Climate economics has let us down
A common argument from climate change minimalists is that its impact on the economy by 2100 will be negligible. They suggest that even if climate change reduces the global GDP by a few percent, the economy will still be significantly larger, perhaps 20 times its current size. So, a slight reduction to 19.7 times larger is seen as a minor issue, suggesting economic growth will offset climate change's impacts. You can see the argument in action here.
A consequence of this is that we don’t have to work very hard to limit global warming. Below is a 2014 talk by Robert Mendelsohn, a professor at Yale, and in it he gives us the mainstream climate economics prescription for climate change: We should be aiming for 4°C of global average warming!
According to Prof. Mendelsohn, keeping global warming to 2°C1 costs 1000x more than the benefits; for 3°C, it’s 100x2. 4°C is the answer:
What about four degrees? When you start to talk about 4°C, you’re probably talking about something where you could argue the benefits are worth the costs, the extra benefit you're going to get to hold things at four degrees is worth it. [45:28]
It’s important to remember that global average warming of 4°C is similar to the warming that transitioned the planet from an ice age to an interglacial, warming that completely re-configured the surface of the Earth. We can expect future warming of 4°C to be an equally epochal shift, irreversibly pushing humanity into new and uncharted climatic territory. Swaths of the surface may become too warm for humans to survive, oceans will acidify, sea level will rise hundreds of feet, and many other climate systems will go to hell.
But, according to Mendelsohn, we can handle it:
If we can hold it at 4°C, we can manage the worst possible things that are going to happen with climate change. You’re going to avoid catastrophic events if we can hold things at 4°C. What does it mean to manage? We will mitigate for the worst … and then we'll adapt for the rest. [47:00]
This argument that “we’ll adapt” is absolutely nuts.
You might be wondering where Mendelsohn’s numbers come from. I recently saw a virtual presentation by Prof. Robert Pindyck, an econ professor at MIT. One of the points he made was that economists were basically making up these estimates of costs and benefits:
For example, economists assumed that damages scale as T2, meaning that going from 1°C of warming to 2°C increased damages by a factor of 4. Where did they get this? They made it up! As Pindyck said: “no data, no theory”, it has as firm a basis as astrology.
If the damages scale by T3 or T4 or some other function that increases much more steeply than T2, then the conclusions could be completely different. Not only do we not know the shape of the curve, we don’t even know if climate change impacts the level of GDP or the rate of growth of GDP — a difference that could lead to estimates that span the entire range of possible outcomes.
As Prof. Pindyck pointed out, these models create the illusion that this is a well-constrained, quantitative, and reliable result, but it is most certainly not. In reality, we have no idea how bad the impacts of climate change will be.
And given how grim things are looking with our present 1.2°C of warming, one would IMHO be completely reasonable concluding that even 2°C of warming will be a true challenge for humanity.
It’s useful to compare this to climate science. Climate science makes predictions based on the laws of physics (conservation of mass, momentum, energy, and a few others). Climate science has made successful predictions for decades.
As far as economics goes, Prof. Mendelsohn was not an outlier — he was espousing a consensus among climate economists at the time. For example, in both of Nordhaus’ books, A Question of Balance and Climate Casino, he says that the optimal amount of warming was around 3.5°C, similar to Mendelsohn’s 4°C.
Not every economist was saying this at that time. A few (e.g., Stern, Weitzman) understood the challenge of climate change and I give them a lot of credit for publicly pushing back against the mainstream.
Ultimately, what does strike me is the absolute confidence Mendelsohn has in his conclusions. There are no error bars on his numbers, no estimates of uncertainty. Watch the video and you’ll see a man who (it appears) has never thought, “What if everything I’m saying is complete bullshit?” Except for the literal last sentence of the presentation, uncertainty is not even mentioned.
Discussing uncertainty would have served him well given that we already know that his numbers are wrong. The rapid decline in the cost of renewable energy has put the world on a path to 3°C of warming in 2100 without extreme or ruinous government action. And the rate of innovation in renewable energy is such that 2°C is certainly within reach — it’s mainly a question of political will.
The good news is that I don’t hear economists talking about optimal temperature responses anymore. And, luckily, the world ignored them when it negotiated the Paris Agreement targets of well below 2°C. But the stain on climate economics is real and will be lasting. Their confident claims about small economic impacts for very large warming combined with estimates of high costs of preventing that warming have been widely used by contrarians to argue against urgent action on climate change. A dismal science, indeed.
Additional reading
The First Step Toward Saving the Planet Is Ignoring the Economists
These are the global average temperature in 2200, so values in 2100 may be slightly lower for the higher targets (e.g., 4°C in 2200 may correspond to 3°C in 2100). For the lower targets (e.g., 2°C), it likely makes no difference since the climate would need to hit that target and stop warming before 2100.
Confusingly, in the video, the numbers he states are a factor of ten less than the numbers on his slides. For example, in the video he says that, at 2°C, costs are 100x benefits while the slides say it is 1000x [45:00].
There are as many different types of economists (and different personalities) as there are scientists. The economists at the Environmental Defense Fund and all those we work with take the dangers of climate changes extremely seriously and are spending our lives working out how to design effective policies and actions to make reaching 1.5, or at least 2 degrees possible - and how to do it while improving distributional equity.
The economics literature on the 'social cost of carbon' suggests a cost per ton of at least US$190 (US EPA proposal). It's not these estimates that are constraining the ambition of climate policies - if we had regulation that strong everywhere most of the problem would be solved already. And those who work on the social cost of carbon recognise that these are significant under-estimates. Incorporating global inequality would raise those costs 2 or 3 times at least as explained by these top economists. https://www.journals.uchicago.edu/doi/abs/10.1086/701900 Don't just listen to the most vocal 'macro-economists' - they don't reflect us all.
Do behavioral economists have similar perspectives to this, or are they more measured? When I look up work/discussions on climate change by Daniel Kahneman, for instance, I see a lot of pessimism in the human spirit to tackle this economically. A very different---but IMO equally concerning---challenge to enable dismissal of action. But this is not an area I am very familiar with.