Guest post by Neil Lock
This is a follow-up to my recent essay, “On Cambridge University, post-modernism, climate change, Oppenheimer’s Razor, and the Re-Enlightenment.” As I said there about the economic impacts of global warming: “I’d expect that some probing by independent experts into the economic calculations, and the assumptions on which they are built, might bear fruit.” But where are these calculations, and who are the unbiased experts who have quality controlled them? I couldn’t find any such calculations, or the names of any such experts. Perhaps, I thought, I’d better take a look at this myself.
So, I set out to learn as much as I could about the economic calculations which – so we’re supposed to believe – justify the extreme measures proposed, all the way up to total de-carbonization of the UK economy, to avoid alleged catastrophic damage from global warming. This essay is the result of that exercise. If it reads like a cross between a layman’s guide to the economics of global warming and a political rant, that’s because it’s both!
Here are the main points of what I found out:
1. In 2009, the UK government ceased to value carbon dioxide emissions according to their social cost [], in favour of using numbers based on political commitments they had previously made. In effect, they abandoned doing cost versus benefit assessments on policies that are expected to increase or decrease CO2 emissions.
2. Recent empirical estimates of equilibrium climate sensitivity (ECS), when run through assessment models like those used by the US Environmental Protection Agency (EPA), suggest a considerably lower social cost of CO2 emissions than earlier estimates, such as the UK government’s Stern Review.
3. When the beneficial side-effects of CO2 emissions, such as increased plant growth, are taken into account, it’s possible that the social cost of these emissions may even become negative. That is, CO2 emissions become a nett benefit not a nett cost.
4. Calculations based on a 2017 paper by Dayaratna, McKitrick and Kreutzer suggest a social cost for all UK CO2 emissions as at 2020 of 0.05% of GDP (optimistic) or 0.31% of GDP (pessimistic). Using the social cost numbers for 2050 from the same paper, the figures are 0.08% and 0.52% respectively. All these numbers are substantially lower than the 1-2% of GDP put forward as the cost of “net zero” policies.
5. There is a need for urgent action to prevent the imposition of costly, draconian and lifestyle-destroying policies on people in the UK in the name of a problem, which is far less serious (if it is a problem at all) than is claimed by the promoters of those policies.
What I did
I realized that I was going to have to delve into details, skim-read (at least) several scientific and policy papers, and form my own view on the matter. And quickly, too. Fortunately, I am fairly well equipped to do this, having done much the same in the field of toxicology with my 2017 paper on air pollution from cars in the UK.
But as a generalist, I always want to look at the wider perspective as well as at the detail. So, I’ll open with some thoughts on what economists call “externalities.” These are defined as consequences of an industrial or commercial activity which affect other parties, without this being reflected in market prices. And I’ll put forward some ideas on how these things ought to be dealt with in a sane world.
Social cost of externalities
When people do things, they sometimes cause damage or inconvenience to others. This is an inevitable consequence of living in a community. If the damage is willed, that’s a problem. We normally call these acts “crimes,” require the perpetrators to compensate the victim(s) for the damage caused, and punish them in addition. If the damage is unintended but significant, we (humans as a whole) have systems which can require the perpetrator to compensate the victim. The details differ from place to place and time to time, but they all point in the same direction: justice. If damage is done without anyone realizing what’s going on, that’s a third aspect of the problem; externalities that no-one at the time knew were there.
How to deal justly with such problems? Well, for me at least, the first step must be to find out how big the problem is. Until you know that reasonably accurately, there isn’t much you can do, without risking that whatever action you take will do a lot more harm than good.
A good way to assess an activity which may be causing a problem, is to calculate what is known as “social cost.” This is the total cost, to all those affected, of the activity. Economists often use this term to mean the total cost of the activity, both the “personal” costs to the producer and the “external” costs to third parties. But when they talk of the “social cost of carbon” (SCC), or more accurately the social cost of carbon dioxide emissions, it seems that what they mean is the cost of the externalities (both negative and positive) caused by CO2 emissions, which would not have happened had there been no such emissions. This is usually expressed as a cost per ton of CO2 emitted in a particular year.
As an aside, some tell us that negative externalities are caused by “market failure.” This is nonsense. They arise, in the first place, because it takes time for anyone, and most of all for the victims, to realize that there’s a problem, and who is responsible for it. They remain uncorrected because the legal system makes it hard for the victims to claim compensation from the perpetrators. In the US, class action suits can sometimes be used. But the UK equivalent (Group Litigation Orders) seems much less useful. There’s a common law tort of “nuisance,” but this applies mainly to “noisy neighbours” and similar cases. There have been attempts to bring nuisance cases against, for example, wind farms; but as far as I’m aware, none has got anywhere. Moreover, damages for nuisance tend to be low. It isn’t the market that has failed when externalities go uncorrected; it’s the legal system and the government.
For externalities arising from human emissions of CO2, we’re into the “polluter pays” scenario. That is, those who cause an externality should be made to compensate those who were harmed by it. And where the activity raises significant risks of further damage in the future, these risks should be taken into account. But no payments should actually be made until the predicted bad effects have been shown to be real.
All this is only common sense. But it’s also common sense that no-one who has caused an externality should be made to pay any more than their own portion of the social cost, over the time frame in which they have been causing the externality. A government claiming to be democratic, if it mandated more than this, would be failing in its duty to act for the benefit of the governed – all the governed.
So, in a sane world, if you can first get a reasonably accurate measure of the social cost of an externality, you could apportion that cost in two ways. First, you could identify the perpetrators of the externality, and assess the damage caused by each perpetrator, in proportion to their contribution to it. And second, you could identify the victims, and assess the harm done to each, in proportion to the damage suffered. A government could then set up a system which takes compensation payments from the perpetrators, and routes them to the victims. This is an idea I’ve put forward before, in relation to air pollution from cars.
If a more accurate re-assessment of the social cost were to cause a change, either up or down, in the just level of these payments, the response would be to increase or decrease the payments, taking account of payments already made. Thus, as the social cost estimates become more and more accurate, the payments will more and more closely approach the just values. But notice – importantly – that in this process, once the apportionment is made, government acts only as a router, and itself takes no more from anyone than it needs to run the process. No “transformation of society” is required or attempted, no “carbon taxes” are levied, and nobody gets rich on the proceeds.
What the UK government has done
But this isn’t a sane world. Nothing touched by politics is ever sane. The US EPA has used the social cost approach for several years now, though its continued use is in doubt. But the UK has abandoned it. The Intergovernmental Panel on Climate Change (IPCC) also does not use a social cost approach, preferring “process based” models, which “analyse transformation pathways to mitigate climate change.”
Here is the UK government’s page on the matter: []. Prior to 2009, they used a social cost approach to valuing the effects of CO2 emissions (increases or decreases) when considering policies. The page says: “The SCC matters because it signals what society should, in theory, be willing to pay now to avoid the future damage caused by incremental carbon emissions.” Yes, indeed. In my terms, the SCC is the aggregate of what all individuals ought to be willing to pay, each according to his or her own share. And no proposed measure of damage costs, which is significantly different from the social cost, can provide any basis for objective and fair assessment of the costs of damage against the costs of taking steps to avoid that damage.
But in 2009, the UK government dropped any attempt or pretence at trying to work out how big the CO2 problem really was. Instead of evidence driving policy, they moved to policy driving the numbers. Paraphrased, their argument seems to have been: “We know we can’t do a credible cost-benefit analysis that justifies any political action on this. But we’ve already committed to political action. So, we’ll just make up numbers to match the commitments, and hope that no-one notices.” To me, this looks like politics masquerading as science; and extremely bad faith on the part of Gordon Brown’s government.
Go down to “Carbon valuation in policy appraisal: 2009 review” to see the money quotes. You can also take the link and read the executive summary of the report, if your stomach is strong enough. The following comment by reviewer Paul Johnson on the draft report is also most revealing []. “The problem is, of course, that the natural response of the economist to some of the arguments put forward here – that the SCC may be inconsistent with targets and international agreements – is that this just reveals the incoherence of the targets and agreements. I am not in that camp, but the paper needs more explicitly to rebut that view.” And, a little further down: “given a target, the consistent approach is to value carbon in such a way as to ensure we hit the target.”
So, now we know. This has nothing to do with rationally assessing costs versus benefits. It’s all politics. And the answer to my question “where are the economic calculations that justify the extreme measures proposed, and the assumptions on which they are built?” becomes clear. There aren’t any such calculations! Worse, any attempted cost-benefit calculation on “net zero” policies using UK government figures would be meaningless, because the “costs” and “benefits” would, ultimately, be based on the same numbers.
Integrated Assessment Models
To a more technical interlude. The computer programs, which are (or have been) used to try to assess the validity, or otherwise, of claims of economic catastrophe caused by human CO2 emissions, are called Integrated Assessment Models; IAMs for short. There are three major IAMs: DICE (William Nordhaus), FUND (Richard Tol et al.) and PAGE (Chris Hope).
In many ways, IAMs are like climate models. They take dubious data, whirl it round and round through various mathematical equations, then spit out results that may or may not make sense. There are lots of parameters that can be adjusted, and the effects of adjustments can vary hugely.
Robert Pindyck’s view
Economist Robert Pindyck has slammed IAMs in this paper: []. He makes four main points. Myself, I agree with one, and disagree with the other three.
His first point is that the models allow a huge choice of, essentially arbitrary, parameters. He’s correct. To quote John von Neumann: “With four parameters I can fit an elephant, and with five I can make him wiggle his trunk.” But the same criticism applies to the climate models too. What’s sauce for the IAM is sauce for the AOGCM []. It can only be the honesty of the researcher which determines the best choice of the parameters.
Pindyck’s second point is that we know very little about climate sensitivity. Here, he has been overtaken by events. A 2018 paper by Lewis and Curry [] gives much tighter bounds on the equilibrium climate sensitivity (ECS) – that is, how much the global temperature will, eventually, rise as a result of a doubling of atmospheric CO2 – than were available before. So, Pindyck’s second criticism is now far less of an issue.
His third point is that, at the core of an IAM, there is a “damage function,” which calculates economic damage as a function of temperature change and perhaps other factors. And this function is chosen quite arbitrarily. This is, indeed, a criticism of DICE, and maybe of PAGE too; but not so much of FUND. But later in the same paper, he suggests that instead of using IAMs, SCC calculations should rely merely on “expert opinion.” Instead of attempting to make an objective assessment of the social cost, he wants a bunch of “experts” to wave wet fingers in the air, and come out with numbers that (surely) will be based on no more than the political preferences of those experts? No, thanks.
His fourth point is that the IAMs don’t take into account “tail risk” – a tiny chance of a catastrophic outcome. Now, if you have known risks of very small but uncertain probability, you should of course devote effort to narrow down the error bars on the size of those risks. But often, in the real world, you just have to take the risk anyway. For example, if there’s coronavirus out there, and you don’t have any symptoms, should you just shut yourself away at home, and not go out even to the shops to buy food? Surely not.
Besides which, what precisely are the risks, arising from CO2 emissions and consequent global warming, which genuinely might be catastrophic inside a few centuries? I don’t think you can even answer that question, without listing some possibles and trying to assess the risks of each!
One particular economic assumption in an IAM has an especially large impact on the results. This is the “discount rate.” It’s a percentage, which indicates how much lower a benefit or cost next year is to be valued, compared with a same sized benefit or cost this year. There are two schools of thought among economists. One favours a very low discount rate. In effect, they consider the interests of future generations as more important than the interests of those alive today. This approach leads to very high estimates of social costs. The other school favours a discount rate based on how individuals make investment decisions. This gives discount rates usually between 3 and 7 per cent, and much lower social cost estimates.
I’ll go with the second school. After all, those that say “we should sacrifice ourselves for the sake of future generations” don’t practise what they preach – do they? So why should we take any notice of what they say?
Moreover, the ethicist in me worries about the whole notion of balancing interests of future generations against interests of those alive today. For each of us, surely, has obligations to others, which come from our nature as human beings. Such as: Truthfulness. Honesty. Integrity. Good faith. Respecting others’ rights. Tolerance of difference – but not of wrongdoing, of course. Striving to be economically productive. Taking responsibility for the effects of willed actions on others. And for those who choose to have children, bringing them up well. These obligations, of course, include repaying to the victims our share of the social cost of any externalities we cause. But to me, it makes no sense to worry about obligations to people I can never meet, and who may never even get born. To meet my obligations to everyone who shares the planet with me, and who meets their corresponding obligations to me in return, should, and must, be sufficient.
DICE, PAGE and FUND
Historically, DICE was the first of the three IAMs. Its genesis goes back at least to the 1980s, and its developer was 2018 Nobel Prize in Economics winner William Nordhaus. There’s a social cost calculation using DICE at []. You can see Nordhaus’s quadratic damage function at Equation 3. This study “estimates that the SCC is $31 per ton of CO2 in 2010 US$ for the current period (2015).” And “the real SCC grows at 3% per year over the period to 2050.” The discount rate used is roughly 4¼%.
PAGE is the model produced by Chris Hope of the Judge Business School in Cambridge. There is some documentation on it here: []. It does not state a damage function, but another source describes the PAGE damage function as “Power function, uncertain exponent (1 to 3).” The possibility of the damage function being steeper than quadratic may well explain why PAGE is known to produce “fat tailed” distributions, and higher social costs than DICE.
The UK government’s “Stern Review” of 2006 used the PAGE model. This, combined with selecting a very low discount rate, resulted in an extremely high estimate of the social cost. Economist Martin Weitzman commented: “the Review’s radical policy recommendations depend upon controversial extreme assumptions and unconventional discount rates that most mainstream economists would consider much too low.”
The third model, FUND, comes from Richard Tol of the University of Sussex and his colleague David Anthoff. This looks to be the most complex of the three. The technically minded can find documentation here: []. FUND has no single damage function. Rather, it divides the possible sources of damage into a number of areas – such as agriculture, forestry, sea level rise, storms, effects on human health – and assesses each separately. Unlike the other IAMs, it includes positive side-effects of CO2, such as on plant growth. Each of the equations used is based on the results of earlier published studies, mostly from the 1990s.
Some recent experiments
They used versions of DICE and FUND, which had been modified by the US EPA to accept estimates of equilibrium climate sensitivity (ECS) as a probability density function, rather than from the outputs of an internal climate model. First, they ran DICE using a relatively old (2007) density function, coming from the climate model which had been used by the EPA. They checked that the results were consistent with the EPA’s social cost figures. Then they plugged in a function from the empirical ECS estimate made by Nic Lewis and Judith Curry in 2015. Lastly, they repeated the whole exercise using FUND.
The results were startling. At a 3% discount rate, with DICE, the social cost per ton of CO2 as at 2020 reduced from $38 per ton to $19.66 when the modelled ECS was replaced by the empirical one. With FUND, it came down from $19.33 to a piffling $3.33. The big difference between the two models, presumably, is that FUND includes the beneficial effects of more CO2 and higher temperatures on agricultural productivity, while DICE doesn’t. If I look out all the way to 2050, the figures are $32.51 from DICE and $5.09 from FUND. There’s many a slip, but I couldn’t find any reply to this paper from the alarmist side, let alone a “rebuttal.”
The second paper is very recent: Dayaratna, McKitrick and Michaels 2020 []. The message, as you’ll see from the abstract, is: “It’s better than we thought!” Not only because there may be good reason to change some of the FUND parameters, which relate to plant growth, in the direction of extra benefits from more CO2. But even more, because updated ECS estimates by Lewis and Curry (2018) are now available. Based on these, they say that at 3% discount rate the social cost per ton of CO2 as at 2020 is down to just $1.61. By 2050, it goes up a bit, to $4.21. But that is still minuscule compared to the estimates by Nordhaus or Stern.
And if you factor in the extra benefits of CO2 to plant growth, the social cost of CO2 may go negative! As the authors of the 2017 paper wryly observed, “A negative value implies that carbon dioxide emissions are a positive externality, so that an optimal policy would require subsidizing emissions.” If this work stands up to scrutiny, it could be a game-changer.
A ball-park calculation
On the rare occasions I do any mathematics these days, it’s usually on the metaphorical back of an envelope. So, I thought that at this point I’d do a simple order of magnitude calculation of the social cost per year of CO2 emissions in the UK. In fact, I’ll do four calculations. For 2020 and 2050. And optimistic using FUND, and pessimistic using DICE.
For the optimistic calculation for 2020, I decided to use the social cost of $3.33 per ton from Dayaratna, McKitrick and Kreutzer 2017, using FUND and a 3% discount rate (Table 4). I chose not to use figures from the new paper, because it hasn’t yet been critiqued by other scientists. For the pessimistic calculation, I took the social cost of $19.66 a ton using DICE from the 2017 paper, with the same discount rate (Table 2).
Here’s the optimistic calculation:
· UK CO2 emissions (2018) = 366 million tons [].
· Social cost of a ton of CO2 (2020) = $3.33 (see above).
· I believe that figure is in 2010 $. As a rough conversion to 2020 $, I multiplied by the US consumer price index for Jan 2020 (roughly 258) and divided by that for Jan 2010 (roughly 218) [] to give $3.94.
· Exchange rate, 11 March 2020: $1.29 = £1. $3.94 @ 1.29 = £3.055.
· Total social cost as at 2020 of a year’s UK CO2 emissions = £1,118 million. To put that in perspective, it’s about 0.053% of the 2018 UK GDP of £2.11 trillion.
· UK population (2018) = 66.44 million.
· Social cost of UK CO2 emissions per head per year, as at 2020 = £16.83.
I could be out by an order of magnitude, of course. Either way! But to destroy the UK economy and kill our lifestyles and freedoms, for the sake of avoiding damage costing only £17 per head per year, would be lunacy. Even if I use the 2050 figure of $5.09 per ton, then just by simple multiplication, I get only 0.081% of GDP and £25.72 per head.
As to the pessimistic calculation, using the DICE number for 2020 ($19.66), the social cost of UK emissions per head per year would still only be £99. That’s 0.31% of GDP. To put that figure in context, it’s less than half the 0.7% of GDP for “foreign aid” that the politicians committed to make us all pay way back in 1980, and which we’re still paying. Even looking out to the 2050 figure, it comes to only £164 per head or 0.52% of GDP.
How can a “saving” of maximum 0.31% of 2020 GDP – probably far less – and maximum 0.52% out to 2050 – justify forcing on to everyone draconian measures like banning petrol and diesel cars, closing all airports, and banning all commercial shipping?
In my earlier essay, I left unanswered the question of what event in 2019, specifically, caused UK politicians suddenly to shift into panic mode. In my research for this essay, I found the answer. It’s here: []. This report comes from the Committee for Climate Change (CCC). The report date – May 2019 – is the same month, at the beginning of which the UK parliament declared a “climate emergency.”
There are mugshots and bios of eight CCC members at the beginning of the report. When you put these together, and supplement them with a few morsels from Wikipedia, they tell a story. I’ll let you, dear readers, fill in the details for yourselves; but I will point out that one of the eight is an economist called Paul Johnson. And that there may well be conflicts of interest for several of them between their outside careers and investments, and being on a supposedly independent advisory board.
Now, I don’t advise you to read this report, unless you’re a masochist. I tried to read several different bits, and on each occasion had to give up in less than a page. It reads like nothing more than a gigantic exercise in virtue signalling, and I can’t understand why any sane person could believe anything in it. All I gleaned from it is that they reckon the cost of “net zero” measures might be 1-2% of UK GDP in 2050. But, as we know, government projects always cost more and take longer. So, I think one to two pinches of salt are in order.
There’s a backstory here, too. In reply to a Freedom of Information request from the Global Warming Policy Foundation, the CCC admitted that they didn’t have any accurate estimates of these costs for the years 2020 to 2049. Amazing – and, again, bad faith.
Earlier, I spoke of “polluter pays.” This is a special case of the more general principle, that every individual is responsible for the effects on others of his or her willed actions. And for providing compensation, where appropriate. Why then, I ask, should there not be a corresponding principle in politics, which I’ll call “politicker pays?” If a political policy causes harm or inconvenience to an innocent person, or if it causes harm out of proportion to the trouble it’s supposed to be correcting, then should not those, that have promoted or supported the policy, be required to compensate those unjustly harmed by it?
If we accept this principle – and in a democracy that’s supposed to work for the benefit of everyone, rather than only for an élite ruling class, why shouldn’t we? – then we should apply it to the global warming issue, no? If forcing us out of their cars, stopping us flying, forcing us to eat less meat, and other restrictions on our freedoms supposedly to reduce global warming, cause damage to us above the social cost to others of the CO2 emissions we are responsible for, should we not be entitled to compensation? Moreover, if the promoters and supporters of the policies did anything underhanded – like scientific misconduct, lying or misleading, denying the accused the right to be heard, or inverting the burden of proof – shouldn’t there be criminal penalties against them in addition?
As I said in my earlier essay, those pushing the global warming agenda are seeking to take a wrecking-ball to our civilization. The arrogance and inhumanity of their policies make them look uncomfortably like what Stalin did to cause the Holodomor famine in Ukraine, or Mao did during the Great Leap Forward. Indeed, to point up the resemblance to the latter, I have dubbed the zero-carbon policy proposals the Great Leap Backward.
And ethically, the zealots pushing this agenda are failing to satisfy the obligations which all human beings have to others. I’ll re-state some from the list I made earlier: Truthfulness. Honesty. Integrity. Good faith. Respecting others’ rights. Taking responsibility for the effects of willed actions on others. No; they aren’t displaying these characteristics, are they? Deliberately, even gladly, they are seeking to use political power to bring about huge damage to the lives of millions of people. Only criminal psychopaths would do such things.
Any government worth its salt ought to be defending the people it is supposed to serve against these criminals and their machinations. Should it not? And yet, the current political system fails to protect us from the green zealots. Worse, it actively invites them to interfere in its deliberations, and lets them move the levers of power in the direction they desire. And six successive UK prime ministers have let them do this; no, they’ve encouraged them! Seven, if you count Thatcher. (Boris Johnson, I have not yet judged). That’s a big problem.
If I ruled the world…
…or, at least, if I had the power and a mandate to sort out the global warming issue in the UK, here are some of the things I’d do:
1. I’d scrap the method of valuing CO2 emissions that has been used in the UK since 2009. I’d order a return to using the social cost of carbon. I’d also scrap their 2002 perversion of the precautionary principle, which has been used to allow government to act, even when there is no scientific or economic certainty that a problem is real.
2. I’d commission an initial best estimate of the SCC, using the DICE model (simply on the grounds that it’s the middle of the three) and the ECS estimates from Lewis and Curry 2018. Based on that, I’d commission a first-order cost versus benefit analysis of emissions reductions. If this comes out, as I’d expect, showing that the “net zero” proposals are of negative utility, I’d scrap them and the CCC that made them, and de-fund all work towards them.
3. I’d order an independent technical audit of FUND. If it shows promise, I’d fund (no pun intended) further development to make it into a more accurate tool than DICE for re-assessing SCC in the future.
4. I’d order an unbiased audit of how the UK government has conducted itself since the 1980s in dealing with the global warming issue. If I had the resources, I’d extend the audit to cover air pollution too. Any politician, official or advisor, that worked dishonestly or in bad faith against the interests of the people they were supposed to serve, ought to be identified, assessed and brought to justice.
5. I’d abrogate all commitments to the Paris agreement (and the Rio agreements and Gothenburg protocol, too), on the grounds that the commitments had not been rigorously cost-benefit justified, so should never have been asked for or agreed to.
Where we are today
In the UK, the fight-back against the civilization-wreckers is just beginning. Sir Christopher Chope MP, one of the “Famous Five” in the lobby voting against the climate change bill back in 2008, is raising a private member’s bill to commission an independent audit of the costs and benefits of the zero-carbon policies. The Association of British Drivers has started a petition for a referendum to scrap the policies – here []. People like me are writing essays like this. But these things are not enough. We’re going to have to build a popular movement to save our civilization.
A Sky News poll in early May 2019, right after “climate emergency” was declared, showed that a majority of the people sampled were unwilling to significantly reduce the amount they drive, fly or eat meat. Just as they did over Brexit, the political élites and their hangers-on are showing total disdain for the views and interests of ordinary people. And the stakes are even higher this time. We can’t let them destroy our lifestyles and wreck our civilization for the sake of nothing but lies and hype. Gilets jaunes, here we come.
It’s conceivable, I suppose, that Boris Johnson may have a moment of sanity, and order an independent and unbiased audit, as suggested by Sir Christopher Chope. Or better, my far wider-ranging audit, including the history of the matter and the conduct of the parties involved. Conceivable; but, I fear, unlikely. He’s a politician, after all. And there are skeletons in that closet, which none of the mainstream parties want uncovered.
But unless those who are supposed to “represent” the good people of the UK wake up and stop this green madness, I can’t see this ending in anything other than floods of tears. It looks like 1642 all over again. But this time, it won’t be the monarch whose head ends up on the chopping block. It will be the politicians and their hangers-on, that did these things to us.