Sunday, June 02, 2013

James Hanson Gets it Partly Right

A recent piece by James Hanson proposes the formation of a centrist political party organized around the issue of global warming. The policy he proposes is a carbon tax charged to producers of fossil fuels, with the revenue returned to the population as a fixed amount per capita which he calls a dividend. Otherwise known as a demogrant.

There are several things I found interesting about the proposal. One is that, given his factual beliefs—that global warming due to the burning of fossil fuel imposes very large net costs—he has the economics right. His proposal makes much more sense than what politicians who talk about global warming have actually been pushing, which has ranged from electric auto subsidies to the mandated use of biofuels. If burning fossil fuels  produces large net externalities, the sensible way of taking account of them is to include those costs in the price of fuel and let individuals in a market society adjust to them.

Another thing I found interesting was the way in which his proposal was targeted at the political center. Conservatives and libertarians, even ones who agree with Hanson about the dangers of global warming, are unlikely to approve  either of a tax that goes to increase government spending or of extensive regulation. They might prefer that revenues from a carbon tax go to reduce other taxes or to reduce the deficit, but distributing the money to the population is at least better than sending it to Washington. 

Those left of center might prefer that the revenues from a carbon tax go to help the poor. But while a  demogrant is not a very efficient form of income redistribution, it does on net transfer from the rich to the poor, since the rich consume, on average, more fossil fuel than the poor and so pay more of the tax. The net effect of his proposal is to reduce the production of CO2 in what economists view as the least costly way of doing so without doing anything that either the left or the right would object very strongly to. The right gets the market, the left gets some mild redistribution, and earth stays cool. It is a policy that should be popular with people on both left and right who agree with Hanson about the dangers of global warming.

One other thing I liked about the Hanson essay is that he argues in favor of nuclear power. As I pointed out some time back, nuclear power is the one substitute for fossil fuel that produces no CO2 and can be expanded almost without limit. That does not prove it should be expanded—for one thing, it is currently a more expensive source of power than fossil fuel. But it does mean that people worried about global warming ought to be biased in favor of nuclear power—and Hanson is.
There are, however, two things wrong with his proposal. The first is that, on the historical evidence, creating a third party in the U.S. political system and making it a serious competitor to the existing parties is extremely hard, so hard that it has been more than a hundred and fifty years since the last time it happened. If global warming were really producing, here and now, the sorts of catastrophes its prophets warn of, that might be enough to make it possible, but it isn't.

The second is that Hanson, like many other people, takes it for granted that global warming will have large net negative effects. For reasons I have discussed in earlier posts, I don't. So far as I can see, global warming on the scale suggested by the IPCC reports, about three degrees Centigrade and a foot or two of sea level rise over a century, is at least as likely to produce net positive effects as net negative, probably more likely. That might not be true if the  trend was continued for several more centuries but, given how rapidly technological change is altering the world, I think any predictions more than a century out, probably any predictions even that far out, should be viewed with extreme skepticism.


Tim Worstall said...

Hanson does get much of it right. All the economics etc. Except for one thing.

The level of the tax. I read his paper where he justifies the $1,000 a tonne idea. And there's a horrible logical error in it.

He takes the extreme values (high climate sensitivity, high emissions etc) and then says that the carbon tax could be as much as $1,000 a tonne. Which is OK.

It could, for some very low indeed probability, need to be as much as that.

However, what we want to know is the expected value, not the extreme. Thus we must adjust the rate of the tax to hte probability of the various things (high temp sensitivity, low, high emissions, low etc).

When you do that to his own numbers in his own paper the expected numbers come down to very much like Stern or Nordhaus (the difference between those two being one rate from now on, Nordhaus arguing a low rate that ramps up higher in later decades).

It's OK for Hanson to be saying "might be as high as $1,000 with a very low probability" but he doesn't. He says "should be $1,000 as my paper shows". Which it doesn't.

Tibor said...

I've always wondered why all the green-centered organizations (green party, greenpeace,..) and almost all of their supporters are so much biased against nuclear power. My only explanation is that this is a sort of "idea relic" from the cold war, when nuclear power was much strongly associated with the dangers of a nuclear war and even though now a nuclear war is far less likely, part of the fear has spread over to the nuclear power plants. Also, nuclear power is somehow more difficult to understant than windmills so perhaps some people are afraid of it because they don't understand it well. Also, while other sources of energy are a cause of more deaths per KhW, the effects of a nuclear power plant break down are more concentrated and spectacular so as long as you don't bother reading the statistics, it looks as if it is much worse than the other sources. But one would expect people who care to actually read them.

Also, another reason may be that a lot of those organizations have private interests in the so called "green energy" which is heavily subsidised (especially in Europe). Nuclear power is also subsidized sometimes, but it is harder to reach the subsidies in that business, as building a nuclear power plant is far more costly than building a few solar plants.

Any other ideas about why "the green" reject perhaps the "greenest" source of energy so fiercely?

Milhouse said...

Tibor, read Petr Beckman's The Health Hazards of Not Going Nuclear.

Rex Little said...

Maybe it's my faulty memory, but it seems to me that 40 years ago, when all the climate scientists were warning of the coming ice age (i.e., global cooling), the proposed rememdies were. . . use less energy, reduce emissions, etc.

back40 said...

If the US ceased all CO2 emissions the effect on the rate of CO2 increase, and so continuing threat of climate change, would be trivial. The small reductions of a tax would be meaningless for climate, though they would add layers of bureaucracy and distort the economy in unproductive ways.

Laird said...

Tibor, they reject nuclear energy not because they are truly concerned about carbon dioxide emissions (some may actually be, although that's not particularly important) but because they want to see a net decrease in energy production period. How we get there really doesn't matter. They want to see a much smaller human population on this planet and they want that remaining population reduced to some mythological agrarian paradise a la 500 years ago. CAGW and CO2 is merely the manifestation du jour of their fundamental anti-humanism.

David Friedman said...


Your "they" badly oversimplifies the situation. What you describe is probably true of some people, pretty clearly not true of Hanson.

I agree that one motive for the movement he is a part of is a preference for a different lifestyle, but for most of the people involved not as different as you are suggesting. And for other people there are other motives.

jimbino said...

A woman effectively doubles her carbon footprint by breeding. A demogrant would effectively double her share of the proceeds from a carbon tax.

Bad incentive, and even worse when you consider that the poorest would have the greatest incentive to breed and thus keep on polluting.

JWO said...

Wouldn't it be better to pay the money out for removal of CO2 from the air? Methods like Enhanced weathering, biochar and deep ocean iron fertilization seem promising.

Biochar advocates claim that they can remove a ton of co2 from the air for $37.

Josiah Neeley said...

Prof. Friedman,

What is your basis for saying that the positive effects of a 3 degree increase in global temperature probably outweigh the negative effects? (I looked at your prior posts on the subject and didn't see an explanation).

David Friedman said...


The reasonably predictable effects are:

Sea level rises by a foot or so, reducing slightly the amount of usable land or requiring diking to prevent that reduction.

Temperature contours in the northern hemisphere move north by several hundred miles, increasing the amount of usable land by a couple of orders of magnitude more than the reduction. Human land use is limited by cold not heat--the equator is populated, the poles are not.

Temperatures increase more in cold places, where the increase is usually desirable, than in hot places, where it is usually undesirable, and similarly for cold and hot seasons.

Plants grow better because CO2 is an input to photosynthesis.

I think those are all of the reasonable certain consequences. There are other possible consequences, positive or negative.

Josiah Neeley said...

Prof. Friedman,

You might be interested in this survey article by Richard Tol on the economic effects of Climate Change.

Anonymous said...

Here's an interesting thought. What if we found a planet that could sustain life. When our spacecraft arrived, the one-celled organism attached to the craft would have no natural preditor. As such it would immediately replicated exponentially. The planet would immediately be covered in green goo. Green goo would settle to the anerobic bottom of the ocean and not decay (nothing to eat it) and a few million years later, you would have oil. Are our oil reserves the remnant of a green goo plague when life was first created?

Anonymous said... wants to know: If you remove nuclear fuel from a mine, use it in a power-plant, post-process it, the return the higher grade nuclear waste back to the mine, could you then dilute this waste (%3 of its original volume) back into the sand that was processed to remove the other 97% of the uranium?