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On Climate, Uncertainty Is Not the Same as Agnosticism

Posted by hkarner - 5. Mai 2017

Date: 04-05-2017
Source: The Wall Street Journal

Greg Ip disagrees with Bret Stephens: uncertainty does not negate the case for climate action

Climate models generally assume the relationship between damage and temperature is nonlinear, that is each added degree of warming is more destructive than the last, Greg Ip writes.

Our former colleague Bret Stephens has stirred a hornet’s nest at his new home, The New York Times, with a column that challenged the certainty with which many climate-change activists make their case and compared them to Hillary Clinton’s hubristic campaign advisers.

But while I agree with his central point, I don’t agree with the implication: that uncertainty negates the case for policy action. Yes, religious conviction is too often attached to the apocalyptic scenarios embedded in many climate forecasts. A freak weather event such as a warm April or Superstorm Sandy often becomes a clarion call to action, when science doesn’t support the link.
False confidence is toxic to good decision making; look no further than the supposed “slam dunk” case that Iraq had weapons of mass destruction.

But uncertainty is not the same as agnosticism. Policy makers seldom have the luxury of waiting until probabilities go to zero or 100%. How they act in the fact of uncertainty depends on the nature of that uncertainty.

First, what is the base case? Is it that the planet will warm?

Second, what’s the range of uncertainty around that base case? With 95% confidence, how much do we think temperatures might deviate from our base case: One degree? Two degrees? Because people are risk averse, higher uncertainty makes them more willing to pay to avoid a risk, which strengthens the case for action. (That’s why stock options are more expensive when volatility goes up.)

Third, how are risks skewed? Climate models generally assume the relationship between damage and temperature is nonlinear, that is each added degree of warming is more destructive than the last.

William Nordhaus, the Yale university economist who developed the first model of the economics of climate change, says the nonlinear relationship between damage and temperature is based on both theory and evidence. If people’s lives are optimized for a particular temperature (e.g. farmers’ choice of crops or our home insulation), small deviations don’t matter much, while large deviations do. There’s also empirical evidence that crop damage and glacier melt accelerate with temperature.

These nonlinear (or “convex”) relationships mean the risks of climate change are highly asymmetric. More uncertainty could mean a higher probability of no increase in temperature or a very large increase. The consequences of the first are quite benign, of the second, quite destructive (if not to the whole planet, then to individual cities and communities).  In this case, climate mitigation policy begins to look more like catastrophe insurance where we are paying to avoid small probabilities of really awful outcomes.

Fourth, is there “option” value to waiting? Sometimes, there is: Rather than book a plane ticket a year in advance for a vacation you may never take, you book two months in advance after your plans are fixed. But sometimes, the cost goes up with waiting. If a mammogram suggests some probability of breast cancer, you can undergo immediate but potentially unnecessary treatment. Or you can wait to see if cancer develops, at the risk of lowering your odds of survival.

With climate, it cuts both ways. The damage arrives very gradually, and responds to mitigation with extremely long lags. Failing to act before date X is not automatically fatal. By waiting, policy makers may discover the problem isn’t so severe, or a new technology may come along that fixes the problem at a fraction of today’s price.

On the other hand, if the forecasts prove correct and no new technology comes along, policy makers have guaranteed that atmospheric concentrations will ultimately stabilize at a higher level, with all the associated damage.

All this implies that the case for acting is stronger than the case for not acting.

But what form should action take? Mr. Stephens writes: “Demanding abrupt and expensive changes in public policy raises fair questions about ideological intentions.”

This is a straw man. Acting now could hardly be called abrupt given that the scientific consensus around manmade climate change coalesced more than two decades ago and the U.S. has yet to take any concerted mitigation action.

And “expensive” is meaningful only relative to the expected benefits. The U.S. nuclear deterrent is also expensive, but the benefit of reducing even the small chance of a nuclear attack is considerable. The point of cost-benefit tests is to ensure that mitigation policies cost less than a reasonable estimate of benefits.

That’s where the real debate should be. If the planet is probably warming, what is the most cost-effective way to respond? Is it to do nothing—which is justifiable if Americans attach minimal value to the lives of future generations or foreigners? Is it to adapt (more seawalls, air conditioners and food aid) rather than mitigate? Or is to take whatever steps are feasible now to begin tilting economic growth in a less carbon intensive direction?

If it’s the third, a revenue-neutral carbon tax is the least costly, least distortionary way to begin that process. It’s also reversible. If some decades from now the science on climate change changes, the carbon tax can be repealed, and economic output, with a lag, will return to its original path. But if the science doesn’t change or becomes more ominous, the subsequent buildup in carbon concentrations will be virtually irreversible.

 

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