Gernot Wagner: Climate 411

Bjørn Lomborg reviewed my book, Climate Shock (Princeton University Press, 2015), joint with Harvard’s Martin L. Weitzman, for Barron’s over the weekend. He started it by stating that “global warming is real.” So far, so good. But the book is not about whether the climate is changing. It is. The book is about whether we are getting the order of magnitude of […]

By Gernot Wagner and Martin Weitzman Each ton of carbon dioxide emitted into the atmosphere today causes about $40 worth of damages. So at least says standard economic thinking. A lot goes into calculating that number. You might call it the mother of all benefit-cost analyses. It’s bean-counting on a global scale, extending out decades […]

(This blog originally appeared on EDF Voices) Looks like the simmering “climate swerve” may come to a boil on September 21 in New York City for what’s billed as the People’s Climate March. Bill McKibben called for it in the Rolling Stone magazine. Tens of thousands are slated to respond to his call, ostensibly to channel […]

Receding beach on North Carolina’s Outer Banks. Source: FEMA/Tim Burkitt (This blog originally appeared on EDF Voices) This blog post was co-authored by Jonathan Camuzeaux. Put Republican Hank Paulson, Independent Mike Bloomberg, and Democrat Tom Steyer together, and out comes one of the more unusual – and unusually impactful – climate reports. This year alone has […]

(This post originally appeared on ensia.com)  Economics is largely just organized common sense, and it doesn’t get much more common sense than benefit-cost analysis. Want to decide whether to buy that apple, make that investment or pass that clean air rule? Tally up the benefits. Tally up the costs. If benefits outweigh costs, do it. Although […]

This open letter, co-authored by Jeremy Proville and first published on EDF Voices, was written in response to a New York Times article citing Dr. Roger Bezdek’s report on “The Social Costs of Carbon? No, The Social Benefits of Carbon.” Dear Dr. Bezdek, After seeing so many peer-reviewed studies documenting the costs of carbon pollution, it’s refreshing to encounter some out-of-the-box thinking to […]

(This post originally appeared on Forbes) By Bob Litterman and Gernot Wagner Whenever the conversation turns to climate change, someone is sure to opine that there’s no silver bullet. The issue is simply too complex to have one solution. When you focus on all the changes that need to occur to reduce greenhouse gas emissions […]

(This post originally appeared on EDF Voices) Tell someone you are a “climate economist,” and the first thing you hear after the slightly puzzled looks subside is, “How much?” Show me the money: “How much is climate change really costing us?” Here it is: at least $40. That, of course, isn’t the total cost, which […]

A nine-minute video, released earlier this fall, argues that climate mitigation is 50 times more expensive than adaptation. The claims are based on calculations done by Christopher Monckton. We analyzed the accompanying “sources and maths” document. In short, the author shows a disconcerting lack of understanding of climate science and economics: Fundamental misunderstanding of basic […]

How serious is global warming? Here’s one indication: the first rogue entrepreneurs have begun testing the waters on geoengineering, as Naomi Klein laments in her must-read New York Times op-ed. Sadly, Klein misses two important points. First, it’s not a question of if but when humanity will be compelled to use geoengineering, unless we change […]

By Gernot Wagner

There should no longer be any doubt. Climate change is here, and it is happening. 26,000 broken heat records this summer speak for themselves.

Extreme weather events hit home. Another consequence of climate change, by contrast – rising sea levels – often seems far away and far off.

“Far away” is easily dismissed. U.S. coasts are as much in danger as sea shores anywhere else on the planet.

"Far off” often seems tougher to address. After all, seas have only risen by inches so far. Projections say we could see three or more feet by the end of the century.

Even right now, though, we’re seeing the evidence of sea level rise. Antarctic ice sheets have been melting to the tune of 24 cubic miles of melt water per year, every year, since 2002.

That is a huge number, but a fairly abstract number. So The Globalist designed a quiz to make the giant quantity feel a bit more real. EDF was honored to help with the research for the quiz.

See if you can answer the question:

If you were to take the melt-off from Antarctica's ice sheets over the past decade (2002 to 2012) and pour it into a California-sized Jell-O mold, how high would the water rise?

The right answer might surprise you. Hint: Think Paul Sturgess, the world's tallest professional basketball player.

And check out The Globalist quiz for more details.

By Gernot Wagner

Why are we so "gung-ho" about cap and trade? The term might be banned from Washington and much of our vocabulary at the moment, but it's still far from a trick question.

Call them what you want, environmental markets are fundamentally the most scientifically sound, economically efficient, and often the only way forward.

No wonder countries the world over are adopting or planning to adopt them.

We are starting a new blog specifically focused on market forces and why re-guiding them is the only solution to many of our environmental problems.

Individual volunteerism won't do. Blocking market forces won't do. Subscribing to the new blog won't make the world a better place all by itself either, but it probably doesn't hurt.

By Gernot Wagner

Edward L. Glaeser makes the case for simplicity in addressing climate change. I couldn’t agree more with his premise. The basic economics are indeed simple. Climate change might be the largest market failure the world has ever seen. To correct it, put the right incentives in place: correct the fact that we currently treat the atmosphere as a free sewer for our global warming pollution. Problem solved.

The how and especially the politics are not quite as straight-forward. Glaeser bemoans that the proposed American Power Act has 987 pages and identifies three culprits: that the Act tries to do more than just put a price on carbon, that it uses a cap-and-trade system rather than a tax, and that the problem has an important international dimension. He is broadly right on one and three but not on two: the issue of a cap versus a tax.

A firm limit on global warming pollution does not make the law more complicated. It makes it better.

First, a cap sets a firm upper limit on pollution. Glaeser acknowledges as much by saying that “fixing the number of permits may actually be the right thing to do.” It is.

Second, it’s politics, stupid. There is a good reason why the U.S. tax code has 17,000 pages. Proposing a tax on paper is simple. Getting it through the political process is a different matter altogether. Most significantly, every tax credit, every exemption means an increase in pollution. That’s not the case with a cap. While politics does what politics does best—worry about the allocation of allowances—the upper pollution limit stands.

Third, and contrary to what is sometimes argued by tax advocates, a cap creates a more stable policy environment. Certainty is the sine qua non for energy policy.  While it is true that a cap and trade program can introduce short-term variability into the carbon price, that is unlikely to matter for investments in energy infrastructure.  What matters is certainty over the long run. Capital-intensive investment decisions take years if not decades to pay for themselves (think about a new electric power station).

A well designed cap—especially one with a price floor, which this Act would include—creates this kind of certainty, by guaranteeing that emissions must go down and, therefore, that emissions reductions will have value. A tax is easily revoked, altered, or put "on holiday." A cap has durability. And even if it does have to be amended, market foresight will allow smooth transitions, much more so than a tax would.

Fourth is the international dimension, Glaeser’s last point. A cap makes international coordination easier. It also creates incentives for developing countries to cap their own emissions, in order to gain from selling allowances into a U.S. market and create win-win-win situations for themselves, U.S. companies and consumers, and the atmosphere.

All four of these reasons also appear in America’s Climate Choices, a terrific new study just released by the National Academy of Sciences. It provides the scientific closing argument for the debate unfolding in the Senate. The science is compelling, the urgency to act is clear, and the main solution is equally apparent: put a price on global warming pollution, ideally through a firm, declining cap on emissions.

By Gernot Wagner

A Practical Guide To A Prosperous, Low Carbon Europe is the latest McKinsey study to show how it is eminently affordable to achieve the transition to a low-carbon world. The headline on a post by Financial Times climate über-scribe Fiona Harvey puts it best: “Europe’s energy in 2050: Cutting CO2 by 80% no more expensive than business as usual.”

How is that possible?

Initial capital expenditures are higher for renewable energy but operational cost savings along the way make up the difference. It’s the gift that keeps on giving.

To be sure, there are some very clear obstacles. The old economists’ mantra applies here as well: if it’s so cheap, why aren’t we doing it already? Well, we ought to be. The obstacles are largely political, driven by vested interests. If you are just now building a new coal plant and haven’t put much thought into carbon capture and storage technology, you may be less inclined to cheer than your neighbor investing in wind and solar.

McKinsey isn’t saying that everyone wins in this new world. The ones who see the future and act accordingly do. Most importantly, society and the planet win as well.

By Gernot Wagner

This week, Joe Stiglitz and Nick Stern published an opinion piece in the Financial Times titled "Obama's Chance to Lead the Green Recovery". They call for a "stable, strong" price for carbon, but do not say how that price should be set. I just posted a response in the FT's Economists' Forum. Here's how it begins:

Joe Stiglitz and Nick Stern are exactly right to emphasize the role President Barack Obama can play in leading the green recovery. They are also right to calling for a “stable, strong carbon price.” But it matters how that price is set. In the United States in particular, the right environmental, political and economic answer is a cap-and-trade system.

Take a look at the whole conversation. I also provided some more detail on the greenness of economic stimuli over at the Environmental Economics blog. Spoiler alert: China's trumps the United States' package 2:1.