Robert Pindyck on Climate Change
Aug 5 2013

Robert Pindyck of MIT talks with EconTalk host Russ Roberts about the challenges of global warming for policy makers. Pindyck argues that while there is little doubt about the existence of human-caused global warming via carbon emissions, there is a great deal of doubt about the size of the effects on temperature and the size of the economic impact of warmer climate. This leads to a dilemma for policy-makers over how to proceed. Pindyck suggests that a tax or some form of carbon emission reduction is a good idea as a precautionary measure, despite the uncertainty.

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Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Aug 5 2013 at 7:39am

Great Episode. Well worth hanging back at work for so I could listen on the drive home. Can’t speak for the economists out there but as an engineer I was happy with the balance of scientific and economic emphasis.
Keep up the good work.
Matt from Perth (Aus)

Aug 5 2013 at 8:33am

I enjoyed the podcast, but I have a few questions regarding the guest’s views on what we ‘know,’ at this stage, about global warming:

1) Pindyck claims we know that greenhouse gas emissions will increase over the next century, as economies grow and develop. Do we really know this with certainty? It’s not completely unthinkable that viable alternatives to burning fossil fuels could be developed in the next century; look at how scientific development has progressed over the last 100 years for a flavour of how much things can change over these time scales. Should we completely discount this possibility? Emissions continuing to grow might be the most likely scenario, but I would argue there is some uncertainty around that central scenario, and failing to take into account the possibility of reduced reliance on fossil fuels in future may result in an upwardly biased estimate of future GHG emissions, which could plausibly affect any policy analysis that uses assumptions like future GHG emissions. Pindyck seems to acknowledge the decreasing reliance on oil in the developed economies over the past few decades when considering the effect of carbon taxes on inflation (later in the podcast), but shouldn’t this consideration also feed into the projections made for the amount of GHG in the atmosphere in the future?

2) The second contentious claim (in my view, of course) of certainty is in the statement that global temperature increases resulting from increased GHG emissions is ‘not a good thing.’ Of course some areas will be adversely affected by rising temperatures, but it is equally likely that other regions will benefit from temperature rises, e.g. the opening up of new shipping lanes in the Arctic, improved agricultural conditions in various other regions. Have there been studies conducted that conclude that the net effect of warming will most likely be negative? There seems to be a lack of appreciation for potential offsetting benefits of temperature rises. Obviously the existence of positive externalities associated with warming is not a knock-down argument against enacting policies to reduce carbon emissions, but they should certainly be taken into account as a mitigating factor, at least.

These seem to me to be assumptions that weren’t really justified in the talk.

Greg G
Aug 5 2013 at 8:58am

I thought this was, on the whole, one of the most balanced and informative discussions I have ever heard on this topic.

There was a single jarring and bizarre exception to that. That was when Russ suggested that we should worry about future international military aggression in the service of carbon reduction.

Given the vast number of possible, and even likely, future policy errors doesn’t it make sense to keep our focus on those policies there is some meaningful support for? Is anyone at all really advocating this?

Steve S
Aug 5 2013 at 9:58am

Gee, what entitlement program is Washington DC or the UN going to spend my carbon tax dollars on?

Does anyone trust DC/UN to spend this money wisely?

Richard W. Fulmer
Aug 5 2013 at 10:44am

I think that the big problem that scientists and politicians have is selling remedial action to the public. People aren’t willing to see their taxes go to correct what they see as a fraud. Unfortunately, the global warming community has been its own worst enemy in this area. Its own actions have lent credence to the belief that global warming is nothing more than a scam. There have been too many sensational claims by people like Al Gore and even by real scientists. Worse, some global warming scientists have doctored their data and have worked to keep papers with contrary data and views from being published.

Greg G
Aug 5 2013 at 11:08am

There is no reason at all why a carbon tax has to increase total government spending. Other taxes could be reduced by the same amount that a carbon tax is expected to raise. Indeed, given the existing amount of political gridlock, that is likely the ONLY way it could be passed in the current political environment.

The advantage of reducing emissions through a carbon tax is that it allows individuals and markets rather than government planners to sort out the details of how carbon emissions are to be reduced in specific cases.

Now I understand why those who want to drown government in the bathtub oppose all taxes. And I understand why those who think there are not significant externalities to carbon emissions don’t get behind this. But if you do think that government needs to raise some money through taxes then why is a carbon tax not a much better choice than the alternatives?

Aug 5 2013 at 11:29am

“Little doubt”

I’ve had a career in science, albeit checkered.

Two things I happen to know conflict with AGW as science.

There’s no AGW theory and there’s no AGW data.

1. No theory. We can’t solve the Navier Stokes equations, which govern the atmosphere. (In three dimensions, flows go to shorter and shorter sizes, resulting in no resolution being adequate to represent the flow. But small scale flows affect the large scale flows by way of a sort of ersatz viscosity, so you need the short flows.) The modellers replace these equations with a made-up one that they can solve. That isn’t science and it doesn’t work. End of claim to scientific theory.

2. No data. You can’t distinguish a trend from a cycle with data short compared to the cycle. (The eigenvalues of the distinguishing matrix explode, making every measurement useless.) A cycle can’t be AGW. End of claim to data.

If a random two things I know conflict with AGW, how many other things are wrong with it scientifically.

Sociology and research grants would probably explain it all better.

It’s not denial in my case but knowing the opposite.

W.E. Heasley
Aug 5 2013 at 11:29am

What if climate change is merely the classic do-gooder intention hijacked by the rent seeker?

What if rent seekers have determined, over time, that rent seeking narrow do-gooder subjects such as bicycle safety or auto safety or any of the multitude of rent seeking areas, creates limits to rent seeking. That the rent seeker has learned that narrow subjects limit rent seeking opportunities.

That a broad subject, the all encompassing subject would allow for unlimited rent seeking. That is, the rent seeker is seeking the broadest possible subject to rent seek.

We return to the classic do-gooder intention hijacked by the rent seeker: climate change. Climate being so very, very broad and “change” being anything thing/any aspect one would like to argue.

Therefore, alarmists and deniers aside, questions posed and phenomena identified by public choice theory may be the real questions to examine.

Aaron Zierman
Aug 5 2013 at 1:16pm

First of all, wouldn’t the math in the discount rate be more like $980 instead of $998 @ 2% interest being $1000 next year?

Second, the role that man-made global warming plays in the overall climate change is not widely discussed. From what I’ve read, it’s only about 2-3% at most as a factor of the overall change models. Would this really be the most effective aspect to attempt to change (if we indeed decide it must be changed)? Like this temperature calculator shows, even eliminating all carbon has relatively little effect (not to mention it is impossible..)

Loved the way this discussion was completely cordial and used a balanced economic outlook. Thank you for these podcasts.

Aug 5 2013 at 1:17pm

Robert Pindyck said …

I think a country like Bangladesh would be in terrible shape if the sea level was to rise by 10 meters or something. Five meters, even. Countries like Bangladesh would have a very, very difficult time. They could adapt, and probably what would happen would be at least an attempt at huge migrations of people out of Bangladesh into–where? Is India going to open its arms and say, you are all welcome here? So, that’s a problem.

The IPCC said …

Sea level is projected to rise between the present (1980–1999) and the end of this century (2090–2099) under the SRES B1 scenario by 0.18 to 0.38 m, B2 by 0.20 to 0.43 m, A1B by 0.21 to 0.48 m, A1T by 0.20 to 0.45 m, A2 by 0.23 to 0.51 m, and A1FI by 0.26 to 0.59 m. These are 5 to 95% ranges based on the spread of AOGCM results, not including uncertainty in carbon cycle feedbacks.

Predicting the future is hard. Made harder still be ignoring the “best” estimates in favor of the fabrications of fear mongers.

Aug 5 2013 at 1:30pm

“There is no reason at all why a carbon tax has to increase total government spending. Other taxes could be reduced by the same amount that a carbon tax is expected to raise.”

Yep. Better to tax and get less carbon emissions, which might be a bad thing, than income or capitol gains, which are assuredly good things.

Aug 5 2013 at 2:23pm

A couple of flaws in this episode are already noted above (2% of 1000, and the much more serious failure to distinguish between an externally imposed price rise and an internal tax that can be offset).

Two more:
1. Not all CC impacts are gradual: sea level rise would be rapid and catastrophic if the major ice caps melt (and this is a self-reinforcing process because ice and snow reflect a lot of heat).
2. A very real uncertainty in all the models is the impact of clouds. At higher temperatures, the atmosphere can hold more water vapour, which on the one hand is itself a “greenhouse gas”, but on the other hand this will increase cloud cover which is a very good reflector of sunlight.

Aug 5 2013 at 3:05pm

So, once again, we know that higher temperatures will have a bad effect. That’s a bad thing. We don’t know how bad. We don’t know how much harm it will cause, 50, 100, or 150 years from now. The vast–the difficulty–we know it’s bad. We don’t know how bad.

Is there absolutely no scenario where benefits outweigh the costs? I am perfectly willing to hear that such a scenario is unlikely, but in a discussion where we are taking probabilities very seriously, I am a bit startled that such an outcome is (seemingly) being granted p=0.

Aug 5 2013 at 3:20pm


The answer to your question depends on how much higher temperatures get. This paper by Richard Tol looks at a number of estimates, most of which find that a 1-2C increase in temperatures would be beneficial overall (though the impacts would vary by region) but that beyond that most of the estimates go negative (see Figure 1 on page 7).

Steve Sedio
Aug 5 2013 at 3:58pm

Excellent guest, and good talk.

The answer always seems to be to tax fossil fuels.

The question I keep asking is, replace fossil fuels with what? What does this tax accomplish toward the problem? More on this later.

We have no CO2 neutral transportation fuel. Much of the benefit of plug in electric cars is lost because little of the electrical generation is CO2 neutral. Solar panels to charge the cars only works if the power the panels produce is where the cars are during the day.

Do to range limitations, plug in electric planes make no sense, no matter the source of electricity.

We could convert coal fired plants to natural gas, cutting CO2 emissions in half. But natural gas is under attack by environmentalist on many different levels. As are sources of CO2 neutral power, nuclear power, hydro power, geothermal, etc. Virtually any low / no CO2 source of power, that doesn’t require storage.

We can reduce energy use with solar, wind, tidal, etc. But, to be a total solution, we need a way to store huge amounts of energy. There are no viable solutions for that (despite all the “break throughs” those wanting government funding promise).

Fossil fuels have value because they are storable.

The logical solution is biofuel from algae. Squeeze out the oil you can for transportation needs, and burn the rest in coal fired plants. As logical as it sounds, a lot of government, and private, money has been spent with no cost competitive fuel solution.

The only direct value taxing fossil fuels would have is to make algae based fuels competitive. Increased demand would increase economies of scale, and competitive pressure, both lowering cost.

My concern with taxation is the government (most of them, but the US in particular), has shown no aptitude in spending money effectively. And, once they have a buzz word that gets the votes that allows increasing taxes (the previous buzz words have been police / fire, children, education, poor, etc. have all pretty much been wrung out for what they are worth), taxes will go up, the economy will slow, and nothing of value will result.

Solutions for CO2 neutral energy will be found, as many solutions have been, on the shoulder of giants. But, the break throughs that have been made so far, have been converted into patents, owned by a vast array of companies. It will probably be 50 years before the IP necessary for a comprehensive solution is IP free.

For the above list of reasons, those that say we must lower CO2 levels to 1900 levels by 2020, or even 2050, are necessarily saying we must revert to a pre-industrial lifestyle – at which point, global populations will fall (by starvation) to pre-industrial levels. And, we lose the technical capability to ever develop CO2 neutral fuels. Ain’t gonna happen.

All too often, those that “believe” in man made global warming blame the “deniers” for the lack of progress. When asked about solutions recite their litany of low energy density, small output, technologies, with little adaptability to existing infrastructure.

The lack of progress is because we don’t have a solution.

This discussion, like many like it, is interesting. But, until we have a viable solution, it will remain only talk. Augmented by loud arguments reciting vitriolic talking points.

The affluence of a society is directly related to energy costs. Manual labor is hugely expensive. Food costs, from the farm to the plate, have fallen sharply as man has been replaced by (powered) machine. Goods and services, cost less due to automation and powered machines.

On the comment about other catastrophes, I fully agree. We can’t afford to address all of them, but we should focus on extinction level threats (bio-terror, all out nuclear war, and an asteroid hit, fit this). For the rest, the best approach I saw was on a TED talk, refine our ability to respond quickly.

Aug 5 2013 at 4:18pm


Thanks for that. A quote, which is news to me is: “All studies published after 1995 have regions [of warming] with net gains and net losses due to global warming, while earlier studies only find net losses.”

My point, though, was actually a bit pickier than whether anyone has entertained it. I am just disconcerted when anyone suggests anything at all could ever have a p=0. My experience is that those who have thought carefully about and worked with probabilities feel an overwhelming urge to make it clear that they are not saying p=0 when their casual language approaches that vicinity. For him not to clarify that sets off my geekdar so hard — sort of how your mother saying “Great score” after LeBron James buries one immediately flags her as unfamiliar with the way fans and players speak about basketball. It’s cool, I understand what mom just said, but I do have to doc her a couple street cred points…

Aug 5 2013 at 4:37pm

Most people that talk about taxing carbon seem to be a little dismissive of the effects of such a tax. On the surface it seems access to cheap energy is something all wealthy nations have access to, raising the cost of energy would seem to have a large effect on the economy as a whole. Is there any research that I should look at going over the cost of such taxes that anyone can point me to?

Aug 5 2013 at 4:38pm

I am just disconcerted when anyone suggests anything at all could ever have a p=0.

Did Pindyck suggest that something had a p=0? I don’t think he did but perhaps I missed it.

Absolute certainty is so rare, that the absence of it is usually not even worth pointing out, IMO.

Aug 5 2013 at 5:07pm

Ultimately THE solution to man made climate change is going to be technological innovation if we want humanity to be able to maintain current living standards and hopefully, continue the improvement of life we’ve seen.
Obviously the richer we are as a world the more resources we can invest in the costly trial-and-error process that will hopefully lead to a solution/solutions. It is easier to make the trade-off of reducing living standards today for reducing probable greater economic costs in the future when the reduction today is not leading you to starvation or death from preventable diseases and other human costs related to poverty.
With this in mind, a carbon tax could serve to reduce consumption and make less efficient forms of energy more competitive, and help reduce C02 emissions (CO2 will continue to increase in the atmosphere, this only buys us time). However do to the other economic impacts of spending more of our resources in energy, I would advise for a small increase, a larger increase in my opinion will be counter-productive.
Ideally I would like to see a competitive efficient form of energy emerge, CO2 atmospheric extraction technologies, or other innovative ways of dealing with CO2 emissions. Given the property of carbon based fuels, seems like high energy density fuel is a more difficult technological challenge to overcome, than looking at alternative ways of reducing C02 from the atmosphere.

Aug 5 2013 at 5:18pm

So, once again, we know that higher temperatures will have a bad effect. That’s a bad thing. We don’t know how bad. We don’t know how much harm it will cause, 50, 100, or 150 years from now. The vast–the difficulty–we know it’s bad. We don’t know how bad.

Correct me if I’m wrong, but he’s not saying “most people estimate it as x”; he’s not saying “it will most likely be x”; he’s not saying “I think it will be x, but it could also be not-x”. He’s saying we know the direction of the effect. Do you detect anything but certainty about the direction of the effect in his words?

Absolute certainty is so rare, that the absence of it is usually not even worth pointing out, IMO.

I’m being a bit ornery about this, I realize, but in a discussion where we are taking seriously small probabilities that very bad things will happen (which I agree is important), I find grave fault in not also mentioning very small probabilities that something magnificent will happen. It is worth pointing out because it affects the calculations in a material way!

Aug 5 2013 at 5:25pm

I was shocked to discover zero discussion of positive spillovers from carbon taxes. As Pindyck suggests, after two Middle Eastern political crises in 1973 and 1980/01 oil prices rose to unprecedented levels and forced behavioral changes among the US consumers; yet, the landing was soft and major disruptions (i.e., high inflation) didn’t ensue.

What did ensue, was the influx of Japanese who saw profit potential in markets for smaller and more efficient internal combustion engines. The next major oil spike in 2008 intensified the revolution in markets for hybrids (i.e., Prius) and incremental revolution in markets for 4-cylnder internal combustion engines, this time led by Japanese and Koreans.

Any major revolution in energy markets will not come from Asia or Europe – it must come from the US. Only the US has the prerequisites: entrepreneurial markets, consumer purchasing power, capital markets including VCs, angel, and investment banks, community of early adopters…

Think about it, Tesla could have never emerged in DE or JP. Their rigid startup regulations and sunk cost commitments to conventional engine technology can only drive incremental innovation in existing technology, which is great!!! We need Germans, Japanese and Koreans to keep improving conventional gas & diesel engines and Americans to deliver revolutionary technology such as Tesla. I am super psyched to see Tesla Model S on the road… for $60-70K it is a beautiful car with fantastic performance attributes, and more importantly huge room for improvement on many dimensions (e.g., cost of production, performance), given the right economic conditions: introduction of progressive carbon taxes. The best subsidy Obama can give to Teslas or Solyndras is to introduce carbon tax.

Problem is the present political divide. Any mention of the word tax puts you on one side of the political spectrum. Word tax is the red meat for House republicans and Fox who fuel their frustrations to angry constituents, who feel entitlement to cheap oil, without recognizing that they/we are imposing negative externality inter-generationally. Even a simple proposition to reduce income taxes in exchange for carbon taxes falls on deaf ear.

This reminds me of impoverished Venezuelans who think they are entitled to $0.18 per gallon they currently pay. As a result, they drive most inefficient and most polluting vehicles, without recognizing that gas taxes are regressive and bring more benefits to rich.

Jim Glass
Aug 5 2013 at 6:25pm

“There is no reason at all why a carbon tax has to increase total government spending. Other taxes could be reduced by the same amount that…”

Of course there is a reason why new taxes increase total govt spending — see “public choice”, or as Milton Friedman put it: politicians expand spending to consume all revenue available to them and as much more as is possible (which is why *all* developed nations run continual deficits, never sustained balanced budgets). And they have very clear incentives to do so.

E.g., Much the same claim as above was notably made by proponents of VATs in European states during the political adoption process — only to be ignored time-and-again as the politicians ran up the VATs far above the promised rates to their far higher maximum sustainable levels.

There are countless other examples: After major wars such as WWI and WWII does govt spending and taxation go back down to the pre-war levels? When cities like my own NYC enact new taxes promising to cut old ones, do they actually do it?

Oh, and what happened to the $2 trillion+ of unexpected revenue of Social Security surplus? This:

““… each dollar of Social Security surplus appears to have actually increased the debt held by the public in the past by $1.76”

I’d feel much better if this very real public-choice/Friedman reason was addressed by carbon-tax supporters, instead of being hand-waved away and ignored. One suspects they hand-wave and ignore it because they have no answer to it.

“I understand why those who think there are not significant externalities to carbon emissions don’t get behind this.”

When you hear the “externalities” argument invoked, hold on to your wallet — even if you do believe in externalities.

Take the high European gas taxes. They were all passed and increased by proponents citing the “externality” argument — to rates way up *far above* the mainstream estimates of the gasoline negative externality cost. As per the public choice process noted above.

Yet how many people anywhere do you hear invoking the externality argument the other way? “The gas tax here should be reduced because it exceeds the externality cost.” Nobody. Instead we get advocates piling one newly proclaimed negative externality on top of another to justify ever higher tax rates. (I recently saw one saying gasoline threatens to destroy the world, so no tax can be high enough.)

“if you do think that government needs to raise some money through taxes…”

What if you don’t? You instead think the govt is engaged in far too much wasteful spending as it is??

Or … what if you have my own personal take on things: As a hard practical reality the govt *will* be forced to raise taxes to deal with the entitlement tsunami coming 15 or 20 years from now. But if it raises taxes *today* then the politicians will spend the money on what they can to buy votes now (“Obamacare II”, whatever) and then these taxes won’t be available as new revenue sources when really needed later.

What will you do then to raise taxes? BTW, the Europeans are already in this bad situation — with even worse entitlement tsunamis coming than ours, and having already consumed their “least bad” VAT and Pigouvian taxes up to the limit. What other taxes can they increase from here, to get extra full points of GDP?

“Least bad” taxes like consumption and Pigouvian taxes are least bad only when you actually need them, and the alternatives are far worse. Enact them before you really need them and they are just “bad” — you wind up paying both them *and* the far worse taxes too.

Even when sure we will need new taxes, it is best to keep the fiscal powder dry until we actually definitively do.

Aug 5 2013 at 7:01pm


I’d say it’s perfectly reasonable to say that we know something even if there is a minuscule chance of it not being true. It’s possible, for example, that my entire life has been a Truman Show style simulation, but I can say that I know this isn’t the case. That’s just epistemic rounding.

Greg G
Aug 5 2013 at 8:40pm

@ Jim Glass

It is hard for me to believe that you are seriously recommending Milton Friedman’s starve the beast theory of perpetual tax cutting as an effective way to reduce the size of governments and government deficits. There was a time when people could believe that in that in good faith. That time is long past. Starve the beast could not have been a more spectacular failure in its effects.

When Reagan took office national debt was near its postwar low point as a percentage of GDP having been reduced by about 2/3. Back then politicians who preached about how much they wanted to shrink government were expected to say what they wanted to cut and vote for those cuts.

Starve the beast changed all that. Suddenly all a politician had to worry about was continually cutting taxes. Reagan oversaw what was, at that time, by far the biggest peacetime increase in government spending and deficits in our history. Accompanied by lots of rhetoric about how much he hated government and debt of course.

And that in turn convinced Bush that – in Cheney’s immortal words – “Reagan proved deficits don’t matter.”

Does public choice theory explain this? You bet it does. Talking about how much you hate government without saying what you want to cut is way more popular than actually making cuts.

But what explains the fact that, despite all this, some people still believe that starve the beast was a good idea?

Aug 5 2013 at 8:49pm

Great to see a concern about the economics of a full earth. One vote for the worse,worse or maybe worse,worse,worse scenario but those discussions always stray from the evidence.

I would keep negative discount rates in the mix. Negative is the natural state. Mischel’s Marshmallows were getting stale by the second. The pharaoh’s wheat was being eaten by mice. The median king would be glad to give 1000 shekels today if assured of having 900 shekels in ten years. It is only cheap resources that allow for positive interest rates in a very limited span of history.

It seems like some of Kahneman’s studies on our myopic tendencies could be explained by a genetic highly negative discount rate. It depends on the context. You can have a generous portion of my buffalo today, if I get even a taste of your kill next month.

Jim Glass
Aug 5 2013 at 9:21pm

@ Greg G:

“@ Jim Glass ….It is hard for me to believe that you are seriously recommending Milton Friedman’s starve the beast theory of perpetual tax cutting as an effective way to reduce the size of governments…”

It’s good you find it hard to believe I said something I didn’t say!

I didn’t say one word about tax cutting or trying to reduce the size of government.

What I said was, politicians expand spending to consume all the revenue available to them, plus as much more as they can. (Which is why *all* the developed nations have run continuous deficits since WWII — not just nations that have had Ronald Reagan as president).

And I gave several examples of fiscal expansions illustrating that point.

Now, if you can keep your knee from jerking you around long enough to respond to what I did say, you *might* try to answer those examples and show why the public choice explanation of them is false.

And should you finally bother to read my comment all the way to the end, you will note it gave my opinion on how best to increase taxes to finance increased spending — which is rather different than cutting taxes to reduce spending, eh?? — regarding which, if you have a difference of opinion, you can explain what it is.

“Talking about how much you hate government…”

Who said one word about hating government???

If you want to shoot at all kinds of positions that aren’t mine, and all kinds of statements I never said, that’s fine — just don’t start off with “@ Jim Glass”.

Aug 5 2013 at 10:26pm

Thanks for another very informative and thought-provoking episode. This conversation, along with a recent NPR Planet Money podcast has firmly convinced me of the merits of a carbon tax.

Greg G
Aug 5 2013 at 10:30pm

@ Jim Glass

Sorry that I interpreted your references to Milton Friedman’s comments as a much more general endorsement of his ideas than you intended. I really did think it was implicit your comment that you wanted to reduce the size of government even though you didn’t say that explicitly. My mistake.

It seems that we have both misunderstood each other’s comments. My reference to talking about hating government was clearly identified as something politicians often say, not something I was claiming you said. That was part of a response to your request for some discussion of this from a public choice point of view which you said might “make you feel much better” if it “was addressed by carbon tax supporters.”

In fact taxes on carbon based fuels already exist. They are not “new taxes.” Rates are often changed on existing taxes. My original comment that you objected to pointed out that there is no reason that a carbon tax needs to increase the overall level of taxation. You could, if you wanted to, write a bill that simultaneously lowered income taxes by a comparable dollar value in the same bill.

From a public choice point of view, that would be a much easier bill to find political support for than a bill that simply increased carbon taxes.

Aug 5 2013 at 10:38pm

You’ve made the assumption that man-made global warming is a fact. “There’s no doubt about that.” For many, like yourself, there is no doubt; but objectively, there is no proof. In fact, some of the leading research contradicting your assumption is coming from your own institution, MIT.

Besides the underlying fallacious assumption, the economics seems disconnected from real world impacts. Like Jethro in the Beverly Hillbillies, there’s a lot of math here, but not much common sense. “It sure is a sight to see when that boy gets to cypherin’” (Jed Clampet).

This detailed assessment of the ‘finance’ of a Carbon Tax ignores the micro and even macro implications.

You make the assumption that the economy is fixed at a certain growth rate for your assumptions about costs to be valid.
Just as Cap & Trade essentially caps total manufacturing capacity and growth, Carbon Tax regulation will limit new manufacturing, competition and ultimately growth. There is significant real dead weight loss associated with this regulation imposed for a problem that isn’t even objectively proven to exist.

As you know the economy cycles and there are differences of opinion as to why. The impacts of your Carbon Tax will vary with those economic fluctuations. But more importantly, the Carbon Tax and subsidies (for surely there will also be subsidies) will impact business and induce cycles (“green” booms/busts).

There are costs beyond the simple monetary taxation rate. I’ve read somewhere that the goal of the Kyoto treaty would reduce power use to approximately the level of North Korea, and that was considered a good thing. North Koreans are not thriving by any means. My time preference for that is never.

Incidentally, everyone listening to this podcast is a carbon based life form, and is currently full of CO2 (partial pressure approximately 40mmHg, possibly higher depending on your health) with no negative effects. CO2 is not a pollutant. Exhalation of CO2 is why plant-lovers are advised to speak to their plants to encourage plant growth.

Aug 5 2013 at 10:38pm

First off, great to hear a measured discussion in the topic – very rare to get that. Thank you.

Steve Sedio:

“The lack of progress is because we don’t have a solution.”

I would argue that this point is exactly why a carbon tax makes sense – we don’t know how it will work out best. Maybe it’s energy efficiency that will be more economically viable with higher costs and better incentives to conserve. Maybe it’s renewables that will work their way into a more cost-competitive position with a carbon tax. Maybe it’s something completely different. Maybe a combination.

I would love to see a carbon tax with an offsetting income tax reduction (net cost to the economy = 0 if my math is right), although I acknowledge the difficulty of the public choice issues in this regard. Still, as drobviouso wrote, isn’t a tax on something generally considered less desirable (carbon emissions) better than a tax on something generally considered to be more desirable (income, property)?

As for other public choice and gov’t spending issues – use the logic of the “we don’t know” reasoning that justifies the tax to get rid of gov’t spending in certain areas, for a start. If we accept that we don’t know the answer, why not eliminate government studies to find the answer, or government subsidies for oil drilling? Gone are subsidies for hybrid cars – the tax levels the field a bit in favor of efficiency and renewables, so we don’t need redundant policies for specific technologies any more. Much cleaner, and gives us a chance to drop the cynical (and sadly true) arguments like “There are no viable solutions for that (despite all the “break throughs” those wanting government funding promise)”

Here, I’m optimistic that we can rise above the reality that drives our collective pessimism with the current state of affairs.

Aug 5 2013 at 10:50pm

Climate change occurs, no one denies that. The question is about human influence over that change. The debate is about the Anthropogenic Global Warming hypothesis.

The greatest difficulty the Anthropogenic Global Warming crowd has to overcome is the fact that their hypothesis says the warming will take place in the troposphere where the greenhouses gases actually are. All their supporting data is in surface temps, computer models and anecdotal information (polar bears etc).

Actual objective measurements of the troposphere by weather balloons and satellite (accurate to within thousandths of a degree) contradict the hypothesis. That accuracy level is much better than any UN IPCC projection (off by whole degrees).

The surface temp data is cherry picked and averaged over large geographic areas and doesn’t even have real relevance given the atmospheric nature of the hypothesis.

The Climategate scandal casts doubt on the computer models because ‘fixed’ data was deliberately written into the computer code to create the global warming result always.

Climategate also invalidates studies of “consensus” based on published works because there was deliberate rejection of contradictory papers.

The “consensus” is overstated by the UN documents, because anyone who participated in the discussion is included in the credits, even those who disagreed with the conclusions. Many of the UN panel climate scientists don’t agree with the final product, but they continue to be included as authors.

Not only is the “consensus” doubtful, the hypothesis has no objective supporting evidence.

CO2 is a MINOR greenhouse gas. H2O, water vapor, is the most important and prevalent. Humans are increasing the concentration of a minor greenhouse gas. Even the Anthropogenic Global Warming crowd admits this, and understands that man-made Global Warming isn’t possible based on increasing CO2 concentration alone.

For the hypothesis to be true, there must be a positive feedback mechanism in the atmosphere. But atmospheric studies can’t find one, and in fact studies (specifically those from MIT) indicate a Negative feedback loop mechanism, the Adaptive Infrared Iris effect, having to do with emission and capture of longwave/shortwave radiation by clouds. And clouds aren’t included in the computer models because no one can model them.

Not only aren’t human actions demonstrably significant, they aren’t even capable of modeling or measuring the changes adequately. That should engender humility.

Aug 5 2013 at 10:50pm

One thing that stood out in the discussion was the option of geo-engineering. This idea scares me greatly, and not many things do. The possibility of unintended effects is drumming in my mind when Robert Pindyck discusses the options of using atmospheric sulfur to block corresponding amounts of sunlight to balance the greenhouse effects. Image this for a moment – a semi-permanent sulfur infused sky.

I hope this was used as a cautionary example of a very bad idea that might be used to offset another bad circumstance. It’s like betting your remaining savings on lottery tickets because the stocks you bought just tanked.

Aside from the horrible quality of life that a sulfur sky would create, I’d fear the acid rain, the acidification of the oceans, the likelihood of killing off ocean creatures, especially plankton (one study).

Since plankton provide much of our atmospheric CO2 mitigation and oxygen generation, this is a serious risk. I’d rather have rising seas, more hurricanes, and huge droughts than mass asphyxiation. No, come to think of it, I’d prefer none of these. Seems better to avoid the risk than to gamble on maybe finding a solution later and hoping those consequences aren’t worse than where we already are.

Aug 5 2013 at 10:57pm

The National Oceanic and Atmospheric Administration (NOAA) is responsible for weather warning advisories. They currently spend most of their budget on “Climate Change” (global warming). They could instead be improving severe weather predictions and advanced warnings with Phased Array Radar Systems. Global Warming does kill – mainly by distracting attention and resources away from important issues that are real and can be improved.

Aug 5 2013 at 11:05pm

@ Ralph –

There are a lot of arguments around the viability of climate models, and skepticism is a healthy thing. However, I have a hard time discrediting an entire body of work from a few bad cases. I will do more homework before I make a further statement in that regard, to make sure I don’t contribute to an argument that does not carry weight for you.

One point at the moment – I agree with your disagreement for a cap and trade policy for carbon. Cap and trade assumes more knowledge about the effect of a marginal rate of emission, allows speculation and hoarding, encourages fuzzy math, and seems to be bad policy in something like carbon emissions. A tax can be done much more simply (define carbon as non-renewable carbon being consumed). Fuel cells vs. methane vs. coal vs. oil vs. wood vs. credits for planting vs. any other mess that would come in from a cap and trade system would be much alleviated.

Assuming for the moment that carbon dioxide reduction is good policy, do you agree that a carbon tax is the preferable mechanism?

Aug 5 2013 at 11:23pm

This was a very interesting episode with a few twists and turns. For example, the idea that nation states might resort to violence over resources was somehow the “worst, worst, worst case” scenario (or words to that effect). But clearly, if Bangladesh was swamped by 5 meters of sea rise (as unlikely as that may be), those millions of people would try to go somewhere, and they might not be welcomed with open arms. Where is that in the models? Have we learned nothing from the geopolitics of the Middle East and oil that we can apply to this situation?

But, overall, the guest did a masterful job of portraying every instance of the increase of temperature as something negative. For balance, I highly recommend reading Bjorn Lomborg and Matt Ridley. Each point out that MORE people die in the cold than in the heat. So, if we are so interested in saving people from an early death, perhaps heat is the way to go.

Of course, we might not have heat. We actually have 15+ years of essentially a flat temperature trend that no one predicted. The models are nearing a failure point, but there is too much scientism masquerading as truth.

If we can increase the use of carbon emissions today and save millions of people from an early death, what is the future value of their contribution to society? How will that value compound over the next hundred years. Could we not see the next Einstein or Planck or Hayek or Plato or whomever in the future generations of those people we save today? Given how poorly we predict the future (Ehrlich, et al), should we really sacrifice real, measurable benefit for that which we can only model in computers?

Oh, and both hurricane intensity and the rate of tornadoes are down as well… But that is just another example of “climate change” and it unpredictable nature. If we get the prediction wrong, we blame it on unpredictability. If a Category I hurricane hits at exactly high tide, well let’s call it a “super storm” and ignore the obvious consequences of building on beachfront property in an area subject to hurricanes. Where’s my taxpayer subsidized flood insurance?

Why not simply accept that there are things we cannot know. Why not accept that if the ocean is lapping into your back yard, you need to move? This would be much more productive that taxing things that likely have nothing to do with the real cause.

Aug 6 2013 at 7:54am

Roger Pielke, Sr. writes that it’s not just about reducing carbon …

The effective use of mitigation and adaption to reduce the risk to water resources, food, energy, human health and well-being, and ecosystem function from climate (including changes in the climate system) requires a multi-disciplinary, multi-faceted approach. Attempts to significantly influence climate impacts based on just controlling CO2 and a few other greenhouse gases emissions is an inadequate and incomplete policy for this purpose. The goal should be to seek politically and technologically practical ways (with minimal cost and maximum benefit) to reduce the vulnerability of the environment and society to the entire spectrum of human-caused and natural risks including those from climate, but also from all other environmental and social threats.

Aug 6 2013 at 9:53am

@ Ralph

Excellent comments. Thanks! I was getting ready to make the same points. Now I don’t have to; I can just direct others to yours.

Aug 6 2013 at 8:23pm

Russ, you are a gentle soul and this makes your interviews and material very accessible and reasonable to listen to. I am an avid podcast subscriber.
This was the first podcast over the last 5 years that I nearly couldn’t finish. As a scientist, I am NOT convinced “induced climate change” is a threat to humanity, in any way shape or form. I am aware that the sun cycle (which is 11 years, not “ice age” spans as your guest retorted…) can and does cause temperature changes. The globe has cooled in the last 20 years.

Simply go back 25 years to the time when your guest indicated models began to be built– apply those models and the dire predictions if we “don’t do something.” We’ve done nothing significant and yet here we are, without flooded continents, extinct polar bears, or avg planet temperatures out of control. Your guest suggested the models became “more complex.” No, the folks making TONS of cash off this disaster-laden hoax realized they’d be called to account for their bilkmanship of other people’s freedom and money. So “global warming” became “climate change” and with it more predictions if we “don’t do something.” This should have become evident when all the hockey-stick data was shown to be contrived in the UK.
Even your guest talks cavalierly about time spans– 20 years, maybe 50, 100 maybe 200… about the “unknowable.” Well, I’m not sure doubling the cost of energy today on a completely “unknowable” theory is prudent economics, or even moral. I do love my kids and so I want them free from the chains of the statists and friendly fascists.

Finally, you bring up world government, potential violence and loss of our freedoms. You are right to do so. Every tax (or any state “request,” for that matter) is extracted at the point of a gun, if you refuse to go along…

Reject junk science and purveyors of it. We don’t need their frog-in-boiling-water schemes. If a disaster strikes our world, we will respond and overcome.

Thanks again for what you do to bring economics to us!

Aug 6 2013 at 8:26pm

@Chitown Nick:

Skepticism about the computer models stems from their goal. Computer models that try to explain specifically described phenomena that have been studied and objectively measured are helpful. But attempting to describe global effects using (sometimes purposely) limited data, neglecting important causes (like clouds) that are known, as well as other causes that are currently unknown is certainly a dubious enterprise. There may be something to learn in the attempt, but it is mostly that there are gaps in our knowledge and ability to model something as complex as the global environment. Add to that the Climategate scandal in which false data was exempted from scrutiny and purposely (we now know) included in the reference datasets used in the computer model codes, and all previous results should be scrapped unless they developed their own reviewable data for the purpose.

The Carbon Tax efficiency is overstated, because favoring unreliable and less efficient fuels that will require a complete backup system is a waste of resources. Fossil fuels or nuclear are the only viable options that can power a modern industrial economy.

The simplicity of the carbon tax is nice, but that doesn’t justify its existence given the lack of evidence for man made global warming. If I proposed a theory that the sky is falling and created a computer model to demonstrate it using false data, you would surely deny me the ability to tax you in order to prevent the imaginary catastrophe. And that even if there were multiple computer models that confirmed each others’ results – all using my invented data sets.

Manmade global warming and socialism, with its hatred of some imaginary oppression-plotting cabal of top-hatted capitalists with curled moustaches, are the two most ridiculous yet dangerous conspiracy theories in existence, primarily because they are so widely accepted and inspire real policy initiatives that do real harm to real people.

In fact, the very people who promote those conspiracy theories and occupy political office are the most to be feared given the coercive power of government and their own natural self-interest. Giving them more power and resources is self-defeating. You can’t fix a problem by enhancing its causes. Now there’s a positive feedback loop that is worthy of study. Is there a Public Choice computer model?

Michael Tolhurst
Aug 7 2013 at 2:22am

I don’t think Russ was crazy to very warily (he never seemed to want to come out and say it, the possibility is so terrible) suggest that military conflict of a nasty and genocidal bent is one potential future outcome to climate change.

Wars I don’t think are very easily predictable, especially if you try to predict the scale and intensity of the conflict along with its mere occurrence. However, in any given 50 year span of human history (which is the timeframe we’re talking about in this podcast) the chance of a war between one or more great powers is actually pretty good. We do see some correlation between various societal ‘stressors’ and the possibility for war. We know that tough economic situations can feed into the likelihood of war. (or at least 1920s Germany suggests this is the case)If we had a ‘10% reduction in the value of capital stock’ I could see that as being an economic stressor (in addition to any other non-global warming related stressors) that might make the possibility for war more ripe.

I think to suggest that there could be a scary war in 50 years is a reasonable fear. I don’t think we can predict at this point who the belligerents would be, what the proximate cause would be, and the scale and intensity it would reach, but war is one of the evils that historically has always plagued humanity and there is no reason to think it would not happen in the future. There is also some reason to think that, if the effects of global warming are what we think they are, those climatic changes might make war more likely.

Aug 7 2013 at 7:35am

Another great podcast, and the discussion on discount rates is the most thorough I’ve heard/read.

However! I have to object to the opening description of discount rates by using a financing explanation. This is a very common mistake.

If you give me money today and I invest it, I am earning a *nominal* interest rate. A large part of that return is simply compensation for inflation (which, where I come from averages 2.6% a year). The return on a bond is therefore a ‘real’ return plus inflation. Only the ‘real’ return is relevant for discount rates.

That’s because, when we do cost-benefit analysis, we actually value cost items and benefit items in constant base-year dollar terms. When a policy benefit is constant, we value it at, eg, $50m in 2013 and $50m in 2033 (all in 2013 dollar terms). We then apply a 7% discount rate to both numbers to create the ‘present value’. We do not inflate the $50m by 2.6% every year and then discount the inflated/nominal 2033 dollars by 7%. The impact of this discounting is quite a lot more dramatic than the financing explanation would suggest.

Greg G
Aug 7 2013 at 8:06am

Well, I agree with almost everything you said there Michael. Wars have always been more likely when societal stressors have been in place. We have seen plenty of those types of wars in the past. Climate change could one day be such a stressor.

I thought Russ was suggesting a type of war we have never seen before. I thought he was suggesting we might see a U.N. type military attack on nations unwilling to enter into something like the Kyoto Protocol with the goal of enforcing a reduced use of carbon in the FUTURE in order to prevent further global warming.

Apologies to Russ if I misinterpreted but there is plenty in the podcast that suggests this.

We start with a reference to the failures of the Kyoto Protocol and then:

“some of the louder voices and some of the more worried people–they invoke some serious, frightening things. If you really thought human survival was at stake, if you really thought we are talking about a massive level of misery in response to that 5% chance or 1% chance of large climate change, it would justify some pretty horrific things on the part of some nations, when those agreements, those international agreements, aren’t entered into voluntarily. And I worry about that.some of the louder voices and some of the more worried people–they invoke some serious, frightening things. If you really thought human survival was at stake, if you really thought we are talking about a massive level of misery in response to that 5% chance or 1% chance of large climate change, it would justify some pretty horrific things on the part of some nations, when those agreements, those international agreements, aren’t entered into voluntarily. And I worry about that.”

And then:

Russ: “Well, if you really thought the world was coming to an end in 50 years and nothing was done, and you watched this, the nations of the world negotiated poorly, you’d start to start thinking about the fact that maybe something more drastic should be done than just sitting around a negotiating table. You might impose your will on people via military force.”

There is a world of difference between suggesting that climate change is so serious that its EFFECTS could cause a war and suggesting that people worried about climate change (the louder voices) are so crazy and influential that they will get us into a war in the service of reduced use of carbon.

Steve Sedio
Aug 7 2013 at 11:26am

The decades of significantly higher fuel cost in Europe has already demonstrated how effective a carbon tax is on creating CO2 neutral fuel / energy. Nothing suitable for transportation fuel, and enough alternative electrical generation to slow the increase in carbon emissions, but not enough to reduce them. And, that alternative electrical generation required subsidies in addition to high energy cost.

The only effective way transition to alternative energies is when they are cost competitive (including the cost of infrastructure, the missing cost of plug in electrics).

We started to see that occur with cost effective solar panels from China, but then protectionism outweighed environmentalism.

Aug 7 2013 at 12:41pm


1) Putting a cost on greenhouse gas emissions makes the creation of those technologies more likely. An idea that reduces emissions at a cost of $10/ton is too expensive now but would be great if there were a $20/ton tax on carbon.

2) The net effect is likely to be bad because we have built our infrastructure and invested our capital based on current conditions. Even if the world as a whole became better suited for human activity, this destruction will be costly in the near term. It’s like getting a job offer with a raise that requires you to abandon your savings and social network.

Aug 7 2013 at 5:29pm

@ Ralph

From what I’ve read, it appears that some scientists involved in what has become known as Climategate were critiqued for poor data management practices, but other researchers were able to replicate their results with good accuracy (one example of this discussion). Another investigation by the folks at Nature found the same.

Admittedly, the exclusion of cloud cover from the models throws in some variability, but the extent that has been found seems sound.

I do think that, even with a consensus around the science that climate change is happening (and a consensus seems a long way off), policymakers, and people calling for action on this issue need to be very careful not to overstate the case. As was pointed out in a couple other comments, we’re talking about higher likelihood of 0.2-0.6 m sea level rise in the near future, not 5 m. We also need to account for short cycle effects like solar cycles, and not brush away all other effects as being on a geologic scale.

In essence, I think that voluntary, incremental policy that might raise fossil fuel prices by 10-20% over 5-10 years might be justified. I do not think that alarmist banshee wails of the end of the world will help anyone, in support or in opposition to this kind of policy. There are growing problems that I see as a result of Climate Change, and a growing disincentive to continue the source of the problem seems a sane response. Let’s remember, it took us 150 years or so since the beginning of the industrial revolution to get to this point. We can’t expect to reverse the whole thing in 10 or 20 years. We can start a change of course now though, since every long journey starts with a single step.

Julien Couvreur
Aug 7 2013 at 5:31pm

I would like to suggest a framework for solving the compensation problem and discount rate: property rights (Rothbardian approach).

Current owners of property already account for future value of their property. If an owner improves his property, it will have more value when he gives it to his children or when he sells it.
Now, combine this with the idea that global warming is a form of pollution or trespass.
Assuming the effect can be proved to a sufficient standard of confidence, emitting greenhouse gas can be considered a crime.

In this framework, the right question is not how should we compensate crime victims 100 years in the future, but how do we compensate victims today. The crime victims today will represent their heirs, as it is the property they plan to pass on which is affected.
Owners who benefit from the pollution won’t have any claim.

Of course, there are other messy considerations (many victims, many perpetrators, harm is not confirmed but potential, grand-fathering or homesteading past pollution, etc). But at least this approach allows for decentralized determination of the discount rate and somewhat addresses the problem that taxes only penalize perpetrators without compensating present victims.

This application of property rights may be the proverbial hammer looking for a nail, but I do see a simplification of having present victims represent future victims.

Aug 7 2013 at 5:58pm

Pindyck agrees that a unilateral reduction of carbon emissions by the high income countries will have virtually no effect. So way are we talking about it? If we had no electricity in our homes or no access to good, clean running water, would we even consider it? It’s fine to consider reducing our standard of living a little just in case that reduction might improve the standard of living of our grandchildren WHEN or standard of living is high. There is no reason why India or China should go along. In fact, they shouldn’t.

John Berg
Aug 7 2013 at 6:24pm

At 23:50 Russ asked the guest to provide an example of the “scientism” that Hayek identified. The quest avoided this question. At 27:00 Russ asked for an example list of “bad thing that have happened. The guest suggested some hypothetical instances which may occur in the next 10 to 100 years.

The talk never got better.

John Berg

Todd Kreider
Aug 7 2013 at 6:45pm

No offense to Russ Roberts or his guest, but this podcast was a complete joke.

Like the guest, my undergrad degree is in physics and my PhD is in economics.

Unlike the guest, I’m not under the delusion that I know green house gases will increase. I wouldn’t say:

“There’s know doubt about …”

“There’s no doubt … we know…”

Over the next 100 years!!!

High comedy.

Steven, post #2 nailed it.

It is unfortunate that almost no economists, including the guest, understand basic current technology in medicine or energy.

Aug 7 2013 at 6:56pm

There’s this assumption from early on that a carbon tax will reduce economic output and therefore restrict growth. Maybe that’s true. I don’t think you can reason about the long run in the same way you reason about the short run, but there you go.

Here’s the fix: take the money you get from taxing dirty energy and invest in production and technological development for clean energy. Take on some debt in the beginning assuming returns to capital, returns to research and development and returns to scale. Assuming predictable growth in clean energy production and assuming a decent exponential thanks to developing technological potential — eventually (and I’m talking 10-20 years, not 100) you’re producing more energy cleanly than you were ever producing filthily. In the short run you’re producing research and capital and that counts as economic output.

So, the point is: make arresting climate change an opportunity to invest. Investment is where economic growth comes from. Now you have return on investment to balance and even overcome your discount rate.

Steve Sedio
Aug 7 2013 at 7:16pm


1. My point is Europe, paying a higher price for energy, had decades to developed alternatives, and they haven’t. What changes if I raise the cost for CO2?

2. Infrastructure was built more on needs than what was available. Coal fired power plants powder the coal to burn only what they need, and reduce waste. Jet aircraft burn oil with as much energy per gallon as possible, based on weight, and the ability to remain liquid at operating temperatures.

Plug in electric cars are hugely hampered by the lack of infrastructure, and that will get a lot worse, before it get better. 2 cars per family, each at 20,000 miles a year, at 40MPG equates to 1.5MWh /month / per home. The grid will need higher current wires and heavier transformers on the phone poles to support a complete conversion.

Aug 7 2013 at 11:59pm

@Chi-town Nick:

A Carbon Tax is not a “voluntary, incremental policy”. There’s nothing voluntary about it, and incrementally increasing the rate is only further imposing economic disincentives. A Carbon Tax functions like any other tax, whether you believe it’s ‘for our own good’ or not: Bootleggers and Baptists.

On the Climategate articles: reproducing the data from weather stations is fine, but the surface weather stations are not only less accurate than sattelite and weather balloon measurements, they are not located in the atmosphere where the hypothesis predicts the temperature changes will occur.

The data itself is not the sole problem, there is the data that was selected out. Even the NOAA data determines average surface temps by selecting few stations and averaging over large geographical areas. I read that California is represented in the data by three stations, all in large coastal cities – that is hardly representative of a state that has inland mountains with snow year round.

It’s easy to generate continuously increasing SURFACE temps by selecting out the stations that generate cold temperatures. The investigators in your article simply reproduced the data points and checked the math, not surporisingly generating the same results.

The trick is in the choosing of the data points. Somewhere there is a elegant point plot video of reporting weather stations. I’ll try to find the link. It shows annual plotted points dropping out of the data sets mostly from Siberia, the North American Tundra – cold places generally over the years as we have been treated to successive annual reports of “hottest temperatures on record.” The weather stations are there and record temps; the temps just aren’t included in the math that generates the annual average temperature: why?

Joel McDade
Aug 8 2013 at 12:15am

Wow, this is the worst EconTalk podcast ever. I cannot speak about the economics except that it all is based on the precautionary principle, which is fundamentally unscientific.

Russ seems to abandon his common sense skepticism of econometric models and implicitly accepts the AGW GCMs while acknowledging the uncertainties.

I mean, is the arctic tundra going to melt releasing tons of methane? Yes that is a hypothesis. But there is no evidence of it so it is just arm-waving. And then someone assigns a 5 percent chance to it. See?

Jeeze I hate to get into the science debated on 100 other blogs but it is this: Basic physics assuming no feedback is 1.1 C for a doubling of CO2 — see the Stephen Boltzmann equation. The feedback question is the 6 trillion dollar question, but nobody really looks into it. There has been maybe ten papers really studying this huge question mark. And they are about split, with a recent spate of papers showing lower sensitivity, or feedback.

(I predict the IPCC’s upcoming Assessment Report, AR5, will be its last.)

Yeah so increased warming should increase the main GHG water vapor. OK, got it. But as others above noted it also increases (on balance) reflective clouds, which even the modelers say the GCMs handle poorly. Once again this is just arm-waving. The differential equations just give it the “Scientism” needed. Remember that word, Ross?

Look at the OBSERVATIONS. There has been about 0.8C warming over the last century, while CO2 has increased about 60-70 percent. Given that the relation is logarithmic, this is almost exactly on track with Stephen Boltzmann and a no feedback model.

The arm-wavers say, “Ah, it is being stored in the oceans and it awaits us all.” But they can’t find that warming.

So I just listened to an hour of “if this happens — then maybe that” stuff.

As a rebuttal, I suggest Russ invite to EconTalk the economist Ross McKitrick (Univ of Guelph), who co-authored with Steve McIntyre debunking the infamous Hockey Stick, and also has written extensively about the economics of supposed climate change.

Aug 8 2013 at 12:31am

@ Julien C.

This is unfortunately the type of argument I think is less constructive when it comes to the topic of climate change. I think that rather than a crime, the emissions of CO2 can be likened to the emissions of NOx from a car, or perhaps allowing your neighbor allow their weeds to grow too long. Either could reduce your property value, one by atmospheric conditions, and the other by aesthetic value of the area. However, neither is a crime. Proposing to make the emission of CO2 a crime would put nearly (and this may be too weak a point) everyone in the country a criminal. Not practical in the least, nor is there any justification in my eyes for this type of logic.

@ wally

What is proposed with a tax on carbon is an increase in price of much less than the market value of the commodity in question. If the price of corn or soybeans went up, would people still buy corn and soybeans (not really a hypothetical with last year’s crop)? No question. Would they perhaps figure out a way to consume a little less to ease the pain – maybe try out an alternative? Sure. That’s the goal. It’s not the end of the world on one side, and it’s certainly not the dark ages on the other extreme.

@ Michael

Finally, this is a great-intentioned idea, but I think you’ve over-stepped the purpose and idea of the tax a little. If “we,” which is in this parlance the government, invest the money from the tax in new technologies, then we (as an intellectual exercise) have failed in two regards. First, the tax is meant to offset another tax that is reduced at the same time. There’s no extra tax revenue to invest in anything – the government books are the same. Second, if the government invests money in technology, the finite tax dollars are invested in finite projects, and there’s a big problem with how and why any of those are picked. If instead, the tax is imposed and the government does nothing further, the price change will signal to all individuals experiencing the price change that they should try something new. Conserve, invest, innovate, expend – quite frankly, it doesn’t matter. The price increase can be expected to result in a net reduction of use on average, and from the purpose of the policy, we don’t care how that happens. Most likely, it will be from investment and innovation, driving future growth and improvement, but that has to be a private enterprise.

Aug 8 2013 at 7:10am

I am really surprised that “global warming” is uncritically accepted by so many otherwise educated people at this late date. Fortunately, some here have pointed out that research indicates that CO2 does not have an effect on the other more potent greenhouse gasses. Absent such an effect the doubling of CO2 by itself at 4/10,000 of the atmosphere will have no harmful effect. Please listen this interview of astrophysicist Willie Soon:

Then consider the required for global warming theory to be true “hotspot” in the tropical atmosphere does not exist. See:

There is accumulating evidence that changes in solar activity profoundly affect earth’s climate. For instance, the length of the solar cycle has a very strong relationship to climate. It shortened during the latter part of the 20th century (a period dubbed the “modern maximum” by solar scientists). Now it is lengthening predicting a fall in temperatures. There is a lot of research on the solar/climate connection that is available if you simply google it. For one interesting perspective that has received support from recent experiments at CERN watch this series of videos of the Danish astrophysicist Henrick Svensmark. They begin at:

I might add his particular theory of how the sun affects climate is not certain. However there is an abundance of evidence that solar variations affect the earth’s climate for anyone who is willing to look for it (i.e. google “solar effects on climate”).

This is not true for effects of CO2 on climate. I am aware of no evidence that increasing CO2 can have a harmful effect on climate. Russ Roberts and others wake up!

Robert Pindyck
Aug 8 2013 at 12:33pm

Some very nice comments. I can’t respond to all of them, but here are a few thoughts:

1. Steven wrote that GHG emissions might fall over the coming century if we find alternatives to burning fossil fuels. I agree. But unless fossil fuel prices rise substantially, or the cost of alternatives drops substantially, that is unlikely to happen fast enough to prevent a continued buildup of GHGs in the atmosphere. One objective of a carbon tax is to encourage substitution away from fossil fuels. As for my claim that global warming is “not a good thing,” I agree that some areas (e.g., Canada, northern Russia) will benefit from small increases in temperature. But once we get beyond a 2 or 3 degree C increases, it is clear that the world as a whole will be adversely affected.

2. rhhardin objected to the words “little doubt,” and said we have no data. Actually we do have data. We have direct data on temperatures going back over a hundred years, and we have ice core data with CO2 concentrations going back 100,000 years.

3. To Aaron Zierman, thanks for correcting my math. Yes, $1000 discounted at 2% is $980, not $998. Next time I’ll drink that cup of coffee before starting the interview.

4. Speed wrote that “Predicting the future is hard.” I agree — much easier to predict the past. But seriously, we’ll get an updated projection of potential damages to countries like Bangladesh when the new IPCC report comes out in a few months.

5. To Blackadder, no, I certainly didn’t (and wouldn’t) suggest that something has a p = 0. I think the issue is whether there is a significant chance (perhaps a 5% or 10% probability) of a very bad climate outcome. As for a 5% chance that “something magnificent will happen” (as A mentioned), I’ve never seen any studies that suggest this outcome, but if you know of some, please send them my way.

6. Chambana was disappointed that there was no mention of positive spillovers from a carbon tax (beyond climate change). Yes, I think there would definitely be positive spillovers, and Chambana did a nice job explaining why. I’m also sorry we didn’t get to that in the interview — not enough time.

7. Ralph objected to the “assumption that man-made global warming is a fact,” and pointed out that “there is no proof.” That’s correct. There is no proof, and there never will be. That’s how science works. We can never prove a hypothesis is true, we can only disprove it. So there is still no proof that evolution happened, or that smoking is bad for your health. Ralph, are you a smoker? Several other people (e.g., Fred) were upset that global warming is “uncritically accepted by so many educated peeple.” Again, there is no proof (and never will be) that the hypothesis is correct. But at this point there is so much evidence that we can treat the hypothesis much as we do the “smoking causes cancer” hypothesis.

My apologies to those whose comments I didn’t respond to. But I hope these responses are helpful.

Russ Roberts
Aug 8 2013 at 12:57pm

There are a lot of excellent comments here and I greatly appreciate the feedback. I’d like to react to some of the criticisms and reactions. Pindyck is hoping to respond as well.

I remain agnostic or skeptical about many dimensions of global warming. There is way too much certainty among many who claim to know what is going to happen in a complex world. So I dramatically discount the most dramatic claims in the same way that I discount the claims about the virtues of stimulus spending. But that’s not the point. Most people who listen to EconTalk have an opinion on global warming already. Some of you think it’s a sure thing and caused by humans. Others are skeptical as many of the comments above suggest.

If global warming IS real (and caused by humans,) I remain highly skeptical to the idea that we need a centralized response. I certainly think it’s a mistake for the US to forego growth on our own because our unilateral actions will have a limited effect.

I didn’t invite Pindyck on the program to debate whether human-caused global warming is real or not. Maybe it is, maybe it isn’t. Let’s put that to the side for the moment. There are many other places on the web to learn more about the science of global warming. I encourage everyone to check those out and think about it. I invited Pindyck because he has an unusual position that I found very interesting. Despite his view that global warming is real and caused by humans, he concedes that the models to assess the impact of that warming are wildly imprecise. I wanted to give him a chance to explain why. I thought I’d learn something and I did.

Once you concede the imprecision that Pindyck points out, you do have something of a dilemma, which was his point. How do you pick the right size of a carbon tax, for example? There are few if any guidelines. My first choice, given that the damage if there is any, is already baked in and that the world is unlikely to unite in response given the variation in how people are going to be affected by both costs and benefits, is to wait and allow human creativity to respond to the effects.

Yes, there is an argument (and Pindyck advanced it) that because there is a chance that the effects will be catastrophic and not amenable to human response, we should as a precaution, drastically reduce carbon emissions. But that policy has very very high costs and may keep us from keeping with other catastrophic threats. I wish I had made that point explicitly in the conversation.

My point about war and violence is that if 70-80% of the American people thought that the future of the planet was at stake and that some nations refused to act to save it, there would be a lot of popular support for a war to impose a solution on recalcitrant nations. It would not be the first time that a nation tried to impose its beliefs on others using violence.

I think a crusade to save the planet using war is very unlikely. Not zero, though. But the real reason is that most people are dismissive of the most dire predictions.

My interviewing style is based on the idea that you out there are smart and thoughtful. I assume you are skeptical of what my guests say (and what I say). I assume you don’t take my silence on a point to mean agreement. So I don’t feel a need to challenge everything. If I did, EconTalk would be a debate program. It might be entertaining but I’d learn a lot less and I think you would too.

Aug 8 2013 at 1:52pm

I understand that Prof. Roberts does not want this to turn into a debate on global warming. However Pindyck cites the ice core data in #2 above. Originally, the temperature and the ice core data looked like a good match. But around 2005 we achieved better temporal resolution on the ice core data. It turns out CO2 levels lagged the temperature data by several hundred years. The most parsimonious explanation is that as the temperatures increased (for reasons other than CO2) the oceans could contain less dissolved CO2 – just like soda pop fizzes as it warms. When the temperature cooled the oceans absorbed a greater amount of CO2 and CO2 levels lagged temperature declines by several hundred years. Its pretty hard to claim CO2 as a cause for an effect that preceded it by several hundred years, but that is the logical contortion that global warming theory would have us believe.

Do you have any other “evidence” for global warming, Dr. Pindyck? Again, I can cite loads of evidence that solar changes influence climate. Where is the evidence that CO2 can cause harmful warming?

If there is no evidence that CO2 can cause harmful warming arguing what should be done to curtail CO2 emissions has as much practical relevance as arguing about how many angels can dance on the head of a pin.

Aug 8 2013 at 5:24pm

A far more fruitful discussion than what to do about the harmless CO2 level is what to do about the “green lobby” that hobbles our economy. For example, energy development has been undercut by the fantasy that CO2 can cause harmful warming. Productive energy projects have been halted or impeded (Keystone Pipeline, many shale oil lands ruled off-limits, coal-fired power plants made prohibitively expensive, etc.). Useless and expensive ones have been foisted upon society (i.e. Solyndra, auto battery companies, etc.). Just recently U.S. aid to developing poor countries coal-fired energy plants has halted thanks to concerns about CO2 emissions.

This funding has been a primary source for providing electricity to the world’s poor. I wonder who will benefit from this move?

There are indications that the green interest groups can be a highly rapacious bunch. There is the example of Alena Vitaskova, the chief of the Czech State Energy Regulation Bureau. A few months ago she had to be given special police protection. This was the result of an assassination attempt in April, 2013 when another car attempted to run her off an expressway. Investigation revealed that the primary suspects were in the photovoltaic energy and biofuel businesses. Vitaskova was investigating their efforts to get special subsidies.

Global warming theory is being used it to put in place policies that wreak irreparable economic damage on the lives of millions. Russ, why not explore the harmful economic consequences of global warming alarmism and the actions of green interest groups and what can be done to stop them?

John Pattee
Aug 8 2013 at 7:39pm

How can we possibly ignore the impact of solar variations on global temperatures. It is like modeling the behavior of a pot of hot water on the stove and totally ignoring the burner setting.

Without the sun we will all freeze…

Aug 8 2013 at 8:11pm

Prof. Pindyck:

Thanks for the reply.

I meant we have not no data, but no data long compared to the cycle we need to exclude in saying we have a trend and not a cycle.

The historical ice record is ripe with cycles, I dare say. Cycles seem to be what the earth does. In fact the cycles also show that the climate is stable under perturbation, if anybody bothered to notice that, so feedback must be negative. The experiment has been done by nature.

To say that instead of cycles we now have a trend, i.e. AGW, you need data showing it for a thousand years or so, taking a thousand years as the length of the longest cycle competing for the explanation. You have to show that that thousand year cycle is not present and your trend is.

Why we can’t do that! Yes. You can’t tell. It’s as if there were no data on which to base any alarm. The earth is just going along doing its thing, and we have to live with it, because the information is hidden from us.

I wanted to point out that mathematical fact.

(Think of a long cycle, with arbitrary phase, and how many derivatives you have to determine from the data to eliminate a cycle, if that helps think of the mathematical difficulty. Each derivative is another order of magnitude in noise gain.)

Incidentally, the point of the hockey stick was to show explosive growth. Explosive growth can’t be a cycle (large signal rules), and so must be a trend. But the hockey stick is dead, and we’re back to small signal rules, where linear fits are the best you can do, and the math applies.

Aug 8 2013 at 8:18pm

Very disappointing that the guest offers such a one-sided view of AGW. Makes me sick and depressed. I emailed him to say as much (via via above-indicated web page.

Aug 8 2013 at 8:33pm

There are just so many fallacies in this gentleman’s spiel. But one: many more people die from cold than heat worldwide, so….? And what about the “models” failing to explain why there’s been no warming during peak increases in CO2 concentration.

But because he’s at MIT, I’m supposed to suspend disbelief? As I said, very very depressing.

Aug 8 2013 at 9:36pm


Many of your listeners have expressed degrees of skepticism/disappointment regarding Dr. Pindyck’s presentation. Perhaps inviting someone to econ talk who has written and thought extensively about some of the same topics (i.e. carbon tax and energy policy) from a different perspective would be good. I am thinking of Patrick J. Michaels of the Cato Institute. Here is his web site:

Jim Feehely
Aug 8 2013 at 9:42pm

Hi Russ,

Having now had a chance to listen to this interview and having only scanned the comments, the general tone of most of the feedback very much depresses me for the following reasons:

– There seems to be a general demand that prediction be accurate before justifying any economic action. This simply ignores that all prediction is mere guesswork outside the hard sciences. But we demand precision from climate scientists who are dealing with an almost infinite number of variable, many of which I suspect we have not even identified.

– The scepticism about ‘what we know now’ is just plain perverse. We know (ie to the extent anything is epistemologically knowable) that carbon pollution in the atmosphere is very bad above certain concentrations. Yet many of the correspondents here oppose doing anything about that objective fact until the consequences of that objective fact are known to some impossible degree of accuracy. That is like saying ‘I will smoke until it can be proven absolutely that smoking will kill ME.’

– Every correspondent so far has completely ignored this crucial exchange in the interview:

Russ: So, I’m going to challenge this prudent argument about doing something rather than nothing in a minute, but I want to add one more factor to this measurement of costs and benefits. I’m not an expert in the area, but when I looked at your estimates, your discussion of the estimates of the costs and benefits, it seems to me that most of them are dealing with monetary effects. That is, the fact that it might be harder to farm, in some places easier to farm but other places harder. There might be losses in well-being because we have to spend more money to keep cooler, to be comfortable. Do any of these integrated assessment models, these attempts to do a full picture of the costs and benefits, do they look at loss of biodiversity, the esthetics or complicated effects of species loss, potentially, because of habitat destruction because of climate change? Nobody’s looked at those, right? Guest: No. Those are additional losses that their models don’t even include.

That is, economic models are only about cost and only about SOME COSTS. It seems, therefore, that most correspondents here will be happy to live in synthetic environments surrounded by obliterated nature, so long as their, and future generation’s, ‘standard of living’ is not compromised. In the barren pursuit of economic growth, its seems the great majority are prepared to take that risk, rather than pay some additional cost now.

– And the whole argument of future cost completely ignores the free ride big polluters have had for centuries. As a matter of social equity, polluters must pay substantial back-rent for that free ride.

– The general reliance on unspecified technology as the saviour of our greedy pursuit of an ever-increasing ‘standard of living’ is laughable, if it were not so sad. Much of the current pollution and destruction of nature has already been caused by ‘technology’. Yet it appears that most ignore this negative technology, but are prepared to put some sort of ‘religious’ faith in some future positive technology that will reverse the effects of centuries of negative technology.

– The fact is that any economic growth that is reliant on increased consumption will certainly cause environmental armageddon. It is also a fact that much of the global economic growth over the past 30 years has been achieved by levels of debt never seen before. And look where that has got us – more sovereign debt to bail our imprudent debt, often the product of outright fraud.

– Taleb has the best answer in Antifragility. We know that carbon pollution is fragilising our environment. We can, therefore, devise plans (whatever they cost) for reversing that fragilisation on the basis of what we know now. We do not need prediction to make that sensible conclusion. Our obligation to future generations is to work towards re-establishing the antifragility of nature. It is not to ensure they have a bigger house and a bigger salary than we do.

– Unfortunately, growth based on consumption will prove most correspondents here horribly wrong. But there will be no triumphant ‘I told you so’ moment. We are, after all, on the same space ship.

Jim Feehely.

John Steinmetz
Aug 8 2013 at 9:57pm

The guest must be paid well to perform his studies. It is obvious he has ignored the data that does not support the man made global warming theories. He points to Hurricane Sandy and record flooding in New York City. Wouldn’t one expect record flooding when a hurricane hits shore? The records show that Sandy sized hurricanes were more frequent in the early 20th century than in the last 50 years.

Studies also show government breakdown and wars are the primary cause of diesese spreading across borders. A rise in temps is inconsequential.

The guest has his blinders on along with other cohorts who profit from govt largess.

He claims higher taxes will not hurt us. Tell that to the person making 10 bucks an hour and driving a clunker to work. Oh, I guess Europe is doing just fine with high fuel costs.
The guest has bought into unproven theory and disregarded the benefits of higher CO2 on crop production as well as the benefits of cheap energy.

Open the scientific debate to the many scientists that disagree and the public would be much better served (a small group now peer review each others work, see climategate).

Joel McDade
Aug 8 2013 at 10:20pm

I am happy see both Ross and Dr. Pindyck respond in comments. I don’t read a lot of comments on EconTalk but can’t remember seeing a lot of responses from Russ or the interviewees.

For my part I feel a bit guilty inadvertently blaming Russ for being an honest broker here.

This topic is really a scientist’s game. So the blame for this lame podcast is really on Prof Pindyck.

(I am not [quite] so sanguine about Russ’ interview with the esteemed Eugene Fama, well within Dr. Roberts expertise. I’m not an economist but how exasperating. I had just read Madelebrot’s popular/layman’s book so couldn’t believe what I was hearing)

I re-iterate my request to interview the economist Ross MiKitrick as a rebuttal.

Aug 9 2013 at 6:25am

“And the whole argument of future cost completely ignores the free ride big polluters have had for centuries. As a matter of social equity, polluters must pay substantial back-rent for that free ride.”

The gains from pollution go to the consumer, not the polluter, unless the polluter is the only one doing it.

Aug 9 2013 at 10:53am

Discount of future debt : there was an argument long ago that the future generations are on the hook for the debt we incur but also inherit the means to repay it, namely the bonds themselves.

What they lose is their inheritance.

I don’t know that there’s any moral argument entitling them to it. It’s whatever we want to give them.

John Berg
Aug 9 2013 at 12:34pm

At one point in the interview, Dr. Roberts seem headed in the direction of comparing other “Mankind ending (or near ending) cataclysms” against an instance of one: “Climate Change(nee “Global Warming”) so as to make a fairer cost benefit analysis.

One that has occurred to me reading these podcasts since November, 2012, has been just how far past the “Road to Serfdom” sign is the US, and consequently the world.

John Berg

Aug 9 2013 at 1:23pm

I cannot give the Tesla a bye, but will hide this at the end of comments. The “strong” view is the Tesla is an oil spill on wheels. It has so much embedded energy ,mostly fossil fuels that it will never repay its costs. The costs are repaid by walkers,bikers and transit takers (tax payers)who actually see the dead end represented by the individual automobile.
The moderate view is on where the energy basics are analyzed with less emotion. The Tesla still comes off poorly.
The embedded energy or emergy was proposed by HT Odum and I think his daughter,Mary Odum Logan, still gives talks about this,in a manner more understandable than her father’s text.

Aug 9 2013 at 4:27pm

I notice that Dr. Pindyck has not responded to my request for evidence that CO2 can cause harmful warming after I called him out on trying to use the ice core data as evidence. The true solar and oceanic current drivers of climate have turned. After producing warmer conditions for the latter part of the 20th century they have led to unchanged conditions for the last 15 years (despite steadily increasing CO2 levels) and they will cause cooler conditions going forward for the next 20-30 years.

It will be fun to watch the global warming crowd as temperatures not only continue to fail to increase, but actually get colder.

There have been ice ages with CO2 levels at 7,000 ppm. Upending the global economy in a bet that CO2 is the driver of earth’s climate is a losing bet for 99+% of humanity.

Aug 9 2013 at 4:55pm

John Cochrane has some interesting musings on carbon taxes.

Russ Roberts
Aug 9 2013 at 5:16pm

It is not productive or helpful to imply or assume that people hold the views they do because of financial reasons. It’s a cheap shot. If you want to challenge someone’s claims, use the facts or other evidence. Please don’t presume to know someone’s motivation.

And people are busy. Don’t presume that no response means no leg to stand on.

Aug 9 2013 at 7:28pm

Just wondering: on what scale is Europe a “smaller place”? GDP is bigger (even if we only consider the EU) and population is way bigger than that of the USA. Must be the landmass then…

“Russ: Part of the reason it’s not such a big deal is that Europe’s a smaller place. So it would change–it would have some potentially large effects on the United States.”

Aug 9 2013 at 9:16pm

@ Mr. Pindyke:

True, hypotheses are continually tested in science. But there must be some effect that the hypothesis seeks to explain. Anthropogenic Global Warming is a hypothesis in search of a physical phenomenon to attach itself to. There is no warming for about a decade, despite increasing CO2. You must be old enough to remember the 1970s and the reports of the coming ice-age.

As discussed above, satellite and weather balloon OBJECTIVE MEASUREMENTS of the troposphere, where the hypothesis predicts warming will occur, demonstrate no warming. There’s just no there there.
Evolution is a hypothesis, but there is physical evidence of changing living things over time, and bacteria can change in just a few generations: there is a phenomenon that needs explaining. There is no global warming that meets the criteria for proof expressed in the Anthropogenic Global Warming hypothesis.

As someone noted above, CO2 change LAGS temperature change. The Oceans are CO2 sinks. Increase the temperature, and you increase the partial pressure of gas above the liquid. The measurable lag is on the scale of a few hundred years.

When Al Gore stands in front of his graph of hundreds of thousands of years and says there is positive correlation, he is correct, but the scale of the graph hides the fact that the CO2 lags temperature change. At the scale of hundreds of thousands of years, a few hundred years is just the thickness of the lines. And he knows that, because the temperature-preceeding-CO2 correlation is in the ice-core data and has been recognized for decades. But that movie sure made him some bucks didn’t it?

There is no troposphere warming to explain, and therefore no sign that man-made CO2 emissions may be causing warming per the hypothesis. It’s a hypothesis in a void.
I find the whole HEATED debate TAXING.

Aug 10 2013 at 9:32am

Belmont Club cites James de Long today, on government, “Capture by faction has become endemic.”

That’s the tragedy of the commons version of AGW, something of which AGW is only a tiny part.

It’s the public choice theory problem again, back to an earlier commenter.

I think you have to be allowed to identify somebody with a faction to make progress on their problem, however not as a moral failing but that it’s something incentivized by the system.

Speaking of what’s owed to future generations, perhaps a working government might be important.

Aug 10 2013 at 1:49pm


Coldest summer on record at the North Pole

Highest August Arctic ice extent since 2006

Record high August Antarctic ice extent

No major hurricane strikes for eight years

Slowest tornado season on record

No global warming for 17 years

Second slowest fire season on record

Four of the five snowiest northern hemisphere winters have occurred since 2008

German meteorologist acknowledges global warming models are “very difficult” to reconcile with no warming for 15 years:

As someone familiar with computer modeling I am not at all surprised that models constructed with no out of sample validation whose coefficients are often not set from empirical data are worthless.

A major Danish paper has run a story on the missing 15 years of warmth and interviews skeptical scientists who dismiss CO2 as a climate driver and who opine that solar influences may be leading us into a “little ice age”.

Meanwhile on John Cochrane’s blog he avers that “just about every economist” supports a carbon tax over more regulations.

Aug 11 2013 at 3:40am

There is no crime and no body, but scientists and politicians have named a guilty party, who has already been tried and convicted in a media propaganda and mal-education showtrial (“the debate is over”), and now there is only discussion about the punishment.

The whole thing is absurd; very Kafka-esque.
Check out The Trial or watch the Orson Welles movie with Anthony Perkins.

Aug 11 2013 at 3:32pm

@ Ralph:

“But there must be some effect that the hypothesis seeks to explain.”

While some aspects of the AGW models may not predict everything accurately, i.e. troposphere inaccuracies, the claim that there’s no effect that needs to be explained.

There are documented migration shifts, opening arctic sea ice channels, and new latitudes opening to commercially controlled plant species. All of these phenomena would potentially be explained by the effects of gradual warming – causes aside. The short point is that there is a phenomenon that might benefit all of us by finding an explanation.

Aug 11 2013 at 4:17pm


You write:”While some aspects of the AGW models may not predict everything accurately, i.e. troposphere inaccuracies”

If the troposphere hotspot is not there the AGW theory falls apart. And it is not there.

“There are documented migration shifts” Migration shifts likely have been happening since time immemorial. How do you know they are in any way related to supposed climate effects from CO2? A tough case to make since no one can find climate effects related to CO2. Yes, there was a warming trend during the later part of the twentieth century, likely due to the “solar maximum” of that period. Maybe the “migration shifts” were due to that. That phase of solar activity is now over and reversing.

“opening arctic sea ice channels” Arctic sea ice has cyclic patterns that have been going on over the millennia. During the 1920’s and 1930’s there were open waters not far from the North Pole. See:

Arctic and Antarctic sea ice levels are negatively correlated over time. Oceanic current and wind patterns along with solar activity cycles have a lot to do with Arctic sea ice extent. Current Antarctic sea ice is now at record high levels. Since most Antarctic ice is outside the Antarctic circle it should be the first to show effects from “global warming”.

A paper published by the Danish Meteorological Institute finds a very high correlation (R=.67)between Arctic sea ice extent and solar cycle length (an important measure of solar activity level). Arctic sea ice extent is “controlled by natural variations in solar activity,ocean and atmospheric oscillations, winds and storm activity, not man-made CO2.” See:

Thus, your “evidence” is non-existent. Because of AGW theory billions of dollars of economic development around the world has been foregone and more billions are wasted on “research” that could be spent on the identification and remediation of real environmental problems, curing cancer, whatever.

Aug 11 2013 at 5:04pm

“The short point is that there is a phenomenon that might benefit all of us by finding an explanation.”

Curiosity characterizes actual science.

You don’t find evidence of curiosity in AGW, fairly infamously and consistently so.

I’d imagine that actual curiosity about opening shipping channels would look at cycles. You could be curious about those.

You wouldn’t say that you bet there’s a trend. Cycles already cover the field.

Aug 11 2013 at 6:07pm

@Chitown Nick:

The Anthropogenic Global Warming hypothesis IS the argument that there will be a temperature change in the troposphere where the greenhouse gases are. Much of what you mentioned as fact above is questionable, and NONE of it has anything to do with the Anthropogenic Global Warming hypothesis. It isn’t happening.

Aug 11 2013 at 8:23pm

Talk about the pretence of knowledge; this podcast is full of it. IN no particular order here are a few of the problems I have with Robert Pindyck’s statements.

1. Who has claimed that the warming would be uniform? The theory actually has the higher latitudes warming up at a greater rate than the equator. Most of the warming would take place during the cold winter months.

2. Why would warming lead to more frequent storms? After all, storms are driven by differences in energy levels; as the differentials fall there would be fewer such storms.

3. What about the benefits of warming? First of all, a warmer climate means fewer deaths due to exposure to extreme cold. If we look at the mortality tables around the globe we see that the hot summer months have the lowest death rates and that the cold winters have the highest death rates. That is the opposite of what Pindyck is implying.

4. Why would biodiversity go down in a warmer world? As temperatures go up we will get more species in any particular area. As for habitat destruction, the loss of 90% of the Eastern Amazon did not lead to the loss of a single species.

5. Given the fact that the world has already seen a 2C increase since the depths of the Little Ice Age why would anyone talk about the losses due to warming to farmers, foresters, fisherman, etc.? The data shows that a warmer world has been better for crop yields, forests, and general biosphere productivity.

6. The idea that a warmer world is less healthy is not supported by the data. The very cold Little Ice Age had a far higher incidence of infectious disease than the warmer period that preceded it and the period after it ended. When the climate is colder you have more people and animals being together for longer periods of time. You get more disease, not less.

Sorry Russ. While I love most of the podcasts this has to be one of the worst ever.

Aug 12 2013 at 11:31am

I think that with schemes that remove co2 from the air (E.G. biochar, enhanced weathering, deep ocean iron fertilization etc.) we could reach co2 equilibrium for far less than $300 a ton.

Carbon credits sold by sequestering carbon in biochar are economically competitive when prices reach $58/ton CO2e.6 Carbon prices have ranged from $15 to $44 in the last two years.

Aug 12 2013 at 11:54am

Also it seems very strange to me to hear an economist claim that the inflation in the 1970’s was significantly caused by petroleum prices.

Dan H.
Aug 12 2013 at 2:23pm

Without getting into the science of global warming itself, I’d like to add a few points missed in the podcast:

1. The IPCC admits that warming under 2-2.5 degrees would likely have an overall economic benefit, due to lower heating costs in the populous 1st world nations, longer growing seasons in the main food growing regions, opening up shipping lanes that are currently blocked by ice, etc. In addition, there is evidence that the earlier, more extreme predictions for global warming may be wrong, and the actual values lower. The IPCC ‘low’ estimate is for warming within the ‘beneficial’ range, in which case the carbon tax should be zero. So the real range of uncertainty over carbon taxes includes a realistic possibility that global warming will help the planet’s economy.

Furthermore, when looking at discount rates, you have to consider that even if warming eventually goes to, say 4 degrees, it will first transition through the beneficial range. Which means the benefits of warming happen soon, and the damages later. That raises the net present value of warming advantages as compared to disadvantages, and this is true for all warming models and outcomes.

2. Economists think of carbon taxes as economic factors like other taxes. Engineers think in terms of energy. It might be clarifying to think not about the size of taxes, but in the reduction of overall energy output required to prevent damaging warming. Absent nuclear, wind, and solar, any meaningful reductions in carbon must reduce the total amount of energy consumed by a society. Increased efficiency can be achieved, but not nearly so easily as the hand-waving of non-engineers would suggest. And if we can’t do it that way, we’re talking about major reductions in growth.

3. Your guest’s argument that carbon taxes may not hurt the economy used as an example the oil shocks of the 70’s. But we’re not just talking about oil here – we’re talking about all fossil fuels. Oil is a trivial source of U.S. industrial manufacturing energy consumption. Coal and natural gas are the major sources for electrical energy. The demand for oil is more elastic than the demand for electrical energy because a lot of driving is optional and/or can be varied in the short term when oil prices change. There are also viable alternatives in the form of mass transit, trains, telecommuting, etc. But factories cannot reduce their need for power without reducing the output of goods.

4. Implementing carbon taxes without a global agreement that includes big players like China, Russia, and India may be worse than useless – they may be counter-productive. U.S. manufacturing has a comparative advantage in energy intensity – it takes less energy to make a product in the U.S. than it typically does in the developing countries. Countries like China make up the difference in lower labor costs. But if you tax energy in the U.S., you may remove that advantage and push manufacturing to China and elsewhere, which means the energy footprint of the products we make could actually increase. The double whammy is that since oil is fungible, limiting demand for it in the U.S. will increase availability of it elsewhere, stimulating demand there.

5. A global agreement on carbon taxes will be nearly impossible because countries like Russia and China have no incentive to do so. Russia in particular is a cold country with many fossil fuel resources. It would probably be a net beneficiary of moderate warming. So why would Russia sign on to any carbon reduction treaties?

In addition, because these countries have much higher energy intensity than does the U.S., a dollar of carbon taxes will have a larger impact on their economies. They would be putting themselves at a disadvantage relative to the U.S. by signing on to a carbon reduction plan. That is not going to happen unless the U.S. were to agree to additional wealth transfers to even the playing field. That’s not politically feasible – or desirable.

This last point is the real kicker: Carbon Tax advocates often skip right over that issue and begin the discussion by assuming that such a treaty will happen. Then they eventually advocate for unilateral taxes anyway. We should simply shut the discussion down and say, “tell you what: you come up with a feasible plan for getting the entire world to agree to a binding, enforceable treaty that limits their carbon emissions, THEN we’ll talk about how big the tax should be.” While we’re at it, let’s make sure that any agreement on carbon taxes is contingent on an iron-clad enforcement mechanism for ensuring that the world sticks to that agreement.

Until that plan is in place, the proper size of a carbon tax is ZERO. And I don’t believe such a plan will ever be workable. So, the ‘reality-based’ option left is to learn to mitigate the effects of warming and work on technologies that can eventually make fossil fuels obsolete. But we shouldn’t kid ourselves – the problem is extremely hard, and we may not solve it for decades or longer unless we’re willing to make a wholesale switch to nuclear power.

Aug 12 2013 at 6:32pm

As for a 5% chance that “something magnificent will happen” (as A mentioned), I’ve never seen any studies that suggest this outcome, but if you know of some, please send them my way.

I did not suggest 5%. I said, “I find grave fault in not also mentioning very small probabilities that something magnificent will happen.”

There is no need to have a study that entertains the possibility. It simply is true that there is some probability that something magnificent will happen.

Aug 12 2013 at 11:03pm

Pindyck writes, “1. Steven wrote that GHG emissions might fall over the coming century if we find alternatives to burning fossil fuels. I agree. But unless fossil fuel prices rise substantially, or the cost of alternatives drops substantially, that is unlikely to happen fast enough to prevent a continued buildup of GHGs in the atmosphere.” To which I will reply that until industrial civilization implodes and human population collapses to hunter-gatherer levels, barring improbable success at fantastical carbon sequestration schemes there is NO chance of “prevent[ing] a continued buildup of GHGs in the atmosphere.” It’s going to continue and moderate reductions in the rate at which it continues can mean no more than moderate delays in the rate at which any resultant effects must be dealt with, endured, or enjoyed. The costs of even trivial reductions in CO2 emissions are anything but moderate and this podcast, because Pindyck is so oblivious to the real question, contributes exactly nothing to limning that tradeoff.

Dallas Weaver
Aug 19 2013 at 5:28pm

1- Pigovian tax rates (carbon/oil taxes) based upon externalities can’t be accurately calculated;
2- We do have existing taxes that have negative external impacts on our economy. For example, payroll taxes decrease employment.

In a revenue neutral situation, shifting taxes from a known negative external impact to a Pigovian tax with a possible, but not fully knowable positive external impact can create a net positive impact.

For example, we do know something about the elasticity of labor relative to the payroll taxes (Congress claims to know that accurately for the temporary payroll tax cut as part of the stimulus and as part of the fiscal cliff talks). There is a broad consensus that increasing payroll taxes results in fewer jobs. We also know something about the labor elasticity and the price elasticity of the oil industry: even as OPEC increases and decreases the price by over a 100%, there is very little change in the distribution or refinery labor and only a minor change in exploration and drilling labor. Thus oil is in the short term a very inelastic product.

We also know that our extreme oil dependence is used to “justify” our extreme military budgets, even though our military budget could buy enough nuclear power plants and alternative energy sources in one year to substitute 100% of the US oil demand (including domestic production). With less budget justification, the DOD will have trouble maintaining and increasing a budget already 7 times larger than that of any other country.

Using such a “relative” analysis, even when not knowing exactly the externalities of the oil industry beyond that fact that CO2 emissions have negative effects, can allow a rational scientific conclusion. These negative effects are well established for coral reefs and shellfish aquaculture – pure hard science physical chemistry/thermodynamics with only insignificant uncertainties –, if not for the global climate. Therefore, it is easy to effectively argue that a shift from a payroll tax covering Medicare to an oil tax covering Medicare would result in an employment increase and a net benefit to the economy. Given the uncertainties we don’t know the exact impact, but we do know that the direction of the change would be beneficial.

Dallas Weaver, Ph.D.
Aug 19 2013 at 6:13pm

Because global warming is caused by continuing CO2 additions by the children and grandchildren of existing people, and those with the most children and grandchildren (highest fecundity) are the creators of the future problems, the grandchildren should pay for the problems. This means we should put the cost on the future generations produced by the high fecundity groups in our society.

This would make the discount rate very large and much higher than the investment ROI.

Aug 20 2013 at 1:54pm

I found the whole interview great. The issue is obviously extremely complicated and while I lean toward the “do nothing” camp because once the models failed it looks like we don’t know enough, I really appreciated the thoughtful exchange on the economic issues.

I think a great compromise would be to get rid of payroll taxes, estate taxes, capitol gains taxes and transfer them to carbon if that is truly our biggest future concern. I would be on board with that if we did it constitutionally to ensure it does not simply become another source of needless revenue, otherwise I think our government of every political persuasion has demonstrated they cannot properly handle additional cash.

One thing I find surprising is our obsession with discount rates and the impact to our children when we discuss carbon taxes, but relative lack of economists talking about similar issues and concerns about our current budget and deficit. Correct me if I am confused but when we borrow from the future by spending and borrowing shouldn’t we think about the smaller economy and lifestyle we are leaving to future generations? How much is random federal expenditure X worth to future generations and is it worth more or less that the interest they will be paying?

Comments are closed.


About this week's guest:

About ideas and people mentioned in this podcast:Articles:

      • "Climate Change Policy: What do the Models Tell Us," by Robert Pindyck, NBER Working Paper 19244, July, 2013, forthcoming in the Journal of Economic Literature. PDF file.
      • "The Climate Policy Dilemma," by Robert Pindyck, Review of Environmental Economics and Policy, Summer, 2013.
      • Present Value, by David R. Henderson. Concise Encyclopedia of Economics. Discount rates and discounted present value.
      • Interest Rates, by Burton G. Malkiel. Concise Encyclopedia of Economics. Discount rates and discounted present value.
      • OPEC, by Benjamin Zycher. Concise Encyclopedia of Economics.
      • Irving Fisher. Biography. Concise Encyclopedia of Economics. Rates of interest and rates of time preference.

Web Pages:

Podcasts, Videos, and Blogs:



Podcast Episode Highlights
0:33Intro. [Recording date: July 30, 2013.] Russ: Our topic today is climate change, a subject you've written on lately. I'm going to start with what you call the 'climate change dilemma.' What is the dilemma? Guest: I think the dilemma is that we'd like to get a sense of just how far to go in terms of responding to the threat of climate change, just how far to go in terms of abatement. Should we have a very stringent abatement policy, in terms of limiting how much carbon dioxide and other greenhouse gasses we produce? Or should we begin slowly and perhaps later increase the extent of abatement? And the problem is it's very difficult to come up with numbers that actually tell you what the right solution is, how far to go. We know that global warming, climate change, the problem; we know that we have to do something. But we don't know how quite how much we have to do at this point. And that's really the dilemma. Russ: I want to start with a little thought experiment that you do in one of your papers, which is to say: Let's suppose we know exactly what's going to happen to the temperature over the next hundred years, and we even know what the likely effects are on human wellbeing and in terms of financial or monetary loss. But we still have a challenge, which is: How do we deal with costs that come 100 years from now, or benefits that come 100 years from now, relative to today. And that gets into a somewhat esoteric concept that I want to dive into, which is the idea of the discount rate. Talk about what the discount rate is used for in these kinds of studies. Again, assuming we knew all kinds of things we don't know with certainty. But just why is there a problem with trying to assess the costs and benefits that are way into the future? Guest: Sure. So, let's just begin with the discount rate and what it means. So, if you were going to get $1000 and you had a choice between getting it today or being told you'll get it in a year, I would think that you'd prefer to have it today. And the reason is that if you get it today you can invest it, maybe in a bond or something, and get a return over the year. So $1000 a year from now, or 10 years from now, is worth less than $1000 today. And that's a very basic concept. The rate at which, or the extent to which, it's worth less is determined by what we call the 'discount rate'--in other words, to what extent do we discount money that we are going to receive a year from now relative to money that we would receive today? And one way to do that is to think about the alternative use to which we could put that money. We could invest it. And the interest rate that we could get would be a pretty good estimate of what the discount rate ought to be. If I know that I can get 2% interest, let's say, then $1000 a year from now should be discounted at a rate of about 2%, which means that it would be worth something on the order of $998 today. Russ: And of course if it's 10 years from now it's going to be worth even less than $998. The idea being--and for people who aren't familiar with this--the idea is just that if you put $998 in the bank it's going to grow to about--it's a little more than that, actually--but in a year it will grow to something very close to $1000. Guest: Right. Russ: And so that's why $998 today is something like $1000 tomorrow. But $1000 a hundred years from now is a lot less than $998. Guest: Right. Russ: It's worth very little. Because of the power of compound interest. Guest: Right. And that's the problem. So, we know that the impact of greenhouse gas emissions is going to happen very slowly. Most of the impact would happen after 50 years, maybe 100 years. And the problem is that if the discount rate is a large number--it's even 3 or 4%, then any benefit that we are going to get by reducing emissions today is just not going to be worth very much if that benefit happens 100 years from now. Russ: The costs are now. Which means that they are not discounted, or discounted very little if they are in the near future. Guest: Right. So the costs begin now. If the costs actually are ongoing you would have costs now and costs around the future. Just to be clear about what we mean by the costs: So, if we had an abatement policy. Let's say it was a tax on carbon. So that's the simplest way to think about this. What we did is we taxed carbon emissions. That's going to impose a cost on society, because it means that, perhaps, for example, you'll perhaps have to buy more fuel-efficient cars that might be more expensive; you might have to insulate your home better; you might have to buy a more efficient furnace to heat your home in the winter. You know, you'd have to take a number of steps that would reduce emissions. And that's costly. So, if we decide to reduce emissions now by taxing carbon, that's imposing a cost on society--this year, next year, every year. But the benefits that we are going to receive wouldn't occur for maybe 50 years or 100 years. That's the problem. Russ: And how sensitive are those benefits to the discount rate? So, for example, you said, 'if it were large,'--some might argue that 3 or 4% is not actually large; maybe you should choose a higher one; we'll talk about that in a minute. But others argue it should be 0%. We'll talk about why that is, too. But just to think about it in a purely arithmetic sense, an accounting sense: What kind of differences are there going to be if you choose a discount rate close to zero versus one close to 4 or 5%? Guest: Well, let me give you an example. Let's take $1000 and let's discount it at 5% over 100 years. So, if we do that, the way we would do that is just take .95 and raise it to the 100th power, and then multiply that by $1000. What we are going to get is $6, roughly. So, $1000 a hundred years from now, discounted at 5%, is worth only about $6 today. On the other hand, if we discounted it at only 1% over the 100 years, then that $1000 is going to be worth $366 today. Still quite a bit less. But very different from $6. So it makes a huge difference what the discount rate is. Russ: In that particular case, that's a 60-fold difference, and that's just one assumption going into the analysis. That adds an enormous amount of uncertainty about the value and net benefits of a climate-change policy. Guest: It's not so much uncertainty. It's disagreement. And the problem here is that economists disagree as to what the correct discount rate is. And there are some people who would argue that the correct discount rate ought to be something that we observe in financial markets, something related to the interest rates we actually see. There are other people who would argue that financial markets are fine for you and I making investment decisions but when we look at something like climate change and we are talking about 100 years, we are talking about 2 or 3 generations, 4 generations from now. And when we make intergenerational comparisons it no longer is meaningful to use a market interest rate and we have to think about something different: how do we feel about discounting the welfare of our great-grandchildren, for example? Should we discount their welfare? Even though for ourselves, we say, look, for me, if I'm going to make an investment that's going to have a payoff only 10 years from now, for me, what is the discount rate I'd use? I might want to do something very different when it comes down to a different generation--grandchildren, great grandchildren, and so on.
9:46Russ: Now some people have made the argument--quite a few, actually; it's a legitimate position. I disagree with it, but I want to get it on the table first--but it says: We should discount it to 0. Because any positive discount rate is saying that the benefits to me--is one interpretation at least--the benefits to me of some climate change abatement, climate change improvement--those should be no different for four generations from now. There's no reason I should count those less than any changes that accrue to me. So that, in that argument, that argument goes, the discount rate should be zero. And that's an ethical argument, correct? Guest: Yeah, but let me clarify something here. There are actually two different discount rates. There's a discount rate on the actual monetary benefits of reducing emissions, the benefits that we'll receive in a thousand years. In other words, let's suppose that-- Russ: A hundred years. Guest: A hundred years. I'm sorry. Russ: Or maybe a thousand. Guest: A hundred years. Let's suppose that by reducing emissions today, there is going to be a benefit to the average person of $1000 of increased consumption in the future because Gross Domestic Product (GDP) and consumption won't be reduced from climate change. So let's suppose that's there's going to be this $1000 benefit. Now, there's a discount rate that we would apply to that benefit to put it in today's terms. There's a separate question and that is: What is the utility or the value of $1000, 100 years from now? And that's very different. Think about this. One hundred years from now, if we continue to have strong, reasonable economic growth--meaning the economy, per capita, of GDP is going to grow at maybe 2% a year--it means that on average people 100 years from now are going to be much, much better off on average than they are today. Well, what happens if you are much better off and you have a much higher income? It means that the value to you of an extra $1000 is lower. So, if you are a low-income person, you don't have much money, the value to you of $1000 is a lot greater than it is for somebody who has earns a million dollars a year and couldn't care a whole lot one way or another about an extra thousand dollars. So, the discount rate that we would apply to values--the discount rate we would apply to utility or the pure rate of time preference, simply says: Look: I have a preference for time, for getting something now as opposed to a year from now, quite separate from the actual monetary value. In other words, quite separate from the opportunity cost of being able to put the money in the bank or invest it in a bond. I simply have a preference for getting something right now rather than in the future. And that discount rate--that rate of time preference--is what people talk about when they say it should be 0 for ethical reasons. It doesn't mean the discount rate on the monetary benefits, on the $1000, should be 0. Because it shouldn't. It means that piece of the total discount rate should be zero. There's one last piece here, and I hate to introduce all this technical stuff, but the total discount rate on the monetary gain, the $1000 we are going to get in 100 years, is equal to the rate of time preference plus the product of the average rate of growth of the economy, per capita real growth rate, times something that we call the index of risk aversion, which basically tells us how rapidly our value of money declines as we get richer. A good number for that might be 2, the index of risk aversion; if we say that the growth rate of the economy, real growth rate per capita might by 2%. Then 2 times 2% is 4%. So that even if the rate of time preference were 0, we would still have a discount rate of 4% for the monetary benefit, the monetary gain. So we have to be a little careful here in terms of what discount rate we are talking about.
14:35Russ: I was going to get back to the ethical argument. Why don't you go ahead? Guest: So the ethical argument only applies to the rate of time preference. In other words, everybody would agree that, look, to the extent that the economy is going to be growing, to the extent that people will be richer on average a hundred years from now, that's going to make the value of benefits received 100 years from now less, worth less today. It's going to create a discount rate or benefits received 100 years from now even if the rate of time preference is zero-- Russ: So, even if you say: My blood is no greater than theirs; theirs is no greater than mine; I have no moral claim on consumption relative to theirs--you are saying there would still be some reason to use a positive discount rate. Guest: Right. And it could be a significant discount rate. Depending on-- Russ: So, here's an issue that always bothered me about this. And by the way, that distinction, although it's a technical one, and I don't know if everyone out there followed it. Bob, you've written on it; people can look at it elsewhere, people have written on it; we'll try to find a link to lay that out a little more thoroughly. But what I find strange is that most people don't make that distinction. They just say: Well, the discount rate should be 0. Because we are no better or worse than future generations. It's immoral to pretend or suggest or assume that we have some right that they don't have. They are not here. We should stand up for them. And their benefits and costs should be taken as the same value as ours. The part I never understood about that--and this, I think feeds into your breaking down the discount rate into two parts--the part I've never understood is that: First of all, future generations are related to us. As you allude to in one of your recent papers. They are not just--they don't just show up. They are tied to us through family and birth and affections--sometimes dislike, we don't always get along--but most of us care about our children and grandchildren. And if we ask the thought question: Do my grandchildren, do my great-great-great-grandchildren want me to ignore the fact that a dollar today can grow over time--that is: If we incur costs today, if we make our economy smaller, and more importantly if we slow the rate of growth--that means they are going to have less. They want us to take that into account. It would be absurd for us to say, well: Costs and benefits are the same 5 generations from now as they are today because it's an ethical thing; we are all the same; but they very much want us to take into account the fact that incurring costs today imposes costs on them. Guest: Right. So, there are two things. First of all, let's be clear that if we do this correctly and we look at the discount rate in terms of the rate at which we discount monetary benefits, not the rate at which we discount utility, it's not the rate of time preference. It's a bigger number; and everybody would agree that it's not simply the rate of time preference. When you say that many people just say the discount rate should be 0 and it's not clear about what discount rate, I don't know people you are thinking of or referring to. Certainly economists who look at these climate change issues and climate change policy, they certainly understand what we're talking about in terms of the discount rate--that there's a rate of time preference. There we might argue about whether it should be 0 or 2% or whatever. But that's different from the discount rate that we apply to monetary benefits. And when you talk about economic growth and you say, look, if we tax carbon today maybe that would reduce growth, or maybe it wouldn't, it would certainly impose a cost today. Certainly we have to include the rate of economic growth in terms of getting the discount rate that we apply to monetary benefits. There's no question about that. We are doing that. So, it still means however that we are going to have some discount rate and we can still argue about what that discount rate is. The whole business about future generations and the ethical argument and all of that only applies to the rate of time preference, and the rate of time preference is just one piece of the discount rate that we apply to future monetary benefits. Russ: Okay. Great. Now, the bottom line then of this section--we're going to move on to a different topic, a related topic--the bottom line here is that we're not clear what the right discount rate is, and that assumption has to enter into this conversation, and as a result there's some uncertainty--there's a range of estimates of the net present value of these costs and benefits that are very difficult to narrow. Is that a good summary of what we just talked about? Guest: Yeah, I think it is. That's right. Yes.
19:27Russ: Let's move into what are called 'Integrated Assessment Models', IAMs, that you talk about in your forthcoming paper in the Journal of Economic Literature and elsewhere. What is an Integrated Assessment Model? Guest: So, what economists have tried to do--economists and climate scientists have tried to do--is develop models that they could use to assess the effects of different kinds of policies. So, for example, let's suppose, let's begin with asking: Suppose we do nothing about climate change. We don't do anything to reduce emissions. We don't do anything to abate emissions. What might happen over the next 150 years? And then we might ask: Well, suppose instead that we have a carbon tax. Maybe a carbon tax of $30 or $40 per ton of carbon dioxide. Well, what would that do? And to what extent would we then have a different outcome in 100 or 150 years? So what these people have done is they've developed models. And this work began maybe 25 years ago, 20-25 years ago. And when it started it was extremely useful because what it did was it showed how emissions accumulate in the atmosphere; how that in turn leads to higher temperatures; how that in turn creates damages--harms the economy in the future--and how that harm could be reduced by reducing emissions today. So, the value of those models, back 20 years ago, was to lay out and show those interconnections and make them explicit, make them understandable. That was very useful. What's happened since then is people, many people, started developing more and more of these models; and making them more and more complicated, larger, more involved; and started to take them a little too seriously. So what these models do is the same thing that they used to do: they are models that say, look, if we don't do anything to reduce emissions, these are the kinds of emissions we are going to have over the next 50-80 years; this is what it's going to do to the atmospheric concentration of the carbon dioxide; this is what the increased concentration of carbon dioxide will do to the temperature. And by the way, when I use the word 'temperature' I mean not just temperature itself but other measures of climate change such as greater weather variability, greater frequency of hurricanes, and so on. I'll just use 'temperature' as a shorthand. So, what will this greater concentration of atmospheric carbon dioxide do to temperature, and what will higher temperatures in turn do to the economy and to welfare? You know, to what extent will it hurt us. So, they build these models and the models tend to have relationships. All models are sets of equations or relationships that say how x will affect y and how y will affect z and so on. And in fact we don't know a whole lot about these relationships. So the models give kind of a false perception of knowledge and precision. That's really the issue that I have with them. So, what the models try to do is to relate these different variables to each other, and try to predict what might happen over some period of time under different scenarios, for greenhouse gas emissions. Russ: So, this relates to an issue that comes up a lot on our program, which is what Hayek called 'scientism'--the use of what appear to be scientific techniques, language, in this case models--that give a false impression of scientific precision, as you point out. Why is it so uncertain? Where are the--in that sequence that you laid out, which is carbon, temperature, human effects, dollar value, etc.--where is the part that's misleadingly precise? Guest: Well, really the question is where are the parts where we don't know enough or we have limited knowledge. So let me back up and just make it clear what we do know, where there's really no argument and almost no doubt among people who look at this seriously. What we do know is this: What we do know is that under business as usual, emissions of greenhouse gases--and greenhouse gases include carbon dioxide but other gases as well such as methane, which is even worse than carbon dioxide in terms of its impact on climate. So, we do know that if we don't do anything that the rate of emissions will grow over the coming decades. We know that because the economy is growing. We do know--there's no question about this--that as these emissions accumulate--and they will accumulate--the total concentration of greenhouse gases in the atmosphere will grow. It's already grown to nearly double what it was before the Industrial Revolution. It will continue to grow. There's no doubt about that. The next thing there's no doubt about is that that will have an impact on the climate--on temperature, average temperatures, and on other measures of climate such as variability, possibly sea levels, and so on. There's no doubt about that. We know that increases--for example, we know that increases in the greenhouse gas concentration in the atmosphere will eventually have an impact on temperatures worldwide, and will raise average temperatures worldwide. There's no doubt about that. And lastly, there's no doubt about the fact that that's not a good thing. That that will have an adverse impact on human welfare. So, there's no doubt about those things. We all know that. Russ: Could I ask you just about a couple of those? Guest: Yeah, sure. Russ: Well, before I do--I'll let you finish. Say where the uncertainty is. Guest: So we know those things will happen. Now here's what we don't know. Let's suppose, what happens when the concentration of greenhouse gases in the atmosphere doubles? What will that do to the temperature? Will it push the temperature up by 2 degrees Celsius? by 3 degrees Celsius? by 5 degrees Celsius? That's what we don't know. We don't now how bad it will be. It could be that the impact will be quite limited, maybe 1 or 2 degrees Celsius, and it won't happen for 50 years. It could be that the impact would be much worse than what we expect. Maybe it's 5 degrees Celsius and could happen well within 50 years. That's what we don't know. The second thing we don't know is: Let's suppose the temperature goes up by 3 or 4 degrees Celsius. Which is substantial. What would that do to human welfare? What would that do to the economy of the United States, of Europe, of other countries, to the world economy, if temperatures go up by 3 or 4 degrees Celsius? Would we be able, for example, would we be able to adapt? We know that higher temperatures have an adverse affect on agriculture in many parts of the world. But might we be able to adapt to that by developing new types of grains, new strains, new types of things we could plant? Maybe do agriculture in other regions--maybe there would be more agriculture done in Canada and less in the southern part of the United States? Could we adapt? We don't know a lot about that. We think we could to some extent. We don't know how much. So, likewise, with health effects. We know that higher temperatures will imply greater transmission of disease, of communicable disease. Can we adapt to that? Can we find ways to respond to that, to reduce the impact? Perhaps. So, once again, we know that higher temperatures will have a bad effect. That's a bad thing. We don't know how bad. We don't know how much harm it will cause, 50, 100, or 150 years from now. The vast--the difficulty--we know it's bad. We don't know how bad.
28:10Russ: And as you point out, 100 years, it's not tomorrow. There would be time for this adaptation to take place. We just don't know how easy or hard it would be. When we talk about adapting, we have some evidence, of course, on our ability to adapt. As you point out in one of your papers, people moved west in the United States, had to find different soil, different climate. They found ways to farm in those places. We don't know, as you point out though, whether a 5 degree or worse, conceivably, maybe it's 6 or 7, maybe it's 150 years from now--but we don't know how easy or hard that would be in particular. What about the sea level effects, which a lot of people have some very scary scenarios about? Is there potential for adapting to those, or is that genuinely scary? Guest: I think the answer is both. In some parts of the world, there is a potential for adaptation. The Netherlands, much of the Netherlands is below sea level. So there are potentials for adaptation. But it would be every expensive in many parts of the world, and maybe infeasible. I think a country like Bangladesh would be in terrible shape if the sea level was to rise by 10 meters or something. Five meters, even. Countries like Bangladesh would have a very, very difficult time. They could adapt, and probably what would happen would be at least an attempt at huge migrations of people out of Bangladesh into--where? Is India going to open its arms and say, you are all welcome here? So, that's a problem. Russ: And there's cultural effects. Even if they did go, there's cultural losses and changes, some for the better, some for the worse that would result from that kind of massive migration. It would take place over a long period of time. Possibly. You don't have to move to higher ground tomorrow. But you would find that increasingly parts of the country would not be habitable. Guest: It would affect the United States, parts of the United States would have issues. Even New York City (NYC), we saw during Hurricane Sandy flooding in New York City that we'd never seen before. We know that NYC would have issues. Now again, there are things that could be done. They are expensive, but there are things that could be done. Maybe not eliminate but at least reduce the impact of the higher sea levels in places like New York. Russ: Well, closing Yankee Stadium would be a net benefit, but that would only be one of the many effects. My listeners know I'm a Red Sox fan; you're at MIT, so I'm playing to that. Guest: I grew up in New York, so I still have fond memories of-- Russ: Well, I'll turn on my empathy and try to not let it affect my interview.
31:02Russ: What about offsetting other types of climate change, cyclical, secular types of trends that aren't related to human effects? Changes in sun spots, changes in the sun, changes in other things that are not human? So, we assume that everything else the same--you use the phrase 'business as usual'--even if we did business as usual plus some reduction in carbon, is it clear that we know what the net effect on climate would be 100 years from now--not just from the fact that that relationship appears to be somewhat variable and uncertain right now, but that there may be longer term trends? We know there are such trends in the earth's climate. Is that an issue that anybody talks about? Guest: No. Because those other, natural trends are trends that happen over time horizons like 25,000 years. Not over 100 years or 200 years. So, first of all, there's variability. And, you know, the weather varies enormously. You are going to have extremely hot summers; you are going to have extremely cool summers. That happens. But these sort of long-run--another ice age or something like that, that's over many thousands of years. That's not really an issue here. The kinds of things we're talking about here, climate change that's induced, climate change that's caused by human activity, namely burning carbon--that is something that would happen over the course of 100 years or 200 years or something like that. So, it's something that would affect maybe 2, 3, 4 generations from us. Russ: So, getting back on track: The bottom line of what you are saying is: We know the sign of these relationships; we know whether it is positive or negative. We might have a pretty good idea. We just don't know the magnitudes. Now why is that so important? Because I think a lot of people would say: So, we don't know just how hot it will get. We don't know just how difficult it will be for human activity in the face of hotter climates. But it's all bad, so we just need to put some tax on carbon. Guest: So, of course the question is just how big a tax. We'd like to know how serious the problem is in terms of translating that into the size of the tax. Do we need a tax on carbon that's on the order of $20 or $30 a ton of carbon dioxide? Which would be the equivalent to maybe a tax on gasoline of say $.30/gallon. Not a very big tax. Or is it something like $200 or even more per ton, which would be a much larger tax and would be the equivalent to something like $3.00/gallon tax on gasoline? So we'd like to know how big that tax should be. The problem that we face--one could argue: let's just wait and see. Let's maybe not do anything right now, or maybe let's have a very small tax right now, and let's wait and in 10 years or in 20 years we'll see how things are developing and then if we see things are going the wrong way, you know, the warming is happening faster than we thought, we can increase the tax. Here's the problem. The problem is that when these greenhouse gases build up in the atmosphere, they stay there. The rate at which they dissipate is very, very slow. So, these greenhouse gases will accumulate in the atmosphere and if we then stopped burning any carbon--I mean, we literally stopped burning carbon, period-- Russ: Which would be quite challenging, potentially-- Guest: Which would be quite challenging. But let's suppose hypothetically we could still do it. We would still have this high concentration of greenhouse gases in the atmosphere that would continue to contribute to warming. We could continue to have warming for the following 40, 50 years. Even if we stopped completely. So that's the difficulty, is that if we wait 20 years, or 10 years, during those 10 or 20 years we continue to burn carbon, we continue to increase the atmospheric concentration of greenhouse gases--that stuff stays there. And then if in 20 years we say, oh my God, we should have done more to stop this because it's too late, it's already there in the atmosphere. So that's the problem. Russ: And is there any potential--I know there are people talking about it--any potential for scientific, technological solutions to that large concentration that just sits there even if we cut back to zero? And by the way, I always like to point out to people, they say, we'll go back to living in caves: Of course, when you are living in caves you have to generally stay warm at night on lots of the earth, so you can be burning wood; and wood has got a lot of carbon in it. So, this thought experiment is a very primitive one. But: is there any technological possibility that those concentrations could be reduced through some human intervention? Guest: Right. So, there's something called geo-engineering. And what geo-engineering means is we engineer the earth. We change--we make some changes to our earthly environment. And there are a number of things that have been proposed. The one that has received the most attention, that seems the most likely to actually work, although it has its own issues, is seeding the atmosphere with sulfur particles. And the way to think about this is to remember what happened when Mount Pinotubo erupted some 10 years ago, maybe it was more--I forgot the date. But when Mt. Pinotubo erupted it spewed huge amounts of sulfur into the atmosphere. That's what a volcano does. And the result of that is that temperatures, global temperatures, dropped, by a half to one degree Celsius for several months. Until finally the sulfur in the atmosphere dissipated. So the idea would be to do a Mount Pinotubo for the entire planet. What we would do is we would seed the entire atmosphere--even go up higher into the stratosphere--with sulfur particles. And those sulfur particles would reflect sunlight. And by reflecting sunlight we'd absorb less sunlight. It would have a cooling effect. It would counteract to some extent the effect of the greenhouse gas concentration. So this has been discussed as an alternative. The idea is, look: If we don't do anything else, if we are unable to have an international agreement where we tax carbon or otherwise limit greenhouse gas emissions, if we simply can't make it happen, and we find out in 40 or 50 years, good grief, the temperature is rising rapidly and we are in big trouble, what could we do? One possibility is to use this form of geo-engineering which is to seed the atmosphere with sulfur particles. This is not risk free. This has issues. But that's what has been talked about. That's the main type, the main idea behind geo-engineering as an alternative. It's not--it's an alternative in the sense that if everything else fails, this is what we might do. Russ: Any prognosis on that as a possibility? Guest: Well, there's two issues. The big issue is: Does it have any negative effects? And unfortunately, it does. The negative effect is that sulfur in the atmosphere eventually comes down in the form of sulfuric acid. So what it would do is eventually, gradually acidify the oceans. And also lakes and rivers and so on. Now, then the question is: How bad is that? How bad a thing would that be? I mean, the oceans have a lot of water in them. You could dump a lot of sulfuric acid before the level in the ocean becomes noticeable. But what would it do? And you'd have to keep seeding the atmosphere. It isn't just that you do it once and you are finished; everything's fine now. You'd have to keep doing it, because the sulfur particles will eventually come down. They'll fall down in the form of rain. So you have to keep doing this every year or every couple of years or every few years. You have to keep re-seeding the atmosphere with sulfur particles. And that means that there's going to be an ongoing, continuing rainfall into bodies of water that is acidic--that has sulfuric acid. Now, we don't know very much about what that would do. What would that do to fish? What would it do to the entire ecosystems that exist in the entire oceans? So, we don't know what would happen. And that's why everybody hasn't jumped up and said, hey, no problem with global warming; all we have to do is spray sulfur into the atmosphere. Russ: Detonate some volcanoes. Guest: Well, yeah. You can't detonate volcanoes. But this idea of spreading sulfur into the atmosphere. So, it's something that's out there. It's something we may end up having to try if things get bad. Who knows?
40:59Russ: So, given what you've said, it seems--and I'm not quite as confident as you are about the level of certainty about all the steps, but what we do agree on is the uncertainty about the magnitude. Wouldn't the lesson then, the implication, be that: Well, there's a potential for catastrophe, a black swan of really awful possibility--10 degrees, huge impacts on human well-being, massive costs in the next 50-150 years. Isn't the prudent path then to put on that $3.00/gallon gas tax, which is not so horrifying--I think in the United States it would be less than the tax in some parts of Europe. What's the big deal? Shouldn't we be cautious, prudent, and follow a path like that? Let's worry about the worst case scenario and be prepared. Guest: Well, I think that's a good argument. And I think that's an argument a lot of people make. I'm somewhat sympathetic to it. Look, first of all, we are not talking about a black swan. A black swan happens once every 10,000 years. We are talking about something that could happen with maybe probability 5%. Well, that's a small probability. Russ: Not the same. Guest: But if you knew--no, it's not the same. It's significant. It's unlikely; it's still a very small chance. But it's large enough that you'd want to worry about it. I mean, I don't think you'd go up in an airplane if you thought there was a 1% chance that the plane might crash. So, that's why we spend a lot of money taking all kinds of precautions to make sure that air travel is safe. Very, very costly to make sure that air travel is safe. But we do it because we don't want to get into those kind of catastrophic situations where a plane crashes. So, I think there's a very good argument for that. And at this point we know there is this possibility of a catastrophic outcome. It's unlikely; it might be low probability. But if it happens, it's going to be pretty bad. And as you said: Look, you go anywhere in Europe and you pay the equivalent of $8 or $9 a gallon for gas. Here in the United States gas is very cheap relative to Europe. So it's not such a big deal. It's certainly something that people could live with. Russ: Part of the reason it's not such a big deal is that Europe's a smaller place. So it would change--it would have some potentially large effects on the United States.
43:50Russ: So let's turn to that issue, which is the cost side. We've talked about the uncertainty about the benefits. What kind of assumptions are made when we are trying to assess the costs of a $3/gallon gas tax? Or a more serious tax on carbon across the board? How would it change economic life here? Guest: Well, I think one way to think about that is to remember what happened starting in the early 1970s, 1974, when there was a sharp increase in oil prices. So, the United States had always enjoyed very, very low energy prices, oil and other fuels as well, until about 1973 during the Yom Kippur War between Syria, Egypt, and Israel. And the Arab members of Organization of Petroleum Exporting Countries (OPEC) at that time tried to embargo the United States. Now they couldn't actually embargo the United States, but what they did do is reduce their production and their exports of oil. And the result is that the price of oil and the price of gasoline in the United States jumped. It jumped quite a bit; it more than tripled at the time. And it contributed to inflation. And it also damaged economic growth to a certain extent, maybe for a year or two it cut a half a percent off the growth rate. We had another oil shock back in 1980-1981. You might remember that that was the time of the Iranian revolution of 1979, is when the Iranian Revolution began. And then the Iran-Iraq War, which started around 1980. And what the Iran-Iraq War did is to greatly reduce oil production and exports from both Iran and Iraq. And the result was another sharp rise in oil prices. So, oil prices jumped--again tripled in the space of a couple of years. That had an impact on inflation. It was a contributor to the high inflation rates of the early 1980s and 1981 and 1982 we had a double-digit inflation in this country, 11-12% inflation. And it also had an adverse effect on economic growth. So you could ask, what would happen in the United States if today we doubled the price of oil, let's say, through a carbon tax. Now nobody's talking about a tax that big, that would double the price of oil. But you could still ask what would happen if we did. And there are a couple of big differences from 1982 or the 1970s that would make the impact much smaller. One big difference is that oil and energy for that matter is a much smaller part of our economy than it was back in the 1970s and early 1980s. This country, as well as other developed countries like Europe and Japan are much less dependent on energy than they used to be. We are much less, we say, 'energy intensive.' The energy intensity--the amount of energy we use per dollar of Gross Domestic Product (GDP) is much lower today than it was 20 or 30 years ago. And that means that a sharp increase in the price of oil or energy in general would not have as big an impact. And would not contribute much to inflation. In fact, in 2007, 2008, we did have a sharp increase in the price of oil. The price of oil jumped from about, oh, $60 a barrel in early 2007 to $140 a barrel by November of 2008. It was a huge increase, that had almost no impact whatsoever on the rate of inflation. We've had very low inflation in the United States and in Europe. It had almost no impact at all. And it had very little impact--some but very little--on economic growth. So I think the bottom line here is that: Look, it's a cost. If you are going to go out and buy gasoline you'd rather pay, I don't know, $4/gallon than you would $5/gallon or $7/gallon. Of course. But it's unlikely that something like that would have a major negative impact on growth or inflation. It's something that I think we would easily absorb. Especially if it happens slowly. No one is proposing suddenly imposing a $3 tax on gasoline. Nobody would do that. We would do it slowly so there would be more time for adaptation. People would have time to gradually, when they bought a new car it might be a smaller car, more fuel-efficient car, and so on.
48:55Russ: So, I'm going to challenge this prudent argument about doing something rather than nothing in a minute, but I want to add one more factor to this measurement of costs and benefits. I'm not an expert in the area, but when I looked at your estimates, your discussion of the estimates of the costs and benefits, it seems to me that most of them are dealing with monetary effects. That is, the fact that it might be harder to farm, in some places easier to farm but other places harder. There might be losses in well-being because we have to spend more money to keep cooler, to be comfortable. Do any of these integrated assessment models, these attempts to do a full picture of the costs and benefits, do they look at loss of biodiversity, the esthetics or complicated effects of species loss, potentially, because of habitat destruction because of climate change? Nobody's looked at those, right? Guest: No. Those are additional losses that their models don't even include. Russ: I just wanted to get that on the table. Because I think that's a--it's obviously an enormous area of uncertainty. Environmental economists have tried to use various clever ways of assessing the value people place on biodiversity, your willingness to pay to keep the Grand Canyon preserved or pristine. There's many problems with these methodologies; we're not going to get into them. But obviously it's another area where there's presumably a cost, very hard to measure it with any precision. Guest: Right. And those costs aren't even included when people talk about the impact of climate change. You know, there are two kinds of costs that you could consider. That are considered. One is what we call 'direct economic costs.' So those are, for example, reductions in the production of lumber, impact on forestry. Agricultural impacts. Other types of production that could be impacted by higher temperatures. Those are direct monetary costs. Then there are what we call the 'indirect costs,' which are sometimes difficult to put in monetary terms, so we try to do that. So for example, there's the expectation that higher temperatures would lead to a greater frequency of communicable disease--more water-borne parasites, more disease of various kinds. Perhaps greater rates--we know that people die when temperatures go up; when you have a very hot summer, people die if they don't have air condition, if they don't have access to air conditioning. There's significant rates of death from that. So people can make projections about how many more deaths there might be on average as a result of higher temperatures. And then what people do is try to translate that into monetary terms. They try to come up with an equivalent measure of lost GDP so that they can think about this when doing cost-benefit analysis. They don't even get to the biodiversity. We don't know how to put a monetary value on that. We don't know how to deal with the loss of pristine wilderness, for example. But what people do is they try to look at the direct economic impacts and these other indirect impacts that occur through health, migration, things of that sort. Russ: Just an aside, before we get to this last issue. At one point you suggested that these economic effects, the measurable parts that you are talking about--you said they might not just be uncertain, but unknowable. Why is that and what do you mean? Guest: We don't have the economic theory and the data that we would need to actually estimate these with any kind of precision. And it is quite likely that we are not going to have that kind of data or that kind of theory, certainly the kind of data that we would need. It's unlikely we are going to have it in the next 10 or 20 or 50 years. So that's what I mean by 'unknowable.' It's just that we may not be able to come up with good estimates of what those costs, impacts will be. That's the problem.
53:19Russ: So, let me challenge this prudence argument that says--sometimes it's called the 'precautionary principle,' better safe than sorry. One of the things I really like about your paper in this area is that you are writing about this in a--first of all you are very aware of the limitations of so-called 'economic science', which I appreciate. But more than that, you are asking the question: if you care about the environment, if you are a policy economist in this area, what should be your position and how would you use economics and econometrics and our measurement tools to make that position justifiable and somewhat meaningful? I want to suggest a different approach and get your reaction, which is this: Given that these kind of changes--the precautionary approach of, well, we don't know exactly what a 5% chance there is of a horrible outcome--we don't know exactly how horrible the 5% chance is or the 1% chance so it's better to be cautious and put a significant tax on now, or let it be put on slowly but eventually it would rise to a serious level. My perspective on this is, as you say, there's certainly a lot of uncertainty about the exact magnitudes, but what I'm not uncertain about is the political implications of giving some kind of international body the power to limit global carbon emissions. So, the United States acting on its own is not going to have a very significant impact. We have billions, unfortunately, billions of people with very low standards of living. I very much want to see their standards of living climb; I want to see them see growth. That growth is at least in the short run--that means the next half century, maybe 20, 30 years, maybe longer--that growth requires carbon. I want them to grow. So, to limit growth around the world via carbon abatement is going to require a level of international control that to me is extremely unattractive, on what we call political economy or public choice grounds. And so until I see the likelihood of the worst case scenarios coming forward, I would be extremely cautious in advocating for a serious carbon tax on prudence grounds. What's your reaction to that? Guest: Well, first of all, let's be clear. I don't know anyone who is advocating world government, that the United States submit its sovereignty to some kind of world government that decides how much carbon we can burn or what kind of carbon tax we are going to have. Nobody suggests that. What we are talking about is hopefully getting some kind of an international agreement. That's all. Not somebody that would tell us what we have to do. But we would try to negotiate something where we thought it was beneficial to the United States and for the rest of the world, and other countries did, too. Look, the fact of the matter-- Russ: We haven't been very successful at that, though. Right? Guest: No, but we haven't tried very hard at that. We didn't sign the Kyoto Protocol. So, we have not bought in. Governments in the United States--sequence of governments and the Administrations-- Russ: politicians-- Guest: yeah--have not bought into this. There is a lot of resistance to doing anything about climate change. And there's still resistance. So, it's a difficult situation because sure, it's not just that the United States and Europe and Japan would have to agree. They probably would agree to a carbon tax or some other kind of equivalent reduction in emissions. But you'd have to get countries like China and India to agree; and who knows if that's even possible. So that makes it difficult. And I'm actually somewhat pessimistic about the likelihood of an agreement occurring and the likelihood that we are going to do anything. I think that we should. I think that we ought to have a carbon tax. I think that it ought to become clear to people, not just economists, politicians, and the public at large that there is a social cost of carbon. That there is a cost to society of burning carbon that goes beyond the individual cost you pay when you buy the carbon. And I think it's very important for people to understand that. It may be a while before we figure out what the right number is, but I think it's important to get started. And try to get some countries on board. We're not going to get the whole world on board. There are going to be free riders. There are going to be countries that say, well that's great that the United States and Europe are doing it; we're going to keep burning all the carbon we want. That's going to happen. Hopefully there won't be too many of those free riders. But I think that's what we should do. Now, what we will do is maybe a very different story, and I'm actually quite pessimistic. I think it's--I don't see much happening, at least in the next 5 years. But who knows. I'm pessimistic. Russ: When I look at the 50 year or 100 year horizon and, as you point out, there's a certain set of changes that are baked into the atmosphere, literally, we really don't have much control over, some of the louder voices and some of the more worried people--they invoke some serious, frightening things. If you really thought human survival was at stake, if you really thought we are talking about a massive level of misery in response to that 5% chance or 1% chance of large climate change, it would justify some pretty horrific things on the part of some nations, when those agreements, those international agreements, aren't entered into voluntarily. And I worry about that. Guest: I'm sorry. I don't understand what you are worried about. Russ: Well, if you really thought the world was coming to an end in 50 years and nothing was done, and you watched this, the nations of the world negotiated poorly, you'd start to start thinking about the fact that maybe something more drastic should be done than just sitting around a negotiating table. You might impose your will on people via military force. We are not talking about--I mean, the part that's fascinating about this is we're not talking about, well, it's going to get a little warmer; we're going to have to adapt; we'll do a mix of adaptation. The so-called worst-case scenario, which to me justifies, potentially, serious action--that worst-case scenario could lead to some really horrific things if we can't agree because of the differences between us. We are not a very--there's a big difference between the West, with its very high per capita income, and the poor nations of the world, which again house billions of people. It's not that there's one nation and we can't get them to go along. India and China alone are billions of people. They live very badly. I understand their unwillingness to limit their growth and to bear costs, and they would rightfully argue they should be borne by us. It would make a good movie. I'm sure there's been one. It's not a pleasant scenario. It's not: Well, there's this externality, it means these people are going to die a few years earlier; maybe more people are going to get emphysema. This is massive--the way it's described, I don't know if it's accurate, a 5% chance-- Guest: I think you are going a little overboard. There's the worst case scenario; and there's the worst worst-case scenario. And I think you're on the worst, worst, worst case scenario. I don't think that--when we talked about a 5% chance or even a 1% chance, I don't think it's that bad. I think we're looking at something catastrophic, but not that terrible. It would be something that would impose pretty big costs on the world economy, maybe reduce the effective capital stock by 10% or even 20%. That's pretty bad. Russ: That's not human extinction. Guest: Right. We're not talking about human extinction here. Maybe another topic for another interview we could do is another topic I work on, which is catastrophes more generally. There are other potential catastrophes on the horizon that are probably more, to me, much more threatening than climate change, because they may happen much sooner. Those catastrophes are things like nuclear terrorism. Or for that matter, nuclear warfare. Bioterrorism. Those are human-caused things. Or things like mega-viruses--a virus worse even than what happened in 1918 in the Spanish flu--that kills a chunk of the population of the world. These are things that people who study those things feel that there are very reasonable probabilities of them occurring, not in 50 or 100 years but in the next 10 or 20 years. So, I think there are a lot of bad things that could happen out there. Maybe I'm a pessimist by nature. But I think that we as a government have to start thinking carefully about spending money on ways of dealing with a variety of potential catastrophes that we don't even talk about. We do almost nothing at this point, very little other than intelligence, to prevent the importation of a nuclear weapon into the United States, which could happen very easily. And we don't inspect very much what comes over in ships. It's very expensive to inspect everything carefully. So we don't do it. We don't do very much to prepare for the possibility of an uncontrolled mega-virus. Funding for the Center for Disease Control (CDC) has been cut. And it never was very much to begin with. We don't do much to develop quick response strategies that would help us if we suddenly find ourselves in a situation with an uncontrolled virus that is, you know, just wiping out large numbers of people. There are all these other potential catastrophes that we don't worry about and we don't talk about and we don't do anything about. So, I could certainly imagine that we could get serious about a variety of potential catastrophes and think about what we ought to do and how much of our GDP we should sacrifice in order to reduce those threats. Not just climate change. I hate to make everything on a downer, but I think those are real things.