Irresistible Economics of Building a Green Economy: Paul Krugman on Climate Change and Risk

Paul Krugman has an excellent piece coming out in this weekend's NYT Magazine.  Krugman, also a Professor of Economics at Princeton University, is a clear and thoughtful writer on American politics.  I enjoy reading him regardless of what his current topic is (see his blog).

The current piece covers the state of climate science, looks at where current policies are likely to get us, and goes over the (small) costs of actually doing things right. 

Joe Romm, another heavy hitter in the world of climate commentary, has provided a good summary of the piece with links to relevant background material.

Here are a few short excerpts to get you started:
"We know how to limit greenhouse-gas emissions. We have a good sense of the costs — and they’re manageable. All we need now is the political will."

"You might think that this uncertainty weakens the case for action, but it actually strengthens it. As Harvard’s Martin Weitzman has argued in several influential papers, if there is a significant chance of utter catastrophe, that chance — rather than what is most likely to happen — should dominate cost-benefit calculations. And utter catastrophe does look like a realistic possibility, even if it is not the most likely outcome."

"Stern’s moral argument for loving unborn generations as we love ourselves may be too strong, but there’s a compelling case to be made that public policy should take a much longer view than private markets. Even more important, the policy-ramp prescriptions seem far too much like conducting a very risky experiment with the whole planet. Nordhaus’s preferred policy, for example, would stabilize the concentration of carbon dioxide in the atmosphere at a level about twice its preindustrial average. In his model, this would have only modest effects on global welfare; but how confident can we be of that? How sure are we that this kind of change in the environment would not lead to catastrophe? Not sure enough, I’d say, particularly because, as noted above, climate modelers have sharply raised their estimates of future warming in just the last couple of years.So what I end up with is basically Martin Weitzman’s argument: it’s the nonnegligible probability of utter disaster that should dominate our policy analysis. And that argues for aggressive moves to curb emissions, soon…."


(Photograph by Yoshikazu Nema; Artwork by Yuken Teruya, NYT)

Comments

3 Responses to "Irresistible Economics of Building a Green Economy: Paul Krugman on Climate Change and Risk"

Anonymous said... 23 April 2010 at 19:45

Hi Alex,

I thought Krugman's piece was basically dangerous. Because it relies on assumptions of growth, very limited necessary GHG cuts and the whole panopoly of neoclassical economic theorizing. Trivially it makes sense to do something about carbon emissions but the debate, I think has move much farther into the realm of 'how much'. How when we look at 'how much' is necessary, it ain't all win/win slender slices of GDP, its more like a serious de-growth initiative and massive challenging the current economic model. There is a massive division, now, in the states, between the "Big 10" ENGOs (Natural Resources Defense Council
et al.) and a few others (Centre for Biological Diversity, 350.org, Friends of the Earth), which aren't afraid to say that we need deep immediate cuts. I cannot see anything Krugman proposing getting us near to 650 ppm C02 by mid century (even if everyone adopted US standards),, let alone the 450 ppm that formed a kind of consensus a few years ago, or the much more realistic 350 ppm that is increasingly being advocated for, by Hansen, McKibben, Bill Rees and others.

Noah Quastel

Alex Aylett said... 23 April 2010 at 23:13

Hi Noah,
in some ways Krugman's piece is an indication of the state of climate policy in the US. As he points out a few times in the article, things are looking very pretty there right now. And from an outsiders perspective, it is pretty distressing to see that a key US public intellectual feels that it is necessary to review and revise four year old arguments that the world was talking about when they first appeared in the 2006 Stern Review.

So up to there, I think we are on the same page. I have to say though, I think Krugman has made some pretty bold statements here, not least:
-- his preference for a rapid hight price on carbon (as opposed to wedge approach that would see prices increase slowly year by year)
-- and his support for James Hansen's call for directly regulating coal burning beyond simple market mechanisms.(I've excerpted that below)

If anything, I think this shows how isolated the US debate on climate policy is. The Stern Review had a huge impact in the UK/EU, but clearly not so in the US. The proposed US climate bill is too weak, but it is a start. I think that Krugman makes a good case not only for passing the current legislation, but for going beyond it. Let's hope he is listened to.

"That said, some specific rules may be required. James Hansen, the renowned climate scientist who deserves much of the credit for making global warming an issue in the first place, has argued forcefully that most of the climate-change problem comes down to just one thing, burning coal, and that whatever else we do, we have to shut down coal burning over the next couple decades. My economist’s reaction is that a stiff license fee would strongly discourage coal use anyway. But a market-based system might turn out to have loopholes — and their consequences could be dire. So I would advocate supplementing market-based disincentives with direct controls on coal burning."

Anonymous said... 23 April 2010 at 23:50

Hi again Alex,

Thanks for the quick response. We agree more than we disagree; I do think Krugman sees the problem as serious and wants to use his position to convince as many people as possible that action is necessary, feasible and will not itself be worse than effects of climate change. And the focus on coal is sensible because it can so easily be substituted by other things--hopefully renewables but more likely natural gas--as in the Colorado/Excel deal to voluntarily switch from coal to natural gas done this month. I can even stomach direct carbon taxes. (Although I would rather see more social program provisioning such as with public transit initiatives or 'climate justice' initiatives like the Canadian Policy Alternatives is working on that concieve of the economy as more complex than the carrots and sticks of 'externality internalization', or even direct consumption-behaviour changes, such as rules in Japan specifying office building temperatures (e.g. not less than 24 degrees in summer to reduce air conditioning use) or banning aluminum cans. But the crux of the problem, in my mind, is the " widespread agreement among environmental economists that a market-based program to deal with the threat of climate change — one that limits carbon emissions by putting a price on them — can achieve large results at modest, though not trivial, cost". The problem is that these models all break down for 80 to 90% emission cuts needed to get us to 350 or 450 ppm worlds. So its A LIE that such cuts can be done at modest costs-- once carbon hits two or three hundred a ton the economists start getting fairly worried about induced recessions, and any modellers I have talked to tend to shrug and say maybe even thousands a ton to get 90% cuts. Using models of Waxman -Markey to point to the low cost of climate action is pretty dubious given that Waxman -Markey wouldn't be achieving very much. (Consider, e.g the low price of carbon credits in the EU market and what that achieves). More recent research that supports the 350 ppm target (by Hansen and also Anderson and Bows at the Tyndall Centre) is bolder and talks of 100% cuts, and even, eg. negative carbon budgets, such as through carbon sequestration of biofuel based energy generation plants. These all point to the no growth camps--people like Bill Rees or Tim Jackson (whose 2009 Prosperity without Growth report is worth reading). And once you take that position the continued reliance of Stern, Krugman and others on justifying climate action by reference to it NOT overly harming growth looks like a backdoor re-affirmation of precisely the dangerous economics myths that need debunking. But, alas, these positions are distinctly off the radar of the 'green economy' thinkers who want, with some good reason, to reframing climate action in terms of new 'green enlightenments' and 'geographies of hope' (as Chris Turner explains things, writing in the Walrus this month). Krugman is popular and well known for a reason, and one of those includes knowing how to make popular and potentially politically effective arguments.

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