Saturday, October 17, 2009

Geoengineering and the Economics of Climate Change

Do we address threats ex-ante or ex-post? The anticipated access to ex-post remedies creates a moral hazard effect through lulling. A recent University of Chicago PHD thesis argued that we are getting fatter over time because we anticipate that if we get too fat we can (ex-post) have stomach surgery or other procedures to lose weight. Such technological optimism leads to less effort in the present for tackling hard social problems.

In the case of climate change, do we take ex-ante measures (i.e reduce greenhouse gas emissions to achieve 350 ppm to minimize Weitzman's nightmare scenarios) or do keep living the American Dream and when Carbon hits 800 ppm and bad Al Gore scenarios start to play out, we call in the geoengineers to scrub the planet with their science fiction approaches? If we believe ex-ante that such ex-post efforts will work, why be lean and mean today? This is what I mean by the moral hazard effect. Columbia's Scott Barrett has thought hard about the economics of geoengineering. Have the authors of Superfreakonomics spoken to him? Did they read this paper of his ?

I am a believer in holding a portfolio. We should simultaneously be enacting a carbon incentive and doing the basic research to prepare for geoengineering solutions. It would help policy makers to be more gutsy in making costly decisions if we do not view mitigation and geoengineering as perfect substitutes.

I am certainly a fan of questioning the "conventional wisdom". I will want to read the Superfreakonomics' Global Warming chapter when it is published later this month.

19 comments :

Ryan said...

Dr. Kahn,
I'm unclear about what you mean by "moral hazard" in this case. What you are describing seems to be a rational response to a rational analysis of one's lifetime budget set. (Are you just saying that expectations of technological developments are overoptimistic?) I'm just not clear what contract's spirit I am violating if (for instance) I choose to overeat.

DRDR said...

Or you can read it right now: http://delong.typepad.com/files/superfreakonomics-chapter-5.pdf

I assume Brad has the publishers' permission to post, because he has been corresponding directly with the authors this weekend.

DRDR said...

Bottom p. 197 & 198 address the concerns in the Barrett article, with regards to moral hazard and global governance.

"Wood and Myhrvold do worry that Budyko's Blanket might create new energy solutions, it would lure people into complacency. But blaming geoengineering for this is like blaming a heart surgeon for saving the life of someone who fails to exercise and eats to many french fries... One can also imagine the wars that might break out... A govt. that depends on how oil prices might like to crank up the sulfer.. others.. might be happier with longer growing seasons."

Josh said...

Ryan, the moral hazard comes from the claim that, for example, "one shouldn't overeat." Being a "should/ought" statement, this is an ethical (moral) claim.

However, you make an interesting logical point. If we are talking about ex-ante vs. ex-post solutions to a problem, then a priori the problem is a moral choice. Dr. Kahn is pointing out that the prevalence of a sufficient (or well-pitched) ex-post solution probably increases the likelihood of choosing the immoral method. However, if the ex-post solution is sufficient, then is the original choice to commit the act still immoral? I'd say yes, because: A) the variables between the act and the solution are too numerous, and B) the act, itself may be immoral due to externalities, which the ex-post solution may not address (in overeating, for example, overeating has a lot of greenhouse gas, food cost pressure, and other moral issues related to the act of overeating, and that liposuction can not fix).

Ryan said...

Josh,

I agree that it sounds as if Dr. Kahn was literally making a claim about morality. However, I didn't think he'd be using the term "moral hazard" to actually mean something about morality (as opposed to the economic problem of asymmetric information in a contract).

I also don't see how either eating or releasing greenhouse gases can be moral issues except in a consequential sense (and in particular consequences to others, which doesn't really make sense for overeating).

Josh said...

First, to address the economic concept, the etymology of the term applies to a morality, as does the application of the term in reality. Although economics has attempted to objectify the term, for good purposes, the term still illustrates an agent's disregard of a "should/ought" statement, thus making it a moral (as in, ethical) issue.

As for overeating, doing so drives up the price of food, simultaneously making the overeater less healthy while pricing out valuable nutrition for a poorer person, thus making her unhealthy, too. In addition, GHG's hurt others and oneself (the former being a reason for its morality, the latter a statement from self-preservation, arguably amoral). Gluttony is a moral issue.

As for morality & the "consequential sense", what moral issue is not morality due to consequences?

Ryan said...

Josh,

I wasn't really trying to argue semantics; my point in distinguishing between "morality" and "moral hazard as economic concept" is purely instrumental. I'm just trying to work out if what Dr. Kahn means is closer to the claim "stomach surgery and geoengineering may lead to gluttony, laziness, and production of more than [the moral amount of GHGs], and that will make you a bad person, which is bad for you" or "stomach surgery & geoengineering may lead to a problem analogous to people with 100% health insurance consuming health care whose marginal benefit is less than marginal cost, which is bad for the person providing the health insurance."

If he means the former, I'd be interested to hear more (though I would be confused as to how concepts like deontological morality or virtue ethics are applicable to a discussion of GHGs). If he means the latter, well, again I'm confused, because I don't see any violated contract and I don't see how an externality story works here. As I suggested before, if my expectations about future technology are reasonable, then yes, I may eat more, but that's because the real "cost" of eating declined and my eating more is optimal. You are right that if I eat more, I may raise the price of food. However, this is a pecuniary externality & pecuniary externalities aren't externalities. Similar reasoning seems to apply to geoengineering: the reason why we want to release fewer GHGs is because doing so has costs -- insofar as (expectations of) geoengineering reduce the (expected) cost, why shouldn't we emit more?

jack said...

Dr. Kahn is pointing out that the prevalence of a sufficient (or well-pitched) ex-post solution probably increases the likelihood of choosing the immoral method.
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Ryan said...

Thanks for clearing that up.

But how, in either of these particular cases, can a method be immoral? When we're talking about GW, it seems like the only possible evaluation can be teleological -- "immoral" can't really mean anything more than "less efficient". I think it's a giant mistake to confuse issues like this one with questions of personal virtue. Again, we don't want to avoid global warming because it makes us better people -- it's just because it's a problem. And if that idea that we should only pursue the "right" solution leads to less efficient, less effective solution, well, ... that can hardly be moral, can it?

Josh said...

You hit the nail on the head by equating "immoral" with "less efficient." That is often the moral bottom line of current economic thought, and it comes from classical utilitarianism. Notice how your comment ended.

Economic "problems" are problems because they are immoral. Why is famine a problem? We are trying to solve for scarcity precisely because of its effects on humans. It's okay to realize that the illusion of moral relativism is just that.

Now, I'm not saying I have the answers, but I do want economists to recognize the moral foundations of their study.

Ryan said...

I don't mean to take a general stance on utilitarianism vs non-consequentialist moral theories; I certainly don't mean to equate morality with efficiency (after all, I'm not a utilitarian). However, the space of all possible non-consequentialist moral theories is much larger than the space of sensible ones, and I'm really not seeing how a non-consequentialist approach to global warming makes a whole lot of sense. I mean, what really is the alternative in this particular case?

Josh said...

Ryan, who here has proposed a non-consequentialist approach? I think consequential moral approaches can be just fine most of the time, and especially in environmental impact cases.

I just wanted to point out the morality of the economic propositions. And yes, efficiency is a moral proposition, insomuch as it is couched in 'should' or 'ought' terms.

Pointing out the most efficient mode of action is not ethical, but claiming that it should be the action is ethical. Again, I have no problem with that; in fact, I think it's great!

Ryan said...

Okay, if we're all in a purely consequentialist framework, what's the consequentialist basis for saying that in these cases, expanding people's options (e.g., stomach surgery, geoengineering) is bad and leads to "the immoral method"?

Josh said...

Well, that's a good question. I really do believe that the market consequences to allow rich people to drive up food prices by overeating, which simultaneously increases medical costs through obesity-related disease (which happens somewhere between, "I'll take another burger" and "I'll take the stomach band") and malnutrition among very poor folks, are consequentialist reasons against encouraging overeating by offering an ex-post solution. The ex-ante solution is more market efficient, which, in the food market, means, "more people get to eat".

As for geoengineering, my first concern is from the precautionary principle, which is a consequentialist impact analysis. Dimming the Sun, and its subsequent effects on crop yield and rainfall patterns are huge unknowns. Second, we do know that there will be reductions in crop yields and dramatically shifting rainfall patterns. The potential consequences of rich people dimming the Sun because rich people screwed the planet will be borne by the poorest people, but also by people who were once richer, but will get much, much poorer, and this latter group is far more likely to cause WW III. Last, as Dr. Kahn points out, the only real way this will happen is if it's done unilaterally, which will also probably precipitate a large war.

The last time the Sun was dimmed in such a way to cause famine, there were some serious wars and raids that occurred.

Ryan said...

Those market consequences that you're talking about aren't really externalities, though, so they're not consequentialist concerns. (They're a mixture of pecuniary externalities [aka, "fake externalities"] and costs imposed on oneself [aka "internalities"].)

The precautionary principle doesn't really work here either. First, because it's not clear what it tells me -- maybe avoiding ambiguous costs means I should avoid use very expensive, growth-slowing solutions (thus possibly shutting off future innovation -- who knows?). Second because there are a lot of unknowns in solving GW, and the effect of changing albedos isn't the big one.

This is why to me it looks like the analysis isn't consequentialist -- it looks like we're trying to backwards engineer a consequentialist reason to want to avoid "the easy way out" or something along those lines.

Josh said...

You are right that the market consequences for obesity surgery aren't externalities, yet they are consequentialist ethical problems.

As for the geoengineering examples, those are externalities (third parties, for example, being farmers). The precautionary principle is merely putting the onus for 'no harm' onto the person proposing the new activity - namely, the geoengineers. 'No harm' may include both effects within the market, and externalities, which in this case are the overriding concerns.

I don't know what to say to a person who cannot see potential external consequences to cooling the entire Earth. If you believe that human-cause warming of the Earth is causing a number of externalities, then just consider cooling the whole planet as having the same potential. Farming is the most obvious impact, but there will be others, including, say, fuel costs for colder climes.

Ryan said...

I don't think I could disagree more strongly with regard to the ethics of obesity surgery. If you're claiming that you are a pure consequentialist, and you are admitting that we are discussing a purely private action without externalities, then you absolutely cannot turn around there can possibly be ethical problems. In fact, there is a strong ethical component ... to noninterference. Welfare maximization in this circumstance is identical to (and defined by) what the individual wants, so you have an ethical (consequentialist!) duty not to get in the way.

With regard to geoengineering, I can see how someone who didn't think much warming was occurring, or that it wouldn't inflict much damage would be especially averse to mechanisms for reversing those trends. I can also see how someone who was really skeptical of climate models per se would also be very skeptical of geoengineering. But if you think we definitely should spend gigantic sums of money and enormous resources and forgo huge gains in economic growth in order to abate carbon in the hopes of reducing temperatures, it's hard to see why another method for accomplishing the same goal should be anathema. Normally, I am very unimpressed with the precautionary principle -- it just seems like a nicer way to say "status quo bias." But in this case, it kind of looks like it's not even status quo bias. After all, we're already advocating huge changes to public policy (and in particular that the third world forgo huge economic gains and the associated known benefits).

Josh said...

First, I never said I was a purely consequentialist ethicist.

I granted that the obesity situation was not due to externalities, but that the consequences of overeating on the market price for food + obesity-related health problems were, in fact, consequences of overeating. Here:

1) Somebody overeats, thinking they can get surgery later. This does the following:
A) Raises the price of food out of reach of a poor person, causing them health problems, and
B) Damages the overeater's heart, also causing health problems.

A & B are consequences of 1, and they are ethical problems.

Trying to shoehorn some libertarian notions into this doesn't make A & B disappear as consequences. It would be better to just say that, though they exist as ethical consequences, they don't carry enough weight to justify interference.

As for the precautionary principle, it is close to 'status quo bias' but it is not the same thing. There are many chemicals currently in use that would have to be pulled if we were to practice the precautionary principle. So, don't oversimplify it.

As for geoengineering, the external consequence of country A dimming the entire planet on country B's ability to feed its population is very real, it is an externality (not related to the market mechanism of buying the rockets and doodads for planet-cooling), and it can/will probably lead to country B's attack on country A, in addition to famine-related deaths. All of these are ethical problems.

I do think that the countries who can afford to make the sacrifices should be making LARGE sacrifices, due to the MU of money as well as the ethical reasons behind requiring those who did the damage clean it up, and those who are capable of caring for others doing so, and those in power having a responsibility over protecting the powerless. All of these, even the MU of money argument, are ethical in nature.

It was cheap of you, Ryan, to try to lump me in with climate change deniers. That was rhetorical frustration showing, I'm sure.

Ryan said...

That libertarian principles might prescribe X or say that Y is true does not mean that so long as you aren't a libertarian, you shouldn't do X and you don't have to believe Y is true. None of my reasoning was based on libertarian ideals; it was based on taking the first fundamental welfare theorem seriously, and understanding that the exact same logic that argues for intervention when something is an externality argues against intervention when there isn't an externality or other market failure. In other words, once you admit that there aren't any market failures in a particular situation, you really do have to say that there aren't any consequences requiring intervention and that the decentralized outcome is in fact optimal. This actually literally means that there aren't bad (suboptimal given constraints) consequences. In fact, it means that "overeats" isn't even properly defined here -- you're trying to shoehorn some undefined deontological notions of what is the "ethical" amount of food into a consequentialist analysis. (No, it doesn't matter if you're not a pure consequentialist; we're discussing whether there are consequentialist reasons for saying we should ban stomach surgeries.) If the cost of food goes down, the optimal consumption goes up -- that's not libertarianism, it's just plain price theory. And no, this analysis isn't omitting the effect on the price of food (again, "pecuniary externalities" are already taken into account).

I didn't "lump [you] in with climate deniers". Quite the contrary: I don't see how what I said could make much sense if I was. I'm just saying that unlike climate change deniers, or people who believe in climate change but think that the costs of prevention exceed the PDV of benefits, it seems to me that you've already dispensed with all those other arguments. [Moreover, many possible geoengineering solutions (which I also want to point out may be complements to carbon reduction, not substitutes, since after all this might be a "superior good") reduce rather than increase the "irreversibility" problem. For instance, if we had a process allowing us to increase cloud formation every year and we were worried about "overshooting", we would simply stop producing those extra clouds.]

I should also say that MU of money arguments aren't really valid in this particular case. You could try to make an argument about MU of money to argue for large general transfers between groups, but this is entirely independent of global warming. (In fact, I would, from a purely tactical point of view, advise against trying to make such a link. An externality problem allows you to talk about mutually beneficial transactions. But if you try to use MU of money, then it just sounds like we're just trying to have an excuse for wealth transfers, and inefficient ones at that.)