Krugman on climate economics


in Economics, Geek stuff, Law, Politics, Science, The environment

Nobel Prize-winning economist Paul Krugman has written an excellent introductory article on climate and environmental economics, for The New York Times: Building a Green Economy. The piece is a combination of a non-technical introduction and a kind of literature review. His basic thesis is:

In fact, once you filter out the noise generated by special-interest groups, you discover that there is widespread agreement among environmental economists that a market-based program to deal with the threat of climate change — one that limits carbon emissions by putting a price on them — can achieve large results at modest, though not trivial, cost. There is, however, much less agreement on how fast we should move, whether major conservation efforts should start almost immediately or be gradually increased over the course of many decades.

I agree that the latter disagreements exist, and I agree with Krugman that what we know about the climate system justifies aggressive action to reduce and eventually eliminate greenhouse gas emissions. In particular, the non-trivial danger of catastrophic outcomes is a strong justification for precautionary action.

The article includes a concise explanation of Pigovian taxes, of which carbon taxes are a sub-category:

What Pigou enunciated was a principle: economic activities that impose unrequited costs on other people should not always be banned, but they should be discouraged. And the right way to curb an activity, in most cases, is to put a price on it. So Pigou proposed that people who generate negative externalities should have to pay a fee reflecting the costs they impose on others — what has come to be known as a Pigovian tax. The simplest version of a Pigovian tax is an effluent fee: anyone who dumps pollutants into a river, or emits them into the air, must pay a sum proportional to the amount dumped.

Note that as discussed here before, such taxes may be technical mechanisms, but they do not eliminate the need to make ethical choices. Just because a company has been burning coal for decades doesn’t mean it has the right to continue doing so, particularly as new information on why its use is harmful comes to light. By the same token, it is not an ethically neutral choice to say that people who have enjoyed a clean river have the right for it to remain unpolluted. There are many bases on which claims can be made: historical precedent, need, prior agreements, overall welfare, etc. Economics alone cannot provide a solution.

The article also covers cap-and-trade systems, and the ways in which they are similar to and different from carbon taxes; the importance of whether permits are auctioned or not; how even strong mitigation policies would only cost 1-3% of the global domestic product; the importance of major emerging economies taking action; carbon tariffs as a way of encouraging that; the sustantial costs of inaction; the signicance of catatrophic risks (“it’s the nonnegligible probability of utter disaster that should dominate our policy analysis”); a non-mathematical discussion of discount rates; and the status and prospects of climate legislation in the United States.

In short, the article touches on a great many topics that have been discussed here previously, and generally reaches rather similar conclusions to mine and those of most of this site’s commentors. One slightly annoying thing about the piece is that is discusses temperatures using the idiotic Fahrenheit scale, but I suppose that is to be expected when writing for an American audience. Another strange thing about the article is how Krugman fails to mention any of the co-benefits that accompany moving beyond fossil fuels: from reduced air and water pollution to lessened geopolitical dependency.

One of the best things about the piece is how is openly recognizes the seriousness of the problem we are addressing:

We’re not talking about a few more hot days in the summer and a bit less snow in the winter; we’re talking about massively disruptive events, like the transformation of the Southwestern United States into a permanent dust bowl over the next few decades.

Too many recent journalistic accounts and government announcements have affirmed the strength of climate science, without elaborating on what that means, and the type and scale of actions that compels.

The piece is probably worth reading for anybody who doesn’t feel like they have a basic understanding of environmental economics, and their relation to climate policy.

{ 4 comments… read them below or add one }

. April 14, 2010 at 2:59 pm

“There is a lot here to comment on and discuss. The extinctions at the Paleocene Eocene Thermal Maximum, for example, were mostly limited to foraminfera, single-celled shelly protozoa living at the sea floor, not really a “mass extinction” like the end Cretaceous when the dinosaurs got feathered. The Gulf Stream is not the only thing keeping Northern Europe warmer than Alaska. Krugman’s four reasons why it’s dubious to compare costs of climate mitigation to adaption didn’t include the unfairness, that the people paying the costs of climate change would not be the same ones as reap the benefit of CO2 emission. He also seems to have missed the recent revelation that what really matters to climate is the total ultimate slug of emitted CO2, implying that unfettered emission today dooms us to more drastic cuts in the future or a higher ultimate atmospheric CO2 concentration, which will persist not just for “possibly centuries”, but almost certainly for millennia.

But despite a few off-notes, reading this very nicely written, beautifully laid out and argued piece felt like getting a deep sympathetic body massage after a bruising boxing match. Thank you, Mr. Krugman.”

Milan April 16, 2010 at 4:55 pm

Tristan wrote his own response to Krugman’s piece, over on BuryCoal: Notes on Krugman’s “Building a Green Economy”

Tristan April 23, 2010 at 1:55 pm

This is interesting:

“The mission of Roadmap 2050 is to provide a practical, independent and objective analysis of pathways to achieve a low-carbon economy in Europe, in line with the energy security, environmental and economic goals of the European Union. The Roadmap 2050 project is an initiative of the European Climate Foundation (ECF) and has been developed by a consortium of experts funded by the ECF.”

. July 19, 2010 at 12:55 pm

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