Monday, June 11th 2012, 6:27 AM EDT
This is an interesting paper in Nature on the uncertainty we have about the future of the environment and ecosphere. A short description here and the full paper here. I doubt very much that this is what the paper’s authors would say is the correct interpretation but what they’re really saying is that climate change is less important than we previously thought. In fact, we can quite plausibly say that their results are such that we should do less about climate change than we currently do.
All the usual caveats apply: this is one paper, it is indeed a speculative paper and so on. Also, my apologies that this is necessarily rather geeky about the economics of climate change, inevitably so.
The argument put forward is that there are things other than climate change which might cause the entire breakdown (or less emotionally, substantial and unpredictable change in) the environment and ecosphere that supports us all. This isn’t controversial at all: we’re all aware that a decent sized asteroid strike, an outburst of vulcanism like the Deccan, a nuclear war, these could mean more than just that the daffodils flower a little earlier each year.
They specifically point to the cumulative impact of x billions of human beings on the planet. We do each have an impact and more of us can be assumed to have a greater impact certainly. They go further and point to, just as one example of their argument, the way in which population rise could lead to a phase change, a chaotic and of unknown outcome, rapid and irreversible change in our environment.
At one point they point out that if fertility continues as it did from 2005-2010 then by 2100 we could have 27 billion humans alive and yes, I think we’d all rather agree that this is likely to lead to some fairly major changes in varied ecosystems.
So let us take that as our set up. We are being warned that it is not just climate change that might lead to catastrophe: population growth could do this as well. Fair enough, a reasonable enough assumption.
What does this mean for our discussions of climate change? Well, it means that Stern is wrong in his discount rate, that the currently assumed social cost of carbon emissions is too high, that we should almost certainly be doing less about climate change than is currently planned and finally, that we should, again almost certainly, aim for more economic growth even at the expense of carbon emissions and climate change than is currently thought optimal.
Please note, there’s nothing strange about any of this either: this is all reasoning entirely within the basic structures of what is accepted climate science and the economics of it. The IPCC, the Stern Review and so on are all being treated as entirely correct.
As to Stern’s discount rate: the essential way that Stern gets to his $80 a tonne CO2-e social cost of carbon is by using a very low discount rate. In effect he entirely abandons market interest rates (given that humans are known for hyperbolic discounting this is fair up to a point but perhaps he takes it too far) and bases his discount rate on the possibility that we’ll all get blown up by something other than climate change. Asteroid strikes and nuclear war are, from memory, two of the examples he uses. But here we have another thing, pure and simple population pressure, that might do us all in over this same time scale. Thus that risk must be raised: which in turn raises the discount rate that must be used and lowers the social cost of carbon emissions in the present.
There’s nothing odd or strange about this at all: if we’ve just discovered another method by which we can all go to damnation and perdition then that discount rate must rise. And raising that discount rate really does lower that social cost of carbon emissions.
I will admit that this result amuses me.
Now if the social cost of carbon emissions comes down that means that we should be doing less about such emissions now. For it is that very price, that social cost of emissions, which determines how much effort we should be putting into reducing them.
Recall what we’re really trying to do: we want to maximise human utility over time. We want people to stop taking actions today which produce more costs tomorrow than the benefits which are received today. Similarly, we want people to continue taking actions today which produce greater benefits than any future costs. Where this dividing line is is this very social cost of carbon emissions. If that number is $80 then we want people to stop emitting a tonne of CO2-e if it brings them less than $80 of benefit but to continue if it brings them more than $80. This is the whole point of having calculated this number.
We can also use it the other way around. If it costs us more, in loss of benefit or utility, than $80 to avoid a tonne of emissions then we don’t want to avoid that tonne of emissions. If it costs us less then we do. Again, there’s no controversy over this point: this is simply what the social cost of carbon means.
But our necessary increase in the discount rate has just reduced this social cost of carbon. Thus there are climate change reducing activities which we were doing at that old price of $80 which we should now stop doing as the costs are above our new cost.
All of the above is simply entirely true. What is entirely unknown at present is how important it is. We can’t know from the Nature paper because no attempt is made to quantify the dangers of population growth. Thus we don’t know by how much Stern’s discount rate must be changed nor what that does to the carbon price. If it changes it from $80 to $79 then it’s all pretty minimal. If it changes it from $80 to $40 then there might well be (OK, should be) some quite major changes in what we are doing. For example, the European Emissions Trading System would need radical reform, green taxes should fall sharply in the UK, subsidies to renewables be cut and so on.
Which brings us on to thinking about the trade off between economic growth and emissions and climate change.
We started thinking that it was emissions which, if unchecked, were going to do us all in. This new paper now tells us that no, it is also possible that simple population growth, nowt to do with emissions, which might also do us in. We thus face two dangers not one.
Further, if we go off and look at the SRES, the economic models upon which the entire IPCC/Stern edifice is built, we see that there is a very clear trade off between economic growth and fertility rates. In fact, it’s a general truth: economic growth reduces fertility rates.
It’s possible to have lovely arguments about exactly how this happens. Some say that the education of women, lower child mortality, gender equity, both reduce fertility and also increase possible economic growth. Others might say that it is the increasing wealth from economic growth which reduces child mortality, allows the education of women and gender equity. I’m in the second camp but this particular detail of the argument doesn’t concern us here.
We know, because we can see it in any and every society anyone has ever studied, that economic growth leads to falling fertility rates. Thus, if we fear being buried under 27 billion other humans we should be arguing for some more economic growth to reduce the likelihood of that happening.
When we look at the SRES models this is already built into them for us. It is the high growth (A1) family that has, with a $550 trillion economy in 2100 the smallest population of some 7 billion. It is the low growth(A2) family which has an economy of $250 trillion and 15 billion people.
So now we have two things to worry about. Both the emissions which lead to climate change and also low growth which leads to rising population levels. And yes, we really do have a trade off between the two. We know that, absent de-carbonisation of our energy system, greater economic growth leads to higher emissions. Yet higher economic growth leads to lower population growth at the cost of those higher emissions.
Similarly, if we don’t have the economic growth which reduces population then we’re all going to be swamped with 27 billion of our fellows and we lose the environment and the ecosphere anyway. Thus the discovery of this new threat changes the correct balance, the optimal strategy, to deal with matters.
We should now happily move to more economic growth in order to reduce population pressures. That is, as a result of this new threat accept higher climate change in order to beat the population problem.
I’m quite certain that this isn’t the way the authors of the paper expected it to be taken: but it is still true that this is the way it ought to be taken. If population growth is a threat as real and dangerous as climate change then we really should be willing to put up with a bit more of the latter in order to deal with the former.
I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am.