Suppose that someone proposed using nuclear explosions to melt the Arctic ice cap*, with the aim of opening the Northwest passage and reducing shipping costs, and that this proposal was supported by an analysis showing that world GDP could be permanently increased by 1 per cent, or maybe 3 per cent, as a result.
On the face of it, this seems (to me, anyway) like a crazy idea. Should such a proposal be dismissed out of hand or taken seriously and subjected to benefit-cost analysis or ? And, if we did do a benefit-cost analysis, what would be the result?
In all probability, a benefit-cost analysis run on standard lines would come out in support of a proposal like this, assuming the numbers I’ve given. Since the ice is already floating, melting it won’t raise sea levels (remember the ice cubes in An Inconvenient Truth). Very few people live in the area, so direct effects on humans would be small. And while the effects on ecoysystems would be devastating, lots of benefit-cost analyses ignore such effects or impute very low costs to them.
Of course, no one is likely to use nuclear explosions in the way I’ve described, but the melting of the Arctic ice cap is a likely consequence of global warming, not in the distant future, but in the lifetime of most people now living (given a predicted date of 2040, I could well be around to see this). And plausible estimates of the cost of stabilising CO2 levels at 550 ppm (probably enough to stop complete melting, though this is not clear) range from 1 to 3 per cent of GDP.
So, it’s not necessary to look at effects occurring around 2100 and argue about discount rates in order to conclude that we ought to be reducing CO2 emissions drastically. Consequences like the melting of the Arctic ice cap and the destruction of the world’s coral reefs are already visibly under way, and will happen within the next few decades.
The problem is that standard benefit-cost analyses, don’t impute any real significant cost to this predictable outcome. For example, Nordhaus and Boyer (more or less arbitrarily) estimate the value of the entire climate-sensitive human and natural environmnent in the US at $500 billion (about equal to the market capitalization of ExxonMobil) and estimate that protecting it is worth $5 billion per year. This figure includes not only all natural ecoystems but impacts on humans in coastal areas like New Orleans, so the value accorded to the natural environment can’t be much more than $2.5 billion per yea (about equal to annual expenditure on chewing gum).
The Stern report doesn’t really tackle this issue, and implicitly accepts estimates like those of Nordhaus and Boyer. This is a big omission, more than offsetting other modelling choices that tend to produce a fovourable benefit-cost assessment of stabilisation.
At this point there are a range of possible responses. One is to accept the economic analysis and conclude that melting the polar ice caps isn’t really a problem, that the destruction of coral reefs is a problem for the tourist and fishing industries, but otherwise unimportant and so on.
The second is to try to extend economic analysis to include some of the factors that are obviously being left out here, for example, by assessing people’s willingness to pay for environmental protection. Of course, this is somewhat problematic with an issue like global warming, since people’s willingness to pay depends on their views on the issue which in turn are influenced by economic analyses.
A third response is to concede that some of these issues are not well handled by economics in our current state of knowledge. The intuition that allowing the Arctic ice cap to melt is likely to have negative consequences we haven’t considered yet is supported by past experience of large-scale human interventions of this kind. But there’s no good way, at present, of incorporating this intuition into discounted cash flows.**
This piece by Paul Baer is well worth reading as a critique of economic analysis on this issue.
* The idea of melting ice caps with nukes has been put forward seriously, but only, as far as I can tell, for other planets, where it is one of many schemes for terraforming.
** My work on the precautionary principle, still in progress, is aimed at addressing exactly this issue.
{ 24 comments }
John Emerson 01.30.07 at 11:43 am
To me the problem here is that this is a two-ended problem, one end of which (the economic end, narrowly construed) is expressed with virtuoso rationality, whereas the other (the actual environmental effects) is portrayed on a low-resolution medieval sketch map populated with chimeras and hippogriffs.
The fact that we really don’t know what the effects of global warming or the melting of the arctic ice caps will be is **not** a justification for going ahead with whatever seems economically most rational. Many economists, while they sometimes do recognize the subject-matter limitation of their science, when making policy recommendations often seem to take a competitive stance, saying something like “We’ve made our case; now it’s up to the environmentalists to make their case, if they can”.
As far as I can tell, it’s a dogma for many economists that there can never possibly be any physical limitation to economic growth, and that it cannot possible happen for economic degradation or change to make human life globally worse. This is, as far as a know, based on nothing much, or possibly it’s based on the Ehrlich-Simon bet in 1980.
To my knowledge climatologists, agronomists, economic geographers, and oceanographers do not share the complacency of economists about the topics they’ve actually studied, and which the economists have not. Economics in some formulations seems like a formal science of the imaginary, from which physical reality and flesh-and-blood humans have been bracketed out. (Simons’ claim that we can never run out of resouces since there are an infinite number of points on a line comes to mind, and while people assure me that he was not an economist, I think that far too many economists thaink like him).
Commentator Radek assured me on my site that food shortage will never be a problem and that part of California alone could feed the whole present population of the world. He didn’t bother to tell me where he got that from.
Tim McG 01.30.07 at 11:50 am
Edmud Burke said it best: “Early and provident fear is the mother of safety.”
The basis of any science is acknowledgment, fundamentally, that we amy be wrong; the logical implication of this is don’t do anything colossal and untried.
lemuel pitkin 01.30.07 at 2:23 pm
I’ll take what’s behind door number three. i twould be a great boon to economics — and to the rest of us — if it were acknowledged that economics does not offer a comprehensive account of human wellbeing and decision-making.
Shelby 01.30.07 at 2:25 pm
John Emerson,
Perhaps you’ve hung out with different economists than I have — the ones I know (which isn’t very many) don’t seem to share those proclivities. Though it seems rational to me to say that “there can never possibly be any physical limitation to economic growth” and to recognize that there is no a priori reason why economic growth must damage the environment. (This does not alter the fact that much, though not all, economic growth DOES incidentally harm the environment.) In any event, kudos for your first paragraph.
John Quiggin,
I’m not sure there are three distinct responses to the dillema you present, though you may have identified three (out of many?) general types of response. I have not seen (and have not looked for) any analyses that take into account the difference between what people SAY they will pay for a good, and what they will ACTUALLY pay when you look at real-world actions. People in the aggregate may say they value the environment at X, but when they (e.g.) have no food, water or shelter due to environmental effects, they may actually be willing to pay more. Has anyone attempted to incorporate this into an analysis of environmental spending?
John Emerson 01.30.07 at 3:03 pm
“Though it seems rational to me to say that “there can never possibly be any physical limitation to economic growth†and to recognize that there is no a priori reason why economic growth must damage the environment.”
What I’ve been trying to say all along is that economists should talk to demographers, economic geographers, climatoligist, agronomists, and oceanographers about this kind of question. These are actual physical sciences that study that kind of thing.
Since economists live in an imaginary formal non-physical world, they always think first of a priori reasons but the actual physical reasons studied by actual physical scientists are the ones that should be studied.
I’ve had this argument half a dozen times with econ types, not necessarily accredited economists, and not a single one has ever conceded that before discussing these issues they should get in touch with the actual working scientists studying these questions.
radek 01.30.07 at 4:14 pm
The California thing came up in a thread at Brad DeLong awhile back. At the time I also asked – whoa! – some agronomists (i.e. actual working scientists)at UC Davis about it and they basically said “yup”. Sorry I can’t give you more of a reference than that. If you wanna completely discount that statement then do so.
Actually I’m sorta tired right now just having got done with a bunch of gradin’ and teachin’. I promise I’ll be in a more argumentative mood later.
John Emerson 01.30.07 at 4:23 pm
Radek, it would certainly be nice to have that statement stated and argued in some detail rather than asserted as quickly as that. I’ve raised this question multiple times and that’s the best answer I’ve got so far.
I don’t claim to know what the answers to the questions are, but they don’t even seem to be asked. I don’t believe that the Simon / Lomborg cornucopian theory (Lomborg’s term) is universally accepted.
Shelby 01.30.07 at 4:27 pm
John Emerson,
Technically economics pertains to information, as I understand it, so the “physical limit” to economic growth would relate to something like the number of nondivisible particles in the universe and the number of possible ways to arrange them. I suspect you have something more practical in mind but I’d appreciate it if you’d take another stab at stating it.
aaron 01.30.07 at 4:33 pm
Something to consider, but I think you’re ignoring the cost of protecting and maintaining the passage.
John Emerson 01.30.07 at 4:39 pm
Well what I’ve said is that economics has chosen to be an imaginary world-free formal science, which is about the same as what you just said, but I object to that and you apparently don’t.
Above when I mentioned agronomists, climatologists, oceanographers, economic geographers, and demographers, I gave a pretty good idea of what I had in mind. That is, that when economists talk about policy, they should deign to talk about and consider the actual physical world we actually live in, with the present and future actual human populations, rather than just manipulating formulae describing an imaginary world somewhat similiar to our world.
aaron 01.30.07 at 4:39 pm
“The second is to try to extend economic analysis to include some of the factors that are obviously being left out here, for example, by assessing people’s willingness to pay for environmental protection.”
This is like saying “It doesn’t matter what it’s worth, what matter is if we can convince enough suckers that it’s worth a lot more than it is.”
radek 01.30.07 at 4:43 pm
“economics does not offer a comprehensive account of human wellbeing and decision-making.”
Sure, but it’s still the best game in town.
John Emerson 01.30.07 at 4:51 pm
Sure, but it’s still the best game in town.
Yeah, as long as you can believe that you’re beating everyone else, it doesn’t make a lot of difference if the advice you give is poor. As I mentioned, economists are competitive and fiercely loyal to the biz.
Maynard Handley 01.30.07 at 4:53 pm
(1) No side effects? The ice is white and reflects sunlight. Seawater absorbs it. So this will be one more addition to global warming.
(2) So world GDP goes up by 1%. That might be fine if it meant that everyone on earth gets a check *each year* for $43trillion/100/6 billion~$70. (A different web site gives GDP/capita at PPP as $8,800 making this $88).
BUT of course this isn’t the way it will work out. What will happen is that a few people involved in shipping and manufacturing will make billions, Canada as a whole will probably do pretty well (they’re probably the world’s number 1 winner in global warming even without the NW passage), and various poor shlubs around the world who have to deal with the consequences of global warming (see point 1 above) will get fsck-all out of this, even as they see their land eaten by the sea, increased disease, a collapsing ecology, broken agriculture, all not to mention the sodding discomfort of it being hotter than usual.
terence 01.30.07 at 6:47 pm
Hi John et al.,
I’m wondering if someone could help me with this question:
How is the value of human life treated in the Stern report. Is it only in terms of a person’s potential (or actual) economic output, in which case, the lives of those who earn less will be ‘worth’ less.
Or is a value assigned to everyone equally? (meaning that the loss of 100,000 people in Bangladesh would show up on the costs side of the balance sheet as equal to 100,000 Londoners)
I’m aware that discounting may complicate any answer to this, but – for arguments sake – ignore this. The question is – how does the Stern report assign the value of life to different people at any one point in time.
Matt Kuzma 01.30.07 at 11:12 pm
The problem is that standard benefit-cost analyses, don’t impute any real significant cost to this predictable outcome. For example, Nordhaus and Boyer (more or less arbitrarily) estimate the value of the entire climate-sensitive human and natural environmnent in the US at $500 billion (about equal to the market capitalization of ExxonMobil) and estimate that protecting it is worth $5 billion per year. This figure includes not only all natural ecoystems but impacts on humans in coastal areas like New Orleans, so the value accorded to the natural environment can’t be much more than $2.5 billion per yea (about equal to annual expenditure on chewing gum).
These numbers should be easily recognized as being patently ridiculous, and by extension, so should the method from which they were derived. If we look at the two most recent American disasters (Katrina and 9/11), what kind of financial impact did those have?
In the case of 9/11, two planes crashed into two buildings. Would a cost-benefit analysis go beyond tallying the capital destruction of those four objects? Would it account for the grounding of all planes, the diminished demand for air travel, the cost of paranoid security? My guess is it wouldn’t and economists should be embarrassed to present such a limited evaluation of cost.
Evaluating the costs of Global Warming is undoubtedly difficult, but if an economist is going to publish numbers, he should put more effort into them.
John Emerson 01.31.07 at 5:19 am
“More or less arbitrarily) estimate the value of the entire climate-sensitive human and natural environmnent in the US at $500 billion”
+
“At the time I also asked – whoa! – some agronomists (i.e. actual working scientists)at UC Davis about it and they basically said “yupâ€. Sorry I can’t give you more of a reference than that.”
=
“low-resolution medieval sketch map populated with chimeras and hippogriffs.”
dearieme 01.31.07 at 6:39 am
Cane toads. Don’t forget the cane toads.
Suvi 01.31.07 at 1:05 pm
“On the face of it, this seems (to me, anyway) like a crazy idea”
It is, because everything freezes again, once the heat has gone.
You can put boiling water out in the cold, and (what’s left of) it will freeze much faster than the same initial quantity of water at say, 20°C.
roger 01.31.07 at 2:35 pm
The problem with presupposing a future benefit – even quantifying it – as in the ‘destroy the north pole argument†is that often, future benefits fail to materialize, while one’s actions have put one on a path that can’t be retread.
A.O. Hirschmann, in one of his essays, quotes a nice passage from Rasselas that is relevant here: “Man cannot so far know the connexion of causes and events, as that he may venture to do wrong in order to do right.â€
Of course, the idea of using nuclear bombs to geo-engineer was one of the favorite projects of Edward Teller, who started Operation Plowshare to do just that. Teller wanted to use atom bombs to create a better Suez canal, create an alaskan port, etc., but for some reason, pesky locals – you know, the NIMBY type – didn’t want to take the very very small risks associated with atom bombs. Superstitious villagers, man. Luckily, the U.S. government overrode such sentiment and started using nuclear explosions for peaceful purposes. The first one was Project Gnome, in Carlsbad, New Mexico. Here’s a link: http://www.atomictourist.com/gnome.htm.
Also, I’d recommend the history of the Plowshare project in toto in Firecracker Boys
paul 01.31.07 at 8:41 pm
Something like the “california could feed the world” scenario seems predicated on such a massive rationalization of production, distribution and consumption as to put the most hubristic plans of the soviet era to shame. A state the size of California could no doubt house the world population as well, if we we all willing to adjust our preferences appropriately. And in such a world $500 billion for the US ecosystem is probably reasonable, if you grant the unlikely assumption that ecosystem destruction doesn’t accidentally clobber general economic activity (as, for example, by forest fires or dust storms that effectively shut down regions for a few days or weeks).
But a better approximation might come from looking at the price that people might pay to restore the situation to the status quo ante. Those numbers are typically in the tens to hundreds of thousands of dollars an acre for prime ecosystem.
SG 01.31.07 at 10:20 pm
I agree with John Emerson at post 17.
If you want to claim the ability to analyse the interaction of human economies with environmental systems, you need to show that you understand the latter as well as the former. Everything I read points to a complete failure of economists to do this, and a complete unwillingness to admit it.
Of course, it could just be that economists who engage the public are an aberration, but they seem to be the ones whose snake oil we have to swallow.
lurker 02.01.07 at 4:45 am
Like boring old sceptics keep saying, extraordinary claims require extraordinary evidence.
Donald Johnson 02.02.07 at 1:32 pm
I think you’d need a lot of bombs. 80 kcal melts a kilogram of ice and 1 gram of TNT releases about 1 kilocalorie, so an 80 kiloton bomb could melt 1 megaton of ice. If the ice is, say, 3 meters thick, (and ice density is roughly 1 ton per cubic meter), then 1 square km would weigh 3 million tons and require a .25 megaton bomb to melt (assuming all the energy goes into melting).
How many square kilometers did you have in mind?
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