Effects of Climate Change

Matt Ridley has an interesting piece in the Spectator on the effects of climate change.  He makes the rather unremarkable observation that we should count the benefits, not just the costs of climate change.  Unremarkable except that people almost exclusively focus on the costs.  

What are these benefits?  He writes: 

The chief benefits of global warming include: fewer winter deaths; lower energy costs; better agricultural yields; probably fewer droughts; maybe richer biodiversity.

and  

The greatest benefit from climate change comes not from temperature change but from carbon dioxide itself. It is not pollution, but the raw material from which plants make carbohydrates and thence proteins and fats.

Ridley reads the scientific research to suggest that the benefits will exceed the costs unless temperature rises too high - or until about 2080 - according to some projections.  He writes: 

You can choose not to believe the studies Prof Tol has collated. Or you can say the net benefit is small (which it is), you can argue that the benefits have accrued more to rich countries than poor countries (which is true) or you can emphasise that after 2080 climate change would probably do net harm to the world (which may also be true). You can even say you do not trust the models involved (though they have proved more reliable than the temperature models). But what you cannot do is deny that this is the current consensus. If you wish to accept the consensus on temperature models, then you should accept the consensus on economic benefit.

Overall, Prof Tol finds that climate change in the past century improved human welfare. By how much? He calculates by 1.4 per cent of global economic output, rising to 1.5 per cent by 2025. For some people, this means the difference between survival and starvation.

It will still be 1.2 per cent around 2050 and will not turn negative until around 2080. In short, my children will be very old before global warming stops benefiting the world. Note that if the world continues to grow at 3 per cent a year, then the average person will be about nine times as rich in 2080 as she is today. So low-lying Bangladesh will be able to afford the same kind of flood defences that the Dutch have today.

How much do you value the present over the future

Economists have long been interested in people's "discount rates" - the rate at which people discount the value of a dollar in the future as compared to a dollar today.  If given the choice between being given a dollar today or a dollar ten years from now, I suspect almost everyone would take the dollar today.  The key question researchers try to answer is this: exactly how many dollars would you have to be given in, say, 10 years to make you indifferent to 1 dollar today?  

What this number is has important implications for how we should "discount" the value of projects that provide benefits in the future by incurring costs today.  Examples where a discount value is needed include road building, going to college, and building a factory.  But, the issue has become particularly heated in relation to debates over climate change.  Whether and to what extent one is willing to incur costs today to mitigate carbon emissions depends critically on the extent to which the future benefits (and potential costs) are discounted.   

One can get a feel for this time trade-off by looking at market interest rates but that doesn't tell the whole story.  As a result, many economists have turned to laboratory experiments where people make choices like the one I described above.  The trouble has been that such experiments have been limited to making future payoffs that are typically only 1 to 6 months away.  My co-authors, Threse Grijalva and  Douglass Shaw, and I found away around this, and the results are discussed in a paper forthcoming in the journal Environmental and Resource Economics: 

We use a laboratory experiment to elicit discount rates over a 20-year time horizon using government savings bonds as a payment vehicle. When using a constant (exponential) discount rate function, we find an implied average discount rate of 4.9 %, which is much lower than has been found in previous experimental studies that used time horizons of days or months. However, we also find strong support for non-constant, declining discount rates for longer time horizons, with an extrapolated implied annual discount rate approaching 0.5 % in 100 years. There is heterogeneity in discount rates and risk preferences in that people with more optimistic beliefs about technological progress have higher discount rates. These findings contribute to the debate over the appropriate discount rate to use in comparing the long-term benefits of climate change mitigation to the more immediate costs.

Is making beef like making beer?

That is the claim in this piece at CNN by the Director of New Harvest, which aims to make lab-raised meat. 

The production of beer requires living organisms -- yeast -- and nourishment for those organisms -- grain. How these elements come together with others to make beer is straightforward in theory, and nuanced in practice. The products are varied and distinct.

Cultured meat production is extremely similar. Explained simply, all that is required is a cell line and nourishment for those cells. How the cells are grown, and under what conditions, are adjustable. The potential variety of materials and processes will allow cultured meat to take on many distinctly unique forms, flavors and textures.

I really liked the following two paragraphs about technology in food:

It's a new way of thinking because this is food science by the public, for the public. It prompts a widespread conversation about a food technology years in advance of its market release rather than years afterward. It's a new way of thinking because it's a technology largely driven by societal demand and people have pushed this forward, as donors to a cause.

The biggest reasons why cultured meat hasn't progressed further is a lack of funding and a lack of creative understanding. We're not used to food technology being a positive solution. We're not used to food development being nonprofit. And we're not used to a nonprofit group generally categorized as an animal rights/environmentalist group requiring a cancer research-scale budget. But we're learning.

I was wrong about sustainability. Well, sort of.

I’ve changed my mind about sustainability.  Well, sort of.    

Perhaps I’ve just been a bit curmudgeonly, but I’ve bristled at the often-used word “sustainability” in the context of food and agriculture. Sustainability seems to be one of those feel-good, vacuous buzz words that is thrown around to support whatever cause the wielder of the word wants to support.  In fact, in The Food Police, I wrote:

the sustainability movement largely represents an elitist attempt to ration scarce resources using social pressure, guilt, and regulation

On the one hand, it is hard to argue with the concept of sustainability.  Wikipedia simply says it is the “the capacity to endure” and to remain “productive over time.”

That doesn’t sound so problematic.  Who doesn’t want to endure and remain productive?

I’ve come to realize my problem is not with the concept of sustainability per se but rather with the way many people propose to achieve the outcome.

In food and agriculture, “sustainability” has come to be interpreted as synonymous with organic, “natural”, and local.  In this sort of vision, the way we endure and sustain our production over time is that we have a smaller population, we need to spend more time working the land, we need to spend more money on food, and we need to learn to like to eat different kinds of foods.  Maybe that kind of future sounds good to some folks, but for my taste, if that is the kind of future that will be sustained, count me out.  I suppose our cave-man forefathers could have carried on quite “sustainably” for a very long time, but their “sustainable” life is not one I’d prefer being born into.  This “natural” future is not the kind of future in which I want to live, and I think that is why I’ve been bothered by the word “sustainability.” 

The thing that is missing in the local, slow, organic vision of sustainability is any serious consideration of the role of scientific and technological advancement.  Sustainable doesn’t have to mean stagnant.  Rather, I posit that any future worth fighting for is one that is dynamic, innovative, and exciting; one in which there will be many fellow humans, with bountiful opportunities to eat and work as their hearts desire.  In all likelihood, there will be another billion people show up on this earth in the next 40 to 50 years, and if we are to “endure” and remain productive and prosperous, it will require advancements in food and agricultural technologies.      

We don’t have to take a step back to sustain our current living and eating standards.  We can continue to enjoy the wonderful abundance of food and even improve our living standards.  But technological optimism won’t cut it.  We actually have to invest in research and development.  We actually have to be willing to adopt new food and agricultural technologies.

I am a proponent of technological advancement in food and agriculture because it is the root underlying cause of our gains in prosperity.  That’s why I now am in favor of sustainability.  Because, as I see it, in an ideal future, they’re one in the same.             

Economic Effects of Environmental Regulation

Jeffry Dorfman, an agricultural economist at the University of Georgia, weighed in on Obama's proposed environmental regulations at Real Clear Markets.  After discussing the fact that the environmental effects are probably smaller and more nuanced than most people expect, the got to the economics of the issue:

First, rising energy prices. A fascinating part of the special-interest coalition that makes up the Democratic Party is how many of its groups have aims which are at odds with another coalition partner. Environmental groups advocate a set of policies that uniformly hurt poor people. Environmental protection is essentially a luxury good. If you have enough money to provide food, clothing, and shelter for your family, then you start to care about the environment.

Krugman and I can both afford to pay a little more on our electricity bill and when we fill up our gas tanks, but those higher energy costs are regressive. Poor people spend a higher percentage of their income on energy bills, so raising those costs in order to improve the environment means that the poor will feel more pain than those with higher incomes. If we were talking about tax policy, no liberal would forget to mention the poor and how the rich should carry more of the burden. Yet, somehow, on environmental policy most liberals favor policies which hurt the very people they normally want to help.

Then he gets into the broken-window fallacy - that somehow by forcing companies to invest in new equipment, everyone can be made better off.  

Now if we build a brand new power plant while continuing to operate all the ones we have, that can lead to economic growth because we are increasing the productive capacity of the economy. But shutting down a plant that is fine in every way except for producing emissions that worry some people is the same as when a natural disaster destroys property. Something that had value no longer exists. The idea that replacing the previous item leads to economic growth is one of the most basic fallacies in all of economics, known as the broken window fallacy.

The Eli Lehrer in the Weekly Standard also had an interesting response to Obama's proposed environmental regulations. Here is one snippet:

Indeed, if free-market conservatives really want evidence of climate change, they ought to look towards the insurance markets that would bear much of the cost of catastrophic climate change. All three of the major insurance modeling firms and every global insurance company incorporate human-caused climate change into their projections of current and future weather patterns. The big business that has the most to lose from climate change, and that would reap the biggest rewards if it were somehow solved tomorrow, has universally decided that climate change is a real problem. An insurance company that ignored climate change predictions could, in the short term, make a lot of money by underpricing its competition on a wide range of products. Not a single firm has done this.

and yet, Lehrer rightly says:

The scientific consensus that exists about the causes and effects of climate change can’t point to an optimal policy solution any more than improvements in heart surgery techniques can provide guidance on health care reform.