Economists and Climate

People often wonder what use are economists.  In terms of climate change this is particularly appropriate.  Most economists are not very absorbent, and cannot be used very effectively as flood defences.  Nor can they be effectively deployed to scrub carbon from the atmosphere, and as a profession have a general tendency to produce hotter rather than cooler air thus rendering them particularly useless at cooling.  However, all is not lost, perhaps.

The annual jamboree for economists and allied professions is the Allied Social Sciences Association meeting.  This takes place ridiculously early in January every year, and is a combination of a showcase for research and a mass hiring fair for Ph.D. students wishing to enter into economics posts.   From a climate perspective this year was quite interesting, with a significant number of papers beginning to focus in on the costs of not doing anything to avert ongoing anthropogenic global warming.

One of the highlights of this is always the presidential address by the incoming president of the American economic Association. In 2015 the president  produced a proposal, in his presidential address, for what he termed the “climate club”.  This was a grouping of Nations, similar perhaps to trade or financial groupings like the original  European economic community.  The crucial aspect is that in within the club members will undertake coordinated, but quite costly, actions to reduce the impact of global warming.  Those outside the club would be subject to very significant tariffs and other penalties when wishing to trade or otherwise do business with members of the club.  Simulation and other evidence suggested that this could produce quite significant, and quite rapid, reductions in global carbon footprints.  What was missing from this was perhaps an analysis of how this club could be superimposed on the existing geopolitical and geo-economic infrastructure. It was a brave attempt to show how the design of economic institutions and economic incentives can be used to help avert catastrophe.

This year there were a number of papers presented, frightening and fascinating, which looked at global climate catastrophe.  In assessing the impact of climate change economists are at a significant disadvantage.  Their tools and models are generally not very good at very long horizons.  Even so, some ideas can be gleaned.

One major catastrophe would be the collapse  of the West Antarctic ice sheet.  A full collapse of this would result in ocean rise of 4 m.  There are indications that this collapse has begun. One analysis suggested that the economic costs of preventing this collapse were relatively modest, but rapidly became extremely high, due to the fact that there is a threshold after which the collapse becomes inevitable. It may be too late, given locked in carbon, so why bother runs an argument?

A further paper looked at the potential economic impact of mass acidification of the Seas.  This happens when the oceans absorb more and more carbon dioxide, contracting the seawater into diluted acid.  This would wipe out current reefs, including the Great Barrier Reef, and result in major changes in commercial fisheries.  Despite this the estimates of damage are globaly small, because of the potential for  aquaculture to adapt. Much less cod, lots more shrimp.

A third paper suggests that the shutting down of what is called thethermohaline, the Atlantic conveyor that circulates cool and warm water around the oceans, that this would not necessarily be bad (for Europe).  If the Gulfstream were to shut down, this will of course result in much cooler temperatures in Europe.  But, the analysis goes, the world is warming anyway.  Maybe the two will offset each other?  There would of course be significant effects, greatly increased warming, in Africa and South  America.  Put in simple terms this would result in the desertification of the Amazon and perhaps the spread of the Sahara further south.  But as these areas are relatively poorer and economic analysis suggests, based on present-day and likely future paths that the impact would be limited.

All three of these are “correct”analyses  in so far as they go, but they seem to me to have one fatal philosophical flaw. They are linear, first order linear. We simply have no idea, economically, what the effect would be of mass oceanic acidification. There is a small but extant possibility that it would result in the collapse of the base of the marine ecosystem, not just recreational and commercial fishery but the whole shebang. This would end up with a world sea composed mostly of jellyfish…  We have no economic metrics for the global migration effects that would emerge from a  catastrophic warming of Africa and south America.

Economics is a great tool for evaluating economic issues. It is about costs and benefits. When it strays into the area of long-term climate, it is at sea. We barely understand the costs of action, and have no real clue, even to orders of magnitude, of the costs of inaction. A prudent approach is to let climate scientists spell out the effects and for policy makers to work to avert the worst possible scenarios. In doing so they will avert the lesser ones. When economists make sweeping statements on the likely costs of geological, climatological or metrological catastrophes these will be used, shorn of caveats, by shortsighted politicians.


5 thoughts on “Economists and Climate

  1. Paul Price (@swimsure)

    The economic analyses you report for individual climate catastrophes are indeed committing category errors by using linear and single-impact analysis. Economists need to wake up to the climate reality of an absolute limit to total future carbon emissions and stop ignoring the essential ‘irreversible but avoidable’ nature of the global problem.

    With climate change, economics like all of human understanding is trying to deal with something very different to what we have dealt with before. By adopting a partial (often national and short-term) view economists and other social sciences are repeatedly failing to look at the global and very long-term, non-linear, interlocking nature of the projected impacts. Complex systems like Earth’s climate have unpredictable emergent properties, all the more so when kicked into a different state.

    I don’t think economists can just stand aside (as you seem to be suggesting) from working to get off the current trajectory toward very high risks of serious to catastrophic impacts. Economists and other policy advisors urgently need to help us to get on a pathway to zero emissions very quickly. In Ireland we plan to increase emissions!

    Global warming (about 1ºC to date) due to the accumulation of past human-caused emissions is essentially irreversible. Further warming depends entirely on the total future carbon emissions, the remaining carbon budget, that humans collectively *choose* to allow through our economic and societal decisions regarding energy, food, trade and infrastructure from now on. To limit warming total net GHG emissions need to go to zero.

    For a likely chance of staying under 2ºC warming the carbon budget remaining is about 850 GtCO2 but we’re foolishly burning it at 35 Gt/yr. A ‘forever’ budget could be burned through in the next 25 years. More emissions take us and future generations to more warming and past more tipping points to very costly, irreversible impacts.

    Future, ‘forever’ emissions from all national carbon budgets must be limited to stay within a global carbon budget. It’s simple budget arithmetic but how many economists have grasped it yet? Or don’t they want to? The social and political implications are already stark but economists are failing us if they continue to avoid showing us options for action that add up, no matter how challenging the options might be.

  2. Paul Price (@swimsure)

    Yes, it’s certainly a good idea to avoid sweeping cost-benefit analyses where they are entirely inappropriate to the nature of the problem.

    More locally, in Ireland and the EU, our academic and government economists are completely failing to engage with carbon budget reality.

    At minimum we have to achieve and sustain annual -2.5% emission cuts (and more with equity in mind). This needed in whole-economy, total emissions every year, and not just by exporting industry and importing the goods. As well we need to be paying serious money to poorer nations to avoid development emissions elsewhere.

    How are we going to do all this? Where is the advice from our ‘experts’? Climate scientists like John Sweeney stand up and take the flak but where are other academics in other fields who actually need to look at finding whole-economy solutions for a pathway to zero carbon?

    Even after the Paris agreement set the 2ºC, and even 1.5C, pathway clearly once again, the silence from economists, politicians and policy-advisors continues to be deafening. As carbon budgets are zero-sum, failing to get on the path quickly implies either ever greater decarbonisation rates or greater impacts due to our inaction now.

    Climate action requires urgent attention from government and universities to examine viable pathways to a stabilise climate. Our social scientists, economists especially, are failing us. They need to wake up.

      1. Paul Price (@swimsure)

        Apologies for venting at length above in your blog comments, very few Irish economists even begin mention climate change with reference to reality so well done for doing so. I spent the time commenting in my usual hope that economists generally might actually take up the challenge sometime.

        To respond to you, my point above is that climate action is whole-economy economics, not just energy. In terms of 2020 and 2030 EU climate targets, energy and large industry are in the EU Emissions Trading System, and the rest of the economy – transport, agriculture, heating for houses, and commercial power – are in the Non-Traded sector. All together, not just energy, make up our emissions.

        By the way, none of these targets come anywhere close to an equitable emissions path for 2C (see SEI Climate Equity Reference Calculator).

        There has been no serious attempt by government or economists in Ireland to press for a meaningful evidence-based public discussion of how to achieve “substantial and sustained reductions in greenhouse gas emissions” as are needed to limit climate change (quoting IPCC AR5 WG1 SPM p.19). Such a discussion – a Climate Forum Ireland perhaps – urgently requires cross-disciplinary discussion among all branches of economics, and between social and physical scientists, to chart ways forward to achieve such an emission path equitably and still maintain some sort of economy, even if will probably be a very different one from today’s.

        For example, Chris Hope, University of Cambridge, who runs the PAGE IAM as used by the Stern Review, estimates that a realistic region-appropriate 2ºC aligned pollution fee for CO2 in a fiscal neutral carbon tax regime should be $250/tCO2 in the USA, $150/tCO2 in the EU, and $15/tCO2 in poor nations, see It should be obvious that much of our current economy is not economically viable if the climate externality cost is included.

        For economic resilience with respect to both climate action and climate impacts we need our economists to figure out what economy is viable and, even more importantly, how to get there from here as quickly as possible.

        Maybe, given the lack of any such substantive discussion to date, even thinking such an effort by our experts is possible may be fanciful, and it is all getting a bit late. But better late than never: it would be good to start.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s