Contra Nordhaus

A recent piece by William Nordhaus purports to show why global warming skeptics are wrong. As he notes, one problem with the project is that there are a lot of people skeptical of different parts of the argument for doing something about global warming. He therefor chooses to select a specific set of criticisms, published in the Wall Street Journal. He writes:

The first claim is that the planet is not warming. More precisely, “Perhaps the most inconvenient fact is the lack of global warming for well over 10 years now.”

In response he offers a graph of global temperature and writes: "We do not need any complicated statistical analysis to see that temperatures are rising, and furthermore that they are higher in the last decade than they were in earlier decades"

We do not need any complicated analysis to see that temperatures have risen over the period 1900 to the present—but the piece he is attacking doesn't say they didn't. It says that they have not been rising for more than ten years—which, so far as one can tell from the graph, is true.  He is attacking them for the offense of making a true claim on the grounds that a claim they did not make is false. 

It is no doubt true that, among those critical of AGW, there are at least a few who deny that warming has occurred at all. But Nordhaus has explicitly limited himself to the claims in a particular article, and that is not one of them.

He goes on to criticize the WSJ article's attack on the IPCC models—specifically, its claim that "computer models have greatly exaggerated how much warming additional CO2 can cause." Unfortunately, his rebuttal never responds to that criticism. 

He writes, for all I know correctly, that "the projections of climate models are consistent with recorded temperature trends over recent decades only if human impacts are included." That is a statement about the ability of models to fit past data, not about whether models fitted to past data did or did not successfully predict temperatures thereafter. The distinction between the ability of a theory to fit past data and its ability to predict data not used in building it is something one would expect an economist to be familiar with.

He next responds to the article's attack on the description of CO2 as a pollutant, writing:

In economics, a pollutant is a form of negative externality—that is, a byproduct of economic activity that causes damages to innocent bystanders. The question here is whether emissions of CO2 and other greenhouse gases will cause net damages, now and in the future. This question has been studied extensively. The most recent thorough survey by the leading scholar in this field, Richard Tol, finds a wide range of damages, particularly if warming is greater than 2 degrees Centigrade. Major areas of concern are sea-level rise, more intense hurricanes, losses of species and ecosystems, acidification of the oceans, as well as threats to the natural and cultural heritage of the planet.

The critical point here is the concept of net damages. That CO2 increase causes damages is not sufficient to make it a pollutant in the economic sense, since it also produces benefits. Neither Nordhaus, Tol, nor I  knows what the sign of the sum is, since it depends on unknown future events. As Nordhaus and others have made clear, negative effects become more serious at higher temperatures. The IPCC projections include a range of temperatures, over some of which net effects might well be positive. I have linked in the past to a piece by Chris Landsea suggesting that a very small increase in force of hurricanes will be combined with a somewhat larger decrease in frequency, in which case that effect also might be positive. I have discussed in past posts here other positive effects and my reasons for thinking that they might well outweigh the negative at levels of temperature increase suggested by the IPCC models.

Nordhaus goes on to make some arguments about the controversy itself—that it is not biased in various ways against skeptics—that I find neither convincing nor terribly interesting. 

His final, and possibly most important point, is based on his own research, which he complains that the WSJ article is misrepresenting. He starts with a correct point—that it is the difference between benefit and cost, not the ratio, that matters. He goes on to summarize his conclusion:

My research shows that there are indeed substantial net benefits from acting now rather than waiting fifty years. A look at Table 5-1 in my study A Question of Balance (2008) shows that the cost of waiting fifty years to begin reducing CO2 emissions is $2.3 trillion in 2005 prices. If we bring that number to today’s economy and prices, the loss from waiting is $4.1 trillion. Wars have been started over smaller sums.

 What he does not mention is that his $4.1 trillion is a cost summed over the entire globe and the rest of the century. Put in annual terms, that comes to about $48 billion a year, a  less impressive number. Current world GNP is about $85 trillion/year. So the annual net cost of waiting, on Nordhaus's own numbers, is about one twentieth of one percent of world GNP. Not precisely a catastrophe. 

I suggest a simple experiment. Let Nordhaus write a piece explicitly arguing that the net cost of waiting is about .06% of world GNP and see whether it is more popular with the supporters or the critics of his position. I predict that at least one supporter will accuse him of having sold out to big oil.

That aside, is his conclusion that we ought to have a carbon tax correct? In a world of certainty run by benevolent philosopher kings, the fact that a policy has even a relatively modest benefit is a good argument for it, but we do not live in such a world. In practice, policies aimed at reducing warming will be designed not by William Nordhaus but by political actors subject to political incentives. For a sample of what that is likely to produce, I suggest looking at the cap and trade bill that passed the House a few years ago but did not make it through the Senate. The farther the policies are from optimal, the higher the costs and the lower the net benefits.

Even aside from that very serious problem, we do not live in a world of certainty. Fifty years from now it may turn out that warming has been much less than the IPCC projected due to technological changes that lower the cost of solar or nuclear power below that of power from fossil fuels, sharply reducing CO2 output. It may turn out that warming has followed the projected path, but costs have not—that the increased droughts, hurricanes, etc. have not appeared. It may turn out that benefits from longer growing seasons, milder winters, CO2 fertilization of agriculture, expansion northward of habitable land area, turn out to be larger than in Nordhaus's calculations. It may turn out that progress in other technologies has provided us with easy and inexpensive ways of modifying either the CO2 content of the atmosphere or global temperature. 

The future is very much too uncertain to have confidence in estimates of what will be happening fifty years from now—for an extended demonstration, see my Future Imperfect. If we follow Nordhaus's current advice and tax carbon now in order to slow warming, it may turn out that the costs were unnecessary or even counterproductive. We may be spending money in order to make ourselves poorer, not richer.

I conclude, on the basis of Nordhaus's own figures and without taking account of my past criticism of his calculations, that he has his conclusion backwards. The sensible strategy is to take no actions whose justification depends on the belief that increased CO2 produces large net costs until we have considerably  better reason than we now do to believe it.

P.S. Bob Murphy raised the question of why I assumed that Nordhaus was giving the cost summed over the rest of the century rather than some other period. After looking through Nordhaus' webbed manuscript and a spreadsheet of his model that he sent me in response to a query by email, I think Bob is correct and I was mistaken. As best I can tell, Nordhaus is running his calculations out to 2305.

If so, that has two implications. 

First, I was too generous in my calculation of annual cost—I should have divided by 291 instead of by 86, reducing the annual cost, in 2012 present value, to about .02% of current world GNP.

Second, Nordhaus writes in his manuscript: "At the same time, we must emphasize that, based on our formal analysis of uncertainty, we have relatively little confidence in our projections beyond 2050." So it looks as though the great majority of the cost he reports is from a period for which he has little confidence in his calculations. Something he did not mention in the NY Review of Books piece I have been commenting on.

A later post on the  same topic.

Acts Vs Words: The Case of Nordhaus

In the piece I discussed in my previous post, responding to a WSJ article critical of the current global warming orthodoxy, William Nordhaus attacks the idea that climate scientists are under pressure not to take positions skeptical of global warming. He begins by making fun of the comparison to the enforcement of orthodoxy under Stalin. While it is true that the piece he is criticizing made that comparison, its actual argument was that dissenting scientists "are afraid to speak up for fear of not being promoted—or worse… ." Pointing out that  "No skeptics have been arrested or banished to gulags or the modern equivalents of Siberia" does not answer that. 

Nor does observing that "the dissenting authors are at the world’s greatest universities." As Nordhaus is surely aware, firing tenured professors is difficult. Failing to hire or to promote is much easier. Furthermore, his list of universities at which the scientists who signed the WSJ piece are employed ignores the fact that most of them are not in climate science, making it irrelevant to the argument he is offering—a fact Nordhaus surely knows, but most readers of his piece probably do not.

His conclusion: "I believe the opposite of what the sixteen claim to be true: dissident voices and new theories are encouraged because they are critical to sharpening our analysis."

His argument in support of that claim I find unpersuasive, but that does not imply that the claim itself is false. The piece he is criticizing, after all, offered no evidence in favor of its claim in the opposite direction. Nordhaus himself, however, provides some—not in words but in deeds.

The claim of the critics is summed up in the title of their article: "No Need to Panic About Global Warming: There's no compelling scientific argument for drastic action to 'decarbonize' the world's economy." The claim of those on the other side is the opposite—that global warming poses a severe threat to human welfare and drastic action is needed to slow it. Which side of that argument does Nordhaus' own research, as reported in his article, support?

The answer is clear. He finds that the net cost of waiting fifty years instead of taking the optimal actions now is $4.1 trillion dollars. Spread out over the rest of the century, that comes to about $48 billion/year, or about .06% of current world GNP. Which position is that closer to, that there is a need to panic and take drastic action or that there is not?

And yet, when Nordhaus publishes an article in the New York Review of Books, a very high profile publication, it is an attack on the critics, not an attack on those who, according to his own research, vastly exaggerate the scale of the problem and the need for immediate, drastic action.

A central idea of economics is revealed preference—we judge people by what they do, not by what they say.

More on Nordhaus and Global Warming

In a blog post a while back, I pointed out that William Nordhaus's work on the economics of global warming demonstrated a serious problem with policy arguments based on externalities—the risk, in dealing with something as uncertain as costs and benefits over the next century, that the calculation of externalities will be biased in the direction that produces the result the person doing the calculation wants. Nordhaus included, as an essential part of his argument, an estimate of the expected cost from low probability/high cost outcomes of permitting global warming but made no attempt to include the cost of equivalent outcomes from preventing it—although there is no strong reason to assume that the current global climate is optimal, and so that any change will produce costs but not benefits.

Robert Murphy has webbed a detailed response to a recent Op-Ed by  Nordhaus on global warming, dealing with a variety of other issues. Among his points:

1. Climate models have, on average, overpredicted warming, suggesting that a better estimate would be about 2/3 the current predictions of such models.

2. The paper which Nordhaus cites as supporting the claim that CO2 is a pollutant actually provides evidence that net externalities are positive over a temperature range representing about the next fifty or sixty years of predicted rise, and go negative only after that.

3. Nordhaus's own work finds that the optimal policy to reduce global warming, coordinated among all nations of the world, produces net benefits, but that some proposed policies, including one proposed by Gore, produce much larger net costs. 

One point Murphy did not make but that is worth noting is that the benefits of climate control, on Nordhaus's own figures, are not very large. The optimal policy—for obvious reasons not likely to occur—is calculated to produce a net benefit of about three trillion dollars. That sounds like a lot of money—until one recognizes that it is spread over the entire world and about ninety years. That makes the annual benefit of the ideal policy about 33 billion dollar a year—roughly one percent of the current U.S. federal budget or one tenth of a percent of current world income. 

Which suggests that, with a less ideal and more realistic policy, net costs are likely to be larger than net benefits.

Nordhaus on Global Warming

A correspondent points me at the work of Nordhaus and Boyer, attempting to estimate the externality from CO2 production and the appropriate response. I have not read the printed version, but there is a webbed version available. A number of things strike me:

1. Their conclusion is that 

"current approaches, such as the Kyoto Protocol, are highly inefficient, with abatement costs approximately ten times their benefits in reduced damages."

2. In order to get even that result, they depend on including costs from a very uncertain estimate of the risk that global warming will result in low probability catastrophes of one sort or another: 

"this approach is taken because of the finding of the first-generation studies that the impacts on market sectors are likely to be relatively limited."

Or in other words, without including the costs from such catastrophic risks, global warming doesn't seem to be a serious problem.

3. They estimated the cost from low probability catastrophes by asking a lot of experts how likely they thought it was that there would be a catastrophe, assuming a given rise in global temperature, that would reduce world GNP by at least 25%.

Even if one takes seriously the output of that sort of procedure, there is a striking asymmetry in their approach. They do not appear to have asked any experts what the chance is that preventing global warming would cause a catastrophe—or, to put it differently, that global warming will prevent one. Yet, as I keep pointing out, earth's climate was not designed for us, hence there is no a priori reason to assume that large negative results due to a few degrees of warming are more likely than large positive ones.

This is a striking illustration of my general critique of the "add up the externalities" approach to policy issues. Possible changes can have both positive and negative effects. If you want to conclude that something should be prevented, you focus on the negative effects, ignore or minimize the positive ones, and claim to have an objective argument to support your conclusion. That is precisely what Nordhaus and Boyer have done. The only surprising part is that, even after doing that, they still got only a weak version of the (presumably) desired conclusion.

This leaves me wondering what the pro-global warming view of Nordhaus and Boyer is. Their conclusion  weakens the case for something like the Kyoto protocol--and that conclusion hinges on a procedure that cannot, I think, be defended. Correct that error and their work appears to provide no support for any substantial effort to prevent global warming.

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P.S. After writing this, it occurred to me that there is one respect in which I am being too hard on Nordhaus and Boyer. Suppose we limit "catastrophes" to changes that are not only unlikely and very large, but also very fast. Then there really is some asymmetry to the situation. Humans are currently optimized against the current environment, making any change presumptively negative. I have argued in the past that that is not a strong argument with regard to changes that occur slowly—for example three degrees of warming in a century—since humans will in any case be changing what they do in many ways over so long a period. But that argument would not apply to a change that occurred over only a few years.

If, for instance, climate change makes Europe unbearably cold but adds an equal amount of acceptable land elsewhere, say in northern Canada, and does it in only a couple of years, there will be a very large net cost.

So they would have a legitimate case if they limited their category of catastrophes to rapid ones—but, so far as I can tell from what they wrote, they did not.

Through Rose Colored Glasses

In the article on climate science that I discussed in my two previous posts, William Nordhaus writes:

I believe the opposite of what the sixteen claim to be true: dissident voices and new theories are encouraged because they are critical to sharpening our analysis.

I have no expertise in climate science but I have spent my life in academia. To judge by my experience, he is describing how it should work but not how it does work.

Academics have three ways of gaining income and status in their profession. One is by being hired by a university, preferably a top university, preferably with tenure. A second is by publishing articles in journals, preferably top journals. A third is by publishing original work that the rest of their profession finds convincing. What are the implications for each of being a dissident, someone who rejects the current orthodoxy in one's field?

Hiring and promotion decisions are made by the senior faculty members, who mostly subscribe to the orthodoxy—that, after all, is what it means for a view to be orthodoxy. From the standpoint of the people deciding the dissident's fate, he is someone who has rejected truth in favor of error—not a job qualification. If sufficiently able he may overcome that handicap by persuading them that he is brilliant, technically able, unusually hard working. But it will not be easy.

Much the same applies to the second route to success. The articles he submits will be reviewed by other people in his field. They too are likely to subscribe to the orthodoxy he rejects. Here again, the situation is not hopeless. If an article is sufficiently brilliant, the reviewer may conclude that it is worth publishing even if wrong. He may even be convinced that it is right. But that is not the way to bet. Most of us are more open minded in theory than in practice.

It is only with regard to the third route that being a dissident can be an advantage. Work that supports what everyone else already believes may get you hired and published, but work that offers convincing arguments against the accepted view and for an alternative attracts more attention, not all of it hostile. It may  make you the leader of a new school of thought within your field. It may even win you a Nobel prize.

In order to achieve that sort of success, however, you have to get your work published. It also helps if you are offering your arguments from the pulpit provided by a tenured position at a top university. Those are conditions that the dissident may have trouble satisfying. I am not arguing that new views can never replace old—obviously they sometimes do. But the situation as I have observed it is the precise opposite of the rosy picture offered by Nordhaus.

So much for theory—what about evidence? 

In an earlier post, I offered an example of how dissident views are treated in practice, a prominent university that pushed out three different academics, two of them economists, because of their unconventional views—views for which all three later received Nobel prizes. In the case of the economists we know it was deliberate because the document saying so, written by the department chairman responsible, was carelessly passed on to a later chairman with different views.

For a second piece of evidence, I offer a story. It comes from Leo Rosten, an author who was a friend of my parents. It probably dates from sometime in the late fifties or early sixties.

One one occasion, Leo asked an MIT economist about minimum wage laws and got the conventional answer—that they reduce employment opportunities for unskilled workers by pushing up the cost of hiring them. He asked if that was the view of most economists and was told that it was. He asked why, in that case, economists did not make an effort to inform the public of the problem.

The answer:

"I guess we're afraid of sounding as if we agree with Milton Friedman."

I cannot prove that the story is true, but after fifty some years in academia from freshman on it strikes me as a good deal more plausible than Professor Nordhaus' rosy view.

Climate: The Implication of Uncertainty

Anyone who looks seriously at climate issues should recognize that the consequences of climate change are very uncertain. My own view is that they are sufficiently uncertain to raise serious doubts about the sign as well as the size of the effect, that warming due to human production of greenhouse gases might well make us better off rather than worse off. Even if I am wrong and the effect is almost certainly negative, how negative it will be is very uncertain. CO2 emissions might fall sharply due to increases in the cost of fossil fuels or decreases in the cost of alternatives. For a given value of emissions, varying estimates of climate sensitivity imply at least a factor of two range for the resulting temperature. For a given increase in temperature, the effect on humans depends on what humans will be doing for the next century. Diking against a meter of sea level change could be a serious problem for Bangladesh if it happened tomorrow. If Bangladesh follows the pattern of China, where GDP per capita has increased twenty fold since Mao's death, by the time it happens they can pay the cost out of small change.

A possible response to this point is to argue that uncertainty is no argument against action. One simply replaces the uncertain range of outcomes with the best estimate one can provide of its expected value, the average of costs weighted by their probability, and acts as if that were the known consequence of warming. If the estimate of expected cost is ten trillion dollars, then any precaution to prevent it that costs less than ten trillion is worth taking.

It is a possible response and a popular one, but it is wrong for a reason that ought to be obvious to (at least) economists. The question we are answering is not "what should we do?" but "what should we do now?" Waiting may raise the cost of dealing with the problem but it will also provide additional information. The more information we have, the better our ability to decide what precautions are worth taking. Or not worth taking. Uncertainty that will be reduced over time is an argument against immediate action.

The usual rhetorical response is to claim that we barely have time to act at all, that if we wait more than a very short time it will be too late. This claim becomes less persuasive the more times it is made, and it has  been made, by various people, quite a large number of times over the past twenty years or so. It largely depends on picking some arbitrary temperature change, most commonly two degrees C, and treating it as if it were the end of the world. As salesmen commonly put it, "Buy Now—This Is Your Very Last Chance To Take Advantage of Our Special Offer."

For a more realistic opinion, consider an estimate of the cost of waiting by William Nordhaus, an economist who has specialized in climate issues. In the course of a piece arguing for immediate action against climate change, he reported his estimate of how much greater the cost of climate change would be if we waited fifty years to deal with it instead of taking the optimal action at once.  The number was $4.1 trillion. He took that as an argument for action, writing that "Wars have been started over smaller sums." 

As I pointed out in a post here responding to Nordhaus, the cost is spread over the entire world and a long period of time. Annualized, it comes to something under .1% of world GNP.

"Thought before action, if there is time."
(quote from a character in a Dick Francis novel)

And there usually is.

Judging Outside Your Expertise

I have just been involved in a lengthy exchange on Facebook over my criticism of the claim that warming on the scale projected by the IPCC for 2100 can be expected to have large net negative consequences. The response I got was that the person I was arguing with was not interested in my arguments. He does not know enough to judge for himself whether the conclusion is true, so prefers to believe what the experts say.

Accepting the views of experts on a question you are not competent to answer for yourself, assuming that you can figure out who they are and what they believe, is often a sensible policy, but one can sometimes do better. Sometimes one can look at arguments and evaluate them not on the basis of the science but of internal evidence, what they themselves say. Here are three examples:

The widely cited 97% figure is based mostly on Cook et. al. 2013, which is webbed. It is often reported as the percentage of climate scientists who believe that humans are the main cause of warming and that warming will have very bad effects. Simply reading the article tells you that the second half is false. The article is about causes of warming and offers no evidence on consequences. Anyone who says it does is either ignorant or dishonest, and other things he says can be evaluated on that basis.

If you read the article carefully you discover that the 97% figure, which is a count of article abstracts not scientists, is the percentage of abstracts which say or imply that humans are *a* cause of warming (“contribute to” in the language of one example). The corresponding figure for humans as the principal cause, which is not given in the article but can be calculated from its webbed data, is 1.6%. That tells you that anyone who reports the 97% figure as the number of articles holding that humans are the main cause of warming is either ignorant or dishonest. One person who has done so, in print, is John Cook, the lead author of the article. John Cook runs skepticalscience.com, which is a major source for arguments for one side of the global warming dispute, so knowing that he is willing to lie in print about his own work is a reason not to believe things on that site without checking them. [My old blog post giving details]

One of the economists who has been active in estimating consequences of warming is William Nordhaus. He is, among other things, the original source for the 2° limit. A few years ago, he published an article in the New York Review of Books attacking a Wall Street Journal piece that argued that climate was not a catastrophic threat that required an immediate response. In it, he gave his figure for the cost of waiting fifty years instead of taking the optimal steps now—$4.1 trillion dollars—and commented that “Wars have been started over smaller sums.” What he did not mention was that that sum, spread out over the rest of the century and the entire world, came to about one twentieth of one percent of world GNP. He was attacking the WSJ authors for an argument which his own research, as he reported it, supported.

In a recent Facebook exchange on the consequences of AGW for agriculture, someone linked to an EPA piece on the subject. Reading it carefully, I noticed that the positive effects of warming and CO2 fertilization were facts, with numbers: “The yields for some crops, like wheat and soybeans, could increase by 30% or more under a doubling of CO₂ concentrations. The yields for other crops, such as corn, exhibit a much smaller response (less than 10% increase).” The negative effects were vague and speculative: “some factors may counteract these potential increases in yield. For example, if temperature exceeds a crop's optimal level or if sufficient water and nutrients are not available, yield increases may be reduced or reversed.” The same pattern held through the article.

A careful reader might also notice that the piece referred to the negative effects of extreme weather without any attempt to distinguish between extreme weather that AGW made more likely (hot summers), less likely (cold winters), or would have an uncertain effect on (droughts, floods, hurricanes). It was reasonably clear that the article was designed to make it sound as though the effects of AGW would be negative without offering any good reason to believe it was true. One telling sentence: “Overall, climate change could make it more difficult to grow crops, raise animals, and catch fish in the same ways and same places as we have done in the past.” With most of a century to adjust, it is quite unlikely that farmers will continue to do everything in the same ways and the same places as in the past.

These are three examples of arguments for one side of the climate controversy by a source taken seriously by supporters of that side. Each can be evaluated on internal evidence, what it itself says, without requiring any expert knowledge of the subject. In each case, doing so gives you good reasons not to trust either the source or the conclusion.

Readers may reasonably suspect that I too am biased. But nothing I have said here depends on your trusting me. In each case, you can look at the evidence and evaluate it for yourself. And all of it is evidence provided by the people whose work I am criticizing.