Scientific American: Is climate change a problem?

Gary Yohe:
Yes. I think it's become increasingly clear that the risks associated with climate change are getting larger. The thresholds of what a lot of people would consider dangerous anthropogenic interference with climate are getting lower and therefore nearer in the future. It's certainly something to take seriously. The evidence over the last five years has essentially been moving in only one direction, and the new knowledge says that climate change is more of a problem than we thought even five years ago.

SA: What are sound estimates of the damage from climate change?

GY:  Damages are mostly calibrated in risks, these days, and many escape quantification in dollars and cents—or any other currencies. There are a wide range of economic estimates of the marginal cost of a ton of carbon in the atmosphere. They depend on how you discount the future, equity weighting, value judgments like that, and also on what you assume about how the climate and the global economy are going to evolve over the next century or so. So the range of estimates begins with small negative numbers and extends all the way up to $150 per ton. The range is not particularly informative, though it is informative to look at why they vary so much. It makes a lot more sense to take a look at key vulnerabilities in chapter 19 of the Working Group II contribution to the IPCC "Fourth Assessment Report" or the tables of thresholds of temperatures where certain risks calculated in millions of people at risk of hunger or coastal flooding begin to become apparent that are reported in chapter 20. Many of these were picked up in the recently approved "Synthesis Report"; and many begin at a degree or two of warming. You take a look at those risks and that makes you ponder the effectiveness of various policy options and interventions to reduce those risks, either [by] reducing greenhouse gases or promoting adaptation.

Damages can be calibrated in changes in the distribution and frequency of extreme events like droughts, floods, coastal storms. Sea level rise in and of itself makes coastlines more vulnerable even if there's no change in that storm frequency. Then if they become more frequent and intense that only amplifies damages.

The things that scare me are irreversible thresholds. One of these is dramatic reduction in the Arctic ice sheet. Recent measurements suggest that we may have crossed a threshold that commits  to losing the ice sheet. This year the ice sheet area was 25 percent lower than ever before. Every winter, of course, it freezes up and then melts again in the summer; but if it freezes less than it melts and we pass below that critical level, then it's gone—sort of like a fishery. Even though there may still be fish, if you pass below the critical level [where there are enough young fish to replace the older fish being caught] then the fishery is doomed. I'm an economist and I'm a consumer of those risks. Those are risks for which some degree of prudence in sorting out the price of greenhouse gas emissions as a way of reducing the risks makes some sense. As soon as a climate risk that you find inappropriate is shown to be large, either because its consequence or its likelihood is large, then the cheapest way of reducing that risk is to start now.

SA: How should that be done?

GY: My idea would be to try to think about policies  that would provide appropriate incentives in ways that are consistent with a least-cost approach to long-term intervention. That's a fancy way of saying we should start with a price for carbon in, say, 2008. I favor a tax, but cap and trade is also fine. Something at $15 per ton increasing with the rate of interest would get to $30 per ton by 2020–2025. That level seems to be the magic point at which switching from coal to natural gas and utilizing existing carbon sequestration technologies become economically viable. It would not inspire people to immediately go out and buy an environmentally friendly car. But when it's time to buy a new car, they'll buy something with greater fuel mileage and lower emissions. That initial price on carbon would translate to 15¢ per gallon of gasoline, not particularly draconian. It will be the persistent increase in price—so everybody knows carbon will be more expensive the year after next year and even more expensive the year after that—that will inspire the correct decisions.

It is also important to think about funding adaptation both in the U.S. and abroad. We need a portfolio of both mitigation and adaptation strategies. We need to figure out how to adapt and how to underwrite adaptation to find out where it will do the most good; and we need to set up appropriate incentives so that people don't maladapt.

SA: What will that cost?

GY:
That's not something for which I have a precise answer. A 15-cent-per-gallon-of-gas price rise pales in comparison with what the U.S. economy has experienced in the past year and a half due to instability in the Middle East.

We economists are about the opportunity costs. The dollars that you invest today as a small fraction of the economy in project X cannot also be invested in project Y. We strive for the efficient allocation of those sorts of efforts. We do that kind of thing all the time. The government tries to manage all sorts of risks with things like rules for exposure to carcinogens or the hazards of travel. Estimates of the marginal cost of a life saved is all over the map. I submit that the economic cost per human life saved from global-warming induced hunger or coastal flooding in the middle of the century is much, much lower than the cost we pay now for saving lives by reducing exposure to formaldehyde, asbestos and other risks that have attracted the attention of various regulatory agencies in the United States.

SA: What is a good policy solution?

GY:
I prefer a carbon tax for lots of reasons. I think that it would be easier to administer. There are a few thousand points of entry for carbon in the U.S. economy and a few tens of millions points of entry for carbon into the atmosphere. The revenue from a tax could be used for lots of smart things, like technology research and development or reducing the regressivity of the climate tax by lowering the income tax. You could also pay to reduce the vulnerability of people who work in sectors particularly hard hit by climate policy. Or the carbon tax could be used to underwrite carbon mitigation options; you could, for example, buy back the carbon if someone has taken the initiative to develop a way to capture and store it.

I don't prefer cap and trade in the case of carbon dioxide, even though it worked for sulfur dioxide in this country. Unlike acid rain damage, which depends on current sulfur emissions, all you need in the case of carbon is for the average emissions to fall in a predictable trajectory so their sum over 100 years falls below a desired target. Whether it's high or low in one particular year doesn't matter. It is most economically efficient to allow emissions to bounce around an average as they move along a lowering trajectory. A tax allows that, cap and trade doesn't.

SA: Then is the Kyoto Protocol a good framework for such a program?

GY: Kyoto's almost over and it hasn't really worked. Emissions are higher than anticipated. It calls for short-term targets that are not necessarily consistent with attempting to be informed by risks as they become clear and making adjustments accordingly. In the short term, we need to get the train out of the station [on emission cuts] without doing undue harm. I don't think Kyoto has done much harm, but it hasn't done much good either. New negotiations on the next round of policies will continue in Bali in December; they will be fully informed by the acceptance of a risk management approach in the "Summary for Policy Makers" of the "Synthesis Report" accepted in Valencia on November 17th. Out of that, I think, will come the conclusion that we need to think about protecting flexibility, adaptation as well as mitigation. If that's all part of the successor to Kyoto, then the planet has a chance to save itself. The critical thing is that the U.S. has to participate in all of the discussions and commit to the program. If the U.S. takes the lead, a lot of other countries will follow.

SA: Should this be viewed as a risk management problem?

GY: Yes, sort of a global application to the notion of insurance. Insurance is one of the tools that people create and use when they face risks of this sort. Insurance can take many forms; the point is simply to spread risk. It's like back in the old days when people used to store harvests from good years so that in lean years they would have something to eat. That was an insurance policy.

SA: You participated in a follow-up exercise to Bjorn Lomborg's Copenhagen Consensus, which gathers economists and other experts every few years to examine 10 challenges facing the world and assess 40 proposed opportunities to remedy each of them. These expert panels have concluded in the past that opportunities to address climate change are the least important. Why did you participate and what did you think of the experience?

GY: My participation was a little bit of an experiment, and it was satisfying. We gave presentations on these 10 pressing challenges and the 40 solutions to overcome them to a collection of United Nations ambassadors and to a group of college students. The idea of giving the same presentations to these two different groups and then letting them rank the solutions struck me as a really interesting thing to do.

For the ambassadors, including John Bolton [then U.S. ambassador to the U.N.], climate change solutions [such as carbon taxes] still finished last, in part because the Copenhagen Consensus assesses everything within a cost–benefit framework. Climate change is a long-term problem full of uncertainties, so the framework is a bit unsuited for the task. When you try to push climate into that framework, the risks overwhelm the cost–benefit approach. Still, the students ranked the climate-related solutions in the top 10.

I can understand how the original Copenhagen Consensus ranking came about, but the IPCC "Fourth Assessment Report" also links climate risks to sustainability. If you try to make progress on other issues like health, migration or whatever and ignore climate change, you're going to be swimming upstream. It will be much harder to achieve those objectives. Dealing with climate has to be part of a portfolio approach. The "Fourth Assessment" observed tackling HIV / AIDS, poverty reduction, education, gender equality and things like that across the world is, in many regards, really good climate policy, because it increases the capacity to adapt and eventually increases the capacity to mitigate. So these things are all complements of one another. When I participate in exercises like the Copenhagen Consensus, I am not necessarily asking for all of their money—I just want some of it. Climate change is in the first rank of intertwined problems to which we have to devote some effort.

SA: Why should people trust your analysis?

GY: Nobody's projection of the future will turn out to be right, but I think that perspectives that recognize the risks are closer to being right than perspectives that claim that nothing is happening. It is really dangerous to argue that uncertainty is a reason not to do something about this. For those who say climate change isn't a problem I ask: Can you guarantee that you are right? Can you guarantee that humans are not the cause of climate change? Of course, they cannot. As a result, there is clearly a reason to do something to avoid the risks posed by climate change. And then simple economics tells you that the most cost-effective way of responding is to start now. I'm sure I'm right on that.