Free Lunch Here

Yet another blue-ribbon report on the high costs of delaying action on climate disruption, this one from the US President’s Council of Economic Advisers. It won’t change closed minds. I suppose the drip-drip effect may bring round a few waverers, or shift some real journalists away from false balance.

What it should do is prompt a rethink on strategy among the reality-based.

A money graf from page 14 (italics added):

Recent research shows, however, that even if a delay in international mitigation efforts occurs, unilateral or fragmented action reduces the costs of delay: although immediate coordinated international action is the least costly approach, unilateral action is less costly than doing nothing.

Read this together with recent findings that the absolute footnote) of strong mitigation are very low or nil. In the wooden prose of the IPCC Fifth Assessment Report, WG 3, Summary for Policymakers, page 15:

Under these assumptions [all countries of the world begin mitigation immediately, there is a single global carbon price, and all key technologies are available] mitigation scenarios that reach atmospheric concentrations of about 450 ppm CO2-eq by 2100 entail losses in global consumption – not including benefits of reduced climate change as well as co-benefits and adverse side-effects of mitigation – of 1% to 4% (median: 1.7%) in 2030, 2% to 6% (median: 3.4%) in 2050, and 3% to 11% (median: 4.8%) in 2100 relative to consumption in baseline scenarios that grows anywhere from 300 % to more than 900% over the century. These numbers correspond to an annualized reduction of consumption growth by 0.04 to 0.14 (median: 0.06) percentage points over the century relative to annualized consumption growth in the baseline that is between 1.6% and 3% per year.

0.06% a year is well within the error of any model forecasts. Over 50 years, it’s noise. The takeaway is: to a first approximation, mitigation costs nothing. (footnote 2).

There is no free rider problem. It does not make sense for the US or the EU to wait for China. Just get started. The same argument applies for China: don’t wait for the USA. It even applies to Costa Rica (which is already showing them an example).

This calls for a rethink of the assumptions that have governed the long and hitherto fruitless struggle for a comprehensive international agreement, replacing and strengthening the partial Kyoto Protocol of 1997. These were:

  1.  Coordinated action is the cheapest and most effective mitigation strategy. (True).
  2. A uniform global cap-and-trade scheme or equivalent carbon tax is the most efficient and least dirigiste way of achieving any given carbon reduction target. (Fair enough, with the large exception of technology development – footnote 3.)
  3. It is essential to get everybody to sign up to the agreement setting out targets and mechanisms, otherwise countries that stay out will enjoy a free ride at the expense of those that do. (False.)

It is assumption 3 that has stymied the process so far. Saudi Arabia and Canada and Bush’s USA (or whoever is competing for the lanterne rouge slot that year) have to be on board, so they get an effective veto. With such a veto, no conceivable universal deal can be an adequate one.

But we don’t need a universal deal and should not try. Instead the aim should be an open-ended coalition or coalitions of the willing, driven forward by the brave and firmly based on the science, not held back by the cynical, cowardly and ignorant. Think of a large city marathon, with élite runners, weekend club ones and sponsored jokers all in the same race.

For an example, one of the coalitions could be to phase out coal: no new coal generators without CCS, sunsetting of existing non-CCS plants by 2030, retraining for miners, etc. There are a lot of countries that don’t use coal today that could sign immediately. The USA and China would join later. But the standard would be down in print.

* * * * * *

Footnote 1
These estimates all use cost in GDP. We should of course use NNP, after depreciation. Talking about the environment, the weaknesses of this as a measure of welfare are no longer marginal. In an NNP estimate, with its corresponding definition of the capital stock and its depreciation, we necessarily assume that apart from a tiny amount of services to ecotourism:

  • Value of polar bears and hundreds of other threatened species: $0
  • Value of Amazon forest: $0
  • Value of Antarctic icecap: $0
  • Value of Himalayan glaciers and snowfields: $0
  • Value of coral reefs: $0
  • Value of anxiety of human populations about climate-driven disasters (hurricanes, floods, droughts): $0 (We are already capturing the costs of the disasters after they happen.)
  • Value of anxiety of human populations about long-term climate change: $0

You don’t have to put a specific money value on these factors, or even think it’s possible to do so, to agree that a GDP/NNP measure substantially underestimates the true welfare costs of climate disruption. So it necessarily greatly overstates the net costs of preventing it. The call isn’t even close.

Footnote 2
Does the low-cost conclusion hold up if action is incomplete? Why not? Where are the strong cross-border interdependencies in efficiency measures, deployment of renewables, etc? There can certainly be mutual learning, and benefits from economies of scale realized elsewhere, but you don’t need a world treaty or bureaucracy for this. Everybody else has benefited from Germany’s solar policy in the last decade. The European coordination imposed by the EU Commission has been at best pointless and at worst harmful in Germany, pressing for the replacement of tested and well-liked FITs by untried “direct marketing” and auctions. Jean Monnet would not have agreed that short-run Pareto efficiency trumps long-run growth.
It’s possible that impacts are non-proportional to CO2 concentrations, so comprehensive action is less costly. By the time we know for sure if the damage curve is non-linear, it will be too late.

Footnote 3
All cost estimates are sensitive to assumptions about technologies. WG3 assume that cost-effective CCS will become available soon, a very big ask. SPM table 2, page 16. Erring on the other side, in pricing renewables they give a median LCOE @ 10% cost of capital of $160 per Mwh for utility solar in favourable regions and $84 per Mwh for onshore wind. Annex 3 to full report, page 7. These are over  twice the going PPA rates in the US Southwest; not distressed prices, but profitable commercial deals. (Wind, solar.) This is one drawback of relying on outdated peer-reviewed scientific literature rather than ordinary news, which for simple prices is just as reliable. General experience with pollution controls and indeed with normal (non-nuclear) technologies is that costs fall faster than initially expected.

You can get a free-rider problem back through technology: why not wait until the Chinese have got solar system costs down to 50c a watt? Maybe so, but it’s imprudent. First, if a lot of people wait and then all rush in at the same time, there is every chance of a spike or plateau in costs – as happened to both US wind and global solar around 2008, for different reasons. Second, you usually save money by taking it steady, planning things right, and building up expertise and supply chains. Third, early movers dominate the equipment market. Look for (rather than at) Britain’s nonexistent solar manufacturing industry. Fourth, in all developing countries demand for energy and especially electricity is rising rapidly. The demand has to be met now, like a teenager’s for a smartphone, next year’s better model be damned. Since wind and solar are already cheaper than fossil fuels in many places, it pays to invest today, even knowing that the gear will be cheaper next year.

[Cross-posted at The Reality-Based Community]