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Models, Models Everywhere and No One Stops to Think



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Lots of bloggers have attacked my cost-benefit analysis of Waxman-Markey. The current line of attack seems to be that cost-benefit analysis is just the wrong way to think about this problem. There are, as usual, various intertwined logics for why this might be so. They all seem to center around the idea, however, that while climate science can make reasonably reliable predictions a century or two out, that economic projections over this time scale are basically worthless.

While this exaggerates the reliability of climate models, I agree that they are more useful than very long-term economics models. But let’s assume arguendo that my critics are correct in the extreme, and therefore we have no ability to translate a climate forecast into an estimate of economic damages. Then, they say, we know some kind of catastrophe is coming, and it’s our duty to head it off.

There are at least a couple of huge problems with this argument.

First, all estimates of the climate impact of human-induced CO2 emissions rely on a long-term emissions forecast, which in turn relies on (i) forecasts of population growth, (ii) forecasts of economic growth per capita, (iii) forecasts for the energy intensity of economic output per capita, and (iv) technology forecasts for the carbon-intensity of each unit of economic output. That is, we can’t make a long-range climate forecast in the absence of long-range economic forecasts.

The differences in emissions across economic scenarios are not trivial. They are the basis for the U.N. IPCC’s scenario-based forecasting approach that leads to a difference in estimated temperature impacts by 2100 that are about three times larger for the highest-emissions plausible scenario versus the lowest emissions plausible scenario.

Second, if we assume that we have literally no technical capability to translate a temperature forecast to a forecast of damages, then we are forced to rely on intuition. A 3C increase by 2100 in temperature sure doesn’t sound so awful to me. Want to argue that I’m misguided, and here is this long list of awful things that will happen? We’re right back to estimating damages, and I’ll just point to what the IPCC, CBO, EPA, and so forth estimate when they try to do comprehensive estimates of net impacts.

Look, I get the point that trying to forecast what our GDP will be in 2136 to within a few percent is ridiculous. It is. Further, I get the point that indefinite accumulations of CO2 in the atmosphere will eventually become very damaging. I also get the point that there is some risk that we might reach that point sooner than we think. These are all true statements.

But if they are to inform rational decision-making, they also require quantitative, not rhetorical, interpretation. When do we expect that CO2 will be how big a problem? How big is the risk that it will be worse than that? And so on. While we may legitimately criticize a specific cost-benefit analysis or methodology, it seems hard to imagine a rational approach to such decision-making that doesn’t try to envision the future world under alternative policy assumptions and assert a preference.

So, show us your alternative forecasts and provide sources and methodologies. If you choose to respond with a bunch of words describing how awful things could look, or wave your hands, you’re still making a forecast — it’s just not of any real use. False precision is one way to evidence the problem of a unwarranted assertion of certainty, but so is simply asserting that we know the damages that we should expect within some finite time outweigh the costs of some proposed program to avert them, without providing the evidence.

The forecasts of every responsible body, as I have gone to such boring lengths to show over many articles, actually make it very hard to justify any so-far proposed carbon pricing or rationing schemes based on the benefits we should expect them to produce over the next roughly 100 years. (I think the fact that my critics are mostly attacking the idea of cost-benefit analysis itself, rather than my quantitative arguments, is pretty good evidence of this.) Eventually, of course, if we assume linear extrapolation of current trends, CO2 will become a deadly problem; but I think if you’re honest, you’ll find yourself having to justify these programs based on things that you project will happen in the 22nd century and beyond. Who’s being arrogant about predicting the future now?

I have very little idea what the technological, social, and political bases for the human economy will be hundreds of years from now, and think that trying to manage such a problem by changing carbon pricing today is foolish in the extreme.



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