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Taking on Stern


I’ve previously pointed readers toward the excellent article series by Lawrence Solomon entitled “The Deniers” and I’ve taken the liberty of copying and pasting the latest column below. You really should take a few minutes and read it.
The article is the 23rd in the series, each of which profiles a top highly-credentialed scientist who has doubts about the conventional wisdom about global warming and the role of human-related greenhouse gases. The title of the series is deliberately ironic, an off-hand reference to the tendency of “true believers” to dismiss skeptics as “deniers” (along the lines of Holocaust deniers).
One of the things that makes these articles so damaging to propagandists for extreme climate change scenarios is the credibility of the author. I’ve known Larry for quite some time, and wrote several articles for his now-defunct The Next City magazine, where I found him to be a demanding editor and a very rigorous thinker. Larry is that rare creature — an environmentalist who also believes in free markets and recognizes the downside of many well-intentioned government programs. He’s what I think of as a “next generation” environmentalist (i.e., Al Gore is the past generation, and his approach is out of date). The brilliance of these columns is that the author is not just a skeptical crank (like me!) adding to the litany of “for and against” diatribes. Instead, he’s carefully reporting the facts from eminent scientists to defend the notion that the science isn’t “settled” on climate change, despite what the United Nations Intergovernmental Panel on Climate Change (IPCC) would have you believe.
As an aside, Larry does his work under the auspices of a philanthropic entity entitled the Urban Renaissance Institute, which describes itself as “dedicated to helping cities and their regions flourish by removing the many impediments to their proper functioning.” It’s a division of Energy Probe, and you can read all of Solomon’s writings at its website here:
http://www.urban-renaissance.org/urbanren/index.cfm
Sometimes I wish I could clone myself in order to create the time to research and write about different things that interest or move me. From time to time I encounter writers for whom I’m thankful in that regard, in that they sort of “cover off” an area that I think deserves attention, in a similar way to which I would do it, if I had the time. “The Deniers” fits that category very nicely and I’ve now taken to simply directing folks to these articles rather than debate them on some of the fine details of climate change.
This article takes on Sir Nicholas Stern, who’s report calls for dramatic action now to prevent economic disruption from climate change. The article below presents a highly lucid refutation of this idea, and mentions that Stern relied on improbable and inflated worst-case scenarios to concoct the need for his drastic solutions. I agree completely with the last paragraph of this article. Enjoy.
THE DENIERS — PA R T XXIII
Discounting logic

LAWRENCE SOLOMON
Financial Post
LawrenceSolomon@nextcity.com
If you’re the type of person who sets aside money today for the university education of your great-great-great grandchildren, even if it means that you may not be able to afford university tuition for your own children, you may think it sensible for society to invest now in major measures to stop global warming.
If you’re not this type — and who in his right mind is — you should forget about Kyoto-like greenhouse-gas reduction targets and the crash programs that would be required to meet them. Doing so would not only be economically prudent, it would be — by almost any measure — the ethical thing to do.
So argues celebrated economist William Nordhaus, author of pathbreaking books and studies on global warming, and generally considered the most authoritative economist in the climate change field. His verdict on global warming alarmism, as exemplified by the UK’s Stern review, which demanded drastic measures now to avert climate change calamity later: “Completely absurd.”
The Stern review, released last year to banner headlines, argues that the cost of inaction greatly exceeds the cost of action. It has been much criticized for its selective use of data — Sir Nicholas Stern piles one worst-case scenario upon another to arrive at his fantastical costs, and Dr. Nordhaus is among those who note this failing. In fact, Sir Nicholas uses Nordhaus as a source for global-warming costs that could present themselves well after the year 2100, although Nordhaus characterized that data as particularly unreliable.
But a series of unreliable, worst-case scenarios centuries off, by themselves, still would not warrant the extreme greenhousegas prevention investments that the Stern review recommends. To make an economic case for immediate action, Sir Nicholas adjusted his model to have us paying now for potential damage that could be happening hundreds of years from now.
Sir Nicholas estimates the potential costs of climate change to be so great as to force on us a “20% cut in per-capita consumption, now and forever.” Yet his data showed low damages from climate change in the next two centuries. To overcome his data, he applied to his model what economists call a “near-zero social discount rate.” Doing so brings forward future expenses — in the Stern review’s case, expenses that might occur in the 23rd and 24th centuries. The Stern review then presents us with a tab that includes these far-out costs, and the invoice is eye-popping indeed.
But the Stern review approach defies logic, as Dr. Nordhaus illustrates by demonstrating just where zero social-discount-rate thinking leads. “Suppose that scientists discover that a wrinkle in the climatic system will cause damages equal to 0.01% of output starting in 2200 and continuing at that rate thereafter,” he explains. “How large a onetime investment would be justified today to remove the wrinkle starting after two centuries? The answer is that a payment of 15% of world consumption today (approximately US$7-trillion) would pass the review’s costbenefit test. This seems completely absurd. The bizarre result arises because the value of the future consumption stream is so high with near-zero discounting that we would trade off a large fraction of today’s income to increase a far-future income stream by a very tiny fraction.”
Moreover, who should be asked to forgo that consumption? It hardly seems fair to keep back poor countries, yet, if paid by the rich countries alone, the decline would far exceed that of the Great Depression.
Some climate-change alarmists argue that we should invest in combating climate change now as an insurance policy against the risk of future damage. Sounds prudent, until you consider the premium to be paid.
“Suppose that we suddenly learn that there is a 10% probability of the wrinkle in the climatic system that reduces the post2200 income stream by 0.01%,” Dr. Nordhaus explains, again to illustrate the Stern review’s logic. “What insurance premium would be justified today to reduce that probability to zero? With conventional discount rates, we would probably ignore any tiny wrinkle two or three centuries ahead. If we did a careful calculation using conventional discount rates, we would calculate a break-even 0.0002% insurance premium to remove the year 2200 contingency, and a 0.0000003% premium for the year-2400 contingency. Moreover, these dollar premiums are small whether the probability is large or small.
“With the review’s near-zero discount rate, offsetting the low-probability wrinkle would be worth an insurance premium today of almost 2% of current income, or $1-trillion. We would pay almost the same amount if that threshold were to be crossed in 2400 rather than in 2200.”
Dr. Nordhaus’s conclusion about such scares: “We are in effect forced to make current decisions about highly uncertain events in the distant future, even though these estimates are highly speculative and are almost sure to be refined over the coming decades.”
Dr. Nordhaus discounts climate-change alarmism, but not climate change itself. He advocates research to better understand its consequences and to develop more efficient technologies. He advocates the elimination of subsidies that artificially increase greenhouse-gas emissions, and other “no-regrets” measures that would benefit the environment without harming the economy. The costs of climate change are real, he believes, and society should act. But not overreact.
SIDEBAR: CV OF A DENIER
William Nordhaus is the Sterling Professor of Economics at Yale University. He is the co-author with Nobel Laureate Paul Samuelson of Economics, the classic textbook, now in its 18th edition. He is a member of the National Academy of Sciences and a Fellow of the American Academy of Arts and Sciences. From 1977 to 1979, he served Jimmy Carter as a member of the President’s Council of Economic Advisers. He serves on the Congressional Budget Office Panel of Economic Experts and is chairman of the advisory committee for the Bureau of Economic Analysis. He received his PhD in economics in 1967 from the Massachusetts Institute of Technology.


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