22 May 2009

Is the IPCC Saying What I Think It’s Saying?

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(UPDATE below.)

Ever since I tackled Joe Romm’s argument (in which he is just reproducing the IPCC’s own statement) of how “cheap” it will be to stabilize greenhouse gas (GHG) emissions at safe(r) levels, I have been trying to dig up the IPCC’s estimates of future GDP losses from climate change in the absence of new government policies.

You see, the trick the IPCC used to downplay the cost of the policies, was to convert large future reductions in the level of GDP (relative to baseline) into a lower annualized growth rate. So for example, the high-end estimates are that GDP in 2050 will be up to 5.5% lower because of policies that governments put in place to curb GHG emissions. But that works out (at the time of the IPCC AR4 report) to only a 0.12% reduction in annual GDP growth, which doesn’t seem like a big deal. Who but shareholders of Big Coal would object to that?

So what I wanted to do was the same trick. Even the really scary projections of huge damages from business-as-usual don’t kick in until after 2100. So for example, let’s say that if we continue on our suicidal path, that global GDP in the year 2150 is 50% lower than it would be, if there were no such thing as the greenhouse effect. (Well, if there were no greenhouse effect we’d all freeze I think, but you get what I’m saying.)

OK now that’s pretty severe; I’m considering a scenario where literally half of the entire earth’s productive capacity is destroyed because of our destructive emissions. Now it’s true, some of the possible damages are unquantifiable; but if we’re going to go through the farce of a cost/benefit analysis, then we have to come up with a number. So to repeat, I don’t think I’m being a “denier” or a “skeptic” by discussing a case in which half of global GDP gets wiped out by 2150.

Yet using the IPCC trick, that works out to only a 0.5 percentage point reduction in growth rates. For example, if real GDP would have grown at 3% annually in the absence of climate damage from unrestrained emissions, then the “inconvenient truth” of anthropogenic global warming means real GDP will grow only at an annualized rate of 2.5% between now and 2150. Over that course of time, the gap between the two GDP series will have grown to 50%.

So even in this fairly nightmarish scenario, it means that someone who earns $10,000 per year today, would earn “only” $325,000 per year, in 2150. (Actually it’s less because of population growth, but you get the idea.) In contrast, were it not for the inconvenient truth of climate change, this representative person would be earning twice as much, i.e. $646,000 per year, in 2150. (My spreadsheet is rounding the numbers.) It is to avoid the nightmare scenario of condemning our great-great-…-great-grandchildren to earning only $325,000 per year, that we must immediately hand over the energy sector to the federal government.


But I digress. As you can see from the discussion above, it would take some pretty fantastic projections of GDP losses in the distant future, in order to make immediate action seem necessary for any cost/benefit test that isn’t completely rigged. (By completely rigged, I mean one that says, “The risks of doing nothing are essentially infinite, so any mitigation policy is justified.”)

Yet I was having real trouble finding the IPCC’s numbers. I know what Nordhaus’ DICE model says, but that’s because I’ve been studying his model thoroughly. In contrast, I hadn’t examined the Second Working Group report of the AR4; I had focused mainly on WGI’s discussion of the physical science of climate change.

But look what I just stumbled upon, from the overall Synthesis of the AR4. This comes from the 3rd last paragraph in the entire summary [.pdf]. Is this saying what I think it’s saying? Seriously, those of you who are big fans of the IPCC–or at least, who think that the “deniers” and “skeptics” are making mountains out of molehills–please explain the following paragraph.

Limited and early analytical results from integrated analyses of the costs and benefits of mitigation indicate that they are broadly comparable in magnitude, but do not as yet permit an unambiguous determination of an emissions pathway or stabilisation level where benefits exceed costs.

I think we can all see now why Joe Romm et al. are taking such pains to ridicule the very notion of applying a cost/benefit test to climate policies.

UPDATE: OK I think that the IPCC statement really is poorly worded. I just waded through Chapter 3 of the AR4 Working Group III book, and I didn’t see anything about comparing abatement costs with the benefits of avoided climate damage. (Nordhaus does this very clearly in his book discussion [.pdf] of the latest DICE model results.) What I did see was a discussion showing that the range of estimated prices for carbon emissions (under various policies like cap and trade) roughly overlapped with the estimated values of the “social cost” of carbon emissions.

I’ll post more on this stuff later in the week, but for now let me just say that this isn’t at all what the quotation above is saying. In the absence of enforcement costs and other frictions, the optimal policy would set the price of emitting a ton of carbon equal to its social cost. But even though this would equate the (marginal private) cost with the (marginal social) benefit, it’s not true to say the “costs and benefits” of this policy are the same. On the contrary, there would be large net benefits because emitters would scale back their output of GHGs to the socially optimal point.

Rereading the IPCC quotation, I am still not sure what’s going on. Surely they wouldn’t have let some non-economist write the summary, right? And yet, they are clearly saying that the policies don’t yield net benefits. Hmmmm.

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