Guest rant by David Middleton
H/T to ivankinsman for bringing this to my attention.
Government report calls on Trump to act on climate change
By Eli Watkins, CNN
Updated 1441 GMT (2241 HKT) October 24, 2017
Washington (CNN)A government report released Monday is sounding an alarm over the threat of climate change, and the government’s response.
The US government has spent more than $350 billion over the past decade in response to extreme weather and fire events, and the Government Accountability Office report estimated the US would incur far higher costs as the years progress if global emission rates don’t go down.
In the report, GAO called on President Donald Trump to use the information GAO compiled to help identify risks posed by climate change and “craft appropriate federal responses.”
The US has seen billions of dollars in damage from hurricanes and wildfires this year, which experts say climate change exacerbated. Congress is due this week to consider another multi-billion dollar aid package to help Puerto Rico after it was hit by back-to-back hurricanes.
The GAO provides nonpartisan information to members of Congress, including audits of government activities and reports about public policy. Its latest report was requested by Republican Sen. Susan Collins of Maine and Democratic Sen. Maria Cantwell of Washington.
[…]
Blah, blah, blah…
Firstly… Is it my imagination? Or does the CNN “reporter” appear to be about 12 years old?
Secondly… The CNN article babbles about climate change and the US government spending $350 billion over the past decade in “response to extreme weather and fire events,” but never mentions any other actual numbers.
The LA Times did include some numbers:
The extreme weather events of the past decade that scientists believe were exacerbated by climate change added more than $350 billion in costs to taxpayers, according to the report, a huge drain on the budget as funds were diverted to cover more disaster relief, crop and flood insurance, firefighting costs, and infrastructure and public lands repairs. Those demands threaten to increase by $12 billion to $35 billion each year by the middle of the century, it said. By the end of the century they could go up each year by as much as $28 billion in today’s dollars, a crushing cost for taxpayers.
The LAT numbers are useless… “Those demands threaten to increase by $12 billion to $35 billion each year by the middle of the century, it said. By the end of the century they could go up each year by as much as $28 billion in today’s dollars…” They mix nominal dollars up to 2050 and then revert to current dollars over the second half of the century.
So, I went and downloaded the GAO report. A few funny things first:
The methods and the studies that use them produce imprecise results because of modeling and other limitations…
Methods used to estimate the potential economic effects of climate change in the United States are based on developing research from a small but growing number of researchers. These methods are complex because they link different types of complicated climate and economic models to assess how projected changes in the climate could affect different sectors and regions. They produce imprecise results…
Methods used to estimate the potential economic effects of climate change in the United States are based on developing research being undertaken by a small but growing number of researchers, according to the literature we reviewed and several experts we interviewed.
Methods used to estimate the potential economic effects of climate change in the United States are complex because, according to literature we reviewed and many experts we interviewed, they use different types of complicated climate and economic models that are linked together in a sequential framework that uses the results of one model as input to another…
According to the literature we reviewed and many experts we interviewed, methods used to estimate the potential economic effects of climate change in the United States, and the national-scale methods that use the methods, produce imprecise estimates of economic effects because of data and modeling limitations…
According to a 2012 National Academies report, climate models have advanced over the decades to provide much information that can be used for decision making today, but there are and will continue to be large uncertainties associated with climate modeling.
According to literature we reviewed, another key source of uncertainty is how much global temperatures will rise in response to a change in carbon dioxide concentrations, a factor known as climate sensitivity.
Modeling the effects of climate change is challenging because, among other things, it often involves projections over long periods into the future, and these projections become more uncertain over time.
Several experts we interviewed noted that even though the methods produce imprecise results…
Anybody else notice a pattern here?
Here’s the rub: “economic effects of the six sectors could reach 0.7 to 2.4 percent of the U.S. gross domestic product per year by the end of this century.”
They can’t forecast the GDP out to the end of the century within 0.7-2.4%… But they can accurately forecast a loss of “0.7 to 2.4 percent of the U.S. gross domestic product per year by the end of this century” based on a cascade of complex models which produce imprecise results, with the uncertainty increasing over time…
Oh… Here’s the real kicker:
The study did not estimate the potential costs of significant global action to reduce greenhouse gas emissions, noting that such costs were well-examined elsewhere in the literature.
Really? Where? In 2014, the IEA put the global cost of deep decarbonization at $44 trillion. According to the BP’s 2017 Statistical Review of World Energy, in 2016, the world’s primary energy consumption was 13,276.3 million tonnes of oil equivalent (MTOE). US consumption was 2,272.7 MTOE, 17% of the total. That would make our share of decarbonization $7.5 trillion.
If we accept that climate change is currently costing us $35 billion per year ($350 billion over past decade) and accept the GAO’s estimate of future costs:
A November 2016 assessment by the Office of Management and Budget (OMB) and the Council of Economic Advisers found that recurring costs that the federal government incurred as a result of climate change could increase by $12 billion to $35 billion per year by mid-century and by $34 billion to $112 billion per year by late-century, the equivalent of $9 billion to $28 billion per year in today’s economy.
The total cost of climate damages to the US by 2100 would be $161 trillion. Would it make sense to spend $7.5 trillion now (or in the near future) if it averted $161 trillion worth of damages over the next 83 years?
What is ‘Net Present Value – NPV’
Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of a projected investment or project.
The following is the formula for calculating NPV:
where
Ct = net cash inflow during the period t
Co = total initial investment costs
r = discount rate, and
t = number of time periods
A positive net present value indicates that the projected earnings generated by a project or investment (in present dollars) exceeds the anticipated costs (also in present dollars). Generally, an investment with a positive NPV will be a profitable one and one with a negative NPV will result in a net loss. This concept is the basis for the Net Present Value Rule, which dictates that the only investments that should be made are those with positive NPV values.
Read more: Net Present Value (NPV)http://www.investopedia.com/terms/n/npv.asp#ixzz4wRejUYxq
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In the real world, all investments have pass an NPV analysis. The GAO tangentially addresses this in their report:
Challenges also arise with discounting future benefits and costs, particularly when modeling over long time frames. According to OMB, benefits or costs that occur sooner are generally more valuable than those that occur later. However, according to the literature reviewed and some experts interviewed, the appropriate discount rate to apply when considering benefits and costs across generations, such as those associated with climate change, is subject to much debate.35 According to one of its authors, this debate was one reason why the American Climate Prospectus study did not present its estimates in discounted terms.
100% unmitigated bull schist!
In the real world a 7% discount rate is the standard.
As a default position, OMB Circular A-94 states that a real discount rate of 7 percent should be used as a base-case for regulatory analysis. The 7 percent rate is an estimate of the average before-tax rate of return to private capital in the U.S. economy…
https://www.transportation.gov/sites/dot.gov/files/docs/OMB%20Circular%20No.%20A-4.pdf
A 7% discount rate essentially makes the NPV of the Social Cost of Carbon $0 or negative.
A 7 percent discount rate, which has been used by the EPA for other regulatory analysis, could actually lead to a negative carbon cost, which would seem to imply that carbon emissions are beneficial.
Getting back to the GAO’s epic failure… Here’s what happens when I apply a 7% discount rate to their assessment of climate damages:
where
Ct = net cash inflow during the period t (climate damage to be averted)
Co = total initial investment costs (decarbonization)
r = discount rate, and
t = number of time periods
| Ct = net cash inflow during the period t | $ 160,972,000,000,000 |
| Co = total initial investment costs | $ 7,480,000,000,000 |
| r = discount rate, and | 7% |
| t = number of time periods | 83 |
| Ct/(1+r)^t | $ 585,998,888,297 |
| NPV | $ (6,894,001,111,703) |
Discounted_GAO_Report Excel Spreadsheet (updated)
The NPV of the $7.5 trillion decarbonization “investment” is -$6.9 trillion. That’s a VERY negative NPV.
A positive net present value indicates that the projected earnings generated by a project or investment (in present dollars) exceeds the anticipated costs (also in present dollars). Generally, an investment with a positive NPV will be a profitable one and one with a negative NPV will result in a net loss. This concept is the basis for the Net Present Value Rule, which dictates that the only investments that should be made are those with positive NPV values.
If we took $7.5 trillion today and put it in 30-yr Treasuries at 2.89% (assuming a constant interest rate), we’d have nearly $80 trillion in 2100. If we employed that capital at a 7% return, we would have nearly $2.1 quadrillion by the turn of 22nd Century… enough to pay for the cumulative climate damages 13 times over.
Now… My approach to this has been very simplistic and probably isn’t correct. I have no doubt that an accountant would tell me that my approach was totally wrong… However, the GAO inputs were little more than SWAG’s pulled out of the place SWAG’s are pulled out of. It really is the epitome of mental [Censored]ation for the US General Accounting Office to prepare this sort of report with SWAG’s based on models that have never demonstrated predictive skill… And to not factor in costs, much less discount them. It is abominable. President Trump should hit that part of the swamp with a neutron bomb.
Note 1: The fact the I accepted the GAO’s estimates of the costs of climate-related damages and used them in my calculations, does not mean that I agree with them. There is absolutely no basis to support the claim that the $350 billion spent over the past decade in response to extreme weather and fire events was even remotely related to climate change or greenhouse gas emissions. Nor is there any evidence that decarbonization of our energy infrastructure will avert any future expenditures in response to extreme weather and fire events.
Note 2: Yes. I know that the GAO report doesn’t literally say that the cost of climate damage will be far less than the cost of decarbonization. It didn’t even address the costs. It just regurgitated Obama maladministration talking points.
Addendum
A comment by Steve Zell leads me to think the I overestimated the GAO’s climate damage SWAG. In my initial calculation, I started out with $35 billion in 2017. I incrementally grew the annual increase from $12 billion in 2018 to $112 billion in 2100. I compounded the damage by adding the annual increase to the previous year’s damages. This resulted in damage equivalent to 4% of US GDP in 2060, higher than the GAO’s upper SWAG range. I re-ran the calculations using a constant baseline of $35 billion.
| Ct = net cash inflow during the period t | $ 8,086,000,000,000 |
| Co = total initial investment costs | $ 7,480,000,000,000 |
| r = discount rate, and | 7% |
| t = number of time periods | 83 |
| $ 29,436,094,543 | |
| NPV | $ (7,450,563,905,457) |
This leads to a -$7.5 trillion NPV at a 7% discount rate. The NPV is negative even at a 3% discount rate in this scenario.
| Ct = net cash inflow during the period t | $ 8,086,000,000,000 |
| Co = total initial investment costs | $ 7,480,000,000,000 |
| r = discount rate, and | 3% |
| t = number of time periods | 83 |
| $ 695,415,051,803 | |
| NPV | $ (6,784,584,948,197) |
Addendum 2
David, in your example, I think you discounted the whole $161T back from 2100. To calculate the NPV, each annual cash flow is discounted to present for the appropriate number of years and the individual discounted cash flows are summed, for example, 2018 is discounted for 1 year, 2019 is discounted for 2 years, etc. It will make a huge difference in your result. Excel has a formula (NPV) that makes it easy.
Yep. I did discount the entire cash flow back from 2100. I also realized that 2017-2100 has 84 intervals, not 83. So, I went back and applied the NPV formula to each year, using the static baseline, and ran NPV’s for discount rates of 7%, 5%, 3%, 1% and 0.25% and never obtained a positive NPV.
| Ct = net cash inflow during the period t | |
| Co = total initial investment costs | $7,480,000,000,000 |
| r = discount rate, and | 7% |
| T = number of time periods | 84 |
| Undiscounted Cash Flow | $8,086,000,000,000 |
| Discounted Cash Flow | $884,761,102,227 |
| NPV | ($6,595,238,897,773) |
| Ct = net cash inflow during the period t | |
| Co = total initial investment costs | $7,480,000,000,000 |
| r = discount rate, and | 5% |
| T = number of time periods | 84 |
| Undiscounted Cash Flow | $8,086,000,000,000 |
| Discounted Cash Flow | $1,335,842,279,142 |
| NPV | ($6,144,157,720,858) |
| Ct = net cash inflow during the period t | |
| Co = total initial investment costs | $7,480,000,000,000 |
| r = discount rate, and | 3% |
| T = number of time periods | 84 |
| Undiscounted Cash Flow | $8,086,000,000,000 |
| Discounted Cash Flow | $2,344,891,536,915 |
| NPV | ($5,135,108,463,085) |
| Ct = net cash inflow during the period t | |
| Co = total initial investment costs | $7,480,000,000,000 |
| r = discount rate, and | 1% |
| T = number of time periods | 84 |
| Undiscounted Cash Flow | $8,086,000,000,000 |
| Discounted Cash Flow | $5,050,177,743,850 |
| NPV | ($2,429,822,256,150) |
| Ct = net cash inflow during the period t | |
| Co = total initial investment costs | $7,480,000,000,000 |
| r = discount rate, and | 0.25% |
| T = number of time periods | 84 |
| Undiscounted Cash Flow | $8,086,000,000,000 |
| Discounted Cash Flow | $7,148,802,502,752 |
| NPV | ($331,197,497,248) |
I still get a negative NPV at almost any discount rate above zero-point-zero.
Suggested correction:
From the coverage – as bad as it is; it suggests that “extreme weather events of the past decade,” cost $350 billion – and that [perhaps] climate change [assuming they mean man-made] might have “exacerbated ” those costs. And, that by 2015 this additional imprint of CACC could end up adding $12 – $35 bil/yr additional costs.
Needs to be reworked, David. Was bad enough as the LAT’s, AP, presented it.
One might wonder – perhaps it;s in the ridiculous study, are they even coming close to putting a CACC contribution to the $350 bil, over the past decade? In other words, is perhaps, in their little exploding heads, $1, or $2, or $10 billion of the $350 billion the man-made part?
PS – for fun.. I posted a comment at the LAT’s suggesting that perhaps some readers (did not mean David Middleton) would walk away telling others that man-made climate change cost taxpayers $350 bil over the last decade.
No, I had the exact same thought. I didn’t want to express it because it’s an ad hom, but you had the exact thought even to the exact age, so I am.
Am I just getting old, maybe? Those darned coppers are getting younger every year too…
It would only be an ad hominem argument if I was using his apparent age as an argument against the GAO’s idiocy.
David,
The mis-use of fallacies online kill me.
[As I went to find a bookmarked link to a a large comprehensive list of fallacies I find the domain, gone. This is why I prefer non-digital.]
Nizkor has unfortunately become inaccessible.
I like the football referee version.
https://m.imgur.com/gallery/QAMU0
Via sleuthing, apparently my geographical location is preventing my ability to access?
Anyone have a go?
http://www.nizkor.org/features/fallacies/
It would be ad puer (boy) in this case.
Many high schools have work experience programs so that the kids can find out what it’s actually like to (e.g.) work in a hospital.
I had knee surgery some years ago, and I had to go back for check-ups several times. The last time I went, one of the kids on work experience, a girl of about 16, came in, and started asking me a few questions.
I was thinking “Bright kid. She’s picked some of the jargon”, when I saw the name tag on her white coat. It said “Dr. F. MacKenzie”.
Then I knew I was not quite a young man any more.
So after we’ve spent 161 trillion, then Puerto Rico can be happy they will only be totally trashed by a couple of 2017 type mega hurricanes or, horrors, 1950s grade, in 2099 and we will have to shell out the same cash inflated by 80yrs anyway. I make that 322trillion.
We learned in an article here the other day by Pat Frank that a y=mx+b linear formula matched the models from Hansen’s to Gavin Schmidt and all the other 100 efforts. And then there is physics instead of grade 9 algebra apparently, although I’ve only heard about the physics in words.
Shame, shame. If we let these clones get away what they are doing to learning and science, by 2099 they’ll be handing out PhDs for learning your 12 times table. I thought Steve McIntyre was being sardonic when, after criticizing the stats and science in climate papers, he said:
“In my opinion, most climate scientists on the Team would have been high school teachers in an earlier generation – if they were lucky. Many/most of them have degrees from minor universities. It’s much easier to picture people like Briffa or Jones as high school teachers than as Oxford dons of a generation ago. Or as minor officials in a municipal government.
Allusions to famous past amateurs over-inflates the rather small accomplishments of present critics, including myself. A better perspective is the complete mediocrity of the Team makes their work vulnerable to examination by the merely competent.”
https://wattsupwiththat.com/2013/08/04/quote-of-the-week-high-school-climate-science/
from the LA times: “, a huge drain on the budget as funds were diverted to cover more disaster relief, crop and flood insurance, firefighting costs, and infrastructure and public lands repairs”
So they are concerned that there is redistribution of assets taken from their redistribution of wealth program that they intended to go to government handouts that buy votes.
Ohh, astute point.
insufficient analysis.
1) There always was, and there alway will be, extreme event, event if we completly decarbonize.
The 350 B$ have just nothing to do with climate change, since they are not more frequent or stronger than before. They indeed do more damage, but only because properties are more numerous and have higher value in the hit areas. This will keep going on and on, climate change or not.
2) you have take into account the benefits of higher temperature and CO2 level, including greening and preventing a new LIA. A new LIA, that just cannot be ruled out, would have tremendous human and financial cost, far more than any compilation of extreme event (that will occur nonetheless !). It must be prevented at all cost, even the supposed cost of Global warming (much lower in any hypotheses).
Climate Pascal’s Wager is easy: If we could (and IPCC says we can, although i don’t believe it), we should prevent a new LIA at all cost, and if warming occurs and even have huge costs, so be it, this is a fair price to prevent a new LIA.
What’s hysterical, paqyfelyc, is that we actually had the LIA! We know it could happen again; we don’t have to speculate.
The Precautionary Principle is ripe for that scenario.
Hmmmm….if adjusted for inflation, population growth, etc., just how does that $350 billion compare to the previous one or two decades? Decades before that?
“The US government has spent …”
In the past, the Feds were less likely to open “the flood gates of tax dollars”.
(How many Fed dollars, adjusted for inflation, went into rebuilding Galveston?)
Lot’s of variables.
How many did the kid enter into his figures?
“H/T to ivankinsman for bringing this to my attention.”
I think Ivan didn’t read the report properly or didn’t understand it when it was linked to in the other thread.
OMG ! CNN’s Eli Watkins is just a boy! NO WONDER!
Was it defined if these weather & fire events were ‘naturally’ caused? Lots of arson out there. I distinctly remember the Hayman Fire in Colorado.
Biggest recorded fire. Arson by a government employee. Ha!
Man still remember driving down 6th Ave (east Denver metro) heading West, kept getting darker and red/orange then @ur momisugly#$&# I can’t see passed my hood. Whelp, U-Turn.
Investing the calculated amount, or any other amount, to have a fund for future government emergency expenses is pure fantasy. Politicians ALWAYS spend every cent NOW. If any such foolish fund should be established, say from a new wage tax, corporate tax, slave tax, or whatever, all that would exist on that future date would be an accounting entry. Like social security, government pensions, and various other entitlement programs, actual expenditures at any future time could only be made from then current receipts. Nothing else but a number in a ledger would exist. There has been no money for a long time, there is only debt.
They got the headline. Most people won’t read any further than the first few paragraphs. Object achieved!
There are some limp qualifiers further down, so a retraction won’t be necessary even if the inaccuracies are challenged. All in all, a first-class piece of modern journalism.
+100
Why are there only “costs” associated with climate change? We all know from history that global warming is always healthier and more productive for humans than global cooling.
More warming means longer growing seasons, more extensive greening of desert areas (already visible in Saharan Africa), less starvation, less disease, longer lifespan, less ice and snow (that kills people), etc. etc.
Why are these studies always so one-sided?
Oh, yeah, I get it, the warmists don’t want us to know that their greatest fear is not warming but that we’ll figure out that they’ve been BSing us for decades about the net effects of warming.
Looking through the GAO report. I don’t see any reference noting that all climate change is not man-made. Seems to be the assumption that, for example, that all sea level rise is, and has been, caused by man. Thus if we can reduce our CO2 emissions to pre-1970’s levels, sea level rise will be stopped and hurricanes, droughts and forest fires will be no more.
No need America to plan for extreme weather events and continuing SLR – no infrastructure needed; simply stop driving and the risk will go away.
Dave,
Thank you for this The discount rate of 7% is as you say typical. The use of 3% has been advanced by some as appropriate for policies that affect all of society, as opposed to rate based on market returns. No discount rate is merely a dodge to avoid doing real cost benefit analysis.
The problem with a 3% discount rate, is that the government is taking money from the private sector now to pay for crap in the future. A 7% discount rate reflects the cost of the capital to the private sector. A 3% discount rate barely reflects long-term Treasury notes.
In the 1990’s, we typically used a discount rate of at least 8% for major, long-lived infrastructure investments, David.
We use a 10% discount rate when valuing proved oil & gas reserves.
The costs and benefits of decarbonization are indeterminable as the statistical population underlying the model is not identified.
You pose an interesting question of whether the costs of decarbonization exceed the costs of climate change damage. I think you do have a valid criticism of those sources you cited that only talked about the costs of one thing without comparing them to the costs of the alternative.
However, I do have two problems with your analysis.
If I’m reading things correctly, the $35B/yr is only the government money spent for disaster relief. It doesn’t include any private losses (either covered by insurance, which ultimately gets tacked on to premiums, or uninsured losses in excess of what they get from the government in disaster relief.) And there could be other economic costs of climate change beyond natural disasters, like maybe crop fertility is reduced. It may be hard to accurately count those up, but it’s not valid to ignore them.
The second problem is that there’s a fairness issue with this kind of externality. A bunch of people emit carbon, and then a few people have their homes destroyed by hurricanes. Or if you apply a discount rate across generations, then you are deciding whether you should spend money now based on how much money it’s going to save someone else 50 years from now. Unless you also include some scheme for the deciders/creators of the externality to fairly compensate the sufferers of the externality then it’s not just a matter of which is going to cost less in the aggregate, you also have a problem of is it fair to allow people to create costs for others? Maybe for fairness we should prevent the externality even if it’s net present value is zero.
Unfortunately we have no estimate of the cost that is cross validated. Thus, there is not a scientific basis for any public policy whatsoever.