David Friedman on the costs of global warming

David Friedman has a critique of William Nordhaus’ March 2012 New York Review of Books article on why sceptics are wrong.

Nordhaus claims:

My research shows that there are indeed substantial net benefits from acting now rather than waiting fifty years. A look at Table 5-1 in my study A Question of Balance (2008) shows that the cost of waiting fifty years to begin reducing CO2 emissions is $2.3 trillion in 2005 prices. If we bring that number to today’s economy and prices, the loss from waiting is $4.1 trillion. Wars have been started over smaller sums.

Friedman clarifies:

What he does not mention is that his $4.1 trillion is a cost summed over the entire globe and the rest of the century. Put in annual terms, that come to about $48 billion a year, a less impressive number. Current world GNP is about $85 trillion/year. So the net cost of waiting, on Nordhaus’s own numbers, is about one twentieth of one percent of world GNP. Not precisely a catastrophe.

I suggest a simple experiment. Let Nordhaus write a piece explicitly arguing that the net cost of waiting is about .06% of world GNP and see whether it is more popular with the supporters or the critics of his position. I predict that at least one supporter will accuse him of having sold out to big oil.

Friedman has made a similar point before:

… the benefits of climate control, on Nordhaus’s own figures, are not very large. The optimal policy—for obvious reasons not likely to occur—is calculated to produce a net benefit of about three trillion dollars. That sounds like a lot of money—until one recognizes that it is spread over the entire world and about ninety years. That makes the annual benefit of the ideal policy about 33 billion dollar a year—roughly one percent of the current U.S. federal budget or one tenth of a percent of current world income.

See also Bob Murphy on this topic.

This entry was posted in Global warming and climate change policy. Bookmark the permalink.

22 Responses to David Friedman on the costs of global warming

  1. Tel

    Go the Murph!

    That sounds like a lot of money—until one recognizes that it is spread over the entire world and about ninety years.

    … and is totally speculative at best.

  2. Rabz

    These amounts certainly do seem ridiculous, but I’d still argue that in this country, there have been billions of dollars wasted on this preposterous, fact and evidence free idiocy. The opportunity cost, especially in relation to ensuring this country maintained its comparative advantage in cheap power, has been horrendous.

    I’m being absolutely serious when I say this – there are probably hundreds of people, possibly more, who should be languishing in gaol over the perpetration of this utter insanity.

    :x

  3. Bruce of Newcastle

    A look at Table 5-1 in my study A Question of Balance (2008) shows that the cost of waiting fifty years to begin reducing CO2 emissions is $2.3 trillion in 2005 prices.

    Well, so why is Christiana Figueres saying we have to spend $1 trillion a year on renewable energy? Especially when we are already spending a third of that.

    Fifty years at $333 billion a year is nearly $17 trillion. And fifty years at $1 trillion a year is $50 trillion. To save $2.3 trillion.

    These are immaculate numbers tweeted by the Climate Council, Flannery and Steffens’s reincarnated gig.

    No wonder lefties cannot handle money.

  4. Doug Scott

    I briefly read an article in today’s AUSTRALIAN where it stated, a Russian Billionaire that was buying out a German power company. The reason given, was, that, the company could not compete with the heavily subsidised “green” energy producers. Go figure!

  5. Bruce of Newcastle

    I should add the graph of temperature that Nordhaus uses is his own compilation of the GISS, HadCRUT 4 and USGCN data, all of which are highly corrupted especially with respect to UHIE and arbitrary adjustments.

    But even with all they could do in the last decade each is now falling:

    GISS
    HadCRUT 4
    USHCN

    They are falling because the ~60 ocean cycles (AMO and PDO) have re-entered to their cooling phases and the Sun has commenced a new minimum which so far has been similar to the Dalton Minimum.

    And solar warming and the rise in the ocean cycles caused most of the warming last century. Tax the Sun and oceans if you like…I doubt they will bother to pay up.

  6. JC

    The opportunity cost, especially in relation to ensuring this country maintained its comparative advantage in cheap power, has been horrendous.

    I shudder to think of the opportunity cost of the missing lost production.

    I’m being absolutely serious when I say this – there are probably hundreds of people, possibly more, who should be languishing in gaol over the perpetration of this utter insanity.

    I’m absolutely serious when I say i agree. They aren’t insane, they’re vandals.

  7. Johno

    I’m being absolutely serious when I say this – there are probably hundreds of people, possibly more, who should be languishing in gaol over the perpetration of this utter insanity.

    And why isn’t Abbott calling BS on this one. He knows it BS, but he’s not prepared to take on the Greens (those inside hid own Party, and outside). The longer he faffs around, the more we lose.

  8. Tel

    They are falling because the ~60 ocean cycles (AMO and PDO) have re-entered to their cooling phases and the Sun has commenced a new minimum which so far has been similar to the Dalton Minimum.

    http://joannenova.com.au/2009/05/shock-global-temperatures-driven-by-us-postal-charges/#comment-4574

    BTW: latest comment at Jo’s is 1405604 so I’m like a 1%er or something.

  9. stackja

    In a 2007 decision on this question, the Supreme Court ruled clearly on the question: “Carbon dioxide, methane, nitrous oxide, and hydrofluorocarbons are without a doubt ‘physical [and] chemical…substance[s] which [are] emitted into…the ambient air.’ …Greenhouse gases fit well within the Clean Air Act’s capacious definition of ‘air pollutant.’

    So now the US Supreme Court is now the preeminent scientific authority on climate science.

  10. Baldrick

    The cost of adaption (if or when it’s required) will be much cheaper and more sensible than spending trillions now on mere prophecies from people no better than Nostradamus.

  11. jupes

    And why isn’t Abbott calling BS on this one.

    Why aren’t any of them?

    The day someone stands up in parliament and claims that the globe isn’t warming and even if it was, there is precisely nothing the government can do to control the weather, will be the day that marks the beginning of the end of this fraud.

  12. thefrollickingmole

    Its even madder when you consider it this way..

    The ALP must surely know in its heart of hearts that one of the main reasons Aussie businesses cop high wages/conditions is because we have/had a massive advantage in low cost energy.

    They have allowed themselves to break that model over AGW. The party of the worker deliberately put in place a policy to retard wages growth and lower conditions of employment, not to mention the job losses..

    I honestly want that put to them in parliament, why has the workers party turned into the wankers party?

  13. Andrew

    So the cost of inaction is estimated at $4tr over 50 years.

    Great – were spending $300bn pa. The cost of green worthless rubbish is 4x the cost of doing nothing, and 50x the cost of simply accepting that it’s going to be slightly warmer for our grand kids, while crops flourish and then adapting to it.

    Sounds compelling.

  14. samuel j

    Nordhaus is absolutely wrong in his critique of benefit-cost ratios. He says that one should use the difference between the benefits and the costs. But that is only true if the benefits and costs are KNOWN. If the cost is estimated to be say $50 billion and the benefit $55 billion that is a net benefit of $5 billion. But if the benefits and costs are not accurately estimated it could be a net cost.

    The advantage of using benefit / cost ratios is to guard against estimation errors. So a 55/50 benefit cost ratio is insufficient to be confident of a net benefit and should be rejected. But a $3 billion benefit for a $1 billion cost has a benefit cost ratio of 3:1 and is more likely to be a net benefit. I would choose the latter project over the former. He erred by forgetting the opportunity cost of the investment. In the former example, I am investing $50 billion in the hope of getting $55 billion – not a very wise investment given the interest costs of the $50 billion and the uncertainty of the estimates of costs and benefits.

  15. samuel j

    PS: when did Nordhaus go off the rails? He was a sterling (excuse the pun) critic of Stern and his ridiculously low discount rates. Somehow he has crossed to the dark side. Perhaps he is in it for the money. Lots of climate ‘scientists’ are in it purely for the money. I don’t mind opportunism, but I despise hypocrisy.

  16. JC

    I am investing $50 billion in the hope of getting $55 billion – not a very wise investment given the interest costs of the $50 billion and the uncertainty of the estimates of costs and benefits.

    He ought to ask the movie studios about 5/5.5 ratio when investing $50 billion. It’s a long, long way from zero.

  17. Michael Webster

    Actually, Nordhaus puts the damage per year at 2.5% in his book. Still, that’s a very low figure – though he does point out that money spent on abatement more than pays for itself.

  18. manalive

    The underlying assumption seems to be that the global temperature (whatever that is) was perfect for humanity at some time in the past perhaps 1950, or 1750 when the current warming phase began i.e. the best of all possible climates.
    I’d like to know what they calculate the cost of that warming to have been, how much better off would we be now if that warming had not occurred or if the planet continued to cool.

  19. Eyrie

    Climate control by government? As if we actually know what any of the control knobs really do.
    Come to think about it that sounds about right for government. It is like putting a bunch of chimpanzees in the control room of a nuclear reactor.

  20. Combine Dave

    PS: when did Nordhaus go off the rails? He was a sterling (excuse the pun) critic of Stern and his ridiculously low discount rates. Somehow he has crossed to the dark side. Perhaps he is in it for the money. Lots of climate ‘scientists’ are in it purely for the money. I don’t mind opportunism, but I despise hypocrisy.

    Who funded his research? = follow the money.

  21. Alan Moran

    Interesting comment from Richard Tol on the Nordhous paper that 1.2 degrees would be optimal but that we cannot stop at that level.

    Lindzen estimates the doubling of carbon dioxide concentrations would bring an increase of 1.2 degrees (most of which has already happened) and further increases would bring a negligible temperature effect. Lewis and Croc suggest 2 degrees as a best estimate.

  22. I’m absolutely serious when I say i agree. They aren’t insane, they’re vandals.

    They’re wreckers, JC. And we all know what happened to wreckers during the Glorious Peoples Revolution, don’t we?
    Off to the Gulags with them…

Comments are closed.