Essay #2: Climate Change Policy

Essay #2: Climate change policy

Length: 4 pages, 1.5 spacing

Due: Thursday 5/19

As usual the questions below are a starting point to get you thinking. It’s not essential to focus in particular on any or all of the questions below. Ultimately the critical point is for you to come up with a compelling and coherent thesis argument. I will be focusing again on identifying your thesis and the degree to which the components of the paper logically knit together to support the thesis. Whatever topic you choose, it must have a strong analytical core that draws on economics and policy analysis.

1. Until a couple of years ago the mainstream economic consensus on how aggressively to tackle climate change was a gradualist “policy ramp” where greenhouse gases (GHGs) were to be only modestly constrained in the near term with sharp reductions delayed until the medium to long term (Nordhaus, 2007). In 2006 the Stern Review (SR) upset this apple cart by presenting a high profile rebuttal of this gradualist position, concluding that immediate aggressive action must be taken to curb GHGs. Explain the economic logic behind the policy ramp/gradualist approach. How was it that, despite using essentially the same data and methodology, the SR came to such a starkly different conclusion? Be explicit about how modeling choices by Stern and Nordhaus (2007) drive differences in their conclusions. Which position (or alternative position) is most compelling?

2. Discuss the degree to which modeling choice in cost-benefit analysis might be thought of as either objective or a subjective matter of judgment and opinion. Is there a “right answer” with respect to a choice of discount rate or is it something that well-intentioned policy analysts can be expected to disagree on?

3. Is it “immoral to buy the right to pollute” as Sandel (1997) argues in the context of climate change? To what degree might cap and trade have a “perverse effect…on altruistic actions” as warned by James Hansen (2009), head of the NASA Goddard Institute for Space Studies. Make an argument for why society should choose (1) maintaining the moral stigma of GHG emissions under abatement policy that is not cost effective (doesn’t take advantage of market-based instruments), or (2) accept potential easing of the moral stigma while taking advantage of the cost-minimizing and innovation incentive properties of market-based instruments? See also Sandel (2012) and Mckloskey (2012) on this topic. The Pope also weighed in on this in 2016 (or maybe 2015) but you’ll have to track that down yourself.

4. Explain the implications of “deep structural uncertainty” (e.g. over damages given by the temperature-sensitivity coefficient) for climate change policy analysis as discussed by Weitzman (2009) and countered by Costello et al. (2010) among others. To what degree should society be pursuing costly immediate action to avoid low probability catastrophic outcomes from climate change? Nordhaus (2008) argues that “productivity is the most important uncertain variable (and that) the second most important variable, is the temperature-sensitivity coefficient” (p. 132). Who’s right? 5. What exactly is the social cost of carbon (SCC) meant to reflect? What fraction of the global SCC stems from damages in the U.S.? What are the implications for who enjoys the bulk of the benefits if and when the U.S. reduces its emissions? Why does the SCC increase over time?

6. How did the Congressional Budget Office frame the cost to the U.S. of the proposed Waxman- Markey climate bill? What was this estimated cost? What was the stated U.S. commitment to the Copenhagen Accord (by 2020)? (Hint: see this document.) What are the estimated U.S. costs, benefits and net costs (or net benefits) of implementing the Copenhagen Accord through 2055?

7. We are coming to rely on Integrated assessment models (IAMs) to assess questions about what the future might look like under various policy scenarios. Should IAMs be trusted to provide meaningful information for generating policy? What exactly is an integrated assessment model (IAM), including its key inputs and outputs? How are the benefits of mitigation conceptualized (see SCC above)? How are the costs of mitigation conceptualized? Is this IAM-based approach appropriate for assessing alternative scenarios and deciding how aggressively the U.S. (or the global community) should act to reduce GHGs? What are the strengths and weaknesses of the approach?

8. Results of integrated assessment models like those of Nordhaus and Stern rest on assumptions about economic growth. What exactly do they assume about growth? What is the evidence to support this approach? Are their limits to economic growth? Note that economic growth is not the same thing as carrying capacity of the planet. From our earlier discussion of sustainability and limits to growth, see Arrow et al. (1998). See Brock and Taylor (2005) for an overview of the limits to growth question. Note that, in the jargon of economics, the conceptual model is that “technological progress” or “technological change” drives increases in “total factor productivity” which leads to increases in output per capita. Some relevant quotes from (Nordhaus, 2008):

“The DICE-model projection for the 2000–2100 period is 1.3 percent per year.” (p. 108).

“By far the most important uncertain variable for climatic outcomes is the growth in total factor productivity.” (p. 132).

9. What is the case for California unilaterally pursuing costly reductions in GHG emissions when the state is responsible for only a very small fraction of global emissions such that any emissions cuts will have essentially no direct effect on the level of climate change we experience?

Some References

For a bunch of relevant references (discounting, social cost of carbon, policy ramp/DICE, Stern Review, carbon markets, offsets, climate policy politics, California climate policy, international climate policy, and adaptation) see this reading list with guiding questions for ESP 165: Climate Policy. Arrow, K. and Bolin, B. and Costanza, R. and Dasgupta, P. and Folke, C. and Holling, C.S. and Jansson, B.O. and Levin, S. and Maler, K.G. and Perrings, C. and others (1996). Economic growth, carrying capacity, and the environment. Ecological Applications 6(1), 13—15.

Brock, W.A. & Taylor, M.S. (2005). Economic growth and the environment: a review of theory and empirics. Handbook of economic growth 1, 1749-1821.

Costello, C., M. Neubert, S Polasky and A. Solow (2010). “Bounded uncertainty and climate change economics.” Proceedings of the National Academy of Sciences 107(18) 8108-8110.

Hansen, J (2009). “Cap and Fade.” New York Times (Dec. 6), http://www.nytimes.com. (WARNING: some arguments in this article might be vigorously challenged by economists.)

McCloskey, D. N. (2012) The Poverty of Communitarianism, Book Review of What Money Can’t Buy: The Moral Limits of Markets, by Michael J. Sandel. Claremont Review of Books XII(4), pp. 57-59.

Nordhaus, W. (2007). “Critical assumptions in the Stern Review on climate change.” Science 317, 201– 202.

Nordhaus, W.D. (2008). A question of balance: Weighing the options on global warming policies. Yale Univ Press.

Sandel, M.J. (1997). “It’s Immoral to Buy the Right To Pollute,” New York Times, Dec. 15, p. A29.

Sandel, M. J. (2012). What money can't buy: the moral limits of markets. Farrar, Straus and Giroux. (See pp. 72-79).

Stern, N., Peters, S., Bakhshi, V., Bowen, A., Cameron, C., Catovsky, S., Crane, D., Cruickshank, S., Dietz, S., Edmonson, N., Garbett, S.-L., Hamid, L., Hoffman, G., Ingram, D., Jones, B., Patmore, N., Radcliffe, H., Sathiyarajah, R., Stock, M., Taylor, C., Vernon, T., Wanjie, H., & Zenghelis, D. (2006). Stern review: the economics of climate change . London: HM Treasury.

Weitzman, M (2009). “On modeling and interpreting the economics of catastrophic climate change.” The Review of Economics and Statistics 91(1), 1-19.