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Does Paul Krugman Vastly Understate the Economic Argument for Climate Action?
Alex Steffen, 8 Apr 10

Paul Krugman has a piece in this week's New York Times Magazine, one that I'm not at all sure is as big a love letter to climate action as some in the environmental movement make it out to be.

Krugman argues that the consensus for action among economists studying climate has been largely overlooked:

Like the debate over climate change itself, the debate over climate economics looks very different from the inside than it often does in popular media. The casual reader might have the impression that there are real doubts about whether emissions can be reduced without inflicting severe damage on the economy. In fact, once you filter out the noise generated by special-interest groups, you discover that there is widespread agreement among environmental economists that a market-based program to deal with the threat of climate change — one that limits carbon emissions by putting a price on them — can achieve large results at modest, though not trivial, cost.

Furthermore he addresses the need for action in the face of uncertainties:

Now, despite the high credibility of climate modelers, there is still tremendous uncertainty in their long-term forecasts. But as we will see shortly, uncertainty makes the case for action stronger, not weaker. So climate change demands action.

And discusses the costs of actions to reduce emissions:

Just as there is a rough consensus among climate modelers about the likely trajectory of temperatures if we do not act to cut the emissions of greenhouse gases, there is a rough consensus among economic modelers about the costs of action. That general opinion may be summed up as follows: Restricting emissions would slow economic growth — but not by much. The Congressional Budget Office, relying on a survey of models, has concluded that Waxman-Markey “would reduce the projected average annual rate of growth of gross domestic product between 2010 and 2050 by 0.03 to 0.09 percentage points.” That is, it would trim average annual growth to 2.31 percent, at worst, from 2.4 percent. Over all, the Budget Office concludes, strong climate-change policy would leave the American economy between 1.1 percent and 3.4 percent smaller in 2050 than it would be otherwise.

Where Krugman disappoints is on two counts: the cost of inaction and the benefits of action. On the costs of doing nothing, he says:

While there may be some benefits from a warmer climate, it seems almost certain that upheaval on this scale would make the United States, and the world as a whole, poorer than it would be otherwise. How much poorer? If ours were a preindustrial, primarily agricultural society, extreme climate change would be obviously catastrophic. But we have an advanced economy, the kind that has historically shown great ability to adapt to changed circumstances. If this sounds similar to my argument that the costs of emissions limits would be tolerable, it ought to: the same flexibility that should enable us to deal with a much higher carbon prices should also help us cope with a somewhat higher average temperature.

But there are at least two reasons to take sanguine assessments of the consequences of climate change with a grain of salt. One is that, as I have just pointed out, it’s not just a matter of having warmer weather — many of the costs of climate change are likely to result from droughts, flooding and severe storms. The other is that while modern economies may be highly adaptable, the same may not be true of ecosystems. The last time the earth experienced warming at anything like the pace we now expect was during the Paleocene-Eocene Thermal Maximum, about 55 million years ago, when temperatures rose by about 11 degrees Fahrenheit over the course of around 20,000 years (which is a much slower rate than the current pace of warming). That increase was associated with mass extinctions, which, to put it mildly, probably would not be good for living standards.

So how can we put a price tag on the effects of global warming? The most widely quoted estimates, like those in the Dynamic Integrated Model of Climate and the Economy, known as DICE, used by Yale’s William Nordhaus and colleagues, depend upon educated guesswork to place a value on the negative effects of global warming in a number of crucial areas, especially agriculture and coastal protection, then try to make some allowance for other possible repercussions. Nordhaus has argued that a global temperature rise of 4.5 degrees Fahrenheit — which used to be the consensus projection for 2100 — would reduce gross world product by a bit less than 2 percent. But what would happen if, as a growing number of models suggest, the actual temperature rise is twice as great? Nobody really knows how to make that extrapolation. For what it’s worth, Nordhaus’s model puts losses from a rise of 9 degrees at about 5 percent of gross world product. Many critics have argued, however, that the cost might be much higher.

...You might think that this uncertainty weakens the case for action, but it actually strengthens it. As Harvard’s Martin Weitzman has argued in several influential papers, if there is a significant chance of utter catastrophe, that chance — rather than what is most likely to happen — should dominate cost-benefit calculations. And utter catastrophe does look like a realistic possibility, even if it is not the most likely outcome.

He ultimately concludes that it is "the nonnegligible probability of utter disaster that should dominate our policy analysis."

But that falls into the trap that we've been encountering continuously in the discussion of climate change and planetary boundaries, the trap of downplaying the potential consequences in order to appear more reasonable in an American debate that's been distorted out of any relationship to reality.

Here's the reality with which our economy is colliding:

* Climate change is already unfolding much more quickly than we thought it would.

* The models upon which we're basing our discussions today (largely the IPCC models) are known to be seriously out-of-date and overly conservative in predicting the speed and consequences of climate change.

* Steady losses that are climate-related (such as losses of ecosystem services) are already exacting a serious economic cost, while droughts, heat waves, flooding and freak storms grow steadily more common and expensive.

* Many of the negative effects of climate change are expected to be catastrophic cascading failures -- a phenomenon baseline economic models seem unable to incorporate. Large, permanent collapses are entirely within the scope of reasonable expectation and yet are not generally accounted for in economic studies. For instance, there's increasing worry about mega-fires which could burn off whole climate-stressed forests, burning so hot they change the very composition of the soil, resulting in permanently degraded land (at least within human time scales): that sort of collapse is not factored into our models of economic reality, yet is increasingly expected even if we act on climate change. The economic impacts of these sorts of catastrophic cascading failures are massive in terms that dwarf today's economy; the economic impacts of the melting of the Arctic ice cap alone were just estimated to be as great as $24 trillion dollars by 2050. That doesn't count the spread of epidemic diseases, more rapidly rising seas from the increased melting of Antarctica, desertification, the burning of the rainforests, the spread of invasive species, or a host of other massive problems. (And remember, these are expected effects, not the worst case scenarios.) The entire world economy -- the value of everything humanity did anywhere on the planet -- was $57 trillion last year, to give a sense of scale.

* Geopolitical stability is likely to unravel in a climate crisis world. Wars, famines, epidemics, mass migrations, economically devastating local disasters -- all are expected to multiply, bringing all sorts of disruptions to trade, public health costs, and irrational destruction of ecological assets (people fighting over a oasis in a deserted Sahel are not always the most rational economic actors).

In other words, forget "the nonnegligible probability of utter disaster" -- forget the possibility of, say, runaway feedback loops heating and altering the planet to the point where the existence of multicellular life is at stake -- our best understanding of what we expect is coming given even moderately strong action is a massive disruption to life as we know it; while the nine degree temperature rise scenarios are truly Mad Max worlds of massive death and disaster, that's the road we're still on. There will be no economy to speak of in that world.

Those are the stakes, and to frame this as a cost-benefit discussion and ignore that reality is to abet delay, compromise and corruption. The Right's biggest victory of the last fifty years has been to make smart people who know alarming, documented truths about our planet afraid to speak them in public for fear of being branded radical. That, my friends, is a propaganda coup.

Worse still, I think Krugman misses the opportunity to advance another important argument, which is that we're almost certainly going to be better off in a world where we act boldly on climate, not just compared to the hell we'll live in if we don't act, but compared to the world we live in now.

Yes, some emissions reductions cost real money if measured purely in comparison to the cost of doing nothing. But we already know that the actions we need to take return a far stronger economy in balance; and that the externalities of some dirty economy practices are so massive that changing them can have huge indirect benefits (think, for instance, of cars and the massive indirect benefits of shifting towards less auto-dependent communities). A bright green economy is not analogous to a dirty economy, just with the energy sources swapped: it can work differently, and, on balance, better: it can produce new innovations, better designs, more intelligently planned cities, stronger communities, healthier kids, long-lifespans, higher qualities of life. A bright green world isn't just less bad environmentally; it's better in nearly every way.

Perhaps, as I've been told, economists would have to break long-established traditions and count more externalities in order for their models to reflect that reality. Maybe it's time they got started.

In the meantime, I'm not sure that Paul Krugman is actually doing the climate movement much of a favor with this piece. All that said, he's brilliant, and it's worth reading the article in it's entirety.


Image of smog in Santiago courtesy of Flickr photographer hprechtb under the Creative Commons License.

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Comments

I disagree with your position.

You're right - he isn't speaking to the people who already think action is mandatory, and he doesn't capture the scale of the problem as fully as he could. He's not trying to.

He's trying to convince moderates (and maybe a few rational conservatives) that a cap-and-trade proposal fits within a capitalist system defined and advocated by Conservatives.

His focus is more on discrediting the anti-action movement. I think he accomplishes that. He's fighting the propaganda by discrediting the propaganda, rather than building a case for reality. If someone has bought the propaganda, they're not going to listen to reality. But they may listen to a discrediting of the propaganda because the argument's entry point is that of a neutral observer.

I think he is doing the movement a big favor here. The political will is the problem, and in order to build political will, moderates need to realize that action is more favorable than inaction.

WM is the best legislation we have a political chance at becoming law. I think the aim is to grow enough support for it that it will become law through a thoughtful explanation that will change the minds of moderates.


Posted by: Jake Brown on 9 Apr 10

"WM is the best legislation we have a political chance at becoming law."

I don't disagree. I also take your larger points.

I also think WM's not even in the same century as adequate.

I wonder at what point reaffirming the (completely insane) beltway conventional wisdom -- that the climate/biosphere catastrophe we're seeing unfold around us is manageable and shouldn't interfere with the economy too much -- does more harm than good.

If we in fact see the kind of planetary shifts we're being warned about, what we'll have is not an economy, but ruins. At some point, we have to start saying that, even when it doesn't fit the DC narrative.


Posted by: Alex Steffen on 9 Apr 10

I've seen no substantive arguments that the climate models are outdated (they all remain highly imperfect stunt planets and will remain so...). What's outdated are the emissions trajectories. Different issue. One reality from the modeling is that the range of possible warming from a doubling of pre-industrial CO2 remains extremely wide -- from modest to catastrophic (as it has been for 3 decades). That's why the Weitzman uncertainty-is-reason-for-action argument is probably most germane to policy discussions.


Posted by: Andy Revkin on 9 Apr 10

"I've seen no substantive arguments that the climate models are outdated (they all remain highly imperfect stunt planets and will remain so...). What's outdated are the emissions trajectories."

You're right that emissions projections are worse. Unless I'm very badly misreading what people are telling me, though, the IPCC impacts assessments from the fourth assessment report reflect both conservative assumptions and earlier models.

I'd be interested, given the kinds of impacts we're now seeing and the kinds we're being told to expect even in a 2 degree rise, what you find "modest" about them? ;)


Posted by: Alex Steffen on 9 Apr 10

Although every credible environmentalist agrees on some levels that Krugman could have done more... we really need to face reality. Gaining his support and the support of others who have great influence on large populations is critical to success. I feel like he is being pecked to death by his own flock of ducks when all he was trying to do is move the conversation mainstream. If we get hung up in semantics and being hypercritical, we may discourage the next emerging environmentalist from joining the effort to reverse climate change. After all, not everyone in the choir is a lead soprano. I appreciate your viewpoint, but your time could be better spent analyzing the real climate villains out there. Go Krugman!


Posted by: Elizabeth Madrigal on 9 Apr 10

Re Alex's response, "Modest" was meant in a relative way, but does imply a comfort zone, so you're right. It's too value laden a term. (Written on the run.) The point is that there's been no real policy-relevant reduction in the range of climate outcomes from a given rise in greenhouse gas concentrations, while the plausible worst case (probability not definable) provides a strong basis for an aggressive response, under the logic of Marin Weitzman, Steve Schneider and others. Relevant: http://j.mp/dotTip


Posted by: Andy Revkin on 9 Apr 10

Agree or disagree, it's great to see your thoughtful and timely response to Krugman's important piece, from a "bright green" perspective. I and perhaps others would welcome more of this "rapid response" commentary on more mainstream developments from Worldchanging. Thanks, Alex.


Posted by: Ted Wolf on 9 Apr 10

plus the Stern Review says "Our actions now and over the coming decades could create risks of major disruption to economic and social activity, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century. And it will be difficult or impossible to reverse these changes."

Disruption on a par with the Great Depression and World Wars I and II. How's that for stark?

(see http://www.hm-treasury.gov.uk/d/Executive_Summary.pdf)


Posted by: Bill Hewitt on 10 Apr 10

I see Paul Krugman saying "To the objection that such a policy would be protectionist, a violation of the principles of free trade, one reply is, So? Keeping world markets open is important, but avoiding planetary catastrophe is a lot more important."

Therefore I don't believe he is understating the economic argument for climate change.

I don't see how we may make a major shift in climate dynamics if we only appeal to rational arguments, we need to connect with life in the planet from an emotional plane.


Posted by: Andrés on 10 Apr 10

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