In 1979, Nordhaus was one of the first professional economists to raise the issue of global warming. There was ‘widespread evidence’ that combustion of fossil fuels, in causing the build-up of atmospheric carbon dioxide, ‘will be the first man-made environmental problem of global significance’.[19] But the conclusions he drew were tentative and circumspect. Climatologists thought that a 0.6oC rise over the previous hundred years had led to major, but not catastrophic, results. Such temperature changes were ‘rather trivial’, according to Nordhaus. ‘Mean temperature changes of this size are not economically significant.’[20] He qualified his recommendation about the desirability of policies to slow down the consumption of fossil fuels as
deeply unsatisfactory, from both an empirical and a theoretical point of view. I am not certain that I have even judged the direction in the desired movement in carbon dioxide correctly, to say nothing of the absolute levels.[21]
Nordhaus also grappled with the problem of future time. In a 2007 paper, he challenged economists’ assumption that generations living many years from now would have the same tastes and preferences as people today, when they would be consuming goods and services largely unimagined in a vastly different world. Future generations might come to love the altered landscape of a warmer world. Perhaps, Nordhaus suggested, economists should incorporate uncertainty about future preferences, an approach that was ‘largely uncharted territory’ in economic growth theory.[22]
From the late 1980s, more economists became interested in global warming. In 1991, The Economic Journal carried a special issue on the subject. The American economist William Cline, a specialist in trade and capital flows, endorsed the science. ‘Overall, greenhouse science holds up well to scrutiny,’ Cline wrote. ‘Its logic and physics are compelling. Although warming to date is less than predicted, the shortfall is within the range of natural variability.’[23] The principal shortcoming in the scientific and policy debate, Cline thought, had been the failure to extend the time horizon of the analysis to two hundred and fifty to three hundred years. ‘For purposes of planetary management, a horizon of thirty-five years is woefully inadequate.’[24]
In his contribution, Nordhaus wrote that climate change was likely to produce a combination of gains and losses – ‘with no strong presumption of substantial net economic losses’.[25] This wasn’t an argument in favour of climate change or a laissez-faire attitude, but rather for a careful weighing of costs and damages ‘if we are to preserve our precious time and resources for the most important threats to our health and happiness’.[26]
The vast majority of economists expressing a view followed Cline in taking the consensus on the science as given and not to be questioned. As Nordhaus put it in a 2007 seminar, ‘We social scientists are downstream: we collect the debris from science as it comes by us, the good models, the bad models, the good studies and the bad studies.’[27] This attitude of uncritical acceptance came under sustained challenge in a series of papers and articles by David Henderson, the former OECD chief economist. Henderson argued that it was ‘unnecessary and imprudent’ for economists to arrive at such confident and sweeping conclusions.[28] There was ‘pervasive uncertainty’ and ‘sheer lack of knowledge’ in relation to the climate system. It was ‘misleading’ to speak in general terms of ‘the science’ in a way that suggested there were ‘no significant doubts, queries or gaps’.[29] A study of the contribution of Working Group I to the Fourth Assessment Report found that the terms ‘uncertain’ and ‘uncertainties’ appeared more than one thousand, three hundred times.[30]
As the rhetoric of alarmism ratcheted up in the first decade of the new century, Henderson criticised received opinion as ‘seriously over-presumptive’ characterised by a ‘lack of awareness of today’s prevailing over-statement, over-confidence, and ingrained bias’.[31] The IPCC assessment reports, Henderson cautioned, were far from being models of ‘rigour, inclusiveness, and impartiality’.[32] Economists were inadvertent in ignoring issues of professional conduct that had come to light over the Hockey Stick. The strong commitment to the official consensus led its upholders to react to any form of criticism or dissent as undermining established science, non-subscribers being portrayed as members of a ‘denial lobby’ and treated as Thought Criminals.[33]
Should economists, as Nordhaus suggested, simply take whatever natural scientists decided to float down the river or follow Henderson and, as he put it, exhibit the lack of credulity economists would deploy in analysing any other policy issue? Economists should be in a better position than others to make their own assessment of the science because much of it is about statistics and modelling.
To Australian economist Ross Garnaut, the answer was a no-brainer. ‘The outsider to climate science has no rational choice but to accept that, on a balance of probabilities, the mainstream science is right in pointing to high risks from unmitigated climate change,’ Garnaut wrote in his 2008 government review for the states and Commonwealth of Australia.[34]
Canadian economist Ross McKitrick is critical of the credulity of professional economists in accepting the claims of climate scientists when they are generally better trained and equipped in the handling of statistics. ‘The typical economist has way more training in data analysis than a typical climatologist,’ McKitrick told the author. ‘Once they start reading climate papers they start spotting errors all over the place.’[35]
In a 1939 review ‘Professor Tinbergen’s Method,’ Keynes wrote a scathing attack on the shortcomings of multiple correlation analysis to quantify the effect of a single factor. Suppose a model takes account of three factors. It is not enough, Keynes argued, that these should be causal factors: ‘There must be no other significant factor.’ If there were ‘then the method is not able to discover the relative quantitative importance of the first three’.[36] For carbon dioxide to be the only possible explanation for heightened global temperatures, as a matter of logic, scientists must first be able to quantify every single feature of the changing climate. Yet large-scale changes in the climate, such as the causes and timing of ice ages, are still not well understood.
Economics should be central to deciding what, if anything, to do about global warming. Yet only the US had conducted an economic appraisal ahead of the Rio Earth Summit. No official economic analysis had preceded the Kyoto Protocol – a conceptual disaster, according to Nordhaus, lacking political, economic, or environmental coherence.[37] Instead, the policy debate was framed as a binary question: Is global warming happening? Scientists tell us it is, so we must do something. That ‘something’ – attempting to return the developed world to the emissions level at the beginning of the 1990s – was about symbolism, not economic rationality.
Not until 2005 did any national body outside the US begin to consider the economic dimension. Early that year, the House of Lords Economic Affairs Select Committee held hearings on the economics of climate change. The committee included two former Conservative chancellors (Nigel Lawson and Norman Lamont), a former governor of the Bank of England (Robin Leigh-Pemberton) and economist and Labour peer Richard Layard.
When they cross-examined a senior Treasury official, it emerged that the Treasury had not conducted any appraisal of the economic costs and benefits of global warming to the British economy.[38] Earlier, American economist Robert Mendelsohn had told the committee that global warming would be beneficial for regions such as the UK that were ‘too cold’.[39]
Neither had the Treasury conducted an economic appraisal of the costs of meeting the UK’s target for a sixty per cent cut in carbon dioxide emissions by 2050. ‘The target was quite consciously introduced over a very long period because we understand the costs of making these changes are much smaller if they are planned over substantial periods of time,’ Paul Johnson, the Treasury’s chief micro-economist, said.[40] It had left the economic analysis to the IPCC, with some input from Defra. Lawson expressed astonishment. ‘In my time at the Treasury as Ch
ancellor it would have been unthinkable for the Treasury not to spend quite a lot of time on a serious economic analysis of an issue as important as this.’[41]
The committee’s chairman Lord Wakeham, a former Conservative energy secretary, was determined to get a united report and restricted discussion on the science to avoid splitting the cross-party committee. Wakeham was dismayed by what he saw of the IPCC, a ‘magic circle’ creating certainties out of massive uncertainties. ‘Wickedly bad’ was his verdict on the IPCC’s process, an institution he thought intent on its self-perpetuation.[42]
It was evident to the committee that the IPCC was prone to deep-seated politicisation. In his evidence, environmental economist Richard Tol of the University of Hamburg said that, although he had been involved in the Third Assessment Report, he had not been nominated by the German government to work on the Fourth. German government policy meant only those with close connections to the Greens would be nominated to Working Groups II (on the impacts of climate change) and III (on policy responses). ‘Things have become more and more politicised,’ Tol observed.[43]
In its report published at the beginning of July 2005, the committee criticised the Blair government’s lack of candour. The costs of its decarbonisation policies were ‘unhelpfully vague’. Its claim that costs prior to 2020 were ‘negligible’ was ‘wildly optimistic’.[44] It called on the Treasury to be ‘more active’, concluding that unless it was ‘we do not see how the Government can argue that it has adequately appraised its long-term climate targets in terms of likely costs and benefits’.[45]
* It is not possible to verify whether the global temperature anomaly now is higher or lower than it was one hundredth of a second before. By contrast, the velocity of a moving object can be determined now, a concept that defeated the ancient Greeks but was solved by Galileo.
[1] A.N. Whitehead, Concept of Nature (1971), p. 54.
[2] Damian Carrington, ‘IPCC officials admit mistake over melting Himalayan glaciers’ in the Guardian, 20th January 2010.
[3] C.A.E. Goodhart, Money, Information and Uncertainty (1989), p. 1.
[4] ibid., p. 2.
[5] Wen Jiabao, ‘Strengthen Confidence and Work Together for a New Round of World Economic Growth’ 28th January 2009 http://english.sina.com/china/2009/0128/214624.html
[6] Joseph A. Schumpeter, History of Economic Analysis (1994), p. 53.
[7] ibid., p. 42.
[8] Nathan Keyfitz, Kenneth Ewart Boulding (1996), p. 7.
[9] Kenneth E. Boulding ‘The Economics of the coming Spaceship Earth’ in Henry Jarrett (ed.), Environmental Quality in a Growing Economy – Essays from the Sixth RFF Forum (1966), p. 9.
[10] ibid., pp. 12–13.
[11] ibid., p. 10.
[12] ibid., pp. 11–12.
[13] ibid., p. 12.
[14] ibid.
[15] ibid.
[16] Yale Center for the Study of Globalization, Yale Symposium on the Stern Review (2007), http://www.ycsg.yale.edu/climate/forms/FullText.pdf, p. 112.
[17] William D. Nordhaus, ‘World Dynamics: Measurement without Data’ in The Economic Journal, Vol. 83 332 (1973), p. 1183.
[18] ibid.
[19] William D. Nordhaus, The Efficient Use of Energy Resources (1979), pp. xviii–xix.
[20] Nordhaus, The Efficient Use of Energy Resources (1979), p. 131.
[21] ibid., p. 142.
[22] William D. Nordhaus, The Stern Review on the Economics of Climate Change (2007), http://nordhaus.econ.yale.edu/stern_050307.pdf, p. 19.
[23] William Cline, ‘Scientific Basis for the Greenhouse Effect’ in The Economic Journal, Vol. 101 407 (1991), p. 913.
[24] ibid.
[25] William D. Nordhaus, ‘To Slow or not to Slow: The Economics of the Greenhouse Effect’ in The Economic Journal, Vol. 101 407 (1991), p. 933.
[26] ibid.
[27] Yale Symposium on the Stern Review (2007), p. 131.
[28] David Henderson, ‘Economists and Climate Science: A Critique’ in World Economics, Vol. 10, No. 1 (2009), p. 66.
[29] ibid., p. 67.
[30] ibid.
[31] Martin Weitzman, ‘On Modelling and Interpreting the Economics of Catastrophic Climate Change’ in The Review of Economics and Statistics, Vol. XCI, No. 1 (2009), p. 5.
[32] David Henderson, ‘Climate Science, Economics, and Policy’ in AIER Economic Bulletin, Vol. XLIX (June 2009), p. 5.
[33] ibid., p. 6.
[34] Ross Garnaut, The Garnaut Climate Change Review (2008), p. xvii.
[35] Ross McKitrick email to author, 26th October 2011.
[36] J.M. Keynes, ‘Professor Tinbergen’s Method’ in The Economic Journal 49 (September 1939), p. 560.
[37] Yale Symposium on the Stern Review, (2007), pp. 131–2.
[38] House of Lords Select Committee on Economic Affairs, The Economics of Climate Change (2005), Vol. II, Q 357.
[39] The Economics of Climate Change (2005), Vol. II, p. 266.
[40] ibid., Vol. II, Q 352.
[41] ibid., Vol. II, Q 358.
[42] John Wakeham interview with author, 7th June 2011.
[43] House of Lords Select Committee on Economic Affairs, The Economics of Climate Change (2005), Vol. II, Q 226.
[44] ibid., Vol. I, para 86.
[45] ibid., Vol. I, para 94.
25
Turning Up The Heat
If we don’t act, the overall costs and risks of climate change will be equivalent to losing at least five per cent of global GDP each year, now and forever.
Nicholas Stern[1]
Forecasts tell you little about the future but a lot about the forecaster.
Warren Buffett
Be careful what you wish for.
Two weeks after the Lords committee reported, Chancellor Gordon Brown announced that Sir Nicholas Stern would lead a major review on the economics of climate change.
Stern had been appointed to the Treasury to head the Government Economic Service in 2003. He had come to Treasury with very fixed ideas about taxation, but Brown wasn’t interested. He had enjoyed relatively short spells at his previous employers, the World Bank and the European Bank for Reconstruction and Development. He didn’t seem to have much else to offer and was shunted off to work on Tony Blair’s Africa Initiative.
Global warming was Stern’s lucky number. Other economists had thought longer and harder about the economics of global warming; none would rival Stern’s public impact or attain his status as a global warming guru. Stern’s academic background was in development economics. His advocacy of more aid flows and central planning brought him into conflict with the free-market economist Peter Bauer. ‘Preoccupation with the analysis of market failure and the theory of corrective intervention is a notable feature of development economics,’ Bauer wrote in a 1984 riposte to Stern.[2]
To these was added certainty about the science of global warming. Asked in 2009 about the possibility that ‘the science’ might be wrong – ten years into a period of no statistical rise in observed global temperatures – Stern answered, ‘It’s very, very remote.’ Less than one in a hundred? ‘Oh, much, much less.’[3]
Nonetheless Stern’s grasp of the science was poor. In the same interview, Stern stated that the greenhouse effect could be observed experimentally in greenhouses – ‘and most people have observed the greenhouse effect themselves in greenhouses. Yes?’[4] No. In a greenhouse, rising warm air is prevented by glass from escaping – a co
nvection effect. The physics of the atmospheric (so-called) greenhouse effect are entirely different: the absorption by water and carbon dioxide molecules of long-wave radiation from the Earth’s surface – a radiation effect.*
In arguing that humans could not adapt to a warmer world, Stern asserted that the risk was of a rise in temperature greater than any since the end of the last ice age ‘ten or twelve million years ago’.[5] In fact, the last glaciation ended, and the current inter-glacial began, around eleven thousand, five hundred years ago. (The oldest Palaeolithic cave paintings in central and southern France are thought to date back twenty-three thousand years ago.)*
Science – or ‘The Science’ – was the occasion of Stern’s first skirmish with fellow economists. Henderson assembled a team that included two members of the Lords Economic Affairs Committee (Nigel Lawson and Robert Skidelsky), McKitrick and five other economists. Stern had made a ‘premature and injudicious choice’ in basing the review on ‘an unbalanced and technically defective account of ‘the science’, they wrote.[6] His use of the Hockey Stick created a misleading impression of a dramatic departure from a stable thousand-year norm. ‘By taking as given hypotheses that remain uncertain, assertions that are debatable or mistaken, and processes of inquiry that are at fault, the Review has put itself on a path that can lead to no useful outcome,’ Henderson and his colleagues argued.[7]
The Age of Global Warming: A History Page 40