Friday, August 17, 2007

The Costs and Benefits of Climate Change Mitigation

Environmental Economics has a quickie post today (18 word comment) on a new analysis of the Stern Review by Resources For The Future.

The odd thing is, the abstract (here at Environmental Valuation & Cost-Benefit Analysis) says this new paper uses Yale Professor William Nordhaus' DICE model to run the analysis.

Well why not get the numbers straight from the horse's mouth?
(sorry professor)

Professor Nordhaus himself has recently (July 24) put online an analysis of the costs and benefits of various schemes to reduce carbon in the atmosphere. It is an eye-opening (albeit lengthy [253 page PDF]) piece of work.

Russell Seitz at ADAMANT, in a post titled "Great Caesars Dice! O Tempora, O Climatores!" had this to say (I lift it in toto):

Reading Yale Economist William Nordhaus' DICE 2007 Meta-Model makes one wonder : Doesn't anybody remember The Club of Rome report?

His acronym stands for Dynamic Integrated model of Climate & Economy. It reckons the Stern Report's proposal for deep CO2 cuts would cost $27 trillion in order to reduce future climate damage by $13 trillion. DICE deems Al Gore's proposal for a 60% cut by 2050 and a 90% by 2100 an even worse deal, costing $34 trillion to yield $12 trillion in benefits.

The Gore and Stern proposals imply carbon taxes rising to over $250 per ton by 2025, and to around $750 by 2050. This would double the price of coal-fired electricity and gasoline , and raise America's taxes by a trillion dollars a year. Nordhaus instead reckons an optimal policy to limit temperature rise to 1.5 degrees Celsius would impose a carbon tax of $34 per metric ton carbon in 2010, rising to $90 per ton in 2050, and $207 per ton in 2100.

Such an "optimal trajectory" would reduce climate change damage by $5.2 trillion at a cost of $2.2 trillion. he writes that "The net present-value global benefit of the optimal policy is $3.4 trillion relative to no controls...While this is a large number absolutely, it is a small fraction, about 0.17 percent, of the discounted value of total future income."

Greens hope doubling coal 's price will make wind and solar electricity competitive. But neither the development of infrastructure for energy storage enough to handle peak demand, nor carbon capture technology to deal with burning coal of necessity during clouds and calms figure in the DICE scenarios.

With reason--it is hard for any model to project the cost of technologies that do not yet exist.Where would Caesar be if the die he cast were lighter than air, and history suspended pending its landing?

His Club in Rome, perhaps, energetically reading reports on the Mideastern olive oil crisis? Or ordering sacrifices on the Ara Pacis to Jupiter Ops-Ed Maximus, to assure the triumph of legions dispatched to teach the pesky Parthians the benefits of Imperial Democracy ?

I find it refreshing that a Harvard Man can write such a civil piece on the efforts of a Yale Man.

I'm not sure if Mr.Seitz isn't Ops-Ed Maximus himself; considering all the times I've seen his name on the Editorial Page of the Wall Street Journal (Scroll down and down. Prolific or a meth. monster.)

If you're not up to Professor Nordhaus' entire effort at least look at the tables on pages 217 and 218.

And in case your weekend is too busy, or your interests lie elsewhere, could I interest Monsieur/Madame in a game of chance with a theoretically infinite payout?
The St. Petersburg Paradox:

In a game of chance, you pay a fixed fee to enter, and then a fair coin will be tossed repeatedly until a "tail" first appears, ending the game. The "pot" starts at 1 dollar and is doubled every time a "head" appears. You win whatever is in the pot after the game ends. Thus you win 1 dollar if a tail appears on the first toss, 2 dollars if on the second, 4 dollars if on the third, 8 dollars if on the fourth, etc. In short, you win 2k−1 dollars if the coin is tossed k times until the first tail appears.

How much would you be willing to pay to enter the game?

Have a great weekend everyone.