While climate scientists warn that climate change could be catastrophic, economists such as 2018 Nobel prize winner William Nordhaus assert that it will be nowhere near as damaging. In a 2018 paper published after he was awarded the prize, Nordhaus claimed that 3°C of warming would reduce global GDP by just 2.1%, compared to what it would be in the total absence of climate change. Even a 6°C increase in global temperature, he claimed, would reduce GDP by just 8.5%.
If you find reassurance in those mild estimates of damage, be warned. In a newly published paper, I have demonstrated that the data on which these estimates are based relies upon seriously flawed assumptions.
Nordhaus’s celebrated work, which, according to the Nobel committee, has “brought us considerably closer to answering the question of how we can achieve sustained and sustainable global economic growth”, gives governments a reason to give climate change a low priority.
His estimates imply that the costs of addressing climate change exceed the benefits until global warming reaches 4°C, and that a mild carbon tax will be sufficient to stabilise temperatures at this level at an overall cost of less than 4% of GDP in 120 year’s time. Unfortunately, these numbers are based on empirical estimates that are not merely wrong, but irrelevant.
Nordhaus (and about 20 like-minded economists) used two main methods to derive sanguine estimates of the economic consequences of climate change: the “enumerative method” and the “statistical method”. But my research shows neither stand up to scrutiny.
The ‘enumerative method’
In the enumerative method, to quote neoclassical climate change economist Richard Tol, “estimates of the ‘physical effects’ of climate change are obtained one by one from natural science papers … and added up”.
This sounds reasonable, until you realise that the way this method has been deployed ignores industries that account for 87% of GDP, on the assumption that they “are undertaken in carefully controlled environments that will not be directly affected by climate change”.
Nordhaus’s list of industries that he assumed would be unaffected includes all manufacturing, underground mining, transportation, communication, finance, insurance and non-coastal real estate, retail and wholesale trade, and government services. It is everything that is not directly exposed to the elements: effectively, everything that happens indoors or underground. Two decades after Nordhaus first made this assumption in 1991, the economics section of the IPCC Report repeated it:
Economic activities such as agriculture, forestry, fisheries, and mining are exposed to the weather and thus vulnerable to climate change. Other economic activities, such as manufacturing and services, largely take place in controlled environments and are not really exposed to climate change.
This is mistaking the weather for the climate. Climate change will affect all industries. It could turn fertile regions into deserts, force farms – and the cities they support – to move faster than topsoil can develop, create storms that can blow down those “carefully controlled environments”, and firestorms that burn them to the ground.
It could force us to eliminate the use of fossil fuels before we have sufficient renewable energy in place. The output of those “carefully controlled environments” will fall in concert with the decline in available energy. The assumption that anything done indoors will be unaffected by climate change is absurd. And if this is wrong, then so are the conclusions based upon it.
The same applies to the “statistical method”. As I explained in a previous article, this method assumes that the relationship between temperature and GDP today could be used to predict what will happen as the whole planet’s climate changes. But while temperature isn’t a particularly important factor in economic output today, climate change will do much more than simply raise individual countries’ temperature by a few degrees – the disruption it will cause is enormous.
The damage function
Nonetheless, these optimistic estimates were used to calibrate Nordhaus’s so-called “damage function”, a simple equation that predicts a small and smooth fall in GDP from a given rise in temperature. But climate change will not be a smooth process: there will be tipping points.
Nordhaus justified using a smooth equation by incorrectly claiming that climate scientists, including Tim Lenton from the University of Exeter, had concluded that there were “no critical tipping elements with a time horizon less than 300 years until global temperatures have increased by at least 3°C”. In fact, Lenton and his colleagues identified Arctic summer sea ice as a critical tipping point that was likely to be triggered in the next decade or two by changes of between 0.5°C and 2°C:
We conclude that the greatest (and clearest) threat is to the Arctic with summer sea-ice loss likely to occur long before (and potentially contribute to) GIS [Greenland ice sheet] melt.
The reason these mistakes are so significant is that, despite the flawed assumptions on which it is based, this work has been taken seriously by politicians, as Nordhaus’s Nobel prize recognises. To these policymakers, a prediction of future levels of GDP is far easier to understand than unfamiliar concepts like the viability of the ecosystem. They have been misled by comforting numbers that bear no relation to what climate change will, in fact, do to our economies.
Steve Keen, Honorary Professor of Economics, UCL
This article is republished from The Conversation under a Creative Commons license. Read the original article.
The real challenge Steven Keen overlooks is the “overwhelmingly strong” 0.997 correlation between energy use and GDP.
Its far more important to use the abundant geologically stored solar energy (natural gas, oil, & coal aka “fossil fuels”) provided by our Creator, while we develop cheaper dispatchable sustainable energy to last for the next millenia.
Such a system exists for the lower 48. Its NOAA’s Climate Reference System available at https://www.ncdc.noaa.gov/crn/ It shows that the average, high and low temperature of the lower 48 has not changed since the system began working in 2005. Is seems presently to be “unadjusted” but I expect it will be as soon as people begin noticing it. Click on “more data” then “Visualizations” then “Temperature Comparisons.”
Economists are notoriously poor at predicting. Otherwise they would all be billionaires from playing the markets based upon their successes.
I do worry that William Nordhaus needs to tune and calibrate his models to account for woke companies and institutions kicking their “own” goals by ignoring good business practices and following the virtue-signalling advice of their marketing departments. After all, short term, marketing might be right but medium term, they are dead. Many CEOs making a climate change name today who will be judged tomorrow as a lethal poison for their company. Asymmetrical information being used with a heavy shroud of citizenship …
Interesting that Nordhaus was the first to bring 2 degrees into the litany, back in 1975.
CAN WE CONTROL CARBON DIOXIDE? William D. Nordhaus June 1975 – http://pure.iiasa.ac.at/365/1/WP-75-063.pdf
“As a first approximation, it seems reasonable to argue that the climatic effects of carbon dioxide should be kept well within the normal range of long-term climatic variation. According to most sources the range of variation between climatic (sic) is in the order of ± 5 °C., and at the present time the global climate is at the high end of this range.
If there were global temperatures more than 2 or 3°C. above the current average temperature, this would take the climate outside of the range of observations which have been made over the last several hundred thousand years. (That was current average temperature in 1975, not “pre-industrial”.)
Within a stable climatic regime, the range of variation of ± l °C is the normal variation: thus in the last 100 years a range of mean temperature has been 0.7°C.
In 1977, Nordhaus expanded on his theme in Discussion paper 443 for the Cowles Foundation at Yale:
“Strategies for the Control of Carbon Dioxide” http://cowles.yale.edu/sites/default/files/files/pub/d04/d0443.pdf
In this paper he repeated a lot of his IIASA paper, including the seminal paragraph: “If there were global temperatures more than 2 or 3°C. above the current average temperature, this would take the climate outside of the range of observations which have been made over the last several hundred thousand years.”
However, he changed his figure for the range of variation within a stable climatic regime “such as the current interglacial”, from l°C, to 2°C and said that in the last 100 years a range of mean temperature had been 0.6°C, rather than his earlier 0.7.
In 1990, the UN AGGG (United Nations Advisory Group on Greenhouse Gases), was asking for no more than a 1 degree rise in global temperature. That in turn traces back to the Villach Conference of 1986, and the subsequent Bellagio Conference in 1987, when some of the main proponents of the AGW meme were present, and have been driving it ever since. That then morphed into 1.5 degrees and again into 2 degrees. After Paris, 1.5 degrees is the new mantra for the activists, who think CO2 is a thermostat for the planet, that you can turn up and down.
Thanks for that history lesson, dennis. Very interesting.
“Let’s assume we have a can opener”?
(Economist shipwrecked on a desert island trying to open a can of beans).
Two economists meeting always results in at least three opinions: on the one hand, on the other hand….
It’s sort of the way I used to joke about sociologists – you can have an opinion on everything, and you never have to be right about anything.
Was it LBJ who once quipped that he wanted a one handed economist?
I have been waiting 40 years for the English countryside to become dominated by prickly pears .but not seen one yet!
However ferns and bracken dominate every damp corner, much the same as always.
Nice. The story here then is a dude who can’t correctly forecast house prices takes on long term climate economics forecasting.
Where in hell does this come from?
“It could turn fertile regions into deserts, force farms – and the cities they support – to move faster than topsoil can develop, create storms that can blow down those “carefully controlled environments”, and firestorms that burn them to the ground.”
That appears to be an assumption stated as incontrovertible truth, in other words, dogma.
But then I note that ubiquitous qualifier: “could”
This economist is just another pseudo-religious nut. What would his opinion be of someone who made claims about the potential economic impacts of the Antichrist and Apocalypse? Obviously, one could imagine all kinds of problems.
His paper is exactly the same.
I couldn’t see where he factored in the costs of NOT using fossil fuels.
I got this far …
At the end of that I was laughing so hard I had to stop reading. I particularly liked how some unspecified “climate change” was going to “force farms – and the cities they support – to move faster than topsoil can develop”.
As a man who grew up in the country … I’d say that he is a man who did NOT grow up in the country.
Then, once the cities are moving as fast as they can, this mystery “climate change” is going to create storms that blow all of our the buildings to the ground. Not just some. Enough to significantly influence our economy … now of course we’ve NEVER seen such a storm that destroyed an entire industry, but hey, it’s climate “science”, facts are optional …
I can see the guy writing this and thinking “Moving cities, plus monster storms … nope, not alarming enough!”
So to top it off, he claims that mystery “climate change” is going to create “firestorms that burn them to the ground”.
So “climate change” is going to cause monster storms destroying entire industries, topsoil loss ruining farms & moving cities, followed by firestorms … yeah, that’s totally legit …
The most bizarre claim in all of those is the idea that (for unknown reasons) farms will have to move “faster than topsoil can develop” … say what?
I’ve known lots of farmers. But I’ve never heard a single one say “I’m moving my farm, but I have to wait for a few years for the topsoil to develop.” Why haven’t I heard that? From soilsmatter, I find the following:
“We say that it takes 500 to thousands of years to create an inch of topsoil.”
Next, they claim if the climate gets really bad it could “force us to eliminate the use of fossil fuels before we have sufficient renewable energy in place”.
Say what? The imaginary farmers, forced to move to a new farm, will be “forced” to not use fossil fuels? Just who is going to “force” them?
I’m sorry, but making economic estimates of the costs of imaginary threats doesn’t somehow make them real threats.
Best to all, stay well and safe in these parlous times …
w.
I’m still trying to figure out his quip about top soil developing.
With the possible exception of extreme deserts where it’s just sand, everyplace I’ve ever been already has top soil.
“Lenton and his colleagues identified Arctic summer sea ice as a critical tipping point that was likely to be triggered in the next decade or two by changes of between 0.5°C and 2°C”
Why on earth is this a tipping point? Any summer sea ice melting would be compensated for by delayed winter sea ice freezing. True the summer sea ice melting would cause additional heat into the ocean. But the warming would delay the winter freezing increasing the outward radiative leakage. The arctic is not some magical place where there is never any negative feedbacks as climate scientists like to assume. Just as sea ice during the summer decreases the absorption of heat so sea ice in the winter or at night insulates the arctic.
This is just another instance of climate scientists believing their own propaganda. The reality is that for most of the arctic, even in the middle of summer, the sun is so close to the horizon that the amount of light reflected from ice is nearly identical to the amount that is reflected from water.
Beyond that, ice insulates water. The less ice there is, the easier it is for heat from the water to go into the air, from the air move rapidly to space.
Loss of ice in the arctic is a strong negative feedback, an ice free arctic becomes the planets radiator.
And yet every decade there is less and less average ice in the arctic. So according to this logic the more ice is lost the better the planet will become at cooling itself?
According to the studies there is heat building 80-150m in higher salinity water in the arctic basin and, it’s insulated by fresher water and ice. If that layer is gone that heat will warm that entire region increasing local humidity and acceleration melting of the surrounding glaciers, arctic ocean will become more like the Atlantic, and you know weather is always much milder near a warmer body of water.
Cold costs, warm doesnt. The high latitudes will benefit from warming, the tropics wont warm (too much water vapour). The high lattitudes go from near 0 – 10 C in winter to 18 C – 30 C in summer, a 20 c rise. Plants grow, we turn the heating off, deaths decline, road accidents decline. Where is the down side in this 10 C warming?
CO2 has already given us an estimated 45% increase in crop yield since 1900, the GDP increase from this is large, across the globe.
So where is the cost of 2 C, or 3 C warming? There is none, it is win win for everyone.
How can you be ignoring the costs of higher heat in American West this summer–higher use of fossil fuel in air conditioning, greater difficulty in avoiding heat stroke & COVID-19, much greater risk of losing life, property and health (including wildlife’s) due to massive wildfire?
Crops can benefit only to a limited degree from increased CO2. Please read further.
How on earth could you overlook melting of ice caps, sea level rise, increased violence of storms, and much more unstable weather patterns? Please go live on a low-lying Pacific Island.
Sonja, there is no established connection between California wildfires and CO2. Nor is there a connection established between CO2 and the melting of ice caps, or sea level rise.
The “increased violence of storms, and much more unstable weather patterns” you refer to are figments of the imagination, so would necessarily have no connection to CO2.
You are a victim of Human-caused Climate Change propaganda, Sonja.
What do you mean warm does not cost? Productivity is best where temperatures are optimal not too cold in the winter or too hot in the summer. Productivity is very much effected by heat. Also energy cost of running industry are higher in hotter areas.
Link
https://epic.uchicago.edu/news/hot-temperatures-decrease-worker-productivity-economic-output/#:~:text=Heat%20did%20more%20than%20influence,as%20much%20as%205%20percent.&text=They%20found%20that%20workers%20in%20plants%20with%20climate%20control%20were%20more%20productive.
Also look at GDP/per cap., Southern states are not doing as well as northern states.
https://en.wikipedia.org/wiki/List_of_U.S._states_and_territories_by_GDP_per_capita
Just remember what large-scale policy change can do in the wrong hands. It can dwarf climate changes. But of course they can’t really talk about the Cultural Revolution inside China.
Sad to think that William Nordhaus would never have been awarded a Nobel Prize if he had published his paper before the award.
From the article: “This is mistaking the weather for the climate.”
Yes, alarmists have a bad habit of confusing the weather for the climate. It’s the only way they can generate any scaremongering.