The boringly mainstream solution to climate change

By Tim Worstall , written on April 9, 2014

From The News Desk

Now that we've had that update to the IPCC report on the perils of climate change, now that everyone's had a chance to digest it, time to look at what we actually need to do about the problem. And our biggest problem is that the mainstream scientific consensus of what we ought to go off and do is the one solution that just about no one in activism or politics is willing to consider. This is something that should make us all sad, of course, as we've quite clearly got the message that we've got a problem that needs solving but no one seems all that willing to actually apply the suggested solution.

The whole discussion of climate change starts with economics. Here, at the SRES. This looks at future populations, future technologies and future levels of wealth. We've got to know how many people there are, how much economic activity they have and how they're powering that activity so that we can take a guess at what emissions are going to be. This is what we can then feed into the climate models to see what those emissions are going to do to the temperature.

And one thing is very clear indeed from those economic studies. A globalized world will have fewer emissions for any particular standard of living or politico-economic system than a world based on more localized economies. So the first thing we can say about climate change is that localized economies are simply not the answer. People who insist that they are are just wrong. No, not misguided, no not ill informed, not even pointing the way to a better world. They're just wrong.

Then we come to all of the science of what those emissions are going to do to the world. This isn't an area where I've any competence at all: you can still puzzle me by pointing out the differences between kW and kWhr so expecting me to tell the difference between a good physics argument and a plate of rhubarb blancmange just isn't going to work. So I simply accept what the IPCC tells me. Climate change is happening, it's something that we're causing and it's something that we ought to do something about. Great, so, what is it that we should be doing?

This brings us right back to economics again and here I'm on firmer ground. Yes, I've ploughed through the Stern Review, read William Nordhaus, actually know (if only electronically) Richard Tol who was the co-lead author of the economics section in the latest IPCC release a week or two back (and how scientifically mainstream is that?). I can even outline Weitzman's point that greater uncertainty means more action is necessary, understand Partha Dasgupta's critique of Stern and so on. Heck, I even agree with James Hansen on what needs to be done. And the point that everyone is making here is that carbon emissions are currently an unpriced externality.

The joy is that we know how to deal with those. The proof might have started with Arthur Cecil Pigou (the guy who first hired Keynes into an economics department) and his discussion of the effects of a superfluity of rabbits in one field on the crops of the farmer next door but the proof is still true. If you've unpriced externalities then markets won't work to deal with this problem. For the entire point of designating them as unpriced is that markets do not take them into account thus given that markets ignore them they can't solve any problems associated with them.

Given this we do know what to do: we intervene in the market to price those externalities. We could have a cap and trade system, it could be a carbon tax. The general view of the economists working on this is that the carbon tax is better. Sure, there's a certain disagreement about how large that tax should be: Nordhaus says perhaps $10 a tonne now and $250 a tonne in 30 years' time. Stern says $80 now and static: I'm rather on the Nordhaus side of this thinking that as we're going to replace pretty much all of our generation and transport technology over that period anyway then it seems more sensible to run what we've already built into the ground and make sure we have non-emittive sources when we replace, rather than blowing up perfectly good infrastructure today. James Hansen does, it is true, say that the tax should be up to $1,000. But note that it is "up to".

His actual paper on the subject says that if climate sensitivity is high, if emissions growth is high and if we go down the worst possible route for the economy then, and only then, might it be that high. Unfortunately, that's not quite how you should do it: you need to take the entire range of such estimates and then adjust them by the probability that they will happen in order to get your proper number. Which, even in Hansen's case, brings us back to under $100 a tonne. Or, if you prefer, the $1 on a gallon of gas that Greg Mankiw's Pigou Club has been arguing for.

As you can see from the names I've been dropping this idea of a carbon tax to deal with climate change is simply the mainstream, scientific consensus one, about how to do that dealing. There's amazingly little disagreement among the economists who study the point. Hell, even Exxon now applies a $60 a tonne tax to emissions in their internal modelling. There's also nothing new about this point, it's the same thing all those economists have been saying for the past decade. It's also nothing new for me to be saying it, I even wrote a book on the point three years back.

Yes, climate change is a problem we should do something about and that something is a carbon tax. What a very mainstream conclusion. But as I say, there's a sadness in the fact that just about everyone, from Republican politicians insisting upon no new taxes to green activists insisting that we need the destruction of globalised capitalism to deal with it refuses to actually listen to, or apply, that solution that really is the mainstream scientific opinion on what we ought to be doing about it all.

And what really gripes my goat is that it's such a cheap damn solution. If we use the (high) number from Stern then it's 60 cents on a gallon of gas. And that's it, we're done, we've entirely solved climate change from the transportation sector: or rather we will have done over time when that tax changes behaviour appropriately. There's nothing about climate change that says that government or tax revenues should get larger so we can and should reduce other taxes to compensate (or Hansen's dividend idea if you prefer). But seriously, 60 cents on a gallon? To save the planet?

Why aren't we simply doing this?

[Image via Thinkstock]