Wednesday, April 23, 2014

Economic guesswork (please see updates too)

Here are a couple of people with some apparent credentials in the field who think that the IPCC is doing a poor job at making accurate forecasts of the economic consequences of climate change.  (They seem to think it is being too optimistic.)

Common sense suggests they are right.

But while I would not want there to be less research on the topic, I'll repeat my gripe that I find it pretty incredible that anyone thinks that economic forecasting that extends beyond about a 10 to 20 year horizon, and which is trying to take into account large uncertainties in terms of the potential for natural disasters of a scale not seen since industrialisation, has any real hope of being accurate.

The simple point is - we do not want to have to re-order the world to meet a potential for 2 to 5 degree average global temperature rise (and a global rearrangement of rainfall that would surely also be involved) if we don't really have to.   Such an increase is self evidently going to be extremely disruptive (given that the difference between an ice age and a warm interglacial may be as little as 2.6 degrees), to countries both rich and poor, and the possible compounding effect of the types of natural disaster one upon the other are really impossible to foresee.

Economics should not be allowed to overrule common sense on this issue.  There is plenty of reason to assume some unprecedented disasters in terms of humanitarian, cultural and economic life, so act to limit the potential now.

Update:  for more detail on the confusing way economic analysis is used by the IPCC, you could do worse than read this post at Real Climate, and the comments following.

Update 2:  I note from poking around The Conversation (and finding a comment by Eli Rabbett) that there is other academic support for my common sense skepticism about applying economics to climate change.     Here is the abstract from a recent paper by Rosen and Guenther, which can be read in its entirety here:
The long-term economics of mitigating climate change over the long run has played a high profile role in the most important analyses of climate change in the last decade, namely the Stern Report and the IPCC's Fourth Assessment. However, the various kinds of uncertainties that affect these economic results raise serious questions about whether or not the net costs and benefits of mitigating climate change over periods as long as 50 to 100 years can be known to such a level of accuracy that they should be reported to policymakers and the public. This paper provides a detailed analysis of the derivation of these estimates of the long-term economic costs and benefits of mitigation. It particularly focuses on the role of technological change, especially for energy efficiency technologies, in making the net economic results of mitigating climate change unknowable over the long run.

Because of these serious technical problems, policymakers should not base climate change mitigation policy on the estimated net economic impacts computed by integrated assessment models. Rather, mitigation policies must be forcefully implemented anyway given the actual physical climate change crisis, in spite of the many uncertainties involved in trying to predict the net economics of doing so.
Rarely do I find such detailed and complete vindication for a position I've espoused as a matter of common sense from people who actually know what they are talking about!

Update 3:   as noted in this article in The Conversation by a couple of Australians, the IPCC is right to note that emissions cuts are about ethics too.  From the link:

Knowing the price of everything?

Judgements about value also come into the complex debate about future economic costs and damages from climate change.

All too often, analyses focus purely on the anticipated economic damage, using lower estimates as a rationale for less action on climate change. This is a simplistic view, as it misses three crucial points.

First, as humans we care about things that are not valued in economic markets. Most Australians care far more about the Great Barrier Reef than its (nevertheless impressive) tourism revenues would suggest. Most of us also care about species going extinct, on an emotional level quite separate from the environmental and health benefits of species diversity. Ignoring these concerns means ignoring many of the values that societies hold.

Second, climate effects will vary greatly across different regions and social groups, and this is usually not reflected in simple economic cost estimates. It is often the poor who are most at risk from climate change, and will find it harder to adapt or recover. If a citizen of an Australian beach suburb loses a A$2 million house, should this be counted as 200 times worse than a Vietnamese peasant losing their A$10,000 home?
Finally, and crucially, climate change is about risks. There is a risk – perhaps small, but we do not know how small – of catastrophic impacts. Should we ignore the risk of very bad outcomes for future generations, or should we give extra weight to them?

The IPCC’s report does not provide the answers, because the IPCC is not policy prescriptive. It aims to give decision-makers the latest reliable information, and a compass to navigate their way through decisions that should be based on deeper considerations than short-term economics or electoral tactics.

1 comment:

nottrampis said...

wow,

Thanks Steve that is a really interesting article. I will highlight it on Friday giving you credit of course