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  • 14-Feb-09 Cost-Benefit Analysis of Climate Change and the Lifetime of CO2
  • SEPP Science Editorial #7-09
    (in TWTW Feb 14, 2009)

    S. Fred Singer, Chairman and President , Science and Environmental Policy Project (SEPP)

    Cost-Benefit Analysis of Climate Change and the Lifetime of CO2

    Feb 14, 2009

    Economists seem to be making a career out of applying the tools of cost-benefit analysis (CBA) to the climate problem, ending up most recently with the truly grotesque conclusions of the Stern Review. {Nearly two decades ago, I wrote that Wm Cline (The Economics of Global Warming, 1992) was using unrealistically low discount rates to justify huge present costs in order to avoid speculative future damages.}

    But as other economists have convincingly demonstrated (Mendelsohn et al, The Impact of Climate Change on the US Economy, 1994), a modest 2-3 degC greenhouse warming would lead to overall benefits rather than damages. Pray then, what happens to cost-benefit analysis?

    Well, they found a new wrinkle: "Catastrophic" warming. As Ron Bailey of Reason magazine tells the story [Reason Online, 10 Feb 2009 http://www.reason.com/news/show/131604.html ]: How much should we pay to avoid the tiny risk of total destruction? Harvard University economist Martin Weitzman raised the issue by putting forth a Dismal Theorem -- arguing that some consequences, however unlikely, would be so disastrous that conventional cost-benefit analysis should not apply.

    The IPCC-AR4 finds that climate sensitivity is "likely to be in the range 2 to 4.5 degrees Celsius, with a best estimate of 3 degrees, and is very unlikely to be less than 1.5 degrees. Values substantially higher than 4.5 degrees Celsius cannot be excluded." Without going into detail, Weitzman assumes that uncertainties over values higher than 4.5 degrees Celsius can yield catastrophic climate change.

    Then again, Bailey continues, perhaps Weitzman is premature in declaring the death of cost-benefit analysis. Yale University economist William Nordhaus certainly thinks so and has written a persuasive critique of Weitzman's dismal conclusions. First, Nordhaus notes that Weitzman assumes that societies are so risk-averse that they would be willing to spend unlimited amounts of money to avert the infinitesimal probability that civilization will be destroyed. Nordhaus then shows that Weitzman's dismal theorem implies that the world would be willing to spend $10 trillion to prevent a one-in-100 billion chance of being hit by an asteroid. But people do not spend such vast sums in order to avoid low-probability catastrophic risks. For example, humanity spends perhaps $4 million annually to find and track possibly dangerous asteroids.

    Nordhaus also notes that catastrophic climate change is not the only thing we might worry about. Other low-probability civilization-destroying risks include "biotechnology, strangelets, runaway computer systems, nuclear proliferation, rogue weeds and bugs, nano-technology, emerging tropical diseases, alien invaders, asteroids, enslavement by advanced robots, and so on." If we applied Weitzman's analysis to our individual lives, none of us would ever get out of bed for fear of dying from a slip in the shower or a car accident on the way to work.

    Weitzman's analysis also assumes that humanity will not have the time to learn about any impending catastrophic impacts from global warming. But mid-course corrections are possible with climate change.

    People would notice if the average temperature began to increase rapidly, for example, and would try to counteract it by cutting emissions, deploying low-carbon technologies, or even engaging in geoengineering. SEPP: Only one thing might save Weitzman's bleak assessment from Nordhaus' devastating analysis: the 'Bern formula.' BF deals with the 'lifetime' of CO2 emitted into the atmosphere and considers its removal by various natural processes. As opposed to calculations that postulate a decay using a simple 'half-life' of around 50 to 100 years, the BF leads to the conclusion that about half of emitted CO2 will survive for centuries and even millennia. The BF has been enshrined into 'truth' not only by the Bern group (Joos et al), but also by IPCC, James Hansen, David Archer (U of Chicago), and (most recently) by Susan Solomon et al in PNAS [2009] Irreversible climate change due to carbon dioxide emissions. Susan Solomon, Gian- Kasper Plattner, Reto Knutti, and Pierre Friedlingstein. Proc. Natl. Acad. Sci. USA. 2009; 106:1704-1709.

    If the Bern formula were really correct, then the 'peak value' of CO2 would govern the fate of the climate. 'Mid-course' corrections would be ineffective if a substantial fraction of emitted CO2 really had - for all practical purposes - an infinite lifetime. The Nordhaus analysis would have to be modified. One thing can save it though. The BF could be all wrong -- as I once claimed in an impromptu debate with Eric Sundquist (USGS-WHOI) at an AGU Council meeting a few years ago.

    View The Week That Was in which this editorial appeared.

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