Professor Martin L. Weitzman lays bare five assumptions discounting extinction-level threat in conventional climate change economics benefit–cost analysis (BCA). <sigh> Still he uses language to hold climate truth at arms length, for example by characterizing hazard of utmost significance as "nonnegligible". <facepalm>
I believe that the most striking feature of the economics of climate change is that its extreme downside is nonnegligible. Deep structural uncertainty about the unknown unknowns of what might go very wrong is coupled with essentially unlimited downside liability on possible planetary damages. This is a recipe for producing what are called ‘‘fat tails’’ in the extremes of critical probability distributions.
image source, text from article
I argue not that the standard model is wrong or even implausible, but rather that it may not be robust with respect to the modeling of catastrophic outcomes.
... the gradual tightening of GHG emissions, which emerges as optimal policy from the ‘‘standard’’ BCA, typically attains stabilization at levels of CO2 that approach 700 ppm (and levels of CO2e that are even higher). ... up to two-and-a-half times above their highest level over the past 800,000 years—without mentioning the unprecedented nature of this unique planetary experiment. This is my Exhibit 1.
Exhibit 2 is about Equilibrium Climate Sensitivity (S) and the Uncertainty of the Climate Change Response.
Weitzman says higher Equilibrium Climate Sensitivity values are necessarily based on extrapolation, since we never lived through such extreme changes, we have to rely on prior beliefs and subjectivity.
The actual empirical reason for why the upper tails of these probability distributions are long and seem heavy with probability dovetails with Bayesian theory: inductive knowledge is always useful, of course, but simultaneously it is limited in what it can tell us about extreme events outside the range of experience.
Thus, any curve-fitting exercise attempting to attribute probabilities to S 4.5C ... is little more than conjectural speculation.
Exhibit 3 is the carbon cycle feedbacks omitted, that should be included in "fast-feedback".
Exhibit 4 concerns what I view as a somewhat cavalier treatment in the literature of damages or disutilities from extreme temperature changes. The ‘‘standard’’ BCA damages function reduces welfare-equivalent output at mean global temperature change T by a quadratic polynomial multiplier...
I do not find the numbers ... convincing for higher temperatures. At an extraordinarily high global average temperature change of ... 10C, the welfare-equivalent damage... is a loss of ‘‘only’’ 19 percent of world output at the time of impact.
This is equivalent to a reduction in projected annual growth rates from 2 percent to 1.9 percent. Such a mild kind of damages function is practically preordained to make extreme climate change look empirically negligible, almost no matter what else is assumed.
He explains how choosing a quadratic-polynomial multiplier assumes "the economy ...[can] easily substitute higher consumption for higher temperatures ...(due to the multiplicative-polynomial assumption)." Choosing a different equation to model climate damage predicts far more damage.
Exhibit 5 concerns ... how to discount the distant future. The effects of global warming and climate change will be spread out over centuries and even millennia from now. The logic of compounding a constant positive interest rate forces us to say that what one might conceptualize as monumental—even earth-shaking—events, such as disastrous climate change, do not much matter when they occur in the deep future. Perhaps even more disturbing, when exponential discounting is extended over very long time periods there is a truly extraordinary dependence of BCA on the choice of a discount rate. ... an especially acute problem when distant future events like climate change (especially catastrophic climate change) are being discounted.
There is no deep reason or principle that allows us to extrapolate past rates of return on capital into the distant future.
The constant interest rates used for discounting in the ‘‘standard’’ BCA would be viewed by many people as severely biasing BCA toward minimizing into near nothingness the present discounted value of distant future events, such as climate change. ...
What I would wish the reader to take away from these five exhibits is the notion that the seeming immunity of the ‘‘standard’’ BCA to such stylized facts is both peculiar and disturbing.
... , we are increasingly moving into the unknown territory of subjective uncertainty, where our probability estimates of the probability distributions themselves become increasingly diffuse because the frequencies of rare events in the tails cannot be pinned down by previous experiences. From past data alone, it is not possible to know enough now about the frequencies of future extreme tail events ...the disutility of extreme climate change is ‘‘essentially’’ unbounded.
There is ‘‘essentially’’ unlimited liability here because global stakeholders cannot short the planet as a hedge against catastrophic climate change.
... my main message can seem off-putting because it can be painted as antiscientific and antieconomic. Fat tails and the resulting limitations they impose on the ability of BCA to reach robust conclusions are frustrating for economists. After all, we make a living from plugging rough numbers into simple models and reaching specific conclusions (more or less) on the basis of those numbers. What quantitative advice are we supposed to provide to policy makers and politicians about how much effort to spend on averting climate change if the conclusions from modeling fat-tailed uncertainties are not clear cut? Practical men and women of action have a low tolerance for vagueness and crave some kind of an answer, so they have little patience for even a whiff of fuzziness from two-handed economists. It is threatening for us economists to admit that constructive ‘‘can do’’ climate change BCA may be up against some basic limitations on the ability of quantitative analysis to yield robust policy advice.
Economists should not pursue a narrow, superficially crisp, analysis by blowing away the low-probability, high impact catastrophic scenarios as if this is a necessary price we must pay for the worthy goal of giving answers and advice to policy makers. An artificial infatuation with crispness is ... marginalizing the very possibilities that make climate change so grave in the first place. [emphasis mine]
Second time I try to read this, but I got stuck again. I'm not ready to read this with an open mind OR he hides in a woolly tangle of sentences that go nowhere.
Yeah, he's not an easy read. Also, I did a poor job of trying to summarize. The most important part is Exhibit 5, I think. Economists have been pretending that the high rate of return on investment typical of our fossil fuel heyday will continue forever, hence the idea that future people will be ever so much richer than us that they can easily afford to fix our ecological destruction legacy. When in truth, the basis for the entire economy is being wiped out while we render the planet uninhabitable, so future people will be ever so much poorer.
In Exhibit 4 he's suggested economists have been choosing math which hides how bad the damages will be.
"It is difficult to judge how fat the tail of catastrophic climate change might be because it represents events that are very far outside the realm of ordinary experience."
Do statistical data reveal
1. disappearing glaciers,
Do changes in these factors give an indication that modern changes may be exceptional? Could it be "events that are very far outside the realm of ordinary experience" do reveal events occurring as we discuss climate change?
The man is either lazy, in denial, delusional, or demented by the propaganda that benefits him? Is he the kind of person we need in our educational system. Perhaps students and the public can join to oust him; he represents what is harmful in education.
We need to take a hard look at current economic and political harm caused by people such as this guy.
I don't follow your reasoning here, Joan. He is saying it's hard to quantify future climate damage because climate change is unprecedented. He never suggested no harm.
My claim is that we do have recent quantifiable evidence of climate change damage even as we are unable to quantify the degree of damage in the future. When " He is saying it's hard to quantify future climate damage because climate change is unprecedented." Of course, it is difficult to quantify the "fat tail" of climate change! It has never happened to us in human history as it happens today. Whether climate change is as dangerous as some would have us think is a gamble. Perhaps life as we know it will survive, perhaps the sixth mass extinction will not matter to us, perhaps the ocean rising will not occur and perhaps the world refugees will not materialize. Perhaps, perhaps, perhaps! What if they do?
There is a serious and significant difference between the history and forecasting of economic and political trends and changes in climate. The climate tends to change in a precipitous fashion, not in slow increments, as often happens when studying the past and predicting the future of financial markets or administrative tasks.
"Glen Fergus [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons" href="https://commons.wikimedia.org/wiki/File:All_palaeotemps.svg"><img width="512" alt="All palaeotemps" src="https://upload.wikimedia.org/wikipedia/commons/thumb/5/5f/All_palaeotemps.svg/512px-All_palaeotemps.svg.png"></a>
Very helpful chart, Joan. Yes indeed, "The climate tends to change in a precipitous fashion, not in slow increments".
So many trends are changing so fast, it's scary. We'll be facing those fat tail extremes abruptly, unprepared.
…global fossil fuel burning — continues to increase rapidly.
And renewable energy … has not only failed to halt the explosive rise in fossil carbon burning, it's falling ever-further behind.
… humanity now burns two-thirds more fossil fuels than in 1990.Climate-safe energy did indeed increase significantly since 1990, rising by 1.1 Gtoe. But humans increased fossil fuel burning four times more. [Click on the chart below to see all of it.]
The article by Barry Saxifrage shows we're accelerating fossil fuel use.
Exponential changes occur in population growth, use of fossil fuels, the plan of some to dig up coal, pump out oil, and use up water as fast as we can thinking better to live well now if we are burning up anyway! What a cynical attitude! Whatever happened to looking at reality, delaying gratification, budgeting resources, while we explore non-fossil fuel alternatives?
Euros are generally more environmentally aware and community oriented, compared to people in the US.
I believe this has a lot to do with the fact that studies show they are happier than Americans.
The quality of life in W. Europe is superior. They have far more vacation time (4 wks to start), fewer work week hours, better healthcare, and generally a much better social safety net than we do.
If one is not happy internally they are far less likely to focus externally. Not to mention the fact one is more likely to find the "me" culture in the US, which results in a lack of caring for the environment and concern for future generations.
The US is far behind Europe in climate mobilization, for sure. Your reasoning makes sense.