GreenGeld

The normally rather sane Tim Worstall has written, again, about the desirability of a “carbon tax”. In Tim’s world this is the most efficient and therefore least bad means of dealing with the problem of CO2 emissions and their impact.

Interestingly, Tim asks us to simply take on faith that CO2 is a problem and that its emission will have a negative impact. His proposal for a carbon tax is put forward as a less bad alternative to wind power and solar energy (though not, I note, nuclear) which he seems willing to acknowledge are pretty useless in addressing the energy needs of modern Western countries.

Tim does not want to engage the question of whether or not CO2 emissions are, in actual fact, a negative. He simply assumes they are and then tries to come up with a policy prescription which does the least harm. In this case a carbon tax.

His rationale for a carbon tax rests on the sound economic notion that “negative externalities” should not be created. Put another way, a producer should bear the full cost of production rather than being allowed to pass on the costs to the community of such things as water or air pollution.

In a fundamental sense this is the economic rationale for environmentalism and a position which even the hardest core free marketer should accept. However, embedded in that position is a requirement that the “negative externalities” be proven negative and that measures to control to imposition of such externalities be efficient. From an economic perspective, an efficient measure is one which costs less than the negative externality it is meant to address.

To give a simple example: propose that a pulp mill discharges a substance which kills 3 large fish a day. Propose that each of those fish has a value of $100 so the negative externality can be valued at $300 per day. An efficient measure to control the discharge is economically efficient if it costs $300 or less per day, it is inefficient if it costs more than $300.

Obviously, it is complicated to calculate the value destroyed by a particular negative externality. For example, there may be a cascading effect where killing 3 fish a day for a hundred days has the effect of killing the entire population of the fish. And so on. However, in principle, any measure aimed at a negative externality can and should be tested for its economic efficiency.

Which means that a carbon tax needs to be assessed against the harm it is alleged to be preventing as well as against other measures designed to prevent that same harm. This, in turn, means that the harm posed by CO2 emissions needs to be quantified. Without such quantification it is impossible to determine an economically efficient price for CO2 emissions reduction and thus impossible to arrive at an economically sensible rate of tax.

This can be illustrated by a simple thought experiment: imagine that we knew with 100% certainty that a doubling of CO2 would lead to an immediate doubling of temperature (with the consequence that life on Earth would become extinct]; the price of CO2 emissions would be efficient if it was set high enough to prevent any emissions which lead to such a doubling. Conversely, if we knew with 100% certainty that a doubling of CO2 would lead to a .1 degree temperature rise, a carbon tax would be inefficient if the value of the economic activity it deterred was greater than the cost of such a minimal rise.

Unfortunately for Tim, the state of climate science is such that it is effectively impossible to quantify with any precision a) what the temperature consequence of a doubling of CO2 is, b) what the cost of a rise in temperature is.

As climate science matures and more observational studies become available to calibrate climate models, the difficulty in attributing temperature rise to CO2 is becoming manifest. Black carbon, changes in solar radiation, non-CO2 man made effects (in particular urbanization), errors in the adjustments to the temperature record and plain natural variability all erode CO2’s centrality as the driver of the Earth’s temperature.

The underlying science is simply not good enough to provide any serious answer to the question of what an efficient price should be for CO2 emissions and therefore what an efficient rate of tax should be.

We simply do not know what, if any, contribution CO2 emissions have made, are making or will make to temperature rise.
More worryingly, we also have no idea what an optimum world temperature is or if it makes the slightest sense to speak of such a thing. Is a degree of warming a good or a bad thing? What about three?

Observationally, it seems clear that warming – which has been going on since the late 1800s – is a mixed blessing. A warmer world may make the poles hotter while leaving the tropics pretty much unchanged. If that is the case – and let’s assume it is – then is this a “bad” thing? If bad, how bad? The answer to that question has to be known and quantified so that we can accurately price the harm we propose to prevent by way of a carbon tax.

As Tim knows, while it is difficult if not impossible to price the harm prevented by reducing CO2 emissions, it is relatively straightforward to price the harm such a tax will inflict. A CO2 tax will increase the price of virtually all economic activity in the jurisdiction which imposes it. Basic economics tells us that as the price of an activity increases, less of that activity will occur. (Which, of course, is the basis upon which a CO2 tax promises such benefits as it may deliver.)

A good, stiff, CO2 tax should reduce the economic output of the jurisdiction which imposes it by some quantifiable number. If, for example, a CO2 tax increases the cost of energy by 20% one would be realistic in assuming that economic activity would decline in that jurisdiction by 20% of whatever fraction energy costs represent of the inputs for economic activity in that jurisdiction. In most jurisdictions such a tax could lead to significant reductions in GDP making the citizens less well off. Poorer.

So, in the end a CO2 tax is certain to make people worse off but uncertain to optimize temperature. Normally we would characterize this as folly and move on; however, Tim (and many other seemingly sensible people) continue to advocate this bit of craziness. Why?

Tim is as rational a commentator as you are likely to find on the net. He does not, so far as I know, believe in astrology or 911 conspiracy theories, so why advocate a carbon tax?

Many years ago Anglo-Saxon England was plagued by Vikings. The Vikings would raid coastal villages and often go a good distance inland plundering, killing, raping and generally being nuisances. Eventually the Anglo-Saxons grew so sick of the Vikings’ raids that they agreed to pay them to stay away. Danegeld was a very rational way of paying less than the raids were costing.

My own sense is that Tim has given up trying to fight the Green Vikings. He has realized that appealing to their better nature is not working. He understands that the Greens are immune to scientific argument and are economically illiterate. Worse, Tim realizes that the Green CO2 hysteria is going to take at least a decade before it finally burns itself out.

So Tim, willy Anglo-Saxon that he is, proposes to pay Greengelt in the hope that the costs of a CO2 tax will be much smaller than the staggering opportunity costs of mal-investment in windmills and solar farms and endless subsidies. Better still, while such mal-investment is a sunk cost, a carbon tax can, at least, be spent on things which are a bit less daft.

But, best of all, when the Green Vikings are finally routed scientifically and economically, a carbon tax can be quietly repealed with only minimal harm done.

Tim is not nearly as silly as his advocacy of a carbon tax might suggest; rather he is cunning.

Update: Judith Curry has this to say about the uncertainty surround CO2 sensitivity:

Until we better understand natural internal climate variability, we simply don’t know how to infer sensitivity to greenhouse gas forcing. The issue of how climate will change over the 21st century is highly uncertain, and we basically don’t know whether or not different scenarios of greenhouse gas emissions will be (or not be) the primary driver on timescales of a century or less. Oversimplification and overconfidence on this topic have acted to the detriment of climate science. As scientists, we need to embrace the uncertainty, the complexity and the messy wickedness of the problem. We mislead policy makers with our oversimplifications and overconfidence. climate etc

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8 thoughts on “GreenGeld

  1. John Cross says:

    Hi Jay: interesting, I apparently can’t type links. Anyway, feel free to delete the above and leave this one if you wish.
    John

    But Jay, you base your whole article on your assumption that the science behind AGW is wrong and I believe that – no offence – your opinions have been proven wrong enough times that this is a big question. Like always, show me the evidence (preferably peer reviewed).

    Also, while I am not an economist, I have not been impressed by any economic model I have seen so far. For example, a pretty simple second order effect would be that if oil costs go up – more people will either walk or take their bike. This should lead to a healthier population and less in health care costs. How is this factored into the models?

    I like to stick with information that has stood up well over time. The fundamentals of global warming are well established. Also, we can observe the effects of global warming as well as directly measure the effects of CO2 (in terms of downwelling IR). To most people that is clearly enough.

    Regards,
    John

    • jaycurrie says:

      John, as John Frank points out, my post is predicated on the rather clear fact the science is uncertain. I don’t have to make the strong claim that it is wrong, merely that it is not right enough to allow policy prescription. We’re actually seeing this play out as the consensus crumbles on high CO2 sensitivity.

      I suspect, as the science gets better and more observations calibrate the models more accurately, that there will be a good deal of this sort of re-adjustment. Which is as it should be. The policy point being that there is no good reason to make massive investments in technologies of doubtful value until we have greater certainty on the science. Observing the effects of “global warming” is potentially quite useful but does very little to prove the CO2 sensitivity question one way or another – the cause of the warming might be no more than a rebound effect from the little ice age of the 1800′s. As to downwelling IR, as I recall, without assorted knock on effects the theoretical maximum warming created by a doubling of CO2 on its own is roughly a 1 degree C – which is not enough to notice, much less worry about.

      As to the idea that there are unmeasured benefits to increased energy costs that is largely unproven. Here in BC – where we delight in a carbon tax – total miles driven have gone up. Go figure. (My own explanation is that there is a substitution effect and that people will buy smaller, more fuel efficient cars in the face of $1.50 a litre gas. Which is, I suspect, a relatively good thing.)

      • John Cross says:

        Jay: your reply is strikingly similar to your post. That some scientists are saying that the possible high end of the temperature range may be a little lower than some thought is not news – at least not in the crumbling consensus idea. The most likely estimate of climate sensitivity is at about 3C which is where it has been for the last dozen years or so.

        For example, this post from Real Climate looked at some of the high end predictions of climate sensitivity which gave values of 10 and 11C and said they didn’t think they were scientifically valid and their bests guess seemed to be between 2 and 4C. Which is pretty close to where the science is today.

        So to me it seems that you are now supporting the position that Real Climate took 8 years ago. If this is a crumbling consensus, give me more!!

        Regards,
        John

      • John Cross says:

        Forgot, in regards to downwelling, what I was referring to was this and the other similar papers. I am not sure what point you were addressing.

        Regards,
        John

  2. John Frank says:

    John,

    I may be completely wrong, but I am not convinced at all that Jay is saying that, at least not in the article above. I read him to be saying that we still don’t really know for certain, which of course is completely different.

    However much science one can point to (for or against particular positions), the simple truth is that we still genuinely do not really know for certain what the actual relationship is between a) man’s emission of CO2, and b) cost to the planet of those emissions.

    • John Cross says:

      Perhaps, but to me it is a bit more like above where Jay claims that the fact that some people are (and have been for a while) saying that the high end of the possibility should be lower is a “crumbling consensus” even thought no one has changed their mind on what the likely value is.

      Regards,
      John

  3. Jay Currie says:

    John, the 360 McGibbinite/Hansen position has tended to be 4.5 at least. And, of course, these are the nutbar Greens who have driven the hysterical policy reaction. In fact, the position which a fair number of lukewarmers have been taking for years is that a) CO2 likely has some impact on temperature, b) that this impact is a factor in a temperature rise, c) that that temperature rise is unlikely to be above 3 degrees and more likely to come in – over all – between 1-2 degrees, d) that that sort of temperature rise has very few grave policy consequences.

  4. John Cross says:

    Jay, I am not sure what your reference to 360 McGibbinite/Hansen is about (James Hansen?). Anyway, the IPCC position was a sensitivity of between 1.5 and 4.5 which which averages out to 3. So as far as I can tell the mainstream science has maintained about 3C.

    In regards to your points.

    a) This has been established science for 150 years. I note the use of your word likely. That is the same sense and smoking is likely harmful to your health (i.e. smoking will harm you unless the lung fairy comes down and helps you out).

    b) Agree

    c) Whoa – that came out of left field! Where on earth did you get this number and this opinion.

    d) That is a policy issue. I have no objection to anyone taking on a policy based on their opinion. What I object to strongly are people who don’t want to fight a policy itself so instead try to create controversy in the science that leads to the policy (in other words base their science on their politics).

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