Harry Clarke La Trobe University Economic Society Of Australia, Victorian
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Harry Clarke La Trobe University Economic Society of Australia, Victorian Branch.
Plan 1.Background science & politics – role of
scientific uncertainty. 2.Core economics of climate policy under
uncertainty 3.Australian policy 4.Final remarks
1. Climate science
Climate science has developed over 2 centuries in
applied & fundamental directions.
Predictions of theory are convincingly supported
by evidence.
Science – we know… Warming is occurring. With very high probability
due to anthropogenic GGEs. The AGW hypothesis. Charney Sensitivity. Doubling of CO2 over pre-
industrial times (ignoring slower feedbacks) brings ≈ 30C (mgs) temp. increase. More at poles.
Science – uncertainty…. Lots of genuine uncertainty... Climate sensitivities uncertain & time horizon
-variable. Some feedbacks drive higher sensitivities, aerosol cleanup may ‘unmask’ greater heating. Ice sheet melting creates stronger LR responses. Regional effects.
IPCC & uncertainty Uncertainties a focus of IPCC reports - clouds, aerosols,
Antarctic sea ice….etc. e.g. in Physical Science Basis Report 43 key uncertainties
listed.
A low weight on AGW scepticism is appropriate Garnaut on Garnaut Review: “…accepted views of mainstream science ‘on a balance of probabilities’. There is a chance that it is wrong. But it is just a chance. To heed instead the views of the small minority of genuine sceptics in the relevant scientific communities would be to hide from reality. It would be imprudent beyond the normal limits of human irrationality.”
Is human activity significantly changing temperatures? DoranZimmerman (2009)
75/79 climatologi sts said yes.
Doran-Zimmerman conclusion
1. The debate on the authenticity of AGW largely nonexistent in science. 2. The challenge, is to communicate this to policy makers & to a public that continues to mistakenly perceive a debate among scientists.
Politics 1957 Revelle & Suess - heating a policy concern – CO2
emissions - “large scale geophysical experiment”. Unanimity of policy concern led to 1992 Climate
Convention & ongoing role for IPCC. But late 1980’s marked the birth of climate change
delusionism.
Delusionism An influential political movement rejecting science &
seeking to sow ‘seeds of doubt’’ regarding AGW. George C. Marshall Institute & the Heartland Institute. Same groups have denied passive smoking damage,
CFCs cause ozone layer hole, SO2 cause acid rain etc.
More...
Delusionism fostered by press balance
ideas – ‘right’ to equal treatment. Science has addressed delusionist claims
but claims get repeated (‘warming stopped in 1998’).
More…
As an economist I refuse to debate the science. No more reason to question validity of
science than to take seriously the views of physicists who push crank money theories.
2. Climate change economics Ambitious – seeks to determine opportunity costs
of mitigating & not-mitigating GGEs. Complex – irreversibility, nonlinear responses,
threshold effects thrown together in dynamic setting with system & ethical uncertainties. Some simplification from relatively small role
macroeconomic role of energy sector.
Evaluating via CBA a ‘real options’ task:
Risk/uncertainty - Valuation of costs/benefits
stochastic processes. Dynamics – stock pollutant & learning dynamics Irreversibility – sunk cost & ecological/
environmental.
CBA Methodology
Use use CBA with uncertainty,
irreversibility & dynamics. Many issues…...
Intertemporal valuations Low discount rates make sense. Intra-generational attitudes. Discount factor convex in discount rate.
Promptness or ‘wait-tolearn’ Increasing costs of abatement create incentives to act now.
Technology might provide an offset. Differing irreversibilities tug analysis in opposite directions. Sunk cost irreversibilities – delay to learn –offset by
‘no regrets’ options. Catastrophic irreversibilities – act decisively now – increased flexibility via backstop options.
Convexity of damages Forecasts of 3oC mean increase in temps, will cause
moderate damage (5-10% of GDP). 3oC = mean(2oC& 4oC) = mean (00C & 6oC) In last case, no warming, no damage. But equal
probability of 60C warming, a catastrophe. More uncertainty strengthens case for decisive action.
Catastrophic uncertainties Given various possible states of world but one where: Catastrophic costs occur with non-negligible probability.
Should act to avoid that state irrespective of discount
rates or strategic issues. Favours unilateralism & taking prompt action.
CBA under Knightian uncertainty If losses large relative to policy costs (the case!)
activism sensibly motivated by minimax regret. A probability-free insurance principle. In remote case where climate science gets it wrong
we will have squandered a small bit of GDP.
Technology uncertainty
Substantial on CCS technologies, new nuclear. Explore a portfolio of technologies
(renewables, nuclear) & focus on CCS.
General empirical observation
Even with uncertainty there is
presumption - cost of active policy low relative to doing nothing. e.g. Stern & Garnaut Reviews, IPPC
(2007), Nordhaus, Weitzman (2009).
3. Australian policy Australia heavily impacted on by unmitigated
climate change. A ‘fringe climate’ society. Australia a ‘small country’ - our GGEs a small
fraction of global total.
Policy resolves into focus on: Adaptation Mitigation Policies helping good global response.
Adaptation Plausibly expect 1.8-2oC warming from
current GGE concentrations. So case for adaptation – in agriculture,
industry, urban settlements & biodiversity resources.
Adaptations not subject to ‘free-rider’ market
failure issues of mitigation policies. Can rely on market-driven responses & policy
responses encouraging market-driven responses.
Example - agriculture Policy - provide info & expand technological
choices farmers have. Market failures mean info investment & R&D need to be a major focus. Redesign policies which reduce need to adapt
– e.g. drought relief.
Mitigation If only adaptation pursued - a race to
collective disaster. US & China provide 50% of GGEs, but 15
countries provide 80%, another 158 providing 20%. Small countries are important. & Australia should not provide negative moral
suasion.
ETS the cheapest way to limit GGEs. Regulation
more expensive. Global ETS reduces costs by 20%. A key message for industry. Preferred option - best ETS should charge for
GGEs on a consumption basis. Exempt exports & subject imports to BTAs unless exporting country charge carbon production. Eventually all countries should charge carbon
production.
Australian CPRS will be phased in - unlimited
permits @ $10/tCO2 from 2011/12 with full permit auctioning from 2012/13 @ ≈ $29/tCO2. Revenues returned to households, fuel excise
offsets, trade-exposed firms, electricity generators.
Main effect - electricity prices will rise 25% in
2012/13 – consumers face substitution effects. Impacts on brown coal generators but 93% of
capacity still in place by 2020. Potential for nuclear power & renewables –
but limited background capacities.
Assessment Should pursue ambitious targets & commit to impose
BTAs after 2025 (cf. Waxman-Markey). Australia gains with CCS initiatives – a sound R&D
focus. Agriculture contributes 1/3 of world CO2 & most NO & CH4. Australia should watch NZ. Need to reduce policy uncertainty by setting up
credible climate change institutions.
4. Final Comments Major parties could not approve CPRS in Senate.
Unless the Coalition seeks electoral oblivion the Bill will pass.
Proposed CPRS reasonable – apart from exemptions to
electricity sector. Waiting to 2013 to decide on agriculture - but must
eventually be bought into CPRS - carbon sequestration synergies with sustainable agriculture .
Australian Government plans will match a
comprehensive agreement in Copenhagen. Sensible conditional & unconditional targets. Stronger targets not sensible now though
they will be.
Final words
– picked (almost) at
random The new climatology of the American south-west…….. Science 25 May 2007: Vol. 316. no. 5828, pp. 1181 – 1184 Model Projections of an Imminent Transition to a More Arid Climate in Southwestern North America Richard Seager,1* Mingfang Ting,1 Isaac Held,2,3 Yochanan Kushnir,1 Jian Lu,4 Gabriel Vecchi,2 Huei-Ping Huang,1 Nili Harnik,5 Ants Leetmaa,2 Ngar-Cheung Lau,2,3 Cuihua Li,1 Jennifer Velez,1 Naomi Naik1 How anthropogenic climate change will affect hydroclimate in the arid regions of southwestern North America has implications for the allocation of water resources and the course of regional development. Here we show that there is a broad consensus among climate models that this region will dry in the 21st century and that the transition to a more arid climate should already be under way. If these models are correct, the levels of aridity of the recent multiyear drought or the Dust Bowl and the 1950s droughts will become the new climatology of the American Southwest within a time frame of years to decades.
Note–broadconsensus&imminent!
Thank you.
Plan 1.Background science & politics – role of
scientific uncertainty. 2.Core economics of climate policy under
uncertainty 3.Australian policy 4.Final remarks
1. Climate science
Climate science has developed over 2 centuries in
applied & fundamental directions.
Predictions of theory are convincingly supported
by evidence.
Science – we know… Warming is occurring. With very high probability
due to anthropogenic GGEs. The AGW hypothesis. Charney Sensitivity. Doubling of CO2 over pre-
industrial times (ignoring slower feedbacks) brings ≈ 30C (mgs) temp. increase. More at poles.
Science – uncertainty…. Lots of genuine uncertainty... Climate sensitivities uncertain & time horizon
-variable. Some feedbacks drive higher sensitivities, aerosol cleanup may ‘unmask’ greater heating. Ice sheet melting creates stronger LR responses. Regional effects.
IPCC & uncertainty Uncertainties a focus of IPCC reports - clouds, aerosols,
Antarctic sea ice….etc. e.g. in Physical Science Basis Report 43 key uncertainties
listed.
A low weight on AGW scepticism is appropriate Garnaut on Garnaut Review: “…accepted views of mainstream science ‘on a balance of probabilities’. There is a chance that it is wrong. But it is just a chance. To heed instead the views of the small minority of genuine sceptics in the relevant scientific communities would be to hide from reality. It would be imprudent beyond the normal limits of human irrationality.”
Is human activity significantly changing temperatures? DoranZimmerman (2009)
75/79 climatologi sts said yes.
Doran-Zimmerman conclusion
1. The debate on the authenticity of AGW largely nonexistent in science. 2. The challenge, is to communicate this to policy makers & to a public that continues to mistakenly perceive a debate among scientists.
Politics 1957 Revelle & Suess - heating a policy concern – CO2
emissions - “large scale geophysical experiment”. Unanimity of policy concern led to 1992 Climate
Convention & ongoing role for IPCC. But late 1980’s marked the birth of climate change
delusionism.
Delusionism An influential political movement rejecting science &
seeking to sow ‘seeds of doubt’’ regarding AGW. George C. Marshall Institute & the Heartland Institute. Same groups have denied passive smoking damage,
CFCs cause ozone layer hole, SO2 cause acid rain etc.
More...
Delusionism fostered by press balance
ideas – ‘right’ to equal treatment. Science has addressed delusionist claims
but claims get repeated (‘warming stopped in 1998’).
More…
As an economist I refuse to debate the science. No more reason to question validity of
science than to take seriously the views of physicists who push crank money theories.
2. Climate change economics Ambitious – seeks to determine opportunity costs
of mitigating & not-mitigating GGEs. Complex – irreversibility, nonlinear responses,
threshold effects thrown together in dynamic setting with system & ethical uncertainties. Some simplification from relatively small role
macroeconomic role of energy sector.
Evaluating via CBA a ‘real options’ task:
Risk/uncertainty - Valuation of costs/benefits
stochastic processes. Dynamics – stock pollutant & learning dynamics Irreversibility – sunk cost & ecological/
environmental.
CBA Methodology
Use use CBA with uncertainty,
irreversibility & dynamics. Many issues…...
Intertemporal valuations Low discount rates make sense. Intra-generational attitudes. Discount factor convex in discount rate.
Promptness or ‘wait-tolearn’ Increasing costs of abatement create incentives to act now.
Technology might provide an offset. Differing irreversibilities tug analysis in opposite directions. Sunk cost irreversibilities – delay to learn –offset by
‘no regrets’ options. Catastrophic irreversibilities – act decisively now – increased flexibility via backstop options.
Convexity of damages Forecasts of 3oC mean increase in temps, will cause
moderate damage (5-10% of GDP). 3oC = mean(2oC& 4oC) = mean (00C & 6oC) In last case, no warming, no damage. But equal
probability of 60C warming, a catastrophe. More uncertainty strengthens case for decisive action.
Catastrophic uncertainties Given various possible states of world but one where: Catastrophic costs occur with non-negligible probability.
Should act to avoid that state irrespective of discount
rates or strategic issues. Favours unilateralism & taking prompt action.
CBA under Knightian uncertainty If losses large relative to policy costs (the case!)
activism sensibly motivated by minimax regret. A probability-free insurance principle. In remote case where climate science gets it wrong
we will have squandered a small bit of GDP.
Technology uncertainty
Substantial on CCS technologies, new nuclear. Explore a portfolio of technologies
(renewables, nuclear) & focus on CCS.
General empirical observation
Even with uncertainty there is
presumption - cost of active policy low relative to doing nothing. e.g. Stern & Garnaut Reviews, IPPC
(2007), Nordhaus, Weitzman (2009).
3. Australian policy Australia heavily impacted on by unmitigated
climate change. A ‘fringe climate’ society. Australia a ‘small country’ - our GGEs a small
fraction of global total.
Policy resolves into focus on: Adaptation Mitigation Policies helping good global response.
Adaptation Plausibly expect 1.8-2oC warming from
current GGE concentrations. So case for adaptation – in agriculture,
industry, urban settlements & biodiversity resources.
Adaptations not subject to ‘free-rider’ market
failure issues of mitigation policies. Can rely on market-driven responses & policy
responses encouraging market-driven responses.
Example - agriculture Policy - provide info & expand technological
choices farmers have. Market failures mean info investment & R&D need to be a major focus. Redesign policies which reduce need to adapt
– e.g. drought relief.
Mitigation If only adaptation pursued - a race to
collective disaster. US & China provide 50% of GGEs, but 15
countries provide 80%, another 158 providing 20%. Small countries are important. & Australia should not provide negative moral
suasion.
ETS the cheapest way to limit GGEs. Regulation
more expensive. Global ETS reduces costs by 20%. A key message for industry. Preferred option - best ETS should charge for
GGEs on a consumption basis. Exempt exports & subject imports to BTAs unless exporting country charge carbon production. Eventually all countries should charge carbon
production.
Australian CPRS will be phased in - unlimited
permits @ $10/tCO2 from 2011/12 with full permit auctioning from 2012/13 @ ≈ $29/tCO2. Revenues returned to households, fuel excise
offsets, trade-exposed firms, electricity generators.
Main effect - electricity prices will rise 25% in
2012/13 – consumers face substitution effects. Impacts on brown coal generators but 93% of
capacity still in place by 2020. Potential for nuclear power & renewables –
but limited background capacities.
Assessment Should pursue ambitious targets & commit to impose
BTAs after 2025 (cf. Waxman-Markey). Australia gains with CCS initiatives – a sound R&D
focus. Agriculture contributes 1/3 of world CO2 & most NO & CH4. Australia should watch NZ. Need to reduce policy uncertainty by setting up
credible climate change institutions.
4. Final Comments Major parties could not approve CPRS in Senate.
Unless the Coalition seeks electoral oblivion the Bill will pass.
Proposed CPRS reasonable – apart from exemptions to
electricity sector. Waiting to 2013 to decide on agriculture - but must
eventually be bought into CPRS - carbon sequestration synergies with sustainable agriculture .
Australian Government plans will match a
comprehensive agreement in Copenhagen. Sensible conditional & unconditional targets. Stronger targets not sensible now though
they will be.
Final words
– picked (almost) at
random The new climatology of the American south-west…….. Science 25 May 2007: Vol. 316. no. 5828, pp. 1181 – 1184 Model Projections of an Imminent Transition to a More Arid Climate in Southwestern North America Richard Seager,1* Mingfang Ting,1 Isaac Held,2,3 Yochanan Kushnir,1 Jian Lu,4 Gabriel Vecchi,2 Huei-Ping Huang,1 Nili Harnik,5 Ants Leetmaa,2 Ngar-Cheung Lau,2,3 Cuihua Li,1 Jennifer Velez,1 Naomi Naik1 How anthropogenic climate change will affect hydroclimate in the arid regions of southwestern North America has implications for the allocation of water resources and the course of regional development. Here we show that there is a broad consensus among climate models that this region will dry in the 21st century and that the transition to a more arid climate should already be under way. If these models are correct, the levels of aridity of the recent multiyear drought or the Dust Bowl and the 1950s droughts will become the new climatology of the American Southwest within a time frame of years to decades.
Note–broadconsensus&imminent!
Thank you.
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