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Yves is here. In addition to the important reasons given below that exclude economists from the climate change debate, there is another reason that even Nicholas Stern tried to use net present value to look at Failed by climate change. Anyone who has built a financial model will tell you that almost anything that happens more than 30 years later has no value, because almost any positive interest rate will cause a very long-term effect to be discounted to zero.
A better way to think about climate change is insurance, where buyers deliberately pay a healthy amount that exceeds the expected risk because they cannot afford the adverse effects. Here, the disadvantage is disastrous.
We wrote about William Nordhaus before. It’s too polite to call him a shame.
Author and entrepreneur Jag Bhalla.Originally published on dark
Annoying truth An important feature of the climate crisis is that it requires humanity to take action on what we do today Believe It will happen in the future, which requires us to believe in the predictions of mathematical models. A more intractable fact-fueling seemingly endless political disagreements and inertia-is that not all these models are created equal.
Take the work in 2021 as an example Nobel laureate Syukuro Manabe and Klaus Hasselmann, their models accurately predict the global warming and climate change we have experienced in recent decades. Their work has inspired complex ocean-atmosphere models that can take months to process on the world’s fastest supercomputer.Climate physics foresees that the earth will undergo an essentially irreversible transformation or tipping point, entering a The changing biosphere If global temperatures are more than 2.7 degrees Fahrenheit (1.5 degrees Celsius) higher than pre-industrial levels-we can reach a threshold in the next few years ten years.
Comparing this severe forecast with that of a dynamic comprehensive climate economic model, William Nordhaus of Yale University won the 2018 Nobel Prize in Economics. DICE is simple Version Some of these can be run in Excel. Nordhaus suggests that society’s best climate trajectory-the trajectory that strikes the best balance between the economic harm of global warming and the cost of climate action-will correspond to a global temperature rise of 6.3 in 2100. Fahrenheit (3.5 degrees Celsius). (Please note that the DICE model can generate a range of results. A 2020 Paper Use this model to support the UN’s climate goals as the best trajectory. Here, let us pay attention to the influential award-winning works of Nordhaus. )
It can be said that the influence of DICE and its economic models on climate policy far exceeds that of models in physics. The Nordhaus style model reinforces the ubiquitous concept The social cost of carbon – which one Trying to quantify The dollar amount of economic losses per ton of carbon emissions-they have led to decades of policy inaction. Of course, we can take action on the climate now, and these models show that if we act too fast or too tough, we will damage the economy.
Even important economists object to this conclusion. Nicholas Stern of the London School of Economics and Political Science wrote in a 2013 report: “It is irresponsible to act on the economic model that currently dominates policy analysis as a wise central case.” Paper It is believed that economic models have dangerously downplayed the risks and urgency of the climate crisis.
I will go further: these economic models are fundamentally flawed, and without them, climate discussions would be better.
This is because, in essence, models like DICE try to do something that economics simply cannot do: They try to quantify the effects of conditions that humans have never seen on an economy that does not yet exist with seemingly feasible precision. Impact. They try to predict the economic impact of global warming in the distant future Nowadays The correlation between temperature changes and economic activity.
This risky approach has many flaws.
As economist Steve Keen said famous, These models can exclude most economies. Nordhaus’s 1991 model assumed that trade, manufacturing, finance, and other sectors—which together accounted for 87% of total economic output at the time—are not affected by climate change because they occur indoors, otherwise “insignificant”. But climate change will not only produce higher temperatures, its impact will definitely affect indoors. Rising sea levels and floods may disrupt every sector in coastal areas; increasingly intense storms will threaten the supply chain; wildfires or cold currents may crash the power grid. Economic models have overlooked such obvious interdependence, which is disturbing.
Another disadvantage of DICE models is that they assume a smooth relationship between temperature rise and the economic impact of climate change based on little physical evidence. In mathematical terms, the “damage function” that describes the assumed relationship between economic loss and temperature takes the shape of a quadratic curve. But we know from physical models that climate change will not be gradual and continuous; it will be marked by vicious cycles and critical points, which will suddenly transform our biosphere into a completely different system, which may exceed promises. Assumptions of the Dhaus model.Keane has Quoting this shortcoming As one of the many flaws that “may be so large that it threatens the survival of human civilization.”
It is unbelievable to just think that models using today’s economic data can meaningfully tell us the economic output of the distant future under the conditions of climate collapse. A century ago, a computer like the one I was writing this article could not even be imagined. The global economy 100 years later is equally unimaginable. In addition to temperature, the countless factors that affect today’s economy are unlikely to have the same impact in the post-critical world as they do now.
This general short-sightedness is what economics writer Noah Smith said that climate economics has “Let us down“And DICE’s proposal is “obviously banana pants.” Many others agree. For example, Tom Brooks of the European Climate Foundation and New York University economist Gnot Wagner Argue “Economics needs a climate revolution.”
To be fair, Nordhaus does not hide the key limitations of DICE. In the 2013 user manual of the model, he described his optimal climate trajectory as an unrealistic scenario, but it is still useful as a “benchmark for measuring the efficiency of other policies”. He pointed out that many economic models do not include costs that are difficult to model, such as biodiversity loss, ocean acidification, sea level rise, and ocean circulation changes. Instead, they are guessed at by additional “adjustments” and set at a total loss of 25%— —This number seems to be arbitrary.
However, the predictions of these models—especially estimates of the social cost of carbon—are seen in the media and policy circles as having the same rigorous atmosphere as physics. A “science” full of flaws and fabricated factors is not a science on which we should bet our children’s life prospects.
Our most serious mistake may be to let economic thinking dominate the steering wheel. When considering cost-benefit trade-offs abstractly, it is easy to ignore our moral compass and forget who is hurt. Physics tells us that the carbon we emit today will cause hundreds of years of suffering-and disproportionately, poor countries will feel this pain. By using cash as a universal standard, economists have essentially underestimated the needs of the poor and even their rights, and their contribution to the climate crisis is minimal.
Lisa Heinzelin Write“The basic premise of cost-benefit analysis is that there are no rights, only preferences.” Until the preferences and biases hidden in economic methods are changed to reflect more fair and just values, they should not become our main guides for dealing with complex ethical issues.
The reason for taking strong action on climate change should be moral, not economic. Should we calculate the best social cost of slavery?Cheap sugar does not justify slavery, the scientist and abolitionist Joseph Priestley correctly observed in the 18th century sermon About the slave trade. Cheap energy should not be an excuse for deliberately harming the billions of the poorest people on the planet, the unborn generations, and-in the near term-the countless other people we are close to and cherish.David Wallace-Wells famous In his book “Uninhabitable Earth”, this is “an all-encompassing crisis, spare no effort, leaving no life and no deformation.”
Skilled users of any tool must understand its limitations. No matter what economists are doing, it is not like physical modeling. But policymakers and authority figures seem to deliberately see it as such. This is a serious empirical, logical and moral error.