided a fresh opening. “Never waste a good crisis … Don’t waste it when it can have a very positive impact on climate change and energy security,” she said.

Damn you Milton Friedman!

So here’s the “shock doctrine” in action. “Climate change” itself is not actually a crisis that demands immediate action. And in the absence of widespread public demand for action, climate ideologues need a crisis to shove through otherwise unpopular reforms. Of course, imposing massive new taxes (whether implicit or explicit) on energy, and therefore on economic production generally, is a terrible idea during a recession from the depths of which it will take many years to recover. But who cares about restoring the average American’s standard of living? Never waste a good crisis!

Debating Global Warming Policy

The conversation of what to do about global warming is winding down over at Cato Unbound. I’ve found the discussion fascinating, and I learned a lot. I’d like to see a lot more discussions like this one about climate change policy, and I hope we set a decent example. There were some mildly raised voices, sure. But there’s also been a whole lot of data and scientific and economic reasoning exchanged. I guarantee that if you read through all the essays and replies, you’ll learn something.

Keeping Our Cool

Posting here will continue to be light as Kerry and I make our way to the Hawkeye State, but please turn your attention to the new issue of Cato Unbound, “Keeping Our Cool: What to Do About Global Warming,” featuring a lead essay by the estimable Jim Manzi. Commenters include: Joseph Romm, climate wonk at the Center for American Progress; Indur Goklany, author of The Improving State of the World; and Michael Shellenberger and Ted Nordhaus, authors of Breakthrough.

Here’s a taste of Manzi:

The only real argument for rapid, aggressive emissions abatement boils down to the point that you can’t prove a negative. If it turns out that even the outer edge of the probability distribution of our predictions for global-warming impacts is enormously conservative, and disaster looms if we don’t change our ways radically and this instant, then we really should start shutting down power plants and confiscating cars tomorrow morning. We have no good evidence that such a disaster scenario is imminent, but nobody can conceivably prove it to be impossible. Once you get past the table-pounding, any rationale for rapid emissions abatement that confronts the facts in evidence is really a more or less sophisticated restatement of the precautionary principle: the somewhat grandiosely named idea that the downside possibilities are so bad that we should pay almost any price to avoid almost any chance of their occurrence.

But to force massive change in the economy based on such a fear is to get lost in the hothouse world of single-issue advocates, and become myopic about risk. We face lots of other unquantifiable threats of at least comparable realism and severity. A regional nuclear war in Central Asia, a global pandemic triggered by a modified version of HIV, or a rogue state weaponizing genetic engineering technology all come immediately to mind. Any of these could kill hundreds of millions of people. Scare stories are meant to be frightening, but we shouldn’t become paralyzed by them.

In the face of massive uncertainty on multiple fronts the best strategy is almost always to hedge your bets and keep your options open. Wealth and technology are raw materials for options. The loss of economic and technological development that would be required to eliminate literally all theorized climate change risk would cripple our ability to deal with virtually every other foreseeable and unforeseeable risk, not to mention our ability to lead productive and interesting lives in the meantime. The precautionary principle is a bottomless well of anxieties, but our resources are finite — it’s possible to buy so much flood insurance that you can’t afford fire insurance.

We have ideas about what a real, rigorous, intellectually honest debate about climate policy should look like. We hope this will be it.

The Perils of Thumbnail-Enviro-Blogging

Ah, blogging. My post below was intended as, well, as a “thumbnail sketch” — “a brief outline or cursory description” — offered for critique by my commenters. It was the product of perhaps ten minutes of deliberation, laying out in stark terms the countours of a few lines of thought I have found appealing at first blush. And thanks to all the commenters for your critiques, which I value, and many of which I agree with.

That said, sigh. I am very grateful for Tyler’s link, for his broad agreement, and even for his terrifying apocalyptic imagination. But his naming the post “Will’s Theorem” implied a settled view that I do not have and a logical structure I certainly did not take any care to set out. Then my admittedly half-baked thoughts showed up on the Wall Street Journal economics blog, and then on Felix Salmon’s blog at Portfolio, where I am treated to a pretty good pummeling. Anyway,  now I feel semi-famous for a view I hold at barely better than even odds! Bittersweet.

Anyway, here are a few of Felix’s points, and some thoughts about them:

But he has no reason at all to believe that in the medium run environmental externalities are positive rather than negative. It’s entirely possible that in the medium run fossil fuels will remain cheaper than alternative energy sources, and that externalities will remain negative. It’s also entirely possible that by the time fossil fuels are so scarce that alternative energy sources are cheaper than their carbon-emitting counterparts, we will have pumped so much carbon dioxide into the atmosphere that it will be too late: environmental catastrophe will be upon us.

Will’s argument, it seems to me, seems to rely on the peculiar idea that we’ll run out of fossil fuels just in time to avert environmental catastrophe: that even if we don’t change our ways unilaterally, the finite supply of oil and coal wil force us to do so before it’s too late.

But scientifically speaking, there’s no reason to believe this. Carbon levels in the atmosphere are already too high, and they’re rising fast.

I completely agree that there is no reason to believe that coal and oil prices will happen to rise just enough, just in time to cause a seamless, universal shift to cleaner, relatively cheaper sources of energy. That is in fact silly.

I expect that what’s going to happen (what is perhaps already starting to happen) is that already very wealthy nations will try to force a shift to cleaner energy sources by manipulating relative prices — that is, by taxing carbon and subsidizing alternatives like wind, solar, biofuels, etc. At a point in the not-distant future, there will be large-scale substitution to the alternatives in these rich countries. The effect of this will be to ease demand for extractive energy sources, dramatically bringing down the price of coal and oil on the world market, making them that much more attractive to developing economies, who will then burn them in the least clean way. In effect, the rich world will be subsidizing dirty energy for the poor world. This is, I think, quite generous of us, but it’s not clear to me the result will be any net decrease in carbon emissions.

Because I am not naive about the probability of our arriving at a stable solution to the global collective action problem required to successfully impose a worldwide tax on carbon, when we arrive at the point where rich countries finally succeed in reducing the price of carbon for poor countries, it’s probably then a race of innovation against the true climate model. If the true model is the current consensus model, then we may simply be stuck with the (Nordhaus-calculated) $23 trillion dollar externality in 2100. Innovation certainly may fail to push the price of alternative energy to free (more or less) before we begin to take a big economic hit from warming. But if I could, I would bet my life savings against the predictions of the current consensus climate model. And I would also bet (rather more conjecturally) that energy will be basically free by 2050. Which may help explain where I am coming from.

Now, I have to say, I have no idea what Felix is talking about when he says that “carbon levels in the atmosphere are too high.” Too high for what? I am not aware of a net negative externality from current levels of carbon. But whatever. My point about technology was not just that technology will, in the medium-run, produce clean energy sources that will underprice oil and coal, but will also produce Nordhaus’ first-best “low cost backstop” — a technology like carbon sequestering trees that basically delivers the carbon level we want. I predict this will happen in the medium term, by which I guess I mean the next several decades. (Oh, to have a real prediction market!) If we do get it, it’s going to come from the kind of science and innovation that, as I said, “causes and is caused by” economic growth. So that’s what I mean when I say I think the medium-run environmental externality from growth is positive.

Ranting Cant

I endorse this explanation, and prediction, from Crispin Sartwell:

as i’ve said, the insane jackup of rhetoric with regard to global warming, “the greatest crisis the species has ever faced,” the death of the planet, etc, is the secular humanist liberal apocalypse. it’s a sheer competition for who’s most dire, most obsessed, and who’s more unanimous than whom. it’s the flood, complete with the reasons: our moral culpability. i predict this: when obama is elected, liberals will feel better about themselves and the probable verdict of cosmic judgment, and they’ll tone down the eschatology, the ranting cant.

Climate eschatology really is the ultimate in big lie crisis politics. The far-left has failed so comprehensively to make the case for its vision of society and economy that the only thing left to do is to brazenly  and repeatedly assert that the world will literally collapse unless we implement this otherwise indefensible vision.

Also read Sartwell on the completely idiotic claim that we only have 100 months left to “do something.”

this piece, for example, has no motivation except that some website claims that we’ve got a hundred months until our incineration becomes inevitable. in other words, it’s not about science; it’s not even about the columnist’s interesting moves in an argument, his poetry or rhetoric or something: it’s simply reporting that someone else has jacked up the volume, yet again.

I think the point is that the clock really is ticking. If we don’t “do something” soon, we’ll probably see that we don’t really need to do anything really dramatic, and then the window for radical social change will be closed. So I expect the volume to get much louder.

Baptists, Bootleggers, and Global Warming

Some of you might be interested in this 2001 essay from Bruce Yandle. The analysis applies to an international scheme under Kyoto, but the logic of a national permit system is the same.

This isn’t just crude public choice theory. It accounts for actual corporate and political behavior rather well. Journalist Tim Carney has been doing an outstanding job reporting on corporate welfare — including the “green” kind — for the Washington Examiner. His column on hedge fund billionaire Julian Robertson is an excellent example:

[…]

Big businesses have long been lobbying for federal restrictions on greenhouse gases. Enron, General Electric, DuPont, Goldman Sachs and many top energy companies have lobbied hard for “cap-and-trade” laws that would impose federal restrictions on greenhouse gas emissions by manufacturers and power plants, but allow firms to buy or sell excess emissions credits. In many of these cases, it’s easy to see the financial motive of these “socially responsible” corporations.

[…]

[U]nless you spend time going through federal lobbying records, you probably haven’t heard of Robertson’s big push for cap-and-trade laws. Robertson has hired top lobbying firm Akin Gump to advance such restrictions on Capitol Hill, in the public and in policy arenas. Akin Gump even runs a global warming blog now called “Climate Intel.”

Akin Gump lobbyists doing Robertson’s bidding on Capitol Hill include former Republican National Committee Chairman Ken Mehlman and former Reps. Bill Paxon, R-N.Y., and Vic Fazio, D-Calif. What’s Robertson’s angle? Environmental publication Greenwire described Robertson as a “former hedge fund tycoon and now a philanthropist.” Robertson indeed closed down his most famous fund, Tiger Management, earlier this decade, but is still a big investor. Getting richer — not merely philanthropy — motivates these investments.

Relevant to his cap-and-trade position are his investments in China’s leading biofuels maker Gushan and in a company that deals with nuclear waste disposal. Given the right global warming legislation, both of these investments will benefit.

A bigger Robertson bet, presenting a more insidious angle, is his short position on 10-year Treasury bonds paired with a long position on two-year Treasuries. Basically, if the U.S. economy is fundamentally unsound, Robertson gets rich. “I’ve made a big bet on it,” Robertson told Fortune. “I really think I’m going to make 20 or 30 times on my money.”

The fact that many millions of people are earnestly morally motivated to push carbon regulation creates the political conditions for huge potential profits for the savvily well-positioned. Maybe Robertson is a global warming true believer and just wants to help capitalize the firms that are going to save the world and maybe he just wants to get even richer. I’m not so uncertain about GE and Goldman. Either way, the man is making an enormous bet, and aligning his pecuniary self-interest strongly with a particular political result. Suppose we get cap and trade and then the global warming scare starts to peters out. Is Julian Robertson going to happily give up on the policies upon which he has bet the farm?

[Added: Oh, and why have all these big players lined up behind cap and trade and not a tax? Wouldn’t the equivalence thesis predict indifference? I suspect that the answer is that their expected competitive advantage given a tax is lower than their expected advantage given cap and trade. In which case, that’s a pretty significant real-world failure of equivalence, no?]

More on Carbon Policy Equivalence

Please read Arnold Kling.

My sympathies in economics lie with the so-called “new institutionalists.” I think institutionalists are going to  see more clearly than neoclassicals the rather big difference between a carbon tax and a whole new market institution for trade in government-created and government-rationed permits.

But let’s back up a little, to the pre-applied political economy context. It is a fundamental finding of Vernon Smith-style experimental economics that, say, theoretically equivalent auction institutions in practice lead to different results. So you ought to be pretty unimpressed by the fact that there is a possible institution of tradeable carbon permits that is equivalent to some carbon tax on the blackboard. Even were a cap-and-trade permit market or a carbon tax implemented without a hitch according to the blackboard assumptions, there would be little reason to expect them to actually produce equivalent results, since the way actual people interface with an institutions depends on the way actual humans process the rules of the game. Mathematical equivalence doesn’t imply cognitive or motivational equivalence. Therefore it does not imply policy equivalence.

Moving back to the applied political economy context, the fact that cap and trade creates a new set of institutions in a way tax doesn’t is pretty important, I think. For one thing, there is a question of reversibility. I think Arnold gets it right when he writes:

In practice, cap-and-trade creates an irresistable opportunity for politicians to use carbon permits as political favors to be handed out to special interests. This in turn means that there will be special interests with a large stake in keeping cap-and-trade policies in place, regardless of what transpires in terms of global temperature.

What is the probability that the United Nations derivation of climate model consensus overstates the problem of man-made global warming? Unless that probability is zero, it seems to me that we should prefer a climate change policy that is reversible to one that it irreversible.

Because I think that the probability that the UN is misleading us is significantly greater than zero, I think that the issue of irreversibility is quite important. Therefore, I think that a carbon tax is far preferable to cap-and-trade. Ten years from now the global warming scare might be completely debunked, and yet we will still be unable to unwind cap-and-trade. As with farm subsidies and many other policies, the problem will be long gone but the solution will be with us in perpetuity.

I think the probability that global warming is a significant problem is low. I think the probability that carbon externality pricing policies will meaningfully reduce global warming is even lower. If we are going to have global warming policies at all, I want them to be minimally damaging, which means maximally reversible. Like Arnold, I think it would be a lot easier to simply keep cutting a carbon tax until it hits zero than it would be to dismantle the institutional framework of a carbon permit trading system and all the subsidiary industry that grows up around it. Better yet would be to do nothing. If global warming does turn out to be a problem in a few decades, then unleash the carbon sequestering trees, or what have you. The idea that doing something now is better than doing nothing has, as far as I can tell, a surpassingly thin empirical rationale.

All Hail Carbon-Eating Trees!

Freeman Dyson’s excellent review of William Nordhaus’ excellent A Question of Balance: Weighing the Options on Global Warming Policies in the New York Review of Books is a must-read. Here’s the nut of Nordhaus’ analysis:

The main conclusion of the Nordhaus analysis is that the ambitious proposals, “Stern” and “Gore,” are disastrously expensive, the “low-cost backstop” is enormously advantageous if it can be achieved, and the other policies including business-as-usual and Kyoto are only moderately worse than the optimal policy. The practical consequence for global-warming policy is that we should pursue the following objectives in order of priority. (1) Avoid the ambitious proposals. (2) Develop the science and technology for a low-cost backstop. (3) Negotiate an international treaty coming as close as possible to the optimal policy, in case the low-cost backstop fails. (4) Avoid an international treaty making the Kyoto Protocol policy permanent. These objectives are valid for economic reasons, independent of the scientific details of global warming.

This “low-cost backstop” sounds promising. Is it? Dyson thinks so:

At this point I return to the Keeling graph, which demonstrates the strong coupling between atmosphere and plants. The wiggles in the graph show us that every carbon dioxide molecule in the atmosphere is incorporated in a plant within a time of the order of twelve years. Therefore, if we can control what the plants do with the carbon, the fate of the carbon in the atmosphere is in our hands. That is what Nordhaus meant when he mentioned “genetically engineered carbon-eating trees” as a low-cost backstop to global warming. The science and technology of genetic engineering are not yet ripe for large-scale use. We do not understand the language of the genome well enough to read and write it fluently. But the science is advancing rapidly, and the technology of reading and writing genomes is advancing even more rapidly. I consider it likely that we shall have “genetically engineered carbon-eating trees” within twenty years, and almost certainly within fifty years.

Carbon-eating trees could convert most of the carbon that they absorb from the atmosphere into some chemically stable form and bury it underground. Or they could convert the carbon into liquid fuels and other useful chemicals. Biotechnology is enormously powerful, capable of burying or transforming any molecule of carbon dioxide that comes into its grasp. Keeling’s wiggles prove that a big fraction of the carbon dioxide in the atmosphere comes within the grasp of biotechnology every decade. If one quarter of the world’s forests were replanted with carbon-eating varieties of the same species, the forests would be preserved as ecological resources and as habitats for wildlife, and the carbon dioxide in the atmosphere would be reduced by half in about fifty years.

How about bounties for carbon-eating tree technology?