Posted by on June 3, 2013

In the spring, watching the snow accumulate outside one’s window, a young man’s fancy lightly turns to thoughts of climate change.

I have followed the debate about man-made climate change (so-called anthropogenic global warming or “AGW”) from a distance. Even from afar, one thing is clear: the scientific evidence is ambiguous and likely to remain so for a long, long time. As a complicated process operating in small increments over a long period of time, the chances are very good that a scientific consensus on the causes of climate change will never arrive and, even if it does, that consensus may be wrong.

However, I am not sure that the argument over the science doesn’t largely miss the point. One of the basic rules of decision making is always to ask the question What if we are wrong? In the case of climate change, we could be wrong in two ways: we can take preventive action which will ultimately prove to be wasteful because AGW does not exist; or, we can fail to take preventive action against the real threat of AGW.

In the case of the former mistake, the consequences are bad, but not horrendous. Standards of living will be lower than they otherwise would have been because of the resources wasted in combating a fictional AGW, but I doubt the change will be monumental. (It shouldn’t surprise readers of this blog that conventional measures of the standard of living, such as GDP and employment, will not show even this small diminution in wellbeing, since money spent on superfluous preventive measures will make the same contribution to GDP and employment as money spent more wisely. But we will know better.)

Moreover, even this “misspent” money will have other beneficial impacts. Decreased carbon emissions require reduced consumption of fossil fuels, through greater energy efficiency and the development of alternative power sources. It goes without saying that these advancements would have enormous environmental and political benefits for Western society even without consideration of their impact on a potential AGW. Even though an AGW false alert would have a negative impact on standards of living, it would be mitigated by these beneficial impacts.

Now, let’s consider the consequences of the second type of mistake, underestimating the risk of AGW and failing to take preventative measures. These are likely to be far from trivial. Much of the existing human and physical capital, based on current climatic conditions, would be rendered obsolete or severely impaired. This would have a large negative impact on standards of living. Aside from this economic impact, the risk and damage to human life from sharply changing weather patterns and natural disasters would be large. Moreover, the direct damage to the economy and human life would likely be greatly amplified by politics, as forced migrations, selective impoverishment and disrupted living patterns would greatly increase strife, both domestic and international.

This line of reasoning leads to the conclusion that the current argument about AGW and the needs for preventative measures is fundamentally misguided. The scientists will never be able to give us certainty. But that does not mean that we cannot make a robust decision. After considering the relative downsides of the two strategies, the decision is pretty obvious: we must take preventative measures and promptly, since the costs of prevention will increase exponentially with further delay.

Which leaves the question of which measures to take. America has been making noise about energy conservation and the development of alternatives since I was a small boy and watched a sweater-wearing Jimmy Carter on television. Progress has been made, for sure, but America has always lacked the political will to take the one step that would make a decisive impact on both of these fronts: the imposition of a large tax on petroleum and other fossil fuels. CAFE standards, the subsidization of solar energy à la Solyndra, home insulation requirements, etc., all of these have been indirect and usually ineffectual ways of trying to achieve what the price mechanism would automatically bring about.

The economic and geopolitical case for such a tax is compelling. I recently watched a documentary entitled Fixing America , a movie produced by my friend Steve Laffey. One of the commentators (Dylan Rattigan) stated that, if the American public were charged the true cost of its gasoline addiction, including the military expenditures needed to secure supplies and the environmental impact of burning gasoline, then the figure would be about $15 per gallon. I have no idea if this figure is accurate, but I certainly do know that a price that almost entirely ignores these negative by-products is not correct. And I also know that, until the price mechanism is enlisted aggressively, all attempts to promote conservation and the development of alternatives will fail.

As a general matter, I am not in favor of social engineering through the tax system. However, the case for sharply higher taxation on fossil fuels is overwhelming. For me, it is a litmus test of the political maturity and courage of the American public and any politician. Any energy policy that does not prominently feature a tax on fossil fuels should be recognized as politics as usual and dismissed with disdain.

Roger Barris, Switzerland

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Posted in: Policy

Comments

  1. Gary Ford
    June 3, 2013

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    It’s always amazing to me how useful familiar, fundamental concepts (such as, costs of Type I and Type II errors, expected value and externalities) are at illuminating root issues associated with contemporary problems.

  2. Roger
    June 4, 2013

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    Thanks, Gary. Yes, it is Type I and Type II errors, although I tried to avoid those terms because during my college career, I could never remember which was which!

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