Peter Lang and Ken Gregory: Global warming may be beneficial for the global economy

A recent paper, Lang and Gregory (2019) Economic impact of energy consumption change caused by global warming, finds global warming may be beneficial for the global economy. We reproduce the Abstract and two excerpts from the Discussion section in this blog post. We encourage you to read the entire paper.

Abstract: This paper tests the validity of the FUND model’s energy impact functions, and the hypothesis that global warming of 2 °C or more above pre-industrial times would negatively impact the global economy. Empirical data of energy expenditure and average temperatures of the US states and census divisions are compared with projections using the energy impact functions with non-temperature drivers held constant at their 2010 values. The empirical data indicates that energy expenditure decreases as temperatures increase, suggesting that global warming, by itself, may reduce US energy expenditure and thereby have a positive impact on US economic growth. These findings are then compared with FUND energy impact projections for the world at 3 °C of global warming from 2000. The comparisons suggest that warming, by itself, may reduce global energy consumption. If these findings are correct, and if FUND projections for the non-energy impact sectors are valid, 3 °C of global warming from 2000 would increase global economic growth. In this case, the hypothesis is false and policies to reduce global warming are detrimental to the global economy. We recommend the FUND energy impact functions be modified and recalibrated against best available empirical data. Our analysis and conclusions warrant further investigation.

Figure 15 plots the global economic impacts by sector as a function of Global Mean Surface Temperature (GMST) change from 2000 to 2100 projected by FUND. The total of all impact sectors, and the total excluding energy, are also shown.

With energy impacts excluded, FUND projects the global impacts to be +0.2% of GDP at 3 °C GMST increase from year 2000. With the energy impact functions misspecifications corrected, and all other impacts are as projected, the projected total economic impact may be more positive.

The conclusion that 3 °C of global warming may be beneficial for the global economy depends, in part, on the total of the non-energy impact projections being correct, or more positive. Whether this is the case needs to be tested.

Policy Implications

The economic impact of climate policies is likely to be substantial. It is the sum of the economic impact of the policies and the cost of implementing and maintaining the policies. If global warming is beneficial, as this study indicates may be the case, then the total economic impact is the sum of the forgone benefits of the avoided global warming plus the cost of policies to mitigate warming.

Our analysis suggests that the overall impact of global warming may be positive – that is, it would increase global economic growth. If this is correct, then the positive impacts can be maximised and the negative impacts minimised by increasing wealth, but not by reducing global warming. Tol [6] concludes that the negative impacts of global warming can be reduced by reducing global warming and/or reducing poverty. However, if global warming is beneficial, then polices aimed at reducing global warming are reducing global economic growth.

According to Lomborg [28] any reductions in temperature resulting from the Paris Agreement promises would be minimal but at high cost. For example, Lomborg says that all Paris promises 2016–2030 will reduce global temperatures by just 0.05 °C in 2100, and by 0.17 °C if they continue to 2100. He estimates the most likely cost would be $1,848 billion per year in 2030. This is about 2% of projected world GDP in 2030 [20], and this estimate does not include all costs of the climate change industry.

Other studies also indicate that the cost of policies to reduce global warming is high. For example, Climate Change Business Journal [29] estimates put the climate change industry in 2013 at $1,405 billion, about 1.9% of world GDP [18,21]. Further, Insurance Journal [30], citing [29], says that the ‘climate change industry’ grew at 17–24% annually 2005–2008, 4–6% following the recession, and 15% in 2011. These growth rates are much higher than the growth rate of the world economy implying that, if they continue, which is likely with international protocols, accords and agreements such as Kyoto [31], Copenhagen [32] and Paris [1], the cost of climate policies will continue to escalate.

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12 Responses to Peter Lang and Ken Gregory: Global warming may be beneficial for the global economy

  1. JC

    We don’t see enough of Peter Lang’s views. He’s great.

  2. Rafe Champion

    He looked at comparative costs of coal and RE and engaged in a blogging war with some of the usual suspects but he gave that away a few years ago in favour of writing for peer-reviewed literature. We exchanged some mail and he explained that his blogging posts wouldn’t have enough clout when the debate got more intense and he didn’t have time to do academic standard work on that front as well as this line of investigation.

  3. Karabar

    All well and good, but as the solar minimum progresses, and tempeatures drop, we are not likely to find out.

  4. Rafe Champion

    Also no points for tenure, promotion, grants and etc from blog posts.

  5. Makes trees grow bigger and use less water too.

  6. cohenite

    The true measure of whether AGW, global warming, is good is in a cost benefit analysis. That is, assume AGW is happening (it isn’t) and then look at benefits which flow from a warming world compared to costs. Many C/Bs have been done. Lomborg’s book, Cool It, is one long C/B analysis and his Figure 11 on page 41 sets it all out. Based on the IPCC’s preferred 1.5C constraint Lomborg estimates the benefits to value $11 trillion in prevented costs while the actual costs work out at $83 trillion. Lomborg also charts the do nothing option and concludes it would cost $1 trillion and have benefits of $2 trillion.

    Alternatively Nordhaus has analysed the programs of Stern and Gore and concluded the following:

    Yale economist William Nordhaus has found that the favored programs of Al Gore and Sir Nicholas Stern would cost the world more than unmitigated global warming. He found that global warming under a business as usual case would inflict damage on the world amounting to $22 trillion. Sir Nicholas Stern’s proposed course of action would reduce that damage to $9 trillion, but at a cost of $27 trillion, for a total cost to the world of $36 trillion, $14 trillion more than unmitigated global warming. Al Gore’s package of measures would reduce global warming costs to $10 trillion at a cost of $34 trillion, for a total cost of $44 trillion, twice the total cost of global warming. A variety of measures aimed at keeping global warming below 1.5 degrees Celsius would have similar benefits and costs to the Stern proposal. Nordhaus proposes a modest carbon tax as the best way to tackle global warming, providing the most benefit at the least cost, but does not fully analyze a resiliency/adaptation approach such as that advanced by Prof Julian Morris and others, including CEI. Nordhaus’ study should demonstrate that the policies proposed by alarmists are so harmful to the world that they should no longer be seriously considered by policy makers. Instead, the debate should switch to which of the policies suggested by Nordhaus or Morris would be the best way forward.

    The point is, even if AGW were real, which it isn’t, doing nothing, business as usual, is the best option.

  7. Peter Lang

    Thanks to all for the encouraging comments.

    Cohenite, I’d like to offer two points in reply your comment.

    1. The planet is warming. It’s been warming since the Little Ice Age. It’s warmed 0.88°C in the past 50 years [1]. The warming is part of natural cycles. A new paper by Schmitt et al. [2] shows excellent empirical evidence of the cycles of warming and cooling over the past 1885 years (Roman Warm, Dark Ages Cold, Medieval Warm, Little Ice Age, Modern Global Warming).

    2. Empirical evidence reported in many studies suggests that global warming is probably beneficial (e.g. [3]). In that case the estimated costs of global warming you mentioned, which are from modelling studies rather than empirical data, are probably incorrect.

    If global warming is beneficial, we do not need to be concerned about projecting the amount of warming and trying to reduce it. We need to focus on improving our understanding of the economic and environmental impacts of global warming, and taking advantage of the benefits.

    References:

    [1] Berkeley Earth. Global Average Temperature, Land + Ocean (1850 – Recent). http://berkeleyearth.lbl.gov/auto/Global/Land_and_Ocean_summary.txt

    [2] Schmitt, D.; Gischler, E.; Birgel, D.; Peckmann, J.; Anselmetti, F.S.; Vogel, H. Great Blue Hole (Lighthouse Reef, Belize): A continuous, annually-resolved record of Common Era sea surface temperature, Atlantic Multidecadal Oscillation and cyclone-controlled run-off. Quaternary Science Reviews 2020, 247, 106570. https://doi.org/10.1016/j.quascirev.2020.106570

    [3] Dayaratna, K.D.; McKitrick, R.; Michaels, P.J. Climate sensitivity, agricultural productivity and the social cost of carbon in FUND. Environmental Economics and Policy Studies 2020, https://doi.org/10.1007/s10018-020-00263-w

  8. JC

    Peter:

    It’s likely true that on the whole warming is beneficial, but I see a couple of problems with this idea.
    The first is the world is largely fenced off both for humans and animals and so mobility for both those proportions human and animal populations that are adversely impacted is restricted somewhat. The second is that because this is also a projection, we live in a world of uncertainty.

    As you’ve pointed out many times, we have the technology to produce as much clean energy as we need for the next 100 years through nuclear. And I’ll never forget the great point you made a long while back. Imagine the world if nuclear energy wasn’t hobbled every step of the way to now. What a different world it would be.

  9. chrism

    the recent paper on a cooling planet 2020-2035 due to a grand solar minimum suggests we should also be inspecting the cost/benefit data for reductions in temperature of say 0 to -2.5 degrees as well please : for balance :: (Zharkova : note due to some concerns as to commentary toward the end of the paper it has been retracted; I don’t believe the main finding is questioned however and expect to see it edited and resubmitted with its main conclusion retained)

  10. Jubilate

    We can agree with each other as much as we like, and the outcome is that we feel good. But changing the minds of those with whom we disagree, and those whose opinions are misguided would be the real and more worthwhile achievement.
    I have followed Lang’s work for some years and his empirical evidence tack is excellent. Question is, how do we move that work out of the Internecho chamber and into the policy-making consciousness where it deserves to be?

  11. Tel

    In Figure 15, the biggest single factor is energy, and when I looked at the paper it seems the theory goes like this: on the whole, people will spend more on air-conditioning but less on heating, if and when the world warms up a few degrees … overall the reduction in heating costs will be larger than the increase in AC costs … therefore a nett reduction in GDP. This is why economics is so weird … if people can live more comfortable lives at a lower cost, while expending less energy, that’s a GOOD thing, right? So if this also reduces GDP that’s fine by me … GDP is just a number anyhow, who cares?

    But realistically, no economy ever works that way … making this kind of analysis totally pointless. Think about what you would do if your electricity supplier just out of the blue sent you $100 refund for no particular reason. Here’s $100 free money … most people would spend it on something, or at very least spend part of it. Same deal if the requirement for energy consumption goes down overall for heating and cooling then demand is reduced, therefore energy prices will be lower, and people will use the energy for some other purpose, as well as spending the savings elsewhere … we don’t know what they will do with the windfall because Austrian Economics is all about individual decision making … we know they will do something with it.

    Therefore, overall GDP would probably go UP even if people don’t require as much energy for heating, because that’s what people do … they find uses for surplus energy sources. Besides that, GDP is only a very approximate measure of economic activity at the best of times. When someone invents a more efficient way to make goods (e.g. microfiber clothing is now vastly cheaper and better than what you could buy twenty years ago) the result of this is lower prices, higher production volume, lower GDP, and more people get the goods they want … but efficiency is what you want in an economy.

  12. Peter Lang

    Reduced energy consumption due to global warming means a positive impact on GDP. The paragraph after Figure 15 says :
    “With energy impacts excluded, FUND projects the global impacts to be +0.2% of GDP at 3 °C GMST increase from year 2000. With the energy impact functions misspecifications corrected, and all other impacts are as projected, the projected total economic impact may be more positive.” Positive economic impact means increased GDP growth rate.

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