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.
Abstract
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.
Introduction
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.
http://www.sciencedirect.com/science/article/pii/S0165188913000092
From near the end:- “greenhouse gas emission reduction is, of course, a public good”
Really?
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.
Let me fix that for ya.
There, fixed. 😉 Hey, don’t believe, seeing is believing.
http://youtu.be/P2qVNK6zFgE
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.
@Lance
Data are here: http://dvn.iq.harvard.edu/dvn/dv/rtol Thermohaline paper.
@Tom
The optimum is at -4.33/2/-1.92
@Jimbo
If CO2 is a positive externality, emissions should be subsidized.
@Mosomoso
I’m really real, but then I would say that, wouldn’t I?
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?
I still.suspect some kind of satire on mock science and junk education here. If that is so, I’m loving the deadpan approach.
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!
Exactly! Now where is your plan?
The greening of the biosphere is no small beer sir. Thank co2 and global warming.
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.
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.
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.”
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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.
richard verney says: @ur momisugly February 4, 2013 at 2:54 am
Excellent!
Richard Tol can you address the points made by Richard Verney here. Thanks in advance.
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?…..
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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
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:
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
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.
john robertson says: @ur momisugly 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?
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Forget the tax, I prefer the Pacific Trench, they cause less damage that way.
Typo…………..again.
“We are not there yet for most vegetation”
@Gail Combs, the pun was intended.
But the trench sounds good, can we live drop from 30 000ft?
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.
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.
Richard Tol (@RichardTol) says:
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@Jimbo
If CO2 is a positive externality, emissions should be subsidized.
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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 …”
Richard Tol, where are you?
This was getting interesting.