Climate change: "the greatest market failure the world has seen"

The Stern Review, the most comprehensive review ever on the economics of climate change, was published today (as I previewed yesterday). The report is nothing if not thorough. All 27 chapters are now available on the Treasury website to download - or I guess you can wait until January and pay Cambridge University Press £29.99 for the book (CUP obviously don't believe in print on demand!). Also available is today's Press notice, along with Sir Nicholas Stern´s presentation (PDF), and speaking notes (PDF).

Sir Nicholas said in his presentation that "we have to muster all the economics we can bring to bear" on climate change - a sentiment few readers would disagree with. Here is a short excerpt from his presentation:

The science tells us that GHG emissions are an externality; in other words, our emissions affect the lives of others. When people do not pay for the consequences of their actions we have market failure. This is the greatest market failure the world has seen. It is an externality that goes beyond those of ordinary congestion or pollution, although many of the same economic principles apply for its analysis.

This externality is different in 4 key ways that shape the whole policy story of a rational response. It is: global; long term; involves risks and uncertainties; and potentially involves major and irreversible change.

Although the press have highlighted some of the doomsday warnings in the report, these are based on the 2100 'business as usual' scenarios - not on likely developments anytime soon. As Sir Nicholas said today, the Review's conclusion are "essentially optimistic. There is still time to avoid the worst impacts of climate change, if we act now and act internationally. He spelled out three strands to policy:

First, we must establish a carbon price via tax, trade and regulation – without this price there is no incentive to decarbonise. Second, we must promote technology: through research and development. Further, private sector investors need confidence that there will be markets for their products: that is why deployment policy also makes sense. And third we must deal with market failure; for example problems in property and capital markets inhibit investments for energyefficiency.

The usual suspects have rushed to condemn the report - some even before it was published. Like Sunday Times journalists and blogger David Smith, I won't comment on it in detail until I've had a chance to read it. But I certainly agree with David's comment that:

..the broad thrust of his report, that money spent now will save much bigger costs later, makes sense, as does his emphasis on carbon trading.

Comments

[bee]

What externality? The probability of global warming is lower than global cooling. Please use reason and facts.

[Arthur Eckart]

Right Bee. Perhaps, Europeans want those upstart economies to stop passing their sluggish economies so quickly. Or the high tax rates in Europe aren't enough. So, they have to tax the rest of the world also. It may be cheaper to nuke a few volcanos to block out the sun for some period rather than tax growth. Of course, they'd never consider anything like that.

[Finnsense]

bee,

I'm sure you see the irony in your own comment.

Arthur,

Yes you're right. I'm sure this 700 page report by a highly respected former world bank chief economist is a European plot rather than an even-handed and thorough attempt to get to grips with the economics.

[Lafayette]

Finnsense: "I'm sure this 700 page report by a highly respected former world bank chief economist is a European plot rather than an even-handed and thorough attempt to get to grips with the economics."

I wonder to what extent economics has anything to do with it. The Stern Review borders on hysteria: "It is time for the EU and other industrialised nations to put the US and Australia on notice: if they fail to act in the next 12 to 18 months they should expect products and goods that are produced in a climate unfriendly way to be subject to trade restrictions. ..."

This is unrefined malarkey. There is no way in heaven or on earth that such a policy could be implemented. It would be thrown out of the WTO the moment it entered.

There are many good reasons to be rid of our dependency on the carbon molecule as a source of energy. But, this sort of hysterics is not one of them.

[Robert Metcalfe]

Lafayette

I have heard of worse than this at the WTO. E.g. the discrepancies of the sea turtle versus the shrimp cases. The WTO can bend its rules on antyhing, and it has been known to use the precautionary principle before, so why not use it on imported products than do not internalise full costs?

[Lafayette]

RM: "The WTO can bend its rules on antyhing, and it has been known to use the precautionary principle before, so why not use it on imported products than do not internalise full costs?"

Because of the breadth of the policy proposed and because of the inexactness of the ability to estimate the "internalized costs". Any cost estimate is purely conjectural and would be a source of constant controversy. Not even the premise of global warming has any clear prominence within the scientific community.

The WTO would not touch it because of its import upon many major economic powers, and not just the US. To implement such a regulation would open the WTO to a Pandora's box of efforts by countries with a particular political bent. It was not constructed for such, since it's basis in legality is limited. The WTO is NOT a supra-national body for global governance and likely never will be.

Even as regards its foundation in international law, such a regulation would have a hard time being justified - given the nature of its scientific foundation and, as said above, its inability to estimate rationally the "costs of pollution", which are mostly assessments that entail highly controversial assumptions. The whole process would generate an unbelievable polemic on an international scale.

Polemic is not a solid foundation upon which to reside international law. To do so is called "legislating from the bench".

[Lafayette]

NE: "There is still time to avoid the worst impacts of climate change, if we act now and act internationally. He spelled out three strands to policy:"

This reminds me of the "Goebbels conjecture", by which merely sufficient repetition of an assumption makes people believe it is fact.

There is NO prominence in the scientific community for global warming as a danger to mankind at the present.

Global warming may or may not be due to man-caused pollution. It may be a natural trend within normal climatic change that the earth has known and known again throughout its entire existence.

The Stern Review is Chicken Little yelling that the sky is falling.

Nonetheless, there are good reasons to reduce our usage of fossil fuels. Pollution is one of them. Political considerations are another. And, I suggest the latter is far more important to mankind. Big Oil is a greater menace to mankind than glaciers melting above the arctic circle. (Just consider that a mere $50M was all it took to get the nerd from Texas elected as PotUS ... )

[Finnsense]

Lafayette,

I believe it's considered bad form to copy and paste comments and pass them off as responses to specific comments. Still, if you're short of time.

You seem to be largely delusional on the science of climate change too. There is very broad consensus both that the world is warming at an unprecedented rate in the last 600,000 years, that it is down to carbon emissions and that the best case scenario is still very bad. Read any of the reports that have come out in the last three years.

[Bupa]

I recommend you stick to the peer reviewed articles. The scientific consensus on climate change and the role of humans in the process is overwhelming.

Ignorance is not always bliss. Lafayette is certainly ignorant about the science of global warming. Unfortunately so is much of America including the Bush administration. In this case ignorance of the issue of global warming and what needs to be done about it could prove to be genocidal. Interesting that Lafayette should refer to Goebbels.

If you don't have the time or intelligence to read the peer reviewed literature, I would recommend the following:
http://www.nybooks.com/articles/19131
Gore's movie will only take a few hours of your time and it even has some cartoons if you find the concepts too difficult to comprehend.
Tim Flannery's book is also an easy read.

[Arthur Eckart]

Bupa, it seems rather ignorant to call Americans, who are one of the most educated people in the world, and Bush, with degrees from Yale and Harvard, ignorant. I'm sure Americans are equally aware of climate change. However, some may have a different view and it may be correct. Finnsense, many studies from international organizations turned out to be wrong. So, I wouldn't assume they're all right.

[Arthur Eckart]

If data over thousands of years are used, there are global warming and global cooling periods. Here's an excerpt from Global Warming: A Chilling Perspective "Periods of Earth warming and cooling occur in cycles. This is well understood, as is the fact that small-scale cycles of about 40 years exist within larger-scale cycles of 400 years, which in turn exist inside still larger-scale cycles of 20,000 years, and so on." Over about a 40 year period in the mid-20th century, the data showed a period of global cooling, and it seems we're in about a 40-year cycle of global warming. So, it seems, either the WTO doesn't know this well-known fact, or it's using fear for some purpose.

[Finnsense]

Arthur,

The argument that some people are wrong some of the time doeasn't alter the fact that there is effectively no debate within the scientific community on this any more. Throw a stone into a crowd of climate experts and your chances of hitting a sceptic are about one in a thousand and those odds are getting worse all the time.

I don't know where you got the information for your last comment from but take a look at the ice core evidence. The level of CO2 is now much higher than at any time in several ice ages (the last 600,000 years). It is entirely unprecedented.

[Arthur Eckart]

Finnsense, some are easily manipulated by politicians, particularly those who say what they want to hear. Also, it's sad so many NeoKeynesians actively use their left-wing beliefs to skew economic results. I agree there's almost no debate there's global warming. However, most scientists may agree a global cooling cycle is about to begin. See link below.

http://www.clearlight.com/~mhieb/WVFossils/ice_ages.html

[Bupa]

Bush didn’t study climate change at Yale and Harvard. He studied business. He was a “C” student and an incurious frat boy. He was accepted to these elite schools because he was a third generation Bush. His father and grandfather contributed to the alumnae fund and were prominent member of society.

In any case ignorance and intelligence are not always linked. Ignorance is the lack of knowledge of a topic. You are pretty ignorant about both the science of climate change and the anti-scientific incurious nature of the Bush administration.

No scientist doubts that climate and temperature cycles are the result of a complex interplay between a variety of causes. So you can select a number of things that are not man-made that affect long-term changes in climate. This is not controversial. Climate is a complex phenomenon.

That is the background against which man-made production of greenhouse gases is added.

Check the serious rigorously peer reviewed scientific journals. You will not find doubters of man’s impact on the climate in these sources. The scientific consensus is overwhelming. Unfortunately, it’s easy to find coal and oil funded doubters of global warming, some even have PhDs in related fields of science. But these doubters can’t get their stuff published in peer reviewed journals because the rigor of their analysis can’t stand up to the peer review process. They are cranks.

Don't remain ignorant. The stakes are too high. Go visit http://www.realclimate.org/ and wake up.

[Lafayette]

Finnsense: "You seem to be largely delusional on the science of climate change too. There is very broad consensus"

There "seems to be". What criteria is that? I'm the one being delusional?

This particular polemical frenzy smells just like the "Year 2000 bug" ... out of Hollywood and to a screen near you - with Al Gore commenting.

Fanatics think that "climate change" is a permanent threat to life on earth as we know it. This may arise from the typical arrogance of human beings to feel that thier lives are more important than anything that has ever happened on earth or will ever happen.

Compared to the span of time that the earth has existed, our lives can be measured in nanoseconds. We could all use a bit of humble perspective before arriving at drastic conclusions. (I suggest seriously that you look up the entry on "global warming" in Wikipedia. Though I doubt it will do much good for you.)

In a word, the data sample is not yet significant, which means would should be concerned but not yet panicking.

[Lafayette]

Finnsense: "You seem to be largely delusional on the science of climate change too. There is very broad consensus"

There "seems to be". What criteria is that? I'm the one being delusional?

This particular polemical frenzy smells just like the "Year 2000 bug" ... out of Hollywood and to a screen near you - with Al Gore commenting.

Fanatics think that "climate change" is a permanent threat to life on earth as we know it. This may arise from the typical arrogance of human beings to feel that thier lives are more important than anything that has ever happened on earth or will ever happen.

Compared to the span of time that the earth has existed, our lives can be measured in nanoseconds. We could all use a bit of humble perspective before arriving at drastic conclusions. (I suggest seriously that you look up the entry on "global warming" in Wikipedia. Though I doubt it will do much good for you.)

In a word, the data sample is not yet significant, which means would should be concerned but not yet panicking.

[Arthur Eckart]

Bupa, because you're ignorant about climate change doesn't mean I'm ignorant. Obviously, you're easily duped. Also, Bush received higher grades and scored higher on the SAT than Kerry (his 2004 presidential opponent) at Yale (which they both attended). Moreover, Bush was roughly a "B" student. Bush was also trained as a fighter pilot, was the only two-time governor of Texas in the 20th-century, became a millionaire on his own, etc. You listed something to read that Gore was involved in. Gore came from a wealthier family than Bush. However, Gore flunked out of grad school TWICE. So, if you want to compare educations, there's really no comparison. I suggest you read the following link for a less political view on climate change:

http://www.clearlight.com/~mhieb/WVFossils/ice_ages.html

[Bupa]

Oh Arthur,

Don't read the Heib's. The cite you point me too with such enthusiasm is run by Monte Hieb and Harrison Hieb.

Monte Hieb has worked as chief engineer for the West Virginia Office of Miner’s Safety. I hope you understand that the coal mining industry is not a reliable source for debate on climate change. Clearly, Monte Hieb is not a climate scientist (though he seems to be an enthusiastic amateur fossil-hound with a really nice web site on W VA fossils.

Here is Monte Hieb on water vapor. http://www.geocraft.com/WVFossils/greenhouse_data.html

Here are real scientists on water vapor. http://www.realclimate.org/index.php?p=142 (hat tip to Felix Salmon at RGE Monitor)

Look, I'm not trying to embarrass you. I'm seriously concerned that you and so many other otherwise well informed folk can be led astray on such an important matter when the stakes are so high.

Please read real science in peer reviewed journals. There is too much at stake

[Arthur Eckart]

Bupa, it seems the facts don't make any difference to you. Global warming and cooling periods take place in cycles. It's a well-known fact. The data show there was a 40-year period of global cooling in the mid-20th century. A 40-year period of global cooling should begin in about 10 years. Also, I may add, it would be much more difficult to control these cycles than economic cycles, and would require an immense degree of arrogance.

[Bupa]

Arthur,
Sadly you've been duped by your friends from West Virginia. The Hiebs were nice enough to cite the source of the graph illustrating they claim shows a "40 year cycle -so don't worry" theory you.

It seems the Hiebs while honest enough to cite the source weren't honest enough to provide the context.

It comes from Thomas Crowley http://www.gcrio.org/CONSEQUENCES/winter96/geoclimate.html

This paper, written 10 years ago is an attempt to help modelers of climate change fine tune their models.

The paper ends with the following sentence:

"The net impression of this evaluation of "things past" is that the future climate promises to look very different than the present and, perhaps more disconcertingly, possibly unlike anything known before."

Hmmm. how bad Dr. Crowley? Well check out this paper he published 4 years later, July 14, 2000 Science, 289: 270-277:
http://www.ncdc.noaa.gov/paleo/pubs/crowley.html

Check out that hockey stick in Figure 6.

You should read Science, and ditch your friends from West Virginia.

[jon livesey]

I find it interesting that technical articles here can pass almost without comment, but a political document written by a non-scientist brings out all kind of energetic comment and agitated "debate". That suggests to me that climate warming is still more or less a religious issue for most people, pro or con.

[Arthur Eckart]

Bupa, I've studied the scientific methodology up to Ph.D level, although I don't know anyone from West Virginia. Nonetheless, many scientific conclusions have turned out wrong (see link below). There are many sources that cite global cooling in the mid-20th century. It's supported by the data.

http://mysite.verizon.net/vze6l53f/greatnoncatastrophesofthelate20thcentury/

[Finnsense]

Jon,

It's not political, it's economic and it's written by the fornmer chief economist at the world bank. And it's about the economics of climate change.

[Lafayette]

Much Ado About Nothing.

It's pure drama.

[jon livesey]

"It's not political, it's economic..."

Now that made my day. Things you couldn't make up.

[Arthur Eckart]

The most brilliant economists cannot create an accurate general equilibrum model of a large economy. Yet, we already have the solution for a global climate model that's more difficult to understand than a large economy.

[Lafayette]

AE: "Yet, we already have the solution for a global climate model that's more difficult to understand than a large economy."

MORE difficult? Er ... I wonder. Let's assume that "Global Warming" is just another "dismal science", shall we?

This polemic is sterile. No one is furthering the debate, as we are simply rehashing the same sentiments.

Je m'en vais. I'm outa here.

[Finnsense]

"
"It's not political, it's economic..."

Now that made my day. Things you couldn't make up."

Quippy, Jon, but don't let that make you think it substitutes for an argument. Your implication was that it was biased and that is unfair given the credentials and history of the author. There's no reason to think it's not just a cold look at the evidence.

Arthur,

Climate modelling is world's more accurate than economic modelling. Your weather forecast should tell you that.

[Arthur Eckart]

Finnsense, a general equilibrum model of a large economy represents the net effect of hundreds of major variables, including their interrelationships and interactions. So, I wouldn't compare it to a short-term weather forecast (also, it wouldn't make sense to predict a weather phenomenon in a region where it rarely take place). I suspect, there are more random variables in a global climate model. I doubt we really understand the nature, power, interrelationships, and interactions of the forces that influence climate.

[Julien Peter Benney]

As Australia prepares for its worst bushfire season on record and recent reports reveal how faulty the climate models of the CSIRO and Bureau of Meteorology are, I sadly have to say other industrialised nations will never pressure Australia to reduce its greenhouse gas emissions.

They would never do it even if Australia's per capita emissions were ten times - even a hundred - greater than those of Europe or East Asia, for the simple reason that without Australian minerals industry could not exist in Europe or East Asia. Whereas Europe and East Asia exhausted what minerals they had in the sixties, Australia will not exhaust them in a thousand years - especially with large population declines forecast in Europe and East Asia this century.

The mineral industries control Australia's politicians with military-style discipline. They do not dare disobey thei command to allow more coal-fired power station or transfer ever more of Australia limited public transport funding to roads. If either Labor or the Coalition made even a minor transfer of road funding to public transit, they would instantly lose their financial support base and be voted out by sheer weight of funding. So, what we have is vicious circle which is leading to catastrophic climate change even as Australia's economy booms.

[Lafayette]

JPB: "they would instantly lose their financial support base and be voted out by sheer weight of funding."

Then you are living in a plutocracy.

Change the manner in which money affects electoral outcomes, or remain the Land of Oz.

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[climate change]

No kidding! If you deny the changing in climate, you must be lying to yourself. Jump on board, everyone! Global warming is real and if we don't react properly, our grandchildren will be living a very different world.

[investment costa rica]

Most of the observed temperature increase since the middle of the 20th century has been caused by increasing concentrations of greenhouse gases, which result from human activity such as the burning of fossil fuel and deforestation