Climate Change Economics Stupidity / Madness / Insanity

subtitle: the stupidity / madness / insanity of the likes of Nordhaus and Tol makes me Insanely Mad!

The mythical economic data on climate change (1): Nordhaus’s 1994 survey of “experts”. Steve Keen. June 30, 2019.

As part of my critique of mainstream economics work on climate change, I'm going through each of the 14 data points that Nordhaus used to fit his damage function to "data" in the manual to his DICE program {Nordhaus, 2013 #5673}. These came from a survey paper by Tol in 2009: "The Economic Effects of Climate Change" {Tol, 2009 #5683}. Nordhaus later revised his function, given errors he belatedly spotted in Tol's table {Nordhaus, 2017 #5584}, but there were many errors he didn't see that I'll cover first before turning to his 2017 paper. The paper in question here is: 

Nordhaus, W. (1994). "Expert Opinion on Climate Change." American Scientist 82(1): pp. 45–51. 

For context, Figure 1 shows Tol's table, highlighting the numbers he gave for this paper (which are erroneous), while Figure 2 shows all the numbers Nordhaus used, with this pair—a 3 Kelvin (K) increase in temperature, and a 4.8% fall in GDP)—highlighted. 

...

 

Aside from the not surprising finding of great dissension, the opinions of experts revealed major differences among disciplines, particularly between mainstream economists and natural scientists…" (45. Emphasis added) 

This is emphasised in the descriptive text for the figure that highlights the whole paper:

Figure 1. Will greenhouse warming lead to fruitless plains or fruited paradise? Experts on global change are deeply divided on this question. At one extreme, the author's survey shows, are mainstream economists who view the prospect of greenhouse warming with little concern, confident that human societies will adapt handily to such changes. At the other extreme, natural scientists worry about major and irreversible impacts unpredictable extreme events, such as shifting ocean currents or migrating monsoons. Which picture more closely depicts the future reality cannot now be predicted. (pp. 46-47. Emphasis added)

... 

What this shows is that mainstream economists are generally climate change trivializers— not that they know anything meaningful about the magnitude of disruption to the globe's ecological and economic systems that will result from climate change.  The 30-times difference in expectations of serious disruption from climate change between scientists and economists  should have been the takeaway from this survey, not the average of the expectations of damage.

Bjorn Lomborg, The Gullible Environmentalist. Steve Keen. June 10, 2019.

Writing in the New York Post last week, Bjorn Lomberg argued against calling climate change "catastrophic", and quoted a United Nations report which alleged that global warming will have only a trivial effect on global GDP over the next half century. As he put it, the total impact of global warming by 2070 will be no worse than a single recession, 

...

The definitive overview of these studies (there were 20 studies as of 2014, when the report was published) is provided by the leading co-author of the chapter Lomborg cites, Richard Tol (Tol 2009; Tol 2018). All of them are studies by economists, and as is well-known, economists are fond of making what they call "simplifying assumptions". 

Of all the assumptions behind these studies, my favourite—if that is the right word—is what Tol describes as "the statistical approach", which "assumes that the observed variation of economic activity with climate over space holds over time as well" (Tol 2009, p. 32). 

In Tol's words, what this means is that these economists performed "some sort of regressions of variations of an economic quantity over space on climate variations over space" (Tol 2018, p. 1), and found a weak, nonlinear relationship between GDP today and temperature today. They then used these results as a proxy for the impact of the increase in temperature from global warming on GDP.

...

Nonetheless, that's what they used this data to do. Nordhaus, for example, asserted that global GDP would fall by 1% if global temperature rose by 3°C (Nordhaus 2006, p. 3517, Table 2)—and this became one of the data points in the IPCC graph of temperature versus damage to GDP (see Figure 2). But all he was entitled to assert was that if one location (say, Chicago) has a 3°C higher average temperature than another (say, Copenhagen), then it is likely to have a 1% lower GDP. 

The absurdity of using relationships between temperature and GDP by location to predict what will happen to GDP from global warming is more obvious in an earlier IPCC report, written by a related group of economists to those who wrote the 2014 report. Chapter 6 of the IPCC report Climate Change 1995: Economic and Social Dimensions of Climate Change, entitled "The Social Costs of Climate Change: Greenhouse Damage and the Benefits of Control", states that: 

Most models assume a nonlinear (convex) damage temperature relationship, resulting in damages of 6% or higher for 10°C warming. (Pearce, Cline et al. 1995, p. 183) 

It could be quite valid to say that statistically, a location whose average temperature today is 10°C higher than some other location is likely to have a GDP that is 6% lower. 

But to say that a 10°C rise in global temperature will only reduce global GDP by 6%? That is madness. A 10°C rise would ultimately melt all of Earth's glaciers, inundate the world's coastal cities, and drastically alter the climate of the planet. The last time the planet was that much warmer was over 50 million years before humans evolved: the planet would be unrecognizable. You simply can't extrapolate from conditions in our current world to one that is 10°C hotter. A model that estimates a mere 6% fall in GDP as a result of that increase in temperature is an absurd model.

...

So should you have faith in the IPCC's prediction that climate change will reduce GDP by less than 2% over the next fifty years? Only if you can trust the "simplifying assumptions" made by the economists who wrote that part of the IPCC report. 

The actual climate scientists who write other parts of the IPCC report certainly don't trust the economists. They can't say so in the IPCC report itself, because of the consensus rules that determine what the IPCC can and can't publish. But they are certainly saying so in their own academic papers. A recent paper by 16 climate scientists advised strongly against the methods that economists use to decide whether we should take action against climate change:

Current rates of change of important features of the Earth System already match or exceed those of abrupt geophysical events in the past (SI Appendix). With these trends likely to continue for the next several decades at least, the contemporary way of guiding development founded on theories, tools, and beliefs of gradual or incremental change, with a focus on economy efficiency, will likely not be adequate to cope with this trajectory. (Steffen, Rockström et al. 2018, p. 8257. Emphasis added)

Rather than being blasé about the impact of a 10°C increase in global temperatures, these scientists are worried that even a 2°C increase will trigger feedback effects in the climate that we will be powerless to reverse:

Our analysis suggests that the Earth System may be approaching a planetary threshold that could lock in a continuing rapid pathway toward much hotter conditions—Hothouse Earth. This pathway would be propelled by strong, intrinsic, biogeophysical feedbacks difficult to influence by human actions, a pathway that could not be reversed, steered, or substantially slowed. Where such a threshold might be is uncertain, but it could be only decades ahead at a temperature rise of ~2.0 °C above preindustrial, and thus, it could be within the range of the Paris Accord temperature targets. (Steffen, Rockström et al. 2018, p. 8257. Emphasis added)

They therefore argue that we should do everything possible to avoid a 2°C increase in global temperatures:

Precisely where a potential planetary threshold might be is uncertain. We suggest 2 °C because of the risk that a 2 °C warming could activate important tipping elements, raising the temperature further to activate other tipping elements in a domino-like cascade that could take the Earth System to even higher temperatures (Tipping Cascades). (Steffen, Rockström et al. 2018, p. 8254)

With global temperature already 1°C above pre-industrial levels, we're already half-way to the threshold that climate scientists warn could lead to catastrophic change to the biosphere, and therefore dramatic damage to the economy as well. So don't trust what a tiny cabal of mainstream economists tell you about climate change. Don't be gullible like Bjorn Lomborg. We only have decades left to avoid a catastrophe that, as usual, economists cannot see coming.

An extraordinary Twitter Exchange with Richard Tol. Keen. June 21, 2019.

I had an extraordinary Twitter Exchange with Richard Tol over the last few days. I've written this post to preserve that exchange in case, at a future date, Tol decides to delete his tweets. They provide a superb window into the thinking that lies behind mainstream economic modelling of climate change, and why this has led to humanity dangerously delaying taking action against climate change.

By the way, do please read the Wikipedia entry I linked to above, firstly because it gives a pretty realistic picture of Tol's position on climate change—which aligns him with the "Skeptical Environmentalist" Bjorn Lomborg—and secondly because it is under dispute because it was substantially edited by Tol himself! That's an enormous faux pas which, characteristically, Tol is incapable of appreciating. Here's the Talk page on his entry:

Figure 1: The discussion of Tol's Wikipedia page in which he acknowledges that he wrote much of it himself



For those who don't know, Tol is one of the leading economists working on climate change. He is the author of the FUND "Integrated Assessment Model" (IAM) which is one of the key models used by the IPCC (Intergovernmental Panel on Climate Change) to assess the economic impacts of climate change.

Tol has also been an author of the economic impact sections of the IPCC Reports, especially the 1995 report {Bruce, 1996 #5707} in which the following observation was made:

Most estimates are for equilibrium climate change associated with a doubling of the preindustrial C02 equivalent concentration of all greenhouse gases. Best-guess central estimates of global damage, including nonmarket impacts, are in the order of 1.5=2.0% of world GNP for 2xCO, concentrations and equilibrium climate change. This means that if a doubling of C02 occurred now, it would impose this much damage on the world economy now… 

Most models assume a nonlinear (convex) damage temperature relationship, resulting in damages of 6% or higher for 10°C warming. {Pearce, 1995 #5716, p. 183}

Figure 2: The authors of the 1995 assessment, including Tol

What? A 10°C increase in the average global temperature would reduce global GDP by a mere 6%? How on Earth did they come up with that figure? Even those who claim that the Sun is actually causing the rise in temperature, or that the temperature is actually falling, should see red with this claim. Humanity has never existed in, let alone experienced, a planet with that temperature. How on Earth would such a drastic change in temperature make such a tiny difference to GDP?

As the italicized section of the previous quote makes clear ("if a doubling of C02 occurred now, it would impose this much damage on the world economy now"), this is not the result of applying a high discount rate to future enormous damages: this is the actual estimate they made of how much lower GDP would be in a world with a 10°C higher average temperature (relative to pre-industrial levels), relative to one in which the global temperature was no different to pre-Industrial levels.

The reason, as I realised about two weeks ago when I read Tol's article "The economic effects of climate change", is that they are using data on GDP and temperature today across the globe (and primarily, across the USA) as a proxy for what will happen when global temperatures rise:

Mendelsohn assumes that the observed variation of economic activity with climate over space holds over time as well; and uses climate models to estimate the future effect of climate change… Like Mendelsohn, Nordhaus and Maddison rely exclusively on observations, assuming that "climate" is reflected in incomes and expenditures—and that the spatial pattern holds over time. {Tol, 2009 #5683, p. 32}

These regressions show a weak quadratic relationship between temperature and GDP today, which is why the "damage functions" in Nordhaus's DICE model is a simple quadratic with a tiny coefficient. Nordhaus assumes that the decrease in GDP that will result from a change in temperature relative to pre-industrial levels is the change in temperature squared, multiplied by 0.00227 (or 0.227%):

The parameter used in the model was an equation with a parameter of 0.227 percent loss in global income per degrees Celsius squared with no linear term. This leads to a damage of 2.0 percent of income at 3°C, and 7.9 percent of global income at a global temperature rise of 6°C. {Nordhaus, 2018 #5691, p. 345}.

I was simply gobsmacked when I realised that this was the basis of the benign predictions of the impact of climate change on the economy that the IPCC parrots. I had thought that the cause would be something disputable, like different levels of discounting, or complicated, like the impact of the assumptions of the underlying Ramsey growth model (a foundation that all IAMs share with the RBC and DSGE models that #Irony did such an excellent job of warning about the Great Recession before it happened). But instead it was this mind-numbingly stupid assumption.

In case that isn't obvious to you, here's a little illustration using the opposite phenomenon—global cooling. The assumption that these "climate economists" made works both ways: if today's temperature:GDP relationships can be used to predict the impact of global warming, they can also be used to predict what would happen with global cooling. That actually helps to put a handle on how monstrously stupid this assumption is, because while temperatures that many degrees above current levels haven't been experienced for millions of years, temperatures 4 degrees below pre-industrial levels were experienced by our ancestors as little as 20,000 years ago.

Figure 3: Representation of estimated global temperatures from 500 million years ago till now



This visualisation by the Zurich University of Applied Sciences shows the extent of glaciers at the Ice Age peak 21,000 years ago—when the average global temperature was 9°C, versus the 14.4°C average today, and the 13.7°C pre-Industrial level.

Figure 4: The Earth during the last Ice Age 21,000 years ago. Click here to see a time-lapse visualisation



So all of Canada, most of Europe, and a fair slab of the USA would be under glacial ice, if temperatures fell 5.4°C—or 4.7°C relative to pre-Industrial levels. How much does Nordhaus's damage function reckon that GDP would fall, relative to a world that remained at today's temperature?

There would be a 6.4% fall in GDP.

Let's unpack that a bit. I'm sure Tol would dive in with a caveat here, that such a change would take centuries, and we'd have plenty of time to adapt—he made precisely the same case in reverse in our exchange over global warming. Sure, fine. But the concept underlying these "damage functions" is that they tell you what GDP would be in two different worlds: one where humans didn't have to cope with temperature change at all, and GDP grew with today's human wealth unaffected, and one where we do have to adapt to temperature change.

So let's imagine two Earths, identical in all respects today and with identical technology in the future as well (because these Neoclassical models assume technology improves at an exogenously given rate, and is unaltered by climate change).

In the former world, all of today's factories, houses, cities and indeed nation states can just continue. Resources are devoted to creating new capital via investment, but zero resources have to be devoted to moving technology from one place to another, or to replacing infrastructure.

In the latter world, with glaciers taking over such trifling human settlements as New York, Chicago, Minneapolis and Toronto, those cities would have to abandoned, along with all the factories that produce output there today, and either moved or rebuild closer to the Equator. The descendants of today's roughly 150 million residents (37 million Canadians and about 100 million Americans) would have to move south too—maybe to Mexico, which I'm sure would be happy to accommodate them (pardon me, but I simply can't maintain an academic straight face as I dissect this nonsense).

Figure 5: Zooming in to focus on North America



Imagine the scale of destruction of existing infrastructure that has taken two centuries to construct. Try to imagine the resources that would need to be devoted to shifting existing resources, or, more commonly, replacing resources that could not be shifted, and had to be abandoned to the advancing ice.

Imagine, just to make it a fair contest, that we had 500 years to do it—in line with the length of time that Tol thinks it would take for sea levels to rise 6 metres under global warming.

Do you really think that, after 500 years, the economy of the global cooling Earth would be just 6.4% smaller than the constant temperature Earth?

Of course not. So much of the Global Cooling Earth's resources would need to be devoted to rebuilding, moving, resettling, etc., that there's no way it would suffer just a 6.4% fall in GDP relative to its climate-change-free twin. A huge proportion of its resources would have to be devoted to replacing the infrastructure destroyed by the glaciers. It would be lucky to have any resources left to expand output.

These niceties are completely ignored by Tol, Nordhaus et al. with their crazy assumption that climate:GDP correlations today can be used to predict what will happen as global climate changes over time.

So though Tol, Nordhaus and friends have produced numerous seemingly scientific mathematical models of climate change and economics, they ignore the fact that such huge changes in climate will destroy much of the existing resources of the global economy, and require a huge proportion of our productive capacity to be devoted, not to expanding output, but to replacing capacity destroyed by climate change.

They are not scientists in any sense of the word, but fantasists who simply believe that the magic ingredient they describe as "the incredible adaptability of human economies" {Nordhaus, 1994 #5699, p. 48} will overcome any problems. All their models tell us is that they have faith—and a faith that bears no relation to the actual way in which capitalist economies function, nor to the threats that global warming will pose to the ecosphere as well as the economy.

As I note in the exchange with Tol, they are not climate change deniers, but climate change trivializers. Had they not poked their noses into this issue, human societies could well have started managing their impact upon the biosphere shortly after the Limits to Growth {Meadows, 1972 #4784} study was published in 1972. Instead, thanks to them unjustifiably undermining the credibility of that report, we have lost half a century of adaptation. Their attempts to eulogise capitalism may end up leading to its destruction.

So much for the prelude. Below are links to Tol's tweets, as well as images of the exchanges in case Tol later deletes his tweets when it proves expedient to do so. After all, if he's willing to edit his own Wikipedia page, it wouldn't be surprising if he removed potentially incriminating tweets as well.

https://twitter.com/RichardTol/status/1140513746571464705?s=20

https://twitter.com/RichardTol/status/1140523232782671873?s=20



https://twitter.com/RichardTol/status/1140536347293310977?s=20



https://twitter.com/RichardTol/status/1140584301307793409?s=20

Key Tweet: see next section https://twitter.com/RichardTol/status/1140591420144869381?s=20


https://twitter.com/RichardTol/status/1140618253384998914?s=20



https://twitter.com/RichardTol/status/1140620174363627520?s=20

https://twitter.com/RichardTol/status/1140621628012924929?s=20

https://twitter.com/RichardTol/status/1140623105322377216?s=20

https://twitter.com/RichardTol/status/1140625044688838656?s=20

https://twitter.com/RichardTol/status/1140627214632988676?s=20



https://twitter.com/RichardTol/status/1140628124679454720?s=20

https://twitter.com/RichardTol/status/1140632103463333892?s=20

https://twitter.com/RichardTol/status/1140632795968081920?s=20

https://twitter.com/RichardTol/status/1140633320755257344?s=20

https://twitter.com/RichardTol/status/1140633723853004802?s=20





https://twitter.com/RichardTol/status/1140640237724590080?s=20

https://twitter.com/RichardTol/status/1140684964087947264?s=20

Follow on from key tweet

https://twitter.com/RichardTol/status/1140591420144869381?s=20

https://twitter.com/RichardTol/status/1140669525081415680?s=20

https://twitter.com/RichardTol/status/1140591756964192256?s=20

https://twitter.com/RichardTol/status/1140928458853421057?s=20



https://twitter.com/RichardTol/status/1141285166951936000?s=20

https://twitter.com/RichardTol/status/1140618253384998914?s=20

https://twitter.com/RichardTol/status/1140620174363627520?s=20



https://twitter.com/RichardTol/status/1140621628012924929?s=20

https://twitter.com/RichardTol/status/1140623105322377216?s=20

https://twitter.com/RichardTol/status/1141050873809899521?s=20







https://twitter.com/RichardTol/status/1141585185575702528?s=20

https://twitter.com/RichardTol/status/1141591925432213506?s=20

https://twitter.com/RichardTol/status/1141596267522547717?s=20



https://twitter.com/RichardTol/status/1141601347210502144?s=20

https://twitter.com/RichardTol/status/1141629791172476928?s=20



https://twitter.com/RichardTol/status/1141753535513714688?s=20

https://twitter.com/RichardTol/status/1141776842967388161?s=20



https://twitter.com/RichardTol/status/1141683256640921600?s=20



https://twitter.com/RichardTol/status/1141688413436948480?s=20









Bruce, J. P., H. Lee, et al. (1996). Climate Change 1995: Economic and Social Dimensions of Climate Change, Intergovernmental Panel on Climate Change.

Meadows, D. H., J. Randers, et al. (1972). The limits to growth. New York, Signet.

Nordhaus, W. (1994). "Expert Opinion on Climate Change." American Scientist 82(1): 45–51.

Nordhaus, W. (2018). "Projections and Uncertainties about Climate Change in an Era of Minimal Climate Policies." American Economic Journal: Economic Policy 10(3): 333–360.

Pearce, D. W., W. R. Cline, et al. (1995). The Social Costs of Climate Change: Greenhouse Damage and the Benefits of Control. Climate Change 1995: Economic and Social Dimensions of Climate Change. Contribution of Working Group III to the Second Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge, UK, Intergovernmental Panel on Climate Change: 183-224.

Tol, R. S. J. (2009). "The Economic Effects of Climate Change." The Journal of Economic Perspectives 23(2): 29–51.

TolTweetsTrivializingClimateChange201906.pdf

from comments

Justin Wood:

The cavernous ignorance in saying a current 10K temp difference between Alaska and Maryland means 10K global surface temp increase is all totally fine is truly staggering. You fail first-year climate science students for this sort of nonsense.

The increase in energy retained by the Earth-atmosphere system at a 10K rise is gargantuan. As someone points out in that thread, the superstorms, flooding, droughts, disease vectors, and who knows what other catastrophes we'd unleash would wipe out much of the species. And that's not even accounting for the max wet-bulb temperature humans can physically survive in (hint: much of the planet would be unsurvivable).

Words fail.

James Hutchinson:

10 C increase in global average temperature, we will just move indoors!?! This is the level of thinking from a respected economist, what a moron.  How did he get his piece of paper from an actual university?  How does he even tie his own shoelaces without trying to use magic?   I'm not sure economics can be saved at this point. 

Prof Steve Keen:
It can't, in my opinion. These intelligent morons have it in an intellectual strangehold, and they literally won't let go even if the environment starts going to Hell. I think the only option is to shut economics programs down and use the staff as 1st year mathematics tutors, which most of them could be capable of. But get rid of the bloody discipline. They're supposed to analyze capitalism, and instead they'll be the death of it.

Wouter Verlinden:

haha, that Toll guy is really bizar. 

"it is possible to imagine a scenario in which climate change does cause violent conflict"... "There are three reasons to assume that this is unlikely"..." Second, drought is only a real problem for the poor"...."Poor and exhausted people are unlikely to take up arms, and if they do, they are probably not very effective. "

It's really there. In writing. 

https://web.archive.org/web/20110719103630/http://www.mi.uni-hamburg.de/fileadmin/fnu-files/publication/tol/RM8133.pdf

Ok, only poor people will die. That's not really important. And if they start fighting, they will be so hungry, they can't put up a decent fight.

Alrighty then.  ¯\_(ツ)_/¯