Global Warming and Discount Rates--Posner

The latest report of the Intergovernmental Panel on Climate Change, issued on Friday, confirms the scientific consensus that the emission of carbon dioxide and other greenhouse gases, as a result of the combustion of fossil fuels such as oil and gas, and other human activities (such as deforestation by burning), is having significant and on the whole negative effects by causing global temperatures and sea levels to rise. See http//ipcc-wg1.ucar.edu/wg1/docs/WG1AR4_SPM_PlenaryApproved.pdf. I discussed global warming in my book Catastrophe: Risk and Response (2004), I considered the evidence that global warming was a serious problem for which man-made emissions were the principal cause altogether convincing--and since then more evidence has accumulated and the voices of the dissenters are growing weaker. The global-warming skeptics are beginning to sound like the people who for so many years, in the face of compelling evidence, denied that cigarette smoking had serious adverse effects on health. What has changed since I wrote my book is that not only is the evidence that our activities (primarily the production of energy) are causing serious harm even more convincing, but also that the scientists are increasingly pessimistic. It is now thought likely that by the end of the century global temperatures will have risen by an average of 7 degrees Fahrenheit and that the sea level will have risen by almost 2 feet. Besides inundation of low-lying land areas, desertification of tropical farms, and migration of tropical diseases north, global warming is expected to produce ever more violent weather patterns--typhoons, cyclones, floods, and so forth. There is much uncertainty in climate science, and climate scientists concede that their predictions may be off--but they may be off in either direction. Far worse consequences are possible than those thought highly likely by the authors of the report, including a temperature increase of 12 rather than 7 degrees Fahrenheit, higher sea levels that could force the migration inland of tens of millions of people (or more), the deflection of the path of the Gulf Stream, causing Europe's climate to become Siberian, and abrupt, catastrophic sea-level rises due to the sliding of the Antarctic ice shelf into the ocean. Not only has the consensus among scientists concerning the harmful anthropogenic (human-caused) character of global warming grown, but the scientific consensus is increasingly pessimistic: recent evidence indicates that the global-warming problem is more serious than scientists thought just a few years ago. My own view, argued in the book, is that the risk of abrupt global warming--a catastrophe that could strike us at any time, with unknown though presumably low probability--is sufficiently costly in expected-cost terms (that is, multiplying the cost of the catastrophe by its probability) to warrant taking costly measures today to reduce emissions of carbon dioxide and other greenhouse gases. Both the scientists and the policymakers, however, are mainly focused on the long-term costs of global warming--costs that will unfold over the remainder of this century. That focus makes the choice of the discount rate important, and potentially decisive. A discount rate is an interest rate used to equate a future cost or value to a present cost or value. As a simple illustration (and ignoring complications such as risk aversion), if the interest rate is 5 percent, the present value of $1.05 to be received in a year is $1, because if you are given $1 today you can invest it and have $1.05 in a year. That is financial discounting. But discounting is important even when financial considerations are not the only ones involved in a choice. If you have a very strong preference for spending money now rather than a year from now, you might prefer $1 today to $1.50 a year from now. These approaches don't work well when the question is how much we should spend today to avert costs that global warming will impose in the year 2107. Suppose we estimated that those costs would be $1 trillion. Then at a discount rate of 5 percent, the present-value equivalent of the costs is only $7.6 billion, for that is the amount that, invested at 5 percent, would grow to $1 trillion in 100 years. At 10 percent, the present value shrinks to $73 million. So it is possible to argue that, rather than spending a substantial amount of money today to try to prevent losses from global warming in the future, we should be setting aside a modest amount of money every year--$73 million this year to deal with global warming in 2007, the same amount next year to deal with global warming in 2008, and so on. Of course we would also want to spend money to prevent the lesser losses from global warming that we anticipate in earlier years. For example, suppose we estimate that the loss in the year 2057 will be $100 billion. Then at the same 10 percent interest rate, we would want to spend $852 million this year. Thus two effects are being balanced in computing the present equivalent of future losses from global warming--the larger loss in the more distant future, and the greater shrinkage of the larger loss, because of its remoteness from today, by the operation of discounting. The latter effect will often dominate, as in the examples, but of course this depends critically on the choice of discount rate. At an interest rate of 3 percent, a $1 trillion loss in 2007 has a present value not of $73 million or $7.6 billion, but of $52 billion. However, when either of the latter two figures is added to figures representing the present value of losses in intermediate years, the sum will be formidable. A very high discount rate, implying that optimal current expenditures to avert the future consequences of global warming are slight, could be defended on the ground that the march of science is likely to deliver us from the consequences of global warming long before the end of the century. Clean fuels for automobiles as well as for electrical plants (where already there is a clean substitute for oil or coal--nuclear power, though it is more expensive) will be developed, or carbon dioxide emissions from electrical plants will be piped underground, or artificial bacteria will be developed that "eat" atmospheric carbon dioxide. These are not certainties but they are likely, and so they provide a good argument for using a high discount rate, such as 10 percent--and perhaps for considering no losses after 2107, on the theory that the problem of global warming is almost certain to be completely solved by then. Nevertheless there are at least three arguments for incurring hefty current expenditures on trying to reduce carbon dioxide emissions in the near term. The first is that global warming is already imposing costs, and these will probably increase steadily in the years ahead. Discounting does not much affect those costs. They may well be great enough to warrant remedial action now. The second argument for incurring heavy expenditures today to reduce global warming is that there is a small risk of abrupt, catastrophic global warming at any time, and a small risk of a huge catastrophe can compute as a very large expected cost. "Any time" could of course be well into the future, and so there is still a role for discounting, but it is minimized when the focus is on imminent dangers. The third argument is that reducing our consumption of energy by a heavy energy tax would confer national security benefits by reducing our dependence on imported oil. Our costly involvement in the Middle East is due in significant part to our economic interest in maintaining the flow of oil from there. It is true that because our own oil is costly to extract, a heavy energy tax would not cause much if any substitution of domestic for foreign oil. But that is fine; our oil would remain in the ground, available for consumption if we decide to take measures abroad, such as withdrawing from Iraq, that might reduce our oil imports. Heavy U.S. energy taxes would induce greater expenditures by industry on developing clean fuels and techniques for carbon sequestration; might persuade other big emitters like China and India to follow suit; and by reducing emissions of carbon dioxide slow the increase in the atmospheric concentration of the gas. Drastic reductions might actually reduce that concentration, because carbon dioxide does eventually leach out of the atmosphere, though at a slower rate than it is built up by emissions.

Comments

[apb]

Bernie -

The site would be:

http://www.clearlight.com/~mhieb/WVFossils/Carboniferous_climate.html

[Jack]

APB asks:

"Anyone care to guess why it's called "Greenland?"

... It was a real estate hustle much as a new subdivision today might be named something "shores" despite its actual geography.

....... you'll recall that after a few warm years the "Greenland" hustlees starved and were perhaps prevented from leaving by ice shelfs or optimistically hoping for the return of warmer years. Interestingly the local natives survived by dining on the fresh water seals disdained by European newcomers. (Our own founders too seemed a finicky lot for having nearly starved at the base of Cape COD, with easy access to its rich fisheries and where lobsters and crab could be had from the clam-laden beaches.)

[M. Simon]

Bernie,

Solar output fluctuates +/- .2% over a period of days.

One fluctuation is equal to all the man made energy consumed in a year.

[Anarchus]

OK, now I'm convinced: WE ARE DOOMED!

When Nixon "lost" Cronkite the Vietnam War was lost; now that we've "lost" Posner, the fight against the global warming alarmists has been lost.

Or not. Thank Goodness he's only a legal wizard and not a genius meteorologist or something.

Estimating, tracking and projecting climate change is a really important task, but blindly assuming that CO2 gases are the primary determinant of climate change is just nuts.

Any one of the following "forcings" are likely to be exerting more impact on the global climate than CO2 levels: cosmic rays + the solar winds that carry them along, cloud formation and magma circulation. But the measurement is so inaccurate at present that quantifying the relative impact(s) is hopeless. Orbital changes (Milankovitch cycles) we understand, but not the other stuff.

A great question for hard-core believers in human generated global warming is, "so where'd the hockey stick chart go?"

[M. Simon]

Haris,

If it weren't for a secret cabal of manipulators we would be living in paradise.

If we can idendify and eliminate the cabal we could see big improvements in the world.

You got any candidates for elimination?

[M. Simon]

Anarchus at February 5, 2007 06:03 PM ,

A great question for hard-core believers in human generated global warming is, "so where'd the hockey stick chart go?"

A good question for them also is where is the Medieval Warming and Little Ice Age. It doesn't show up in their charts.

What the hockey stick proves is that with the right kind of filter you can get almost any signal you want out of the noise.

[Mike]

Bernie-
Here is a good three part article from the New Yorker awhile back.

http://www.wesjones.com/climate1.htm

[Bernie]

A BTU is defined as the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit. Total energy use is 421 quadrillion British thermal units (Btu) in 2003. This hardly seems negligible. This is heat added above what is provided by the sun because it is converted from stored chemical energy. The production of heat from burning fossil fuels produces CO2 as a byproduct, it makes sense that the teperature rise Correlates to CO2 levels, but the cause of both is the burning of fuel. I am still reading though, thank you for the hints so far.

[mcallen3]

It seems to me the analysis misses the critical issue, viz., whether any expenditure is likely to reduce global warming. contrary to the premises of the first 'graph, the issue is not whether warming is occurring, but rather to what extent man's influence exacerbates the warming everyone can see. Many (most? almost all?)models seem to suggest that even really large and immediate changes in CO2 emissions likely will have little effect. discount rates make sense in this context only to the extent they reflect spending that actually deals with the problem, as opposed to mere wishful thinking.

-mca

[ben]

Regardless of the truth that global warming is happening, the debate is plauged to the core by two ideaologies. One, environmentalism, whose objective is the maximisation of environmental health. Two, socialism, who’s adherents see in environmentalism an excuse for the suppression of capitalism. The two ideaologies are united by anti-consumerism.

This idealogical basis is betrayed in a number of ways. One is an intolerance of dissent. Another is the failure to focus on suppression of consumption rather than technologies which promise ever higher consumption alongside reduced emmissions. Another is the willingness of climatologists to advocate for policy action when policy response is squarely an economic and political problem and one climate scientists are qualified only to inform but not decide.

Most important is the near total failure to recognise the limitations and ineffectiveness of governments to make commitments and keep them. Posner only has so much space to write, but in multiple posts I have not seen him recognise or incorporate into his analysis the significant shortcomings of public institutions.

I personally accept the argument that global warming is happening and that human activity is probably responsible but am not convinced governments are capable of any response in which benefits remotely approach costs. Governments have been close to uniformly ineffective in dealing with other global problems. Global warming will be used as an excuse to nationalise or high regulate energy and transport industries with only minor effects on emissions at the cost of great inefficiency.

[ben]

Oops, should have put, "Another is the focus on suppression of consumption rather than..."

[guy in the veal calf office]

I've enjoyed everyone's comments very much and once again thank you for contributing to Important Discussions, but only posted to nominate Happyfeet for the greatest comment ever made on any blog. Ever.

[Dennis Mangan]

One thing that needs to be mentioned is that, assuming global warming is real and that it's man-made, a very cheap solution is available: seeding small parts of the ocean with iron. This causes plankton blooms which will suck CO2 out of the atmosphere like nobody's business. The late oceanographer John Martin said, "Give me a ship full of iron, and I'll give you an ice age." Of course, the fact that the solution is so cheap and easy will make it anathema to the world's bureaucrats.

[Victor Erimita]

A recent "Nova" program looked at scientists' efforts to change the climate of Mars so that it could support life. The multiple levels of insanity of this idea aside, the idea is to produce...global warming. On Mars. What is the chief way they think they can do that? Create lots of water vapor. Water vapor? Yeah, because you see water vapor is a "greenhouse gas," which has much greater greenhouse properties than CO2 (according to the show...I have no idea.)

So, I'm thinking to myself, huh. Isn't one of our great hopes for salvation from the carbon fuels mess supposed to be hydrogen fuel cells that are perfectly clean and only produce, uh...water vapor? And if water vapor is a "much greater greenhouse gas than CO2," and if CO2 constitutes only about 1 percent of our atmosphere...then how much of the atmosphere is water vapor? And isn't that maybe a lot more of an issue than CO2?

Oh, but I forgot. "The debate is over," according to Al Gore, Barbara Boxer and other noted climatological authorities. Westerners, especially Americans, who already cause all of the evil in the world, are now causing catastrophic global warming by driving too many SUVs. So the problem HAS to be CO2. Sorry I brought it up.

[Dave S.]

Seeding the ocean with iron to reduce CO2, and presumably, global temperatures?

See, this is what scares the hell out of me when it comes to the warm-mongers - they're going to come up with a "solution" to something that may not exist, or may be beneficial if it does, and end up kick-starting an Ice Age that will destroy civilzation in a way that warming never could.

The commenter above said it best - who decides what the global thermostat should be set at? Hands off.

[apb]

Interesting point about Greenland, Jack -

I have little knowledge of the details of moving TO Greenland - I'd assume "hustle" would be a great term if someone had ownership of the local land, and sold it to the new arrivals.

How would you characterize the difference in behavior of those locals (i.e. either starved, or found a new way to survive), who had 10th-century resources and capabilities vs. the modern-age folks (facing, eh, (certain?) warming, a loss of ice, longer growing seasons, eh?), who only have 20th century capabilities of energy generation, plant genetics, water reclamation....blah, blah.

And the panic is? If you check out the site I listed above (please shoot holes in the data or methodologies...) it appears ol' Earth has its own temp-limiting system that has adequately handled (at 65 million years ago) a planet-wide extinction event caused by asteroid impact.

If the asteroid impact estimates are correct, there were billions of tons of matter ejected into the atmosphere - the old nuclear winter scenario in spades. Yet, the result was a re-regulated temperature system ... it appears there was a mminor rise in CO2 at roughly that time (to roughly twicw what it is now), but if there's cause and effect for temperature, it's opposite what is being pushed now.

Did dust cause a 10C temperature drop lasting 50+ million years? How did the planet temp bottom at 12C (matching all prior minimums).

Just another inquiring mind...

[M. Simon]

Bernie at February 5, 2007 06:14 PM ,

You put all that energy into one pound of water and its temperature will be 421 quadrillion degrees (Big Bang territory).

You put that much energy into the oceans and the temperature rise will be unmeasureable.

You are getting your orders of magnitude mixed up. A not uncommon mistake for those uncomfortable with numbers.

If every cell in your body was worth one cent. You would be fabulously rich. They are not and neither are you fabulously rich.

[M. Simon]

Bernie at February 5, 2007 06:14 PM,

Let me explain it nice and simple. The 421 quads of heat generated by man in a year is within the range of a few days fluctuation of solar output.

i.e. not significant.

[Anonymous]

What do we need to do to protect ourselves from OTHER possible abrupt catastrofic events? How about Abrupt Cooling? How about Abrupt Pandemic of a Spanish Flue scale? What about Abrupt Increase in Volcanic Activity? Terrorist atacks - should we mandate nuclear shelters in every yard?

No, really, out of all the things that are just possible - why choose only one to prepare for? Let's just invest 90% of the GDP in all the preparations. It will not be too much... given how low the GDP will get as soon as we start.

[TM Lutas]

Putting aside whether anthropogenic climate forcing (human caused global warming) is a major factor in current temperature trends, there is a useful question to raise. Are we at the optimum temperature for the planet? If we are not, it would make sense to create a global thermostat to put us there no matter the reality of the causes of present climate change. The positive impact on our economy over the next century would likely be enormous and the ability to counteract global warming by reducing the solar output that strikes earth as well as increasing it if this is called for would be a nice bonus.

Catastrophe would be averted, and we would maximize the utility we get from our climate dependent economic activities. What could be better? But you will not find such geoengineering solutions on the "to do" list of the global warming alarmists. I have had the discussion and there is an instinctive revulsion to it among the true believers. It is not rational but it is there. Just raise the subject and be prepared for a highly emotional response.

Fortunately, the largest cost of such a thermostat seems to be the price of lifting material into orbit and there are several encouraging developments that indicate that lift costs are likely to crater over the next century. From private space flight companies to railgun launching systems to space elevators, we're likely going to be able to control temperature before any sort of catastrophe hits so long as we don't let the luddites into government.

Mt. Pinatubo erupted in 1991 and dropped global temperatures 0.5C almost immediately. This is the speed at which a shade system can act. Reducing effective solar output gets us cold and quick. Doing it in orbit is a lot cleaner than provoking Mt. Pinatubo style eruptions. The money necessary to do the materials research and develop a space elevator, for instance, is likely a couple of orders of magnitude smaller than what will be necessary in the currently popular "Kyoto treaty" style.

In short, the conflict over the cause of warming is a false conflict. Embrace geoengineering and the utility of a thermostat becomes obvious and beyond maximizing planetary utility it also shuts down global warming as a problem no matter what its cause.

[michael]

Here in Texas, TU is trying to build 12 coal plants now, before pesky restrictions. After the NEJM report on polluton and cardiovascular disease last Thursday, I'd rather see us go nuclear (tthough I have just read abstracts so far). I think we are hung up here by state politics of disposal at the Yuma mountains. It doesn't look like we have a federal system when it comes to nuclar waste disposal.

[Anarchus]

It's not the waste disposal as much as a complex web of regulatory, legal and environmental risks forestalling construction of new nuclear plants . . . . . . . . there are a small number of possible brownfield nuclear plants in the preliminary planning stages today, but given the extremely high cost of engineering and constructing a new plant (even sited on extra space at an existing facility), it's doubtful that any of those possible plants will be built without major changes in the political/legal/regulatory environment.

[Jeff Norman]

M. Simon at February 5, 2007 08:39 PM, wrote:

"You put all that energy into one pound of water and its temperature will be 421 quadrillion degrees (Big Bang territory).

You put that much energy into the oceans and the temperature rise will be unmeasureable."

Yes but you are not putting that much energy into the oceans. You are putting it into the air and water around major urban centres where coincidently you are also measuring the Earth's "temperature".

[James Cover]

I urge you to consider this op-ed piece by a climatologist.

http://www.canadafreepress.com/2007/global-warming020507.htm

Now the arguments about global warming remind me of the arguments during the 1950's on the necessity for centralized planning if less developed countries are ever going to grow. Myrdal stated that all experts agree that comprehensive planning is needed in order for development to occur. Of course, Peter Bauer was right and Myrdal (as well as other development economists) were wrong about the need for planning.
Finally, have you ever seen anyone use a Dickey Fuller test to see if the hypothesis that world temperatures follow a random walk can be rejected?
I knew one person who said that he did. But the response of the so-called scientific journals was that the test had to be wrong, because it failed to reject the random walk hypothesis, since everyone knew there was global warming. Truth is not determined by a popularity contest. Just ask the people who argued that we were entering a new ice age just about 35 years ago. They are the same scientists who are saying we now have global warming. Be that as it may, they all want socialism anyway.

[N.E.Hatfield]

To all the nay-sayers, I place more credence in the comments of the Royal Society, than I do in bloggers. Which states, that there is at least a 90% chance that the warming is directly due to human activity. Being a betting man, those are pretty good odds. Just out of curiosity, how many of you are familiar with the fundamental principles of Thermodynamics, the first law, second law, reversible and irreversible process, heat, work and the system? These ought to be the grounds of any cogent discussion of the problem. ;)