New paper by Richard Tol – Targets for global climate policy: An Overview

I thought this paper was interesting, and it was (as part of a Twitter exchange) sent to me by request (thanks to Both Richard Tol and Bjørn Lomborg). I found figure 8 (shown below as part of the preview on Science Direct) to be interesting because it shows a positive impact of warming up to 2.0C and a negative impact afterwards, suggesting that some warming is beneficial, but a lot of warming is not. All things in moderation I suppose. – Anthony.


A survey of the economic impact of climate change and the marginal damage costs shows that carbon dioxide emissions are a negative externality. The estimated Pigou tax and its growth rate are too low to justify the climate policy targets set by political leaders. A lower discount rate or greater concern for the global distribution of income would justify more stringent climate policy, but would imply an overhaul of other public policy. Catastrophic risk justifies more stringent climate policy, but only to a limited extent.


Climate change is one of today’s defining problems. It is often described as the largest problem, or the largest environmental problem of the 21st century (Stern et al. 2006) – without much evidence. Climate change has been said to fundamentally challenge economics as a discipline (van den Bergh 2004). More sober people would recognize greenhouse gas emissions as an externality. It is an externality that is global, pervasive, long-term, and uncertain – but even though the scale and complexity of this externality is unprecedented, economic theory is well equipped for such problems – and advice based on rigorous economic analysis is anyway preferred to wishy-washy thinking. This paper surveys the literature on first-best climate policy.

The first benefit-cost analysis of greenhouse gas emission reduction was published in 1991 by William D. Nordhaus of Yale University (Nordhaus 1991). It was a static, aggregate analysis, but was soon followed by dynamic studies (Nordhaus 1992;Nordhaus 1993) and regionally disaggregated ones (Nordhaus and Yang 1996). Nordhaus’ research was influential and his findings controversial. Nordhaus concluded

  • (i) that modest emission reduction is desirable now;
  • (ii) that the ambition of climate policy should accelerate over time;
  • but (iii) that the atmospheric concentration of greenhouse gases should not be stabilized.

Conclusion (ii) is qualitatively uncontroversial, but the rate of acceleration is disputed. Conclusions (i) and (iii) are controversial, within the economics profession but particularly outside.


Fig. 8. Estimates of the global economic impact of climate change (blue dots) and two fitted functions: I=4.33(1.49)T−1.92(0.56)T2 (red line) and I=0.348(0.166)T2−0.0109(0.0025)T6 (green line); the thin lines demarcate the 95% confidence interval based on the bootstrapped standard deviation.

Discussion and conclusions

I review optimal targets for international climate policy in the short and long run. Carbon dioxide emissions are probably a negative externality, and should therefore be taxed. Using a discount rate similar to the one typically used for public investments, the expected value of the carbon tax is $25/tC. That carbon tax corresponds to the initial carbon tax of a cost-effective emission reduction trajectory towards stabilization at 625 ppm CO2e – considerably higher than the implicit political aim to stabilize at 450 ppm CO2e. Furthermore, the efficient carbon tax would increase at some 2.3% per year whereas the cost-effective carbon tax would increase at some 5.5%. Efficient concentrations at the end of the 21st century would thus exceed 625 ppm CO2e.

Indeed, it is unlikely that a benefit-cost analysis would justify stabilization of the atmospheric concentration of greenhouse gases – as stipulated by international law – as that would require zero carbon dioxide emissions. Fossil fuel use may of course cease for reasons other than climate change. A lower discount rate and an aversion to inequity would justify more stringent climate policy, but would imply inconsistencies between climate policy and other areas of public policy.

Catastrophic risk is a more powerful argument for more stringent climate policy, but to a limited extent as emission reduction has downside risks too. The above analysis considers efficient climate policy in isolation. This is a useful yardstick for analysis, but not particularly realistic. Climate policy interacts with many other policies, but two

areas stand out. Climate policy is intimately intertwined with technological progress in the

energy sector and with the availability of energy resources. Recent break-throughs in the

exploitation of shale gas reduce greenhouse gas emissions in the short term (as gas replaces coal) but increase emission reduction costs in the long term (as solar now competes with cheap gas and cheap coal). Even so, optimal climate policy is unaffected provided that technology policy is first-best (Bosetti et al. 2011;Fischer 2008;Fischer and Newell 2008;Popp and Newell 2012) and that resources policy is first-best (Hoel 2012;van der Ploeg and Withagen 2012). Those are strong assumptions, yet it would not be wise to solve other problems through climate policy.

I assumed that adaptation is efficient. If so, it does not affect optimal mitigation policy (de Bruin et al. 2009). I also assumed that climate policy is implemented efficiently. In Section 3.1, I note that second- or higher-best policy implementation may be substantially more expensive. If emission abatement is more expensive, then climate policy should be less stringent.

I reasoned from the perspective of a global planner. Greenhouse gas emission reduction is, of course, a public good. A non-cooperative equilibrium has higher emissions (Babiker

2001;Barrett 1994;Carraro and Siniscalco 1992;Carraro and Siniscalco 1993;Carraro and

Siniscalco 1998;Nordhaus and Yang 1996;Yang 2003).

Although considerable progress has been in our understanding of optimal climate policy, much research remains to be done. Quantitatively, the estimates of the costs and benefits of climate policy can be improved. Incremental improvements on the current state of the art are always feasible. Both sets of estimates have primarily relied on simulation modeling, but data have steadily improved so that impacts of climate variations should be measurable (Mendelsohn et al.1994). Some countries now have two decades of experience with climate policy; the impacts and the model assumptions should be tested econometrically (Leahy and Tol 2012). Such research would add confidence to current estimates, or new insights. Qualitatively, besides carefully exploring the myriad second-best features of climate policy, research to date has been limited to a fairly narrow class of welfare functions. The assumption of exogenous population growth is

particularly troubling in the context of climate change. A convincing alternative to the intuitively incorrect conclusion that continued warming is optimum, is still elusive.

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February 4, 2013 1:20 am

A free pre-print is available here:

John Marshall
February 4, 2013 2:16 am

C/B analysis by a believer in AGW/GHG’s will never be correct. Rather like using a model to prove that GHG theory is correct rather than empirical evidence, like actually looking out of the window, using a radiosonde balloon, re-reading those basic physics text books that explain the laws of thermodynamics.
CO2 has no effect on climate. The GHG theory is bunk. CO2 levels are the lowest now than throughout the last 550Ma. Plants love CO2 and the more in the atmosphere the better plants grow. Crop plants are no different. Temperature is driven by the sun, the only energy source available.

February 4, 2013 2:21 am

Reblogged this on planetvoice and commented:
Interesting paper that shows a positive impact a positive impact of warming up to 2.0C and a negative impact afterwards, suggesting that some warming is beneficial, but a lot of warming is not. tnx to WUWT and Richard T. and Lomborg B.

February 4, 2013 2:22 am

“the efficient carbon tax vs the cost-effective carbon tax” is the new way to frame this sacking of civilization?
and tol is junior author to vermont senator tax-fiend leahy? is that how it is?

February 4, 2013 2:53 am

Given that by the author’s own admission, economic is not a science but a “discipline” (allied to bondage?), the paper is at least an attempt to quantify the cost/benefit argument.
It also supports my unevidenced gut feel that a +2K anomaly is not worth getting excited over, nor is it worth the trillion-dollar shenanigans performed by the high priests of the alarmist art.
And yet the paper is naive. Even in 1990 when the anomaly stood at zero, some regions of Earth were too hot and others too cold. I see no evidence in the abstract at that any kind of winners/losers study was performed.
Surely by now someone has taken Hansen’s 80-region grid, applied the local effect of increased global average temperatures, and calculated the costs and benefits?

richard verney
February 4, 2013 2:54 am

“Climate change is one of today’s defining problems. It is often described as the largest problem, or the largest environmental problem of the 21st century (Stern et al. 2006) – without much evidence.”
It is quite conceivably a non problem. It is too damn right that there is a lack of evidence (by which I mean fact based evidence as opposed to whimsical computer modelling) supporting that there is actually a problem, still less a significant problem, still less that it is due to manmade activity and/or man can in some way ameiliorate the problem.
Papers like this are an utter waste of time, and I find them particularly irritating (but that is just a personal bug bear).
Until one accurately knows climate sensitivity, one cannot even begin to evaluate the economic impact of climate change since the economic impact is to a significant extent dictated by climate sensitivity because that in turn will influence the extent of any significant climate change.
There is much debate on climate sensitivity. 33 years of satellite data would suggest that it is as near to zero as can presently be measured. Of course, that data source is but a snapshot and it is very dangerous to project linear trends from short time series. If climate sensitivity is low it is likely that there is no problem at all to maintaining or even increasing current CO2 emission levels.
The dishonesty of the AGW science is fourfold.
First, there is a lack of honesty with respect to the quality of the data. The data is not fit for purpose. Proxy data is far to uncertain to be anything more than at best a ball point indicator. The instrument data has been basterdised beyond recognition and suffers from obvious shortcomings, eg siting issues, the influence of UHI, station drop out. Most materially, (i) save for sea water temp data, it does not even measure the correct metric. It does not measure energy and cannot cast light on whether there is or is not some driven energy change, and (2) the period of data is far too short. It is like assessing Usain Bolt’s time over 100 mtres and working out his speed and then doing a check at 200 metres and from that data to be able to project how long it would take him to run a marathon and to assess the probable marathom world record time. Given that the climate has been developing over billions of years and there are obvious glacial/interglacial cycles, at the very least we would need data on several glacial/interglacial periods before we could take a realistic stab at assessing whether present late 20th/earliy 21st century experiences are in any way out of the natural order of events. Any honest scientist would always caveat his comments ‘we do not have sufficient quality of data to draw any reasonably certain conclusions’
Second, and this is very much related to the first issue, is that there is no honest expression of error bars and uncertainty. The fact is that when you take account of errors and uncertainty, we do not know whether it is warmer today than it was in the 1880s. We do not actually know whether the world has actually warmed since then (although it probably has). The uncertainties need to be properly expressed and again an honest scientist would make that clear.
Third, the system is complex and we have little understanding of the system Until we have better knowledge and a better understading (which will inevitanly difficult since it is a chaotic system), we can not make any sensible projection as to how things may pann out; what a change of variable x will do to the system as a whole. Fundamentally, we do not know whether it will be wetter or drier, more snow or less snow, more stromy or less stormy and this why one keeps on seeing the doomsayers changing their mantra. Small changes in the jet stream can have significant local effect. we do not know enough to make any sensible and worthwhile prediction as to what climatic conditions will be encountered in the future.
Third, there is no such thing as global climate (other than being in a glacial or intergalcisl) Climate is local and the impact of climate change is local (not global). This is a political mantra so that politicians can claim that we are all in it together and a global response is needed. The most signifcant global event would be seawater rise, but how any rise in sea water levels impact would depend very much upon local geography and topography as well as how a country has developed. For some countries climate change (whatever the driver) will be good, for other neutral and for some an inconvenience. Which countries will be winners and losers we cannot presently predict with any degree of accuracy. It is fundamentally dishonest and misleading to talk about global climate change.
Fourth, we do not know enough about past climate and conditions and problems that were then encountered. In particular, there appears to be a failure to properly assess how life on earth flourished in warm climatic periods. The development of civilisations and the onset of fundamental skills bears a close relationship with warm climatic conditions. One only has to look at the spread of the iron and bronze age accross the globe, or to look at the Egyptian, Minoan, Greek, Roman, British civilasations and the fact that there were no great civilasations from high Northern Climes to see that warm is good and cold is bad. It is no coincidence that whilst, in England, Stonehenge (which is quite a remarkable structure) was being built, in Egypt, they were building incredible pyramids and temples. The bedrock for the Great Pyramid at Giza was hewn from the solid rock of the Giza Plateau using copper chissels and yet even today, we would have problems in building the structure to a significantly better tolerance (the foundation base extents to over 220m and is level within 2.1 cm, that is 0.2mm per metre!). When you do not have to struggle to live, you have time to develop knowledge, understanding and skills. It is undoubtedly the case that the world is far too cold for man. If it were not for our ability to adapt ourselves (by clothes etc) and adapt our environment (housing, heaters etc) very little of the globe would be inhabitable. As a species, we are geared to a much warmer environment. It is no coincidence that the greatest abundance of life is found in warm tropical rain forests, and the least abundance of life in dry and cold deserts such as Antarctica. Climate change may well be a net positive, with food production going up and up, I firmly consider that to be the probable case.
There is always the law of unintended consequence and unknown reaction. man is deforesting at a significant rate and yet despite of this the world is greening. It was never foreseen that increase in CO2 levels would more than offset manmade deforestation. This is but just one example that we have no real idea as to how matters will pan out.
Bottom line is that presently, one cannot assess with any reasonable degree of certainty the science and what, if any, changes are occuring, at what rate and what to what extent and with what effect, still less what is driving those changes. Until all of that can be accurately assessed one cannot even begin to assess the economic impact. Politicians and economist have perverted this issue enough and should get out of the room and let the scientists get on with the science (hopefully real not pseudoscience) and our knowledge and undertanding may then increase to the benefit of all.

Bloke down the pub
February 4, 2013 2:57 am

. A lower discount rate and an aversion to inequity would justify more stringent climate policy, but would imply inconsistencies between climate policy and other areas of public policy.
In the UK, politicians had similar ideas about inequity in education, with the same outcome. It’s always much easier to bring the top performers down than to raise the bottom performers up.

February 4, 2013 3:11 am

Greenhouse gas emission reduction is, of course, a public good.
Water vapor is the No.1 greenhouse gas. But clouds have a net negative feedback. Reducing water vapor in the atmosphere should lead to warming due to low albedo. Carbon dioxide is plant food and has been shown to green the planet. Any warming effect by carbon dioxide is swamped by natural variation. No catastrophic effect has been proven, so why should we accept as given that reducing greenhouse gas emissions is a public good?

Steve Keohane
February 4, 2013 3:11 am

Analysis of the effects of something immeasurable to date.

February 4, 2013 3:28 am

I disagree with his statement that stabilization of CO2 concentration in the atmosphere would require zero emissions. Currently, Nature is already absorbing 50% of our emissions. Which means that if we halved our emissions, CO2 concentration would not go up any more. And if we had zero emissions, it would start to go down at pretty much the same rate that it is going up today.

February 4, 2013 3:51 am

Greenhouse gas emission reduction is, of course, a public good.“.
This is nonsense.
Earth’s biomass has increased significantly over the last couple of decades.
That alone is enough to make one doubt that CO2 is detrimental.
Richard Verney – I enjoyed your perceptive comment. Perhaps the key sentence is: “When you do not have to struggle to live, you have time to develop knowledge, understanding and skills.“.
This is fundamentally true, yet I suspect it is not allowed for in the Tol paper. (Making energy more expensive increases the number of people having to struggle to live). I say “I suspect” because the body of the paper is paywalled and the link RichardTol provided in a comment didn’t work.

February 4, 2013 3:53 am

I was struck by many assumptions and unsubstantiated claims in the paper, but this one stood out for me: “Carbon dioxide emissions are probably a negative externality, and should therefore be taxed.”
First, the statement is unsupported as to rationale – that a negative externality should, without specific justification and simply because it is negative, be taxed.
Second, the statement connects a probability of a negative to a certainty of taxation without any data or analysis to quantify the probability.
Such a statement, especially coming from someone who has the credentials of a scientist, is exactly the kind that gives politicians cover and license to enact the most dangerous, coercive, and destructive laws.

February 4, 2013 4:35 am

As I’ve mentioned before…..
Finance is something we, as in mankind, have total and absolute control over. Climate is something that we not only do not have control over, but we lack a thorough understanding of.
Swaddled in equations of grandiose proportions and graphs of stunning color and visual complexity, I am yet a disbeliever in there being any wisdom or value in quantitative reports such as these.
Put simply, when our leaders can prove competency by running a financially sound government, then we can talk about climate. Until then, whenever I hear “public good”, I’ll know it’s a signal someone’s after my wallet, and my rights.

Lew Skannen
February 4, 2013 4:38 am

“All things in moderation I suppose. .”
All things?
I can understand some things.
Perhaps even most things.
But ALL things??
It just sounds like rather an extremist position to take….

February 4, 2013 4:43 am

Mike Jonas I got the preview copy okay, reading it at the moment and “loving it.”

Richard M
February 4, 2013 4:53 am

Doing an analysis based only on temperature is reasonable. We should be able to determine impacts without worrying about cause. To then discuss a carbon tax falls into the trap that the author knows the impacts of CO2 emissions. That is the same problem we’ve had for a long time. No one knows the actually effects. For all we know the CO2 is preventing us from slipping into an ice age. Why would we want to tax that?
Until such a time that we really understand the big picture this kind of guesswork is silly. Stick to the problems/benefits of temperature change alone and you’ll have a much better chance of adding to our knowledge.

Tom in Forida
February 4, 2013 4:56 am

“I reasoned from the perspective of a global planner.”
And I reason from the perspective of a commissioned salesperson who actually has to perform to get paid. Get you hands out of my wallet!

February 4, 2013 5:22 am

richard verney says: February 4, 2013 at 2:54 am “……………..”
I enjoyed very much your words of wisdom. Thank you.

John Morrow
February 4, 2013 5:45 am

OT: [snip . . indeed it is. Why not post your observation up in Tips & Notes rather than disrupt this thread, thanks . . mod]

February 4, 2013 5:49 am

So reminiscent of the physician’s dictum : first, do no harm. Don’t try to fix a system that may not be broke and that you know little about. Remember the fiasco of FDR’s two New Deals?
The march of technology clearly leads towards lower carbon emissions. Electric cars are coming, just as fast as we can get affordable batteries. They are actually not that far away, to judge by Tesla Motors recent guarantee to replace their largest battery pack for $8,000 10 years from now.
While that battery pack will make extended travel somewhat slow (average traveling velocity around 45 MPH) , for relatively short trips (500 miles or less) and around town, the car is competitive with gas powered vehicles. Electric cars are cheaper to operate and maintain, more reliable, and (with an affordable battery) cheaper to build as well.
Now if the greenie weenies could shake their 1950’s era fear of nuclear power, there would be a consensus in favor of that form of power generation, at least in Western countries. Elsewhere there is active movement in the nuclear construction arena. And with Gen 4 fast reactors coming on line in the near future , we have a means off burning “nuclear waste” as fuel, rendering it pretty impotent, easily stored, and returning to background radiation levels in less than 150 years. It has been pointed out that the usable energy remaining in our country’s nuclear wastes can provide all the electric power this country needs for the next 1000 years. What energy crisis?

February 4, 2013 5:59 am

1. Pigou (1920) showed that negative externalities should be taxed.
2. You copied a sentence from the conclusion. This is substantiated in the discussion of Figure 2.

Rob Potter
February 4, 2013 6:12 am

One thing I note from the excerpts here is the figure of 625 ppm for CO2 and the crossover between benefits to costs at a 2 C rise in temps. These two are based on the sensitivity of temp to CO2 – which estimates have been reduced significant;y in recent published work. Does anyone know what estimates of sensitivity were used in this paper? If only published now, i suspect it was written 12-18 months ago and could already be in need of re-calculation.

February 4, 2013 6:19 am

teI’d love to see the left half of that graph expanded. Effect of falling temperature on economic output?
Its all hand waving, but the thought exercise comparing 3C warmer to 3C colder would provide perspective.

Berényi Péter
February 4, 2013 6:21 am

“Climate policy” is a rather silly term, presupposes climate depends on policy.
Now, why don’t we have “redemption policy”?
1. stakes are high (ethernal life or something)
2. widespread consensus among experts (ask them!)
3. sin is surely a negative externality, is it not?
4. we could tax thingie, finally
or people standing in water

February 4, 2013 6:28 am

I don’t see any mention of the current quandry in which millions of earth’s inhabitants have lost their lives by the implementation of these “taxes” these authors propose–that of increasing the cost of food to where it is the cause of death at genocidal proportions. (And millions more will lose their lives because the trend is a continuation of the same facinorous policy.)
When they address this most critical of all issues, we’ll know they’re being honest. Until then, they are demonstrating the most dishonest and develish behavior known to mankind.
(Or is it just fine and dandy to sacrifice untold millions to somehow counter a fictitious destruction they only believe (yet do not know) will occur? Dr. Death would be proud of their conclusions.)

Pamela Gray
February 4, 2013 6:30 am

This article is outrageous! It is a pick pocket scheme as plain as the nose on your face! Who subscribes to such skullduggery in our government? Name them! And then vote them out! I work long hours (yes as a public school teacher, so do your best to dirty it) and do not take kindly to those long hours ending up in the pockets of government. Don’t take kindly to it at all!

Mark Bofill
February 4, 2013 6:36 am

I think I’ve finally realized what troubles me about papers and projections on economic impacts, particularly as used to support policy decisions. When it isn’t even settled in the U.S. whether or not tax policies or federal spending are going to have positive or negative impacts on the economy, when we can’t even decisively answer relatively simple questions, what on earth makes us confident we can answer complicated ones?
I’m glad a study suggests that some warming might be OK, but I can’t say I’m going to give it any more credence than the papers suggesting doom.

February 4, 2013 6:58 am

I have an idea. Krugmanomics tells us that printing green pieces of paper makes us wealthy. Why not just print a few more of the green pieces of paper and use them to solve that climate thing? As Ben Bernanke will print until the unemployment is gone, he will print from here to kingdom come. So asking him to print just a tiny bit more shouldn’t be that big a thing.
And if it makes the economy collapse on the way, all the better. No economy, no negative externality. Wasn’t this the goal anyway.

G. Karst
February 4, 2013 7:20 am

I find it somewhat suspicious that this study derives the break point at 2C. This just “happens” to agree with the climate communities insistence that temperatures must be held at 2C or else. Considering the original 2C, had no real fundamental basis, it seems very convenient. I am not saying it is wrong, just that the coincidence of such an exact match is stimulating my skeptic bones. GK

February 4, 2013 7:22 am

From the graph provided, I read it as no NET negative until something over + 3 (red line) or about 2.5 (other)
Absent the increasingly absurd Catastrophic scenario, the news is ALL GOOD.

February 4, 2013 7:23 am

You are free to reproduce the result. The data are in the paper.
[Thank you for the courtesy of your reply. Mod]

February 4, 2013 7:26 am

Remember that we are talking about averages. Since most of the change is expected to take place at the poles, where economic activity is today zero, any change can only be positive in terms of economic activity.
There is no credible evidence that the earth 10 thousand years ago, during the Holocene optimum, which was 4C warmer than today, was in any way inhospitable. Since human civilization arose at that time it seems much more likely that 4C of warming will simply return us to a time when conditions were closer to those that gave rise to civilization. Since these temperatures were maintained for well over 1000 years there is no evidence they will be harmful.
A wetter, warmer earth with increased CO2 will have more plant biomass than at present. This biomass will be available for human economic activity, which will boost GDP globally. What countries are likely to experience a negative effect anything like figure 8, which predicts an exponential falloff in economic activity above 2 C? Again, since this will mostly take place in regions that are today quite cold, how will making them a bit warmer hurt anything?
Instead, these projections rest on the assumption that warming will bring drought, but the assumption of drought is inconsistent with the assumption of positive H2O feedback, which will increase the amount of H2O in the atmosphere, which must increase global precipitation due to the short lifetime of H2O in the atmosphere. Also, we know from the paleo records, that a warmer planet is a wetter planet. It is during ice ages that the climate is dry and agriculture suffers.
Therefore, this paper is really about increasing taxes.

February 4, 2013 7:29 am

Carbon dioxide emissions are probably a negative externality, and should therefore be taxed.
Breathing tax. Probably…

Luther Wu
February 4, 2013 7:33 am

I read the damned thing. The author has style , but he polished a…

February 4, 2013 7:36 am

Carbon dioxide emissions are probably a negative externality, and should therefore be taxed.
Poverty is also a negative externality. We should therefore tax poor people that highest and therefore eliminate poverty.
Since there is an extremely high correlation between CO2 production and economic activity, as well a a direct 1-1 cause and effect – more economic activity generates more Co2 – what the author is really saying is that economic activity is a negative externality. and should therefore be taxed.
That is the crux of the argument. That economic activity is bad and we should use taxes to get rid of it. We should instead drive it to countries like China and India, where the CO2 produced with magically remain along with the jobs.
If you think the deficit is bad today, cut economic activity through CO2 taxes and see the floor drop out of tax revenues. As has been seen in the EU countries that have tried it.

Lance Wallace
February 4, 2013 7:57 am

Old Fossil–
Your request for a winners-losers analysis was done by Tol in his recent on-line draft economics textbook in a Wattsupwiththat blog a week or two ago. A slight problem is that only about every 4th or 5th country was actually named in the figure, but Richard says he is working on making the underlying data available. From somewhere I recall that Canada had the single greatest benefit, although I am sure that Russia would be near the top.

February 4, 2013 8:10 am

Richard Tol (@RichardTol) says:
February 4, 2013 at 5:59 am
1. Pigou (1920) showed that negative externalities should be taxed.
Since 1920 there has been considerable change in the strategies that people and corporations employ in response to tax changes. There is a considerable body of evidence that policies that worked 90 years ago don’t work today.
People and corporations today largely act on what they expect they government to do, thus the government’s actions are largely already future discounted and rarely have the effect expected by government planners and theorists 90 years ago. Instead, tax policies increase the inefficiencies in the economy, as people use less efficient means of production to avoid taxes.
The once popular economic theory that governments can spend their way out of poverty has been shown by modern realities to be false in a global economy. Thus, we saw little to any economic benefit in the “Stimulus Spending” in the US, contrary to what was expected using outdated economic theory.
In any case, in conventional terms, economic activity and CO2 go hand in hand in today’s industrialized economy. A tax on CO2 thus has the unintended consequence of being a tax on economic activity. Reducing economic activity through CO2 taxes will have the effect of increasing unemployment and reducing income taxes and sales taxes, which given the marginal tax rates is likely to reduce overall tax revenues.
Thus, while it may sound like a good idea to increase revenues through a tax on CO, all it will likely do is force companies to use oil in place of coal, leading to windfall profits for the oil companies. On a global scale this will lead to a reduction in coal prices worldwide, leading to increased coal consumption in countries that do not have CO2 taxes. This could lead to a net global increase in CO2 production, due to the inefficiencies in cola burning technologies in countries without CO2 taxes.

G P Hanner
February 4, 2013 8:19 am

From EconLib: “Pigou’s analysis was accepted until 1960, when ronald coase showed that taxes and subsidies are not necessary if the people affected by the externality and the people creating it can easily get together and bargain. Adding to the skepticism about Pigou’s conclusions is the new view, introduced by public choice economists, that governments fail just as markets do. Nevertheless, most economists still advocate Pigovian taxes as a much more efficient way of dealing with pollution than government-imposed standards.”
Richard Tol is citing some discredited ideas.

February 4, 2013 8:23 am

‘1. Pigou (1920) showed that negative externalities should be taxed.’
But, later, Pigou himself finessed his position and said (in 1954):
‘When people decide to spend their money in certain ways it sometimes happens that their spending yields uncovenanted benefits or inflicts uncovenanted damage on other people whose gains or losses do not enter into the calculations of the spenders. There are many examples of this…
‘… These gaps, positive and negative, between private and public costs were not much in people’s minds until fairly recently. Now everybody understands about them. It must be confessed, however, that *we seldom know enough to decide* in what fields and to what extent the State, on account of them could usefully interfere with individual freedom of choice. Moreover, even though economists were able to provide a perfect blueprint for beneficial State action, politicians are not philosopher kings and a blueprint might quickly yield place on their desks to the propaganda of competing pressure groups. “Fancy” finance, like a fancy franchise, whatever its theoretical attractions, has, at all events in a democracy, dim practical prospects.’
From A. C. Pigou, “Some Aspects of the Welfare State,” Diogenes 7:1-11 (Summer 1954), p. 10
“Fancy” finance indeed.
(*My emphasis)

February 4, 2013 8:32 am

A convincing alternative to the intuitively incorrect conclusion that continued warming is optimum, is still elusive.

Translation: We don’t think continued warming is a good thing but we can’t prove it.

February 4, 2013 8:32 am

Government polices that increase efficiencies, such as building roads where none existed, these lead to increased economic activity and increased tax revenues. Government policies that decrease efficiencies as people and corporations substitute less efficient means of production to avoid the tax, these reduce overall economic activity and reduce tax revenues, leading to deficits and long term problems for the host economy that the government relies on for its survival. Over time any country that follows such policies will ultimately fail, which has been demonstrated time and time again throughout history.

February 4, 2013 8:43 am

I reasoned from the perspective of a global planner. Greenhouse gas emission reduction is, of course, a public good.
The reduction of civilization is a public good???

February 4, 2013 8:51 am

Just remember that when you make energy more expensive – to stabilise a climate that was never stable and bring it back to a position that never existed – billions of people will burn more twigs and dung. I know that a global planner doesn’t concern himself with quantifying burnt twigs and dung, but I thought I’d point it out for those who believe that “first-best climate policy” is a ritual practiced by fairies in the bottom of the garden – while life and the globe just go spinning on. (Me et nemo. 2013).
It is more than worrying to think that there are educated people who think that climate and economy, so fantastically complex and variable, can be mechanistically controlled from a child’s pretend console. By making the knobs, levers and buttons a bit complicated, people like Mr. Tol believe they have dealt with actual complexity.
But perhaps this is satire, and there is no Richard Tol? Is this a huge leg-pull by Anthony?

February 4, 2013 8:51 am

Luther Wu says:
February 4, 2013 at 7:33 am
I read the damned thing. The author has style , but he polished a…

February 4, 2013 8:55 am

Zentrol blanink komrad!

Tom Morgan
February 4, 2013 8:55 am

There’s something odd about the equations in figure 8. Firstly why are the coefficients all written as the product of 2 numbers? is there some other operator that didn’t get printed?
Secondly when I take the first equation (with the coefficients multiplied out) and look at where the maximum should be, I find it to be at 3.000. the figure has the max at 1.0-ish. I’m missing something I’m sure.

Don K
February 4, 2013 8:58 am

I found figure 8 (shown below as part of the preview on Science Direct) to be interesting becuase it shows a positive impact of warming up to 2.0C and a negative impact afterwards, suggesting that some warming is beneficial, but a lot of warming is not. All things in moderation I suppose. – Anthony.
A very interesting paper, that requires a lot of thought.
I could be way wrong, but based on one quick readthrough, I think Figure 8 is an input to the calculations, not a conclusion. I personally find the assumption that a little warming is good to be reasonable. The lot of warming is bad part is, I think, more dubious, but not irrational. The transition point from net good to net bad — if it exists at all — is probably very dubious. Might be 2.5C. But it might be 1.0C or 10.0C.

Mickey Reno
February 4, 2013 8:59 am

Richard Tol writes: “Greenhouse gas emission reduction is, of course, a public good.”

A hubris filled statement, if ever I’ve seen one. How do you know that freeing centuries and millenia worth of sequestered carbon won’t be a boon to the biosphere? What if the result of that is coral reefs begin growing more quickly and trees to grow more rapidly and grains and grasses to burst into life, heaping an abundance onto a hungry world? How do you know that “we” would never consider it a positive trade to get that potential productivity in exchange for a shaky prediction of a few degrees of temperature rise that’s unlikely in any case, because of water vapor’s domination of the GHG equation?
I appreciate that you at least want to look at physical realities to try and make sense of the costs of CAGW-based policy recommendations. I suggest you start with commercial wind turbines as green alternatives to coal and gas fired electrical generation, so as to more rapidly disabuse the emoting supporters of those technologies of their utopian fantasies. The birds and bats and climate skeptics will love you for it.
People need to quickly begin to see and understand that taxing energy and prohibiting efficient forms of energy means destroying economic activity and the erosion in living standards, and cause new environmental damage to other areas they’re not currently considering, as in the aforementioned birds and bats, as well as energy starved populations with fewer economic prospects who will undoubtedly begin to denude their forests for firewood if the fossil fuel industry is artificially crippled.

February 4, 2013 9:09 am

Negative impacts after 2.0C. This gets me thinking about Canada, Siberia, Scandinavia, afterall the greatest impact of global warming should be felt in the higher latitudes, no?

“Greenhouse gas emission reduction is, of course, a public good.“.

Mmmmmmm. Why is this assumed? OK then, reducing fertilizer on US farms is, of course, a public good. Who here believes me? I need to see evidence that a doubling of co2 will lead to a net negative impact on the planet.
When I look at the planet Earth I can’t help but notice most of the greeness is in the tropics and slowly declines as you head north and south towards the poles. I can’t help but notice the Sahel greening as well as the biosphere generally. What caused these negative impacts.
Here is a small part of the world from the past which was subjected to higher temperature and higher C02 than today’s values.

Effects of Rapid Global Warming at the Paleocene-Eocene Boundary on Neotropical Vegetation
Temperatures in tropical regions are estimated to have increased by 3° to 5°C, compared with Late Paleocene values, during the Paleocene-Eocene Thermal Maximum (PETM, 56.3 million years ago) event. We investigated the tropical forest response to this rapid warming by evaluating the palynological record of three stratigraphic sections in eastern Colombia and western Venezuela. We observed a rapid and distinct increase in plant diversity and origination rates, with a set of new taxa, mostly angiosperms, added to the existing stock of low-diversity Paleocene flora. There is no evidence for enhanced aridity in the northern Neotropics. The tropical rainforest was able to persist under elevated temperatures and high levels of atmospheric carbon dioxide, in contrast to speculations that tropical ecosystems were severely compromised by heat stress.

February 4, 2013 9:15 am

“Carbon dioxide emissions are probably a negative externality, and should therefore be taxed.”

Ha, ha, ha, ha, haaaaaa. This is a joke, right?

February 4, 2013 9:15 am

From near the end:- “greenhouse gas emission reduction is, of course, a public good”
During major glaciations CO2 levels drop rather close to the limit for plant growth (150 and 120 ppm respectively). Perhaps this flirting with our extiction gets hairier as glacitions come and go.
So perhap a slightly higher level of emissions would be a good idea. No “of course” about it.

February 4, 2013 9:31 am

“Carbon dioxide emissions are probably a negative externality, and should therefore be taxed.”

Let me fix that for ya.

“Carbon dioxide emissions are probably a positive externality, and should therefore not be taxed.”

There, fixed. 😉 Hey, don’t believe, seeing is believing.

February 4, 2013 11:17 am

“Carbon dioxide emissions are probably a negative externality, and should therefore be taxed.”

What you actually mean is to tax industrial production, increasing un-competitiveness against countries that don’t tax co2 emissions and the result please? My BIG problem is that it is assumed that co2 is a pollutant as it is currently or even doubling. This is not the case as I have shown above. It is plant food, pure and simple. Read about photosynthesis and optimum co2 ppm in greenhouses. We are not their yet for most vegetation.

February 4, 2013 11:20 am

Data are here: Thermohaline paper.
The optimum is at -4.33/2/-1.92
If CO2 is a positive externality, emissions should be subsidized.
I’m really real, but then I would say that, wouldn’t I?

john robertson
February 4, 2013 11:32 am

I love that concept , that “its” a probable negative externality and therefore should be taxed.
No first show that “it” is a negative or shut your greedy plan down.
After all I believe all bureaucrats, politicians and academics are currently a net negative cost to civilization, do I need to provide substantial evidence for my belief? Or can I just start a tax on these parasites?

February 4, 2013 11:40 am

I still.suspect some kind of satire on mock science and junk education here. If that is so, I’m loving the deadpan approach.

February 4, 2013 1:26 pm

government is a negative externality
tax pollution is killing the planet
do not ask for whom the bell tols
when the patient is anemic- add more leeches, yeah!

February 4, 2013 1:32 pm

Richard Tol (@RichardTol) says:
If CO2 is a positive externality, emissions should be subsidized.

Exactly! Now where is your plan?
The greening of the biosphere is no small beer sir. Thank co2 and global warming.

Chuck Bradley
February 4, 2013 1:55 pm

This paper is a good example of the mathematical theorem:
Any false theorem implies all theorems.
Such a lot of nonsense from one little lie.

February 4, 2013 2:03 pm

it’s the same plan, Jimbo- you pay the taxes, you pay the subsidies
bargaining is asking for it. negotiation is proof of agreement.
the ONLY point of any discussion is to demonstrate that nobody can say ‘no’ and to establishing the price of your booty.

Gail Combs
February 4, 2013 2:47 pm

techgm says:
February 4, 2013 at 3:53 am
I was struck by many assumptions and unsubstantiated claims in the paper, but this one stood out for me: “Carbon dioxide emissions are probably a negative externality, and should therefore be taxed.”
Of Course “Carbon dioxide emissions are probably a negative externality, and should therefore be taxed.”
If we do not have a crisis the elite can not control people. More important the elite would not have an excuse to extract even more money from the poor.
I would suggest Mr. Tol read my comment HERE from this morning. It outlines some of the corruption I have uncovered so far.
It is very clear that bankrupting the USA and reducing everyone to a state of poverty is the objective of “global climate policy”
A word of warning Mr. Tol:
Before fractional reserve banking allowed the hidden tax called inflation, (money depreciation) the peasants would only tolerate a tax of ~ 40%. Go above that magic number and you were looking at rebellion. So far, thanks to the industrial revolution, people are tolerating tax rates of up to 80%. Now people are starting to wake-up and the repercussions from this massive CAGW fraud, the bank bailout fraud, the WTO job export fraud are going to be really nasty.
Both the Tea Party and Occupy Wall Street are starting to figure out DC actually stands for the District of Criminals. Sen. Dick Durbin, Democratic Whip let the cat out of the bag. “And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.” The blunt acknowledgment that the same banks that caused the financial crisis “own” the U.S. Congress — according to one of that institution’s most powerful members — demonstrates just how extreme this institutional corruption is.
Make people uncomfortable enough Mr. Tol by reducing their access to jobs, food and energy and they will go looking for answers. I have been doing my darnest to help people find them IN PERSON every week for the past several years. It is my pleasure to do my bit in bringing this corrupt US government down through educating people to just how corrupt it has become. IMHO both the democrats and republican parties need to be crushed out of existence.

Gail Combs
February 4, 2013 2:48 pm

richard verney says: @ February 4, 2013 at 2:54 am

February 4, 2013 2:57 pm

Richard Tol can you address the points made by Richard Verney here. Thanks in advance.

Gail Combs
February 4, 2013 4:08 pm

Richard M says:
February 4, 2013 at 4:53 am
… No one knows the actually effects. For all we know the CO2 is preventing us from slipping into an ice age. Why would we want to tax that?…..
It is a heck of a lot worse than that.
IF the Ice Core CO2 readings now published (And I have grave doubts they are correct ) then given the increased solubility of CO2 in colder water we were looking at falling below the critical point on CO2. Carbon starvation in glacial trees recovered from the La Brea tar pits, southern California
Then there is the Annoying Lead Time Graph

William McClenney says:
January 21, 2013 at 11:33 am
…. What seemingly few people seem to recognize is the occurrence of another “mini ice age” might not actually be long-sighted enough. The Holocene is now half-a precessional cycle old and change. Five of the last 6 interglacials have each lasted about half a precession cycle.
The possibility therefore exists that we could be at a climate junction often described these days as a tipping-point. Tipping the Holocene into extending itself with GHGs is perceived as a horror by many. Naturally tipping the Holocene into the next ice age, however, might bring great benefit to society by selecting-out those with climate myopia as well as other intellectual ailments…..

Dr. William McClenney, environmental and geological engineering, was author of this WUWT thread: The End Holocene, or How to Make Out Like a ‘Madoff’ Climate Change Insurer
A key point he brings up is this:

The onset of the LEAP occurred within less than two decades, demonstrating the existence of a sharp threshold, which must be near 416 Wm2, which is the 65oN July insolation for 118 kyr BP (ref. 9). This value is only slightly below today’s value of 428 Wm2. Insolation will remain at this level slightly above the glacial inception for the next 4,000 years before it then increases again.

Can we predict the duration of an interglacial?
Perspective by William McClenney on the paper of the same title by:
P. C. Tzedakis, E.W. Wolff, L. C. Skinner, V. Brovkin, D. A. Hodell, J. F. McManus, and D. Raynaud
….Observation of the geologic record matched with the obliquity chart demonstrate that EVERY interglacial ends when the obliquity of earth declines below 23.5% without exception for the last 1 million years of the all the geologic records….

23.5 degrees obliquity is where we are now and the sun has now gone sleepy after being very active. During the last century the sun has been very active but with cycle 24 the sun has now gone into a long minimum with “unusual characteristic”s according to NASA This paper shows the Global increase in UV irradiance during the past 30 years (1979–2008) estimated from satellite data.
The increase in Solar magnetic storms tells us that the Sun’s activity had been increasing until at least the end of 2005-2006

Although not documented here, it is interesting to note that the overall level of magnetic disturbance from year to year has increased substantially from a low around 1900. Also, the level of mean yearly aa is now much higher so that a year of minimum magnetic disturbances now is typically more disturbed than years at maximum disturbance levels before 1900.

An alternate theory on ice ages by Dr. Nir Shaviv link and link
Mr. Tol needs to read Dr. Nir Shaviv’s The fine art of fitting elephants and 20th century global warming and his new peer -reviewed paper The oceans as a calorimeter
As far as I am concerned neglecting the potential change towards a COOLING world is down right criminal negligence – my biggest gripe with CAGW.

Gail Combs
February 4, 2013 4:29 pm

john robertson says: @ February 4, 2013 at 11:32 am
…. After all I believe all bureaucrats, politicians and academics are currently a net negative cost to civilization, do I need to provide substantial evidence for my belief? Or can I just start a tax on these parasites?
Forget the tax, I prefer the Pacific Trench, they cause less damage that way.

February 4, 2013 4:38 pm

“We are not there yet for most vegetation”

john robertson
February 4, 2013 6:29 pm

@Gail Combs, the pun was intended.
But the trench sounds good, can we live drop from 30 000ft?

David Cage
February 5, 2013 12:36 am

The article claims that the effect of emissions is uncertain but this hides a certainty that it is grossly exaggerated by the very nature of the way they have done their modelling. The emissions are compared to the residual levels of CO2 equivalent gases in the atmosphere. This to any real computer modeller is a ridiculous thing to do.
Nature produces an unknown amount of these gases with hugely varying estimates of between ten and forty times the balance figure of produced to used quantities. How ridiculous this use of the net figure is clear if we were comparing the economic impact of two individuals. One has an income of £20K total and the other a £250K but a residual after all expenses of the same £20K. Are the two going to have the same impact on the economy? Of course not until you transfer to climate studies and set man up as the £20K wastrel and the £250K nature as the saint when it is the perceived wisdom that give rise to insults with Nazi connotations like denier for any unbeliever.

Lars P.
February 5, 2013 11:52 am

Until now the small increase in temperature was beneficial. Further small increase in temperature is expected to be beneficial.
In this regard all energy taxes, CO2 taxes, the fighting of “CO2 production” were non-beneficial.
Where is that paper to quantify the true costs of biofuels, the destruction to the environment through monocultures for biofuels, the costs in human lives through the increase of costs of food in comparison with a biofuel free world based on the hard facts that we know of the last 1-2 decades and 5-10 years forecast.
In addition it would be very interesting to see the comparison with what a world could have reach without windmills and solar panels to produce electricity, where those billions would be invested in other areas like science, infrastructure, development. Also the last 1-2 decades and the next 5-10 years forecast.
The current wind and solar energy is a cosmetic branch, paraziting the fossil fuel energy sector without effective reduction of CO2 and is not a solution for the future. CO2 production would not be bigger without these.
The current paper raises the discussion for what to plan 100 years from now. We saw how wrong was this push for the last decades, opening now the discussion for 625 ppm CO2 begs the question if we will ever come close to that number?
Would it not be much better to ensure we all reach faster a higher level of civilisation, being able to allow for more room for nature in the next 1-2 decades? Ensure we all cook with electricity and not with biofuels=dung! now or in the very near future? Modernising the power plants for better output and less pollution?
The damage that alarmism has caused until now, can be evaluated. If we want to use tax against factors that have been shown damaging, I propose a tax on every alarmist climate paper and related work directly proportional with the temperature increase forecasted. Tax can be then paid back to the taxable person when CO2 can be shown to cause more costs then benefits.
I am sure we would be in a better word, and if indeed in 30-50-100 years we find out there might be a problem we would be better prepared for it.

February 5, 2013 12:29 pm

Richard Tol (@RichardTol) says:
If CO2 is a positive externality, emissions should be subsidized.
And emissions are subsidized through the many systems of taxation and government support demonstrated continuously world wide. Unlike the opposite position of Richard Tol that CO2 is a negative externality and should be taxed, the burning of fossil fuels and the energy produced by this underlies all the economic progress and the prosperity achieved by many, and the avenue opened to its attainment by the rest, in the past 200 years. To date the bulk of taxation policies has supported this positive “externality”, although the forces favoring “Golden Goose” killing are well armed with ignorance and parade themselves as the keepers of the keys of economic enlightenment. However, any position that depends on broad, unsupported assumptions such as CO2 is probably a negative externality, that does not even countenance the argument that to date it has proven to be an enormous positive as a byproduct of energy generation, and as a direct cause of increased agricultural production.
The Little Ice Age (1250 to 1850 AD) provides us with the laboratory and the experiments necessary to evaluate the effects of industrialization and energy generation. The world new very little of each during all but the latter stages of the Little Ice Age. Food could not be transported from where it was plentiful to where it was needed to stave off starvation. Warm houses to stave off the cold could not be provided without the arduous efforts of cutting down trees and painfully hauling the wood to the houses, then chopping it to fireplace size. In the lucky homes to have firewood, the smoke caused serious respiratory diseases and frequent house fires.
In the past few years I’ve seen some of these conditions persist even in warm weather countries like Guatemala, India, and Southeast Asia, where a lack of electrical power and water and transportation infrastructure requires their people to walk great distances to obtain and transport twigs, dung, and water with their bodies to their homes, there to suffer from smoke and bad water. I’m certain they would not mind the negative externalities we endure to support our energy-based prosperity.
“Come down, come down from your Ivory Tower …”

February 9, 2013 5:02 pm

Richard Tol, where are you?
This was getting interesting.

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