Physicist Freeman Dyson takes a look at two books
[*1] considering the economic effects of climate change:
Nordhaus examines five kinds of global-warming policy, with many runs of DICE for each kind. The first kind is business-as-usual, with no restriction of carbon dioxide emissions—in which case, he estimates damages to the environment amounting to some $23 trillion in current dollars by the year 2100. The second kind is the “optimal policy,” judged by Nordhaus to be the most cost-effective, with a worldwide tax on carbon emissions adjusted each year to give the maximum aggregate economic gain as calculated by DICE. The third kind is the Kyoto Protocol, in operation since 2005 with 175 participating countries, imposing fixed limits to the emissions of economically developed countries only. Nordhaus tests various versions of the Kyoto Protocol, with or without the participation of the United States.
The fourth kind of policy is labeled “ambitious” proposals, with two versions which Nordhaus calls “Stern” and “Gore.” “Stern” is the policy advocated by Sir Nicholas Stern in the Stern Review, an economic analysis of global-warming policy sponsored by the British government.[*][*2] “Stern” imposes draconian limits on emissions, similar to the Kyoto limits but much stronger. “Gore” is a policy advocated by Al Gore, with emissions reduced drastically but gradually, the reductions reaching 90 percent of current levels before the year 2050. The fifth and last kind is called “low-cost backstop,” a policy based on a hypothetical low-cost technology for removing carbon dioxide from the atmosphere, or for producing energy without carbon dioxide emission, assuming that such a technology will become available at some specified future date. According to Nordhaus, this technology might include “low-cost solar power, geothermal energy, some nonintrusive climatic engineering, or genetically engineered carbon-eating trees.”
. . .
Here are the net values of the various policies as calculated by the DICE model. The values are calculated as differences from the business-as-usual model, without any emission controls. A plus value means that the policy is better than business-as-usual, with the reduction of damage due to climate change exceeding the cost of controls. A minus value means that the policy is worse than business-as-usual, with costs exceeding the reduction of damage. The unit of value is $1 trillion, and the values are specified to the nearest trillion. The net value of the optimal program, a global carbon tax increasing gradually with time, is plus three—that is, a benefit of some $3 trillion. The Kyoto Protocol has a value of plus one with US participation, zero without US participation. The “Stern” policy has a value of minus fifteen, the “Gore” policy minus twenty-one, and “low-cost backstop” plus seventeen.
Taking no position on the correctness (or lack thereof) of the underlying climate science, and accepting the Nordhaus economic analysis, it sure looks to me like the best policy going forward is:
1. Institute a worldwide tax on carbon, which increases as time goes on, and
2. Use the proceeds from that tax to research alternative energy and carbon sequestration technologies.
Of course, given the history of taxation and simple human nature, what are the chances of the proceeds of #1 actually going towards #2, especially outside the developed world? Personally, I’d put the chance at vanishingly close to zero. Still, even though I am skeptical of the underlying climate science, it seems to me to be a reasonable policy to begin to wean ourselves from dependence on hydrocarbons for energy production, with fusion power being the holy grail there.
Having said that, the global correction in the price of oil we are currently undergoing is having the economic effect of #1–it is effectively (in an economic sense) a tax on the use of carbon. As such, you would think that the climate change advocates would be loudly saying that the skyrocketing cost of oil is a good thing. Perhaps they are, and I’ve been missing it.