Harry Clarke La Trobe University Economic Society of Australia, Victorian

8/14/2019 Harry Clarke La Trobe University Economic Society of Australia, Victorian

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Harry Clarke

La Trobe University

Economic Society of Australia, Victorian Branch.


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Plan

1.Background science & politics role ofscientific uncertainty.

2.Core economics of climate policy underuncertainty

3.Australian policy

4.Final remarks


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1. Climate science

Climate science has developed over 2 centuries inapplied & fundamental directions.

Predictions of theory are convincingly supportedby evidence.


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Science we know

Warming is occurring. With very high probability

due to anthropogenic GGEs. TheAGWhypothesis.

Charney Sensitivity. Doubling of CO2 over pre-

industrial times (ignoring slower feedbacks) brings 30C (mgs) temp. increase. More at poles.


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Science uncertainty.

Lots ofgenuine uncertainty...

Climate sensitivities uncertain & time horizon-variable. Some feedbacks drive higher

sensitivities, aerosol cleanup may unmaskgreater heating. Ice sheet melting createsstronger LR responses. Regional effects.


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IPCC & uncertainty

Uncertainties a focus ofIPCC reports - clouds, aerosols,

Antarctic sea ice.etc.

e.g. in Physical Science Basis Report 43 key uncertaintieslisted.


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A low weight on AGW scepticism isappropriate

Garnaut on Garnaut Review:

accepted views of mainstream science on abalance of probabilities. There is a chance that itis wrong. But it is just a chance. To heed insteadthe views of the small minority of genuinesceptics in the relevant scientific communitieswould be to hide from reality. It would beimprudent beyond the normal limits of humanirrationality.


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Is human activity significantly changingtemperatures?

Doran-Zimmerman(2009)

75/79climatologists saidyes.


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Doran-Zimmermanconclusion

1. The debate on the authenticity of AGWlargely nonexistent in science.

2. The challenge, is to communicate this to

policy makers & to a public thatcontinues to mistakenly perceive adebate among scientists.


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Politics

1957 Revelle & Suess - heating a policy concern CO2

emissions - large scale geophysical experiment.

Unanimity of policy concern led to 1992 ClimateConvention & ongoing role for IPCC.

But late 1980s marked the birth ofclimate changedelusionism.


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Delusionism

An influential political movement rejecting science &

seeking to sow seeds of doubt regarding AGW.George C. Marshall Institute & the Heartland Institute.

Same groups have denied passive smoking damage,

CFCs cause ozone layer hole, SO2 cause acid rain etc.


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More...

Delusionism fostered by press balanceideas right to equal treatment.

Science has addressed delusionist claims

but claims get repeated (warming stoppedin 1998).


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More

As an economist I refuse to debate the science.

No more reason to question validity ofscience than to take seriously the views ofphysicists who push crank money theories.


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2. Climate change

economicsAmbitious seeks to determine opportunity costs

of mitigating & not-mitigating GGEs.

Complex irreversibility, nonlinear responses,threshold effects thrown together in dynamicsetting with system & ethical uncertainties.

Some simplification from relatively small rolemacroeconomic role of energy sector.


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Evaluating via CBA a realoptions task:

Risk/uncertainty - Valuation of costs/benefitsstochastic processes.

Dynamics stock pollutant & learning dynamics

Irreversibility sunk cost & ecological/environmental.


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CBA Methodology

Use use CBA with uncertainty,irreversibility & dynamics.

Many issues...

I t t l


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Intertemporalvaluations

Low discount rates make sense.

Intra-generationalattitudes.

Discount factor convex in discount rate.


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Promptness or wait-to-learn

Increasing costs of abatement create incentives to act now.Technology might provide an offset.

Differing irreversibilities tug analysis in opposite directions.

Sunk cost irreversibilities delay to learn offset byno regrets options.

Catastrophic irreversibilities act decisively now increased flexibility via backstop options.


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Convexity of damages

Forecasts of 3oC mean increase in temps, will causemoderate damage (5-10% of GDP).

3oC = mean(2oC& 4oC) = mean (00C & 6oC)

In last case, no warming, no damage. But equal

probability of 60C warming, a catastrophe.

More uncertainty strengthens case for decisive action.


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Catastrophic uncertainties

Given various possible states of world but one where:

Catastrophic costs occur with non-negligibleprobability.

Should act to avoid that state irrespective of discountrates or strategic issues. Favours unilateralism & takingprompt action.


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CBA under Knightianuncertainty

If losses large relative to policy costs (the case!)activism sensibly motivated by minimax regret.

A probability-free insurance principle.

In remote case where climate science gets it wrong

we will have squandered a small bit of GDP.


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Technology uncertainty

Substantial on CCS technologies, new nuclear.

Explore a portfolio of technologies

(renewables, nuclear) & focus on CCS.


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General empirical

observation

Even with uncertainty there ispresumption - cost of active policy lowrelative to doing nothing.

e.g. Stern & Garnaut Reviews, IPPC(2007), Nordhaus, Weitzman (2009).


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3. Australian policy

Australia heavily impacted on by unmitigatedclimate change. A fringe climate society.

Australia a small country - our GGEs a small

fraction of global total.


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Policy resolves into

focus on:

Adaptation

Mitigation

Policies helping good global response.


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Adaptation

Plausibly expect 1.8-2oC warming from

current GGE concentrations.

So case for adaptation in agriculture,

industry, urban settlements & biodiversityresources.


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Adaptations not subject to free-rider marketfailure issues of mitigation policies.

Can rely on market-driven responses & policyresponses encouraging market-driven

responses.


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Example - agriculture

Policy - provide info & expand technological

choices farmers have. Market failures meaninfo investment & R&D need to be a majorfocus.

Redesign policies which reduce need to adapt e.g. drought relief.


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Mitigation

If only adaptation pursued - a race tocollective disaster.

US & China provide 50% of GGEs, but 15countries provide 80%, another 158 providing

20%. Small countries are important.

& Australia should not provide negative moralsuasion.


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ETS the cheapest way to limit GGEs. Regulation

more expensive. Global ETS reduces costs by20%. A key message for industry.

Preferred option - best ETS should charge for

GGEs on a consumption basis. Exempt exports& subject imports to BTAs unless exportingcountry charge carbon production.

Eventually all countries should charge carbonproduction.


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Australian CPRS will be phased in - unlimitedpermits @ $10/tCO2 from 2011/12 with full

permit auctioning from 2012/13 @ $29/tCO2.

Revenues returned to households, fuel excise

offsets, trade-exposed firms, electricitygenerators.


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Main effect - electricity prices will rise 25% in2012/13 consumers face substitutioneffects.

Impacts on brown coal generators but 93% ofcapacity still in place by 2020.

Potential for nuclear power & renewables but limited background capacities.


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Assessment

Should pursue ambitious targets & commit to imposeBTAs after 2025 (cf.Waxman-Markey).

Australia gains with CCS initiatives a sound R&Dfocus. Agriculture contributes 1/3 of world CO2 & most

NO & CH4. Australia should watch NZ.

Need to reduce policy uncertainty by setting upcredible climate change institutions.


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4. Final Comments

Major parties could not approve CPRS in Senate. Unlessthe Coalition seeks electoral oblivion the Bill will pass.

Proposed CPRS reasonable apart from exemptions toelectricity sector.

Waiting to 2013 to decide on agriculture - but musteventually be bought into CPRS - carbon sequestration

synergies with sustainable agriculture .


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Australian Government plans will match a

comprehensive agreement in Copenhagen.

Sensible conditional & unconditional targets.

Stronger targets not sensible now thoughthey will be.

Fi l d


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Final words picked (almost) atrandom

The new climatology of the American south-west..Science 25 May 2007:

Vol. 316. no. 5828, pp. 1181 1184

Model Projections of an Imminent Transition to a More Arid Climate in SouthwesternNorth America

Richard Seager,1* Mingfang Ting,1 Isaac Held,2,3 Yochanan Kushnir,1 Jian Lu,4 Gabriel

Vecchi,2 Huei-Ping Huang,1 Nili Harnik,5 Ants Leetmaa,2 Ngar-Cheung Lau,2,3 Cuihua Li,1Jennifer Velez,1 Naomi Naik1

How anthropogenic climate change will affect hydroclimate inthe arid regions of southwesternNorth America has implicationsfor the allocation of water resources and the course of regional

development. Here we show that there is a broad consensus amongclimate models that thisregion will dry in the 21st centuryand that the transition to a more arid climate should alreadybeunder way. If these models are correct, the levels of aridityof the recent multiyear drought or the

Dust Bowl and the 1950s

droughts will become the new climatology of the American Southwest

within a time frame of years to decades.

Note broadconsensus &imminent!


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Harry Clarke La Trobe University Economic Society of Australia, Victorian

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