Cost-Benefit, Non-GDP, Global Warming

I should have been a much better lefty quant geek when it came to following global warming tail-risk models. I apologize internets, but there are only so many hours in a day. I do want to point out a few quick things from vacation with everyone talking about Waxman-Markey these days.

Let’s assume the world temperature is raised somewhere between 2.8 and 3 degrees during the 21st century. Now thanks to an argument of a fantastic cost benefit analysis by Jim Manzi and The American Scene, the USA will experience no GDP loss during this period as a result of Global Warming. Our factories will make as many widgets as they would have before, the malls will buy and sell the same volume of goods. I agree that is what our current models tell us. Let’s talk about what will change non-GDP wise.

Water, Food, Biodiversity

Jim gets this analysis on GDP from page 802, Chapter 20, Chart A on the IPCC. Now that chapter – “Perspectives on climate change and sustainability” – is mostly about ecology, with some GDP thrown from other sources. Since Jim has opened the door to this chapter, let’s reproduce some other charts and data from that chapter of what a no GDP loss world looks like.

water_food

Note that under any scenario, no North American will go hungry as a result of global warming. Under the various scenarios (use A2 and B2) around 150 million Africans will go hungry. An additional 150million people in other parts of the world. Now maybe high C02 levels will cause a boom in crop yields, and we’ll have more food than before (the parenthesis numbers represents a tail lower bound on high positive impact on C02 on plants). So there’s a chance we’ll have little impact there. That’s a rough gamble to take. Note the high numbers for water risk. We may be able to visualize that better in the next graph, though note that it is everywhere.

Let’s check out how water and the rest of the planet does. Here’s a much more interesting chart from the same IPCC chapter (I encourage you to click through for a closer look):

by_degree

This is impact across zones by degree. Look at the 3 degree mark (bottom axis). We experience no GDP loss at 3 degrees warming. Something like 1.2billion people have “increased water stress.” What a delightfully technocratic term – it means that hundreds of millions of desperate people will wake up wondering “how do I get enough water this week to survive?” (I’ve heard that’s a terrible way to go.) Mind you, this newfound daily stress won’t net impact negatively how efficiently our factories make widgets or how much is sold or bought at the mall. 25% of species will be at increased risk of extinction, but our GDP numbers won’t slip.

That said, is it in our financial interest to try and reduce it? I’d like to say we don’t really know the impact of what mass migration of desperate people seeking water, or very, very rapid changes in mass ecosystems will be on our lives, and even GDP. Like a nationwide housing crash, we simply have no data to extrapolate from. I would be very surprised if they biased upwards.

Planet Earth as Sunk Cost

That said, the thing that worries me about the Cost-Benefit Analysis (CBA) approach to this issue is that there is always an implicit “do-over” cost in CBA. If we start a marketing campaign, hire a new team, or build a factory we do a CBA. If it turns out wrong, we simply stop the campaign, lay off the new team, or dynamite the factory. We eat our sunk costs and are back at square one. Sometimes this is costless, sometimes you have to pay for the dynamite. Indeed estimating the cost of this metaphoric dynamite should be high on the list of the CBA.

Now if 100 years from now, we want to “do-over”, how much will it cost to ‘dynamite’ the previous 100 years of warming? How much of GDP will we have to spend to get back an additional 10-20% of biodiversity? I’m worried that we are looking at Planet Earth as the sunk costs in these CBAs, and that makes me very worried, and being very worried makes me more willing to spend. We can’t just jump to another Earth if we got it wrong, in the same way we can build a new factory if our projections were off. This isn’t even tail risk or ‘precautionary principle’ land – we, as managers of Firm Earth doing a CBA, want to know the costs of getting rid of that 3 degrees of warming. As far as I can tell, they will be very, very high. With that in mind, seeing Conor Clarke graph out a cost of an insurance policy to build against this doesn’t seem so bad, and that positioning the numbers from another direction (a fantastic argument through that link) makes it seem appealing as a firm manager.

Update: I continue my thoughts on this issue in the next entry.

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10 Responses to Cost-Benefit, Non-GDP, Global Warming

  1. Jim Manzi says:

    Great post, but a few things to be very careful of:

    1. You say “Note that under any scenario, no North American will go hungry as a result of global warming. Under the various scenarios (use A2 and B2) around 150 million Africans will go hungry”, but this is the number “at risk” of hunger. There is a huge debate in the IPCC about the meaning of that exact term, but it does not mean “will go hungry”. The same basic caveat needs to be applied to “increased water stress” – it’s not so much technocratic, as waffling.

    2. If you want to see an excellent analysis that integrates GDP / monetary calculations with expectations for health and other similar impacts with an emphasis on the developed / developing world disparate impacts and relying on IPCC. World Bank and similar entities, this is a great place to start: http://www.cato.org/pubs/pas/pa-609.pdf

    3. I don’t think that was Cnor’s best post. I have a direct reply here: http://theamericanscene.com/2009/06/26/the-visual-display-of-quantitative-information-ii

    Best,
    Jim Manzi

  2. Mike says:

    Thanks Jim for the link to the Goklany paper – I do appreciate the “no, this is how to best structure your argument” approach you’ve taken with me and others as critics :) . I’ll try and jump in the deep end of the critical debate for the next wave of AGW posting, whenever that comes up.

    And yes, the “stressed” risk is totally up for grabs. I downgraded 1.2bn to hundreds of millions for water, I meant to do that as well for food.

  3. Morph366 says:

    How much would it cost to put the toothpaste back in the tube after it has been squeezed dry?
    Steady loss of bio-diversity is irreversible – there is no basis for even trying to do a CBA on restoring this.
    All very worrying.
    Jut to show how wrong-headed many technocrats can be on related issues there was blog article recently that suggested we need to start “pricing in” to markets the “cost of a systemic meltdown”. Presumably the notion that such a thing can be quantified gives some the illusion that it can then be “dealt with”.
    The grand dis-illusion which is coming is that there are no deals to be done to take care of the important crises.

  4. Jim Manzi says:

    No problem – I’m looking forward to you getting into the technical end of the debate.

    Enjoy Chicago.

  5. I came upon this site because someone invoked my name. [The powers the Internet bestows on us!!]

    I haven’t gone through this entire thread or its forerunners, but Rortybomb has been misled by the IPCC’s characterization of water impacts in Tables 20.5 and 20.8 (reproduced above).

    Table 20.5 provides estimates of “population living in watersheds with an increase in water-resources stress” and Table 20.8 of “additional people with increased water stress.” (Emphasis added). Neither provides estimates of populations that are projected to experience reductions in water stress.

    In fact, the source used for the water resources data in both the tables — Arnell (2004) – indicates that more people would see a reduction in water stress because of climate change than would see an increase. Consequently, climate change would reduce the net global population at risk of water stress. That’s right – there would be a net reduction in the population at risk of water stress!

    I blogged on this some time ago at Cato@Liberty in a piece titled, How the IPCC Portrayed a Net Positive Impact of Climate Change as a Negative . Rortybomb — like virtually all readers of IPCC document — has been deceived by this well-crafted characterization of the impacts of climate change on water resources.

    BTW, the estimates in Table 20.8 provided for the population with increased water stress – 0.4-1.7 billion, 1.0-2.0 billion and 1.1-3.2 billion — are taken from estimates in Table 10 in Arnell (2004) using the HadCM3 runs for 2025, 2055, and 2085. There is a link to this table from the above noted blog. This shows that the corresponding populations with decreased stress are 0.6-1.9 billion, 2.4-3.8 billion, and 1.7-5.4billion.

  6. Philo says:

    “[W]e simply have no data to extrapolate from. I would be very surprised if they biased upwards.” “I would be very surprised” is not an argument.

    “[H]ow much will it cost to ‘dynamite’ the previous 100 years of warming? How much of GDP will we have to spend to get back an additional 10-20% of biodiversity?” Rhetorical questions are not arguments.

    You seem not to have an argument. (And what would the conclusion be? “Pass Waxman-Markey”?)

    “That’s a rough gamble to take.” We live amidst uncertainty; life is a gamble. There is no “safe” course. (It is absurd to use the term ‘insurance’ for something like Waxman-Markey; also absurd to pretend we know what the cost would be of passing it.)

  7. E.D. Kain says:

    I would be worried that placing faith in regulation over innovation we do more to endanger the third world than we do to save it. Great post, though.

    • jfxgillis says:

      Hey E.D., fancy meeting you here.

      Regulation and innovation are not in opposition here. In fact, we won’t get the innovation unless we get the regulation.

      • E.D. Kain says:

        Hi Jack. Why? Haven’t we gotten innovation in countless other areas without regulation?

      • jfxgillis says:

        E.D.:

        Yeah, when there’s incentive to innovate.

        CO2-emitting fossil fuel is so cheap and flexible relative to other means of energy that there’s no economic reason to innovate. Until we really start to run out of fossil fuels, i.e., until price hikes because of genuine scarcity kick in, which could be thirty or a hundred years from now, why would we do anything except emit CO2 on the cheap? Of course, Florida will be under water, but we’ll still have cheap gas, so there’s that.

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