14 July 2008

An Ounce of Prevention...

...is worth a pound of cure. -- Ben Franklin

In the comments to this post, Bob says
To enact the carbon tax is to assume that the least-cost solution to the externality is to cut back on emissions.

[snip]

You might be right that the least-cost way to fight climate change is to reduce carbon emissions, but if you happen to be wrong...
I didn't immediately realize that Bob was not arguing about taxes. Instead, it seems that he is arguing that the best policy response to global warming, etc. is not to cut back on emissions but to try to reduce the impacts of emissions.

Let's go through the logic of this perspective:
  1. Economic activity can lead to carbon emissions. The activity is good, but the emissions are not.
  2. Cutting emissions means cutting economic activity, which impacts our way of life, and that is bad.
  3. Instead of cutting emissions, we should use the wealth generated from economic activity to overcome the adverse impacts of global warming.
  4. In other words, if we get rich fast enough, our overall situation will improve, even as we damage the planet.
I have several responses:
  1. I think that prevention is better than adaption/mitigation, e.g., it's easier to prevent than clean up an oil spill.
  2. We don't know the impacts of global warming, so perhaps it's better to prevent it (the precautionary principle).
  3. We can practice both prevention and adaption. There's no need to choose between them.
  4. We (rich people) will be able to adapt because we have wealth and power, but the effects of global warming are much broader. What about poor people in developing countries (e.g., Bangladesh) who cannot adapt? What about flora and fauna that will suffer greater damage if we shift our emphasis from prevention to mitigation? It's distinctly possible that adverse impacts on these populations will lead to far worse consequences for us. We share one world, after all.
Bottom Line: We should respect and act on Franklin's wisdom: Preventing climate change is better than watching it happen and then hoping we can deal with it.

27 comments:

  1. Dave, a technical comment on terminology:

    In the literature, "mitigation" is used as a synonym for prevention, and distingushed from "adaption", which is just dealing with whatever changes occur.

    Both GHG emission reductions and geo-engineering are "mitigation" options.

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  2. @TT -- agreed. I dislike geo-engineering as a mitigation method :)

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  3. Bob plays the "but if you happen to be wrong..." card... Suggesting that if we impose a price on carbon and it proves needless or sub-optimal, something ominous might happen... Like we might be slightly less rich than had we not imposed that price? If I recall, the Stern projections roughly suggested that the costs might imply that instead of getting global wealth up to some new level in 2050, it might be delayed until, say, 2053... And if it were to turn out that our experience in the intervening years suggested that any carbon price was in fact superfluous, we could eliminate it and largely get back on BAU course... So that's basically the "worst-case" scenario if "David" is wrong... Slightly delay in achieving wealth levels, easily reversible...

    Ok, so what if we don't pursue mitigation, and instead trust that our increased future wealth allows us to cost-effectively adapt... then what happens if "but if you happen to be wrong"... Here, the worst case scenarios can be catastrophic and irreversible...

    This also goes to the point that Martin Weitzman makes more formally in his paper on the "dismal theorem - catastrophic change..."...

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  4. I usually don't get involved in these discussions because they tend to devolve quickly into name calling, but things seem to be remaining civil here (Dave is apparently a good influence), so I'll give it a shot.

    The "precautionary principle" and "ounce of prevention" are two common and appealing arguments in favor of mitigation. However, I think both should come with strong caveats.

    Let's take the precautionary principle first. The problem here is that human brains respond too strongly to vivid narratives of disaster. Thus a skilled storyteller can construct a practically infinite set of realistic-seeming catastrophic scenarios. Should we apply the precautionary principle to all of them? I don't think we have the resources. So you need some way to more rationally prioritize. @tidal, this is why I think your argument about wealth is a red herring. It's not a matter of how much mitigation for this one possible disaster costs. It's a matter of whether spending that money on AGW is the best use of that money. That's a real discussion we need to have.

    As for the ounce of prevention, the problem is knowing whether the "cure is worse than the disease". Again, humans are limited by their primate brains. It's very difficult to foresee the possible negative consequences of an intervention. So people systematically overestimate the benefit-cost ratio. I can think of a few obvious potential side effects of a carbon tax that is too high, but there are probably many more unobvious ones. Food prices will rise if alternatives are land intensive, which could lead to increased starvation rates and clear cutting or forests. Water usage could rise if they are water intensive. But perhaps the biggest source of side effects is the expansion of government. You'd be creating a whole new bureaucracy and tax stream, which have always been very hard to dismantle.

    It'd be one thing if the warming signal were very clear cut. But after much research, I don't think it is. Perhaps the best idea I've seen to reconcile all these factors is Ross McKittrick's T3 tax (http://ross.mckitrick.googlepages.com/#t3tax). It automatically modulates the size of the carbon tax relative to the impact of CO2 on temperature. I'm not sure it's the right solution. But at least it's a moderate solution that we can start talking about rather than the extreme positions I most often see proposed.

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  5. OK I am way behind on my "real" work so I have to be brief. If this thread is still kickin' in a few days, maybe I will defend my honor some more.

    (1) David didn't misrepresent me or anything, but in the quotation there I was explaining to "DS" what the libertarian objection to a Pigovian tax was. Gene Callahan had (correctly) pointed out that the politicians wouldn't know the optimal tax (even if we could talk about such a thing in our models), and others have pointed out that we can't trust politicians to implement the optimal tax, even if they magically knew how to compute it.

    So I was pointing out that Ronald Coase had come up with a more fundamental objection. Even with perfect information about the size of the externality, it's possible that the Pigovian approach is inefficient, because the least-cost method of dealing with the externality might be to have a different party adjust. So the classic example, it might be cheaper to move people away from the polluted river, rather than have the factory install scrubbers or shut down. (To be truly Pareto improving, the people have to be paid enough to voluntarily move.)

    Now two more quick points on David's post:

    I think that prevention is better than adaption/mitigation, e.g., it's easier to prevent than clean up an oil spill.

    What do you mean here? Taken to its extreme, it means we stop using oil tomorrow. I don't think that's what you mean. I read somewhere that offshore drilling is something like 99.999% effective at preventing spills in the last x years. But it would be impossible to get 100%, unless we just stopped.

    It's like tradeoffs in air safety. At some point, it is not worth putting another engine on aircraft, or more fire extinguishers, etc. At some point you say "it is too costly to prevent the marginal statistical fatality." That sounds harsh but that's what you're doing if you allow air travel at finite prices.

    So we're not choosing "mitigation versus adaptation." We're choosing somewhere on that spectrum. And I don't see why a massive new tax program in DC is going to move us toward a more efficient point on that spectrum than status quo.

    We should respect and act on Franklin's wisdom: Preventing climate change is better than watching it happen and then hoping we can deal with it.

    Ben Franklin invented the lightning rod, didn't he? I think you would have recommended that people stop building wood houses to deal with the threat of habitat destruction... :)

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  6. Bob -- interesting thoughts. My oil spill analogy was NOT meant to say "no drilling" -- it was meant to say put marginal effort into prevention. Since we are doing NOTHING about preventing CC now, I am happy to do SOMETHING.

    Franklin did indeed invent the lightening rod, a device that channeled harmful NATURAL electricity away from the house and to the ground. I doubt he would favor building BIG lightning-generating plants to send more lightning down on us, but that's what CC is all about -- making our atmosphere less-friendly and more-dangerous. Bad example.

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  7. Dave, you say, "...but that's what CC is all about -- making our atmosphere less-friendly and more-dangerous."

    This misses a very important, though subtle point. We're not talking about certain damage here. In fact, from what I've seen of the science, I think there's an awful lot of uncertainty about the extent of negative effects.

    In this sense, Bob Murphy's analogy to air safety is very apt. What we're talking about is a statistical chance of harm. It's a grievous error to think that mitigation=harm prevented. I think it's somewhat likely (10-30%) that mitigation will not reduce the harm and lack of mitigation will not increase the harm.

    You can argue with my numbers, but let's actually have that argument. Then we can see how much money is worth spending and what measures meet the cost-benefit cut off--how many fire extinguishers does Spaceship Earth need ;-)

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  8. Kevin, we can have a "my numbers versus your numbers" duel, but I'm not sure where that's going. I'm staying with the scientific consensus (though some claim it's biased) that there will be harm. Stern Report, IGPCC, et al. Given some harm is 100% likely, prevention is a good idea.

    Note that global warming is already having effects in California (snowpack, etc.) so the "wait and see" crowd has little cred with me.

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  9. Dave, please note, I'm not debating whether there will be any harm. I'm debating how much and how effective a tax will be. The reason I want to have this debate is to underscore just how large the uncertainty bars are.

    On the one hand, you have an uncertain amount of harm. We don't know whether business as usual will lead to $10 or $1000 Trillion in harm. On the other hand, for any given amount of harm you have an uncertain effect. If the amount of harm is $100T, how much will a carbon tax that costs $100T reduce that harm? It could only be by $50T.

    Given our inability to predict negative side effects very well, I think this argues for moderating our intervention. Sort of a dual of the precautionary principle. Set moderate taxes and use something like the T3 tax to limit their scope to AGW as much as possible.

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  10. Bob, the standard objections to Pigovian taxes don`t apply to climate change, as there is no single government administering the world. Rather, we are engaged in multi-player negotiations as to how to regulate a commons. The taxes (or other schemes) that will be imposed by individual governments will ultimate be coordinate, are much more resemble a Coasian trade.

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  11. Global Warming Skeptic15 July, 2008 09:34

    I guess you all already conceded global warming is happening. Mr. Zetland cites the IPCC report, etc. and probably buy Dr. Hansen's propaganda hook, line, and sinker. Global warming is the biggest hoax perpetrated on the world ever. There are multiple credible websites/blogs, talk radio hosts, and scientists that say so. They all say we are heading into a global cooling period and already have been there the last 7 years. Global warming may resume by 2020 but we have nothing to do with it. Warming precedes co2 and ocean temps have been staying steady. Weather patterns have more to do with the contrast between the warm air from the tropics and cool air from the poles. If the world were warming then we would see LESS extreme weather (since there would be less contrast), not more. Global cooling is a much worse predicament than warming. Taxing is not even close to being a good solution on so many levels. But evidently you all already had your mind made up by Gore, Hansen, et al so perhaps my "skepticism" falls on deaf ears/eyes. I hope not.

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  12. Kevin, you ask good questions, but remember that I favor tax and rebate, so $10T in taxes on carbon will come back as rebates (per capita). There will be deadweight costs, but they will be much smaller, e.g., $1T. You'd want to compare THAT cost against the benefits of lower carbon emissions...

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  13. Ahh, I had somehow missed that you were a tax and rebate advocate. As you say, the societal cost of that is relatively low. IIRC, it's the cost of administering the tax and any welfare loss from the tax being at a suboptimal level. But as long as the tax is even vaguely close to the optimal level, those welfare costs should only be on the order of a few trillion over 50 years.

    The big challenge of course is making sure the rebate stream is as resistant to capture as possible.

    I'd love to get a post from you on the T3 tax at some point. I actually favor a carbon tax with a base component and a T3 component-- as a hedge against our understanding of its heat signature being wrong.

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  14. Kevin - I hadn't heard of T3 ("tropical troposphere temperature," right?) -- it sounds like a good idea as far as calibration problems are concerned. See my post on reservoir depth today for a similar example

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  15. TT,

    I have now read your last post 3 times, and I have no idea what you are talking about. (Granted it's is 12:30 am and I just finished a 6 hour drive back from a panel. So maybe "it's not you, it's me.")

    If it turns out that cutting back on carbon emissions isn't the least-cost way to tackle climate change, how in the world does it alleviate the problem by having a bunch of governments do it? Do you just mean, they're likely to set a lower tax because of strategic reasons?

    OK I guess that's good, but on your own terms shouldn't you oppose that? I.e. are you saying, "Bob, you're acting as if the governments of the world will listen to me and David when we tell them the negative externality from emitting a ton of CO2, but in fact they won't set the tax anywhere near that in equilibrium."

    That is the only interpretation that makes sense of your post, at least in my present stupor. Please enlighten me.

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  16. global warming skeptic said:

    I guess you all already conceded global warming is happening.

    Actually I am fairly skeptical myself, in that I think some of the more...aggressive...scientists are downplaying the uncertainties in their models.

    In any event, can I make a suggestion? The way you phrased that above, the people at RealClimate would roll their eyes. Of course global warming is happening, if you pick a base year in the mid to late 1800s. What I think you mean is, "I guess you all concede that human activities are responsible for most of the observed warming of the twentieth century..."

    In any event, if you haven't already seen it, you might peruse my critique of Nordhaus' case for a carbon tax. As an economist I don't have the authority to come out and say, "This is hooey!" but I do try to show how the IPCC report itself (as well as other sources) indicate the surprising fragility of this alleged consensus on the need for immediate action.

    However, on this site I don't bother arguing that position because David can quite rightly say, "You're an economist, shut up about climate models."

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  17. Bob, my last comment was posted late and suffers from typos. The final sentence should read: "The taxes (or other schemes) that will be imposed by individual governments will ultimately be coordinated, and much more resemble a Coasian trade [among nations with respect to a shared resource]."

    David has now picked up this thought and started a new thread on it: http://aguanomics.com/2008/07/how-to-set-carbon-tax.html

    Of course, my thnking might very well be muddled as well.

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  18. David, McKitrick's T3 proposal is worth a good read and is summarized here: http://ross.mckitrick.googlepages.com/#t3tax
    The detailed explanation is here: http://ross.mckitrick.googlepages.com/T3tax.VV-online.pdf

    McKitrick also did a nice little paper for CEI explaining why a carbon tax is much preferable to a cap and trade, and arguing that, if recycled, would not be economically damaging: http://www.uoguelph.ca/%7Ermckitri/research/co2briefing.pdf

    Kevin, I don't think McKitrick's proposal actually makes much sense, for several reasons. First, GHGs exert forcing influences on the scale of half-centuries and longer. Having a tax than is based on a three-year average of some temperature measurement is as likely to reflect variation due to natural factors as to GHGs. Second, despite McKitrick's focus on the TTT, it's not clear why that is the best metric. There are obviously other influences on climate than GHGs, including accelerating albedo feedbacks that are non-linear and more localized. Third, in the long run, no taxes are permanent, particularly given competition among nations for industry.

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  19. TT -- I forgot to mention my worry about the lag between emissions and temperatures. The T3 *does* sounds good in theory, but the feedback will have to be faster than decades, e.g., one year (imagine the gaming!). Leading indicators may do the trick.

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  20. TT,

    T3 is a leading indicator, according to our best models. If those models are wrong, my Bayesian updating says that AGW is less of a threat than those models predict so the tax _should_ go down.

    I agree that if you simply _assume_ a high level of AGW harm, then T3 doesn't make sense. I don't want to make that assumption.

    If you've got a better leading indicator, let Ross know and I'm sure he'd be happy to construct a tax on that.

    I also note that I advocated a dual tax rate with a T3 and non-T3 component precisely to account for other factors.

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  21. Kevin, instead of measuring the tax against a model of reality, why not measure it against reality, like the pace of ice sheet melting?

    As I noted, McKitrick`s proposal doesn`t address albedo or other changes. It also completely ignores ocean acidification, which is a serious issue even during the noise of natural influences on temperature.

    That said, where`s your t3 and non-t3 proposal?

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  22. TT,

    My combined T3 and non-T3 proposal was in my comment on this thread dated 15 July, 2008 17:22. I haven't worked out enough details to justify a full blog post yet.

    As for measuring effects directly, it was you yourself who noted that effects accumulate over multi decadal time scales. That's why you want to use a leading indicator. Moreover, if you want to tax carbon in a manner that relates to its contribution to future AGW, you need something that also differentiates between anthropogenic and non-anthropogenic warming. Ice sheets don't fit this bill.

    Albedo changes have to do with feedbacks. T3 measures the base CO2 induced warming signal. You simply scale the T3 tax by the best estimation of overall feedback, including albedo.

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  23. "if you want to tax carbon in a manner that relates to its contribution to future AGW"

    Kevin, thanks for mentioning this, which of course goes to the nub of what the purpose of a carbon tax would be.

    I think that the many prominent economists who have been floating these proposals for the past twenty years (and the scientists and others who support them) - from Nordhaus to Weitzman, Tol and others - would say that the purpose of taxing is primarily to recognize that risks that we have already generated (and is in the pipeline) and continue to generate, and to incentize investors and energy users to shift the economy to one that is GHG lite (both in output and in direct CCS). (Ancillary purposes might be to directly fund new basic research and technology, to fund government-sponsored adaptation projects and to compensate climate victims - all questionable endeavors, in my view.)

    I note that McKitrick previously acknowledged in the paper he did for CEI that recycled carbon taxes would not slow economic growth (and actually are preferable to income taxes), and I have not seen him attack the fundamental premises of others proposing carbon taxes - which generally start moderately but ramp up constantly in order present a clear signal to investors.

    Accordingly, I view McKitrick's T3 proposal as a Trojan horse, designed to move the "skeptics" to the general carbon tax purpose espoused by everyone else.

    But besides that, getting back to his proposal, he simply doesn't address the risks posed by continuing acidification of the ocean sink, the continuing positive albedo feedbacks to the ice sheets, Arctic and temperate zone glaciers, etc. These all point to a need to change our energy systems, regardless of how consistently T3 corresponds to climate models. A tax that could rapdily fluctuate, even becoming negative (the political impalatability of which should not be ignored), would present the same uncertaintly to investors as cap and trade does.

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  24. Bob, further to your question:

    "Bob, you're acting as if the governments of the world will listen to me and David when we tell them the negative externality from emitting a ton of CO2, but in fact they won't set the tax anywhere near that in equilibrium."

    Yes, I am saying that, but not because they won't listen to me or David, but because they have great difficulty coming to terms on a deal thay they can all agree to, reflecting past contributions to current stock, relative wealth and future contributions - and that this is all evidence that climate change policy is, fundamentally, not about single governments imposing Pigovian taxes based on technically calculated externalities, but Coasean negotiations among our best situated agents over how to manage and important shared and inescapably open-access commons.

    That our agents are imperfect is a fair point, but inescapable given transaction costs, and does not detract from my point.

    Tom

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  25. Let me play referee for a second...

    Kevin said:

    ...if you want to tax carbon in a manner that relates to its contribution to future AGW...

    In response, TT said:

    I think that the many prominent economists who have been floating these proposals for the past twenty years...would say that the purpose of taxing is primarily to recognize that risks that we have already generated (and is in the pipeline) and continue to generate, and to incentize investors and energy users to shift the economy to one that is GHG lite...

    You guys are both right (though TT seems to think he is disagreeing with Kevin).

    Yes, bygones are bygones, and so all economic incentives are designed to influence future behavior. There's no point in setting up a system to punish emissions that happened last year.

    However, the marginal impact of a ton of emissions next year is influenced by past action, i.e. how much is already in the pipeline. If we were at 100 ppm, the optimal carbon tax would be a lot lower than at 800 ppm.

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  26. Nitpicking time!

    Bob said, "There's no point in setting up a system to punish emissions that happened last year"

    Actually, yes there would be: to make all people discount the benefits of using an unmanaged commons as a dumping ground, to account for the risk that they will later be penalized for doing so.

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  27. Thanks Bob. I still don't understand TT's objections to T3. It aligns incentives. Period. Full stop.

    All of TT's objections are red herrings with regards to whether it aligns incentives or not.

    - As I noted, albedo is just a matter of scaling the T3 tax by the feedback level. AFAIK, AGW induced albedo changes are almost entirely modulated through a temperature rise.

    - Ocean acidification is a good point. Tax the current pH of the ocean too. Aligns those incentives beautifully.

    - Investors and uncertainty? Uh, isn't that what financial markets deal with on a daily basis. I _want_ the tax to fluctuate so people incorporate uncertainty about AGW into their behavior. I also want the tax to be able to go negative, just in case AGW is wrong.

    I do think it's funny that TT thinks the T3 tax is a Trojan Horse aimed at the skeptics. The skeptics think it's a Trojan Horse aimed atthe warmists. That's why I like it. Everybody thinks they pulled one over on the other guy.

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