Greenhouse gas: Too much hot air

Both sides should stop exaggerating and sowing panic.

air pollution 88 (photo credit: )
air pollution 88
(photo credit: )
Greenhouse gases are accused of warming up our planet, but it is the debate over them that is shedding more heat than light. Ideological motivations tend to to dominate both sides: the environmentalists, who call for immediate and drastic measures "to save the planet," and the skeptics, who dismiss the problem entirely. A good example of the latter view was provided in Mark Steyn's January 18 Jerusalem Post op-ed, which argued that global warming can safely be ignored for the time being. As usual when ideology comes to the fore, reality is the first victim. So let's try to discern some facts, as best can be determined from the underlying scientific debate. First, the weight of evidence suggests that the world is currently in a warming phase, although the results are not definitive. While the earth's average weather is always changing gradually, actual weather fluctuates wildly around its average level. Hence, it is not really possible to be sure if what appears to be a warming climate is actually just a random blip. Second, if we are in a warming phase it may or may not be a man-made phenomenon. We simply cannot tell. Indeed, some scientists believe that the earth should be in a natural cooling phase, and that man-made pollution is actually countering the natural trend. Third, there is vast uncertainty regarding the economic implications of global warming. Most scientists and economists, however, seem to believe that the warming will probably cause considerable but entirely manageable damage to the world economy (1-2% of global GDP) and environmental quality. Fourth, no one has any real idea what level of "greenhouse gas" emission reduction would be required to stabilize the earth's climate, and within what time-frame these cutbacks would need to be implemented. GIVEN ALL this uncertainty it is tempting to conclude that policies to combat global warming are ill-advised since, since as Steyn puts it, "global warming is an issue that is almost entirely speculative." Such a conclusion goes too far. Social scientists have devoted years of thought to understanding decision-making on the basis of limited or virtually non-existent information. Their conclusion is that under conditions of extreme uncertainty, a relatively large amount of attention and resources should be devoted to dealing with the threats that are the least understood. The bottom line? Given the best tools we have to evaluate the evidence, it is clear that the environmentalists who believe that global warming should be addressed today are actually quite correct. Of course, it is one thing to say "something must be done," and another to identify what exactly ought to be done. When discussing practical measures both the advocates of immediate action, as well as their critics, play fast and loose with the facts. THE MYTH most popular among advocates of measures to stem global warming is that the emission of greenhouse gasses is set to balloon due to rapid economic growth and burgeoning demand for fuel in China. While we can certainly expect rapid economic growth throughout the third world over the next century, the estimates upon which carbon emission forecasts are based are wildly exaggerated. First of all, the estimates generally assume that the third world will completely close the gap between its standard of living and its level of energy consumption relative to that of the developed world over the course of the century. That would be wonderful, but it isn't really likely. Second, these estimates generally assume that the earth's natural resource base can actually supply the quantity and mix of carbon based fuels required to meet these projections. In terms of oil - the fuel of choice for transportation - this is clearly not possible. World oil production is already close to its peak level. To be sure, it is possible to liquefy coal and natural gas and use them as transportation fuels. Doing so, however, will lead to higher prices for those fuels, making it attractive for electric utilities to substitute coal and gas fired power plants with nuclear, solar, and wind based systems. In other words, even in the absence of any multinational intervention, the world is set to adopt alternative energy technologies. As a result, greenhouse gas emissions will not reach anything like the levels projected. While the "act now" people are over-estimating the scale of the problem, the "do nothing" crowd overestimates the cost of solutions. For example, Bjorn Lomborg - easily the most articulate advocate of doing nothing - wrote in the Wall Street Journal that "estimates from all macroeconomic models show that implementing [the Kyoto agreement] will cost $150-$350 billion globally every year. It is a very expensive way to achieve very little." NOT SO fast; a sense of proportion is in order. Today, world output is roughly $50 trillion per year. By 2100, global GDP is likely to be about $600 trillion in current dollars, assuming per capita real GDP growth of 2% per year and world population stabilizing around 10 billion. Compared to these numbers, $350 billion is barely a blip. Second, if the poor countries fail to completely close the output gap and oil production fails to keep up with demand, then macroeconomic projections need to be recalibrated, and the estimated cost of achieving emission targets will come down sharply. Third, the macroeconomic cost estimates that Lomborg is referring to make extremely conservative assumptions regarding policy responses. In reality, greenhouse gas emissions can be sharply reduced in ways that, either directly or indirectly, actually save money. Germany, for example, decided to de-commission its nuclear power plants 20 years ahead of schedule. The decision, rooted in an irrational fear of atomic power, makes little sense and - as a result of growing awareness of global warming - will almost certainly be reversed. This will help lower greenhouse gas emissions. It will also save Germany many billions of Euros. As for indirect savings, most economists correctly assume that taxes on energy use or carbon emissions will become the dominant tool in combating global warming. This will allow governments to lower other taxes whose economic effects are far less benign. What would be the overall result? According to a 2002 study which conducted a series of macro-economic forecasts assuming carbon taxes hikes combined with payroll tax cuts, "least cost implementation of the Kyoto targets would produce a net gain in total US economic output and welfare." Perhaps it would be going too far to advocate such a shift toward carbon taxes in order to boost the economy, but it would also seem alarmist to claim that such measures spell economic doom. It is time for both sides of the debate to stop sowing unwarranted panic, and calmly weigh precautionary measures that impose limited or no net costs. The writer, a senior lecturer in economics at the Academic College of Judea and Samaria, is chief economist of Forum FIE, the Israeli distributor of Vanguard Mutual Funds.