Thursday, November 05, 2009

Some Thoughts on the Superfreakonomics Carbon Controversy

I just took the superfreakonomics global warming quiz and as usual scored a B+. Steve says that carbon mitigation will cost us a $1 trillion dollars a year. He is well aware that there is a confidence interval around that number but let's think about that number.

There are 7 billion people on the planet. I believe in equal pay for equal work so let's share that equally so 1000/7 = $142 per person per year. President Obama has reminded us that a postage stamp costs .42 dollars. Suppose each person in the world gave up one of these precious stamps each day = 365*.42 = $153. So , a few lucky people could even keep their stamp rather than giving it to Al Gore.

Point #1: My first point is a shout out to my liberal/green friends --- while the aggregate price tag looks nasty --- this is a big planet --- when we place costs in per-capita terms --- this doesn't look serious relative to bigger bills like paying for health care reform.

Point #2: Where did this $1 trillion dollar number come from? Does Steve believe in Computable General Equilibrium models where not a single parameter in the model is estimated using micro data and modern applied econometrics techniques? I doubt it.

We must be honest about what we know and what we don't know in the case of mitigating greenhouse gas emissions. As folks know, I have talked about this knowledge gap before in the context of figuring out the true costs of California's AB 32 regulation.

The CBO has come out with its report on its predictions concerning the costs of the June 2009 ACES Waxman/Markey Bill. They did not look large to me but I also do not fully understand how they did their analysis.

Economists are not doing a great job here providing a sophisticated analysis or explanation of how in the heck we generate these numbers that the naive public takes as "the truth".


Point #3: Geoengineering options should certainly be explored but the likely lulling effect it will cause ---that voters will rebel against carbon mitigation because they will anticipate that ex-post geo-engineering will save us --- should not be discounted.

Ex-Post insurance does create ex-ante risk taking --- every Chicago economist will agree on this point!

I have now read Ken Caldeira's 2007 PNAS paper and he recognizes the challenge of the "lull". Here is a direct quote from the Master.

"It is equally critical that
efforts to mitigate greenhouse gas emissions do not become
hampered or slowed by the specter of false certainty in our ability
to geoengineer the climate change problem away."

http://dge.stanford.edu/labs/caldeiralab/Caldeira_research/pdf/Matthews_Caldeira_PNAS2007smaller.pdf

1 comment :

Ryan said...

Dr. Kahn,
I'm still having trouble understanding why you are phrasing this in terms of insurance. Someone who invents a new technology is not creating an insurance contract with past people and so there is no applicable "moral hazard" concept. It seems to me that it's more like the intertermporal budget constraint is shifting outwards. If this happens, then the optimal allocation really is to take advantage of the likelihood of future technology.