So, here are my opinions:
First, the big picture: Many people (Nordhaus, Murphy and myself included) approach global warming (GW) and taxes from an ideological POV, i.e., GW is bad or taxes are bad. (I think both, and I try to reconcile them.)
Second, almost everything I see written about GW proposes some sort of penalty (taxes, caps, etc.) to reduce GW and the activities that contribute to GW. I'd love to see some easier steps taken first, e.g., ending subsidies for fuel (e.g., Iran, Venezuela, India, Indonesia) and GW-inducing activities (e.g, driving in the US).
Third, I disagree with a number of statements and assumptions that Murphy claims are "reasonable":
- "Therefore, even accepting the basic premise of the argument for a carbon tax, mainstream economists should be quite hesitant to clamor for its implementation" [p. 6]. No, they should be hesitant to clamor for irreversible actions; implementation that can be modified and/or reversed (e.g., taxes more than credits) are prudent to anyone worried about GW damages.
- "As humans pump tons of carbon dioxide into the atmosphere, some of it is absorbed by the oceans. This mitigates the growth in atmospheric GHG concentrations, and hence reduces the projected damages from a given amount of emissions" [p. 6]. This conclusion (oceans mitigate, costlessly) is not true when one considers ocean acidification.
- "Temperature Increase from a Given GHG Concentration May Be Overstated" [pp. 7-11]. Murphy makes a useful case for considering low as well as high estimates of GW temperature increases, but his critique of Nordhaus's figure (+3C within a range of 2-4.5C offered by scientists) is weakened by his failure to consider the possibility the Nordhaus could be estimating a number that's too high.
Murphy claims that (projected) negative feedback effects may never materialize -- and may even be positive -- but I am not seeing anything like this optimistic scenario. Recent news about record shrinkage of arctic ice and antarctic glaciers has not been offset by record harvests or benign weather conditions.
- "the IPCC estimate of climate sensitivity is not akin to measuring the price elasticity of demand for potatoes. Rather, it is more analogous to predicting the impact on long run real GDP from a sudden doubling of the money supply" [p. 11]. I disagree with this analogy. Doubling the money supply has no long term impact (see money illusion). The effects of global warming are more like the impact of crippling 10 percent of the population -- they are no longer productive and need to be taken care of.
- "Economic Damages from a Given Temperature Increase May Be Overstated" [pp 11-19]. This section relies on a edited book (Mendelsohn and Neumann 1999) that shows GW has almost zero negative impact on the US. (Murphy notes that the US is not the world; he is making a general point using the best data.) The study seems to be fundamentally flawed, e.g., concluding that there will be zero damage from sea level rising, benefits to agriculture from GW, increasing recreational value from GW, etc. when current events and studies contradict that notion.
In fact, this review [PDF] says that the authors may be "complacent" in estimating damages because they limit total GW to double today's levels, ignore most non-market impacts, and fail to consider discontinuous effects of GW (e.g., reversal of ocean currents). In the past 8 years, nothing has come out to support such optimism, and my reading of current research does not either.
In this sense, I think that Murphy makes his biggest mistake, multiplying his optimism by others' optimism to get too much optimism.
- As a sign of this, consider Murphy's skepticism of others' assumption that the earth is now (pre-GW) at an "optimal temperature". While I agree that the earth can probably heat up and cool down (and has) without terrible impacts, I think he fails to consider the negative impacts of additional, human-induced warming. It's like claiming that someone with a rocket on their back will be able to run just fine (with this exception :)
- "the most serious difficulty with Nordhaus’ damage estimates is how strongly they rely on the impacts from so-called catastrophic outcomes, defined as an indefinitely long loss of at least 25 percent of global GDP" [p. 15]. Nordhaus, unlike MN, is considering these, and I agree with Nordhaus: Recent flood, hurricane and cyclone events in Bangladesh, New Orleans and Burma have given us ample reason to worry about catastrophic events that can ruin areas settled centuries ago. If Murphy lived in the Maldives (maximum elevation: 2.3m above sea level), he would be worried too.
- "Rather than relying on conjectural models and the good faith of politicians, economists should instead consider the ability of markets to generate wealth to ease the adaptation process" [p. 27]. Julian Simon liked to say that we could get rich fast enough to solve the problems caused by getting rich, but I don't agree as far as GW is concerned. Simon (IMO) ignored ecological damages; and some resources are limited on this earth -- as I told my dad.
Fifth, everyone interested in this topic should read the MIT study I posted here. They project a total cost of one percent of GDP if the US made the most-sensible implementation of the most-aggressive carbon tax.
Sixth, I think I should put this bloody long post on my CV as a reviewer. (Bob -- it's 100 degrees in DC [GW!], and you owe me a beer.)
Bottom Line: Murphy's critique does not stand up. He should put his considerable talents into advocating that taxes be easily changed and tax revenues be funneled back to citizens. (See this post for the implications of different global redistributions.)