"He's a snake in the grass, I tell ya guys; he may look dumb but that's just a disguise; he's a mastermind in the ways of espionage." Charlie Daniels, "Uneasy Rider" Lomborg misapplies the "Copenhagen Consensus" to ignore carbon pricing and yet argue for massive government investments in clean energy - TT's Lost in Tokyo

Lomborg misapplies the "Copenhagen Consensus" to ignore carbon pricing and yet argue for massive government investments in clean energy

I copy below comments I made on a related thread at Roger Pielke, Jr.'s Prometheus science policy blog, regarding recent duelling op-eds on climate change policy between the left-leaning Danish political scientist Bjørn Lomborg and economist Gary Yohe.

Lomborg has stirred up discussions of environmental issues with his books, The Skeptical Environmentalist (2004) and Cool It: The Skeptical Environmentalist's Guide to Global Warming (2007), and conceived, organized and directs the Copenhagen Consensus Centre at the Copenhagen Business School, where Lomborg is now an adjunct professor.  Yohe, on the other hand, is a professor of economics at Wesleyan University (Ph.D. Yale), is a leading economist on climate change an one of the Lead Authors of the Intergovernmental Panel on Climate Change (IPCC)'s Third and Fourth Assessment Reports.

At issue in the dust-up between Lomborg and Yohe were discrepancies in interpretation of (1) the conclusions of the 2008 Copenhagen Consensus - by which a panel of leading economists tried to prioritize various government policies for improving welfare in the developing world - and (2) the challenge paper on climate change that Yohe, Richard Tol and others prepared and submitted to the Copenhagen Consensus panel.

My remarks were as follows; for more context, please see Pielke's post and thread (linked above), as well as his follow-up post (here) (minor edits and emphasis added):

Round 1:

If I may venture a few comments:

"1. It seems to me that Tol and Yohe have a point that Lomborg has confused his readers as to what Yohe and Tol concluded, but fail to focus on the point of confusion - only Roger seems to have caught the drift, but doesn’t identify any responsibility for Lomborg in it.

Lomborg first mentions Yohe as “one of the lead economists of the IPCC” who “For the Copenhagen Consensus … did a survey”. But in concluding what climate policy should be, Lomborg completely ignores the strong recommendation of Yohe and Tol (for a policy that focusses on mitigation, with R&D investments to be primarily market driven and some limited government-funded efforts to aid adaptation in developing countries) for “the best climate solution from the top economists from the Copenhagen Consensus”, without making any effort to clearly distinguish Yohe/Tol from those who voted on the CC ranking.

Says Lomborg, “if we are to find a workable and economically smart solution, we would do well to look at the best climate solution from the top economists from the Copenhagen Consensus. They found that, unlike even moderate CO2 cuts, which cost more than they do good should focus on investing in finding cheaper low-carbon energy. This requires us to invest massively in energy research and development (R&D). Right now, we don’t – because the climate panic makes us focus exclusively on cutting CO2.”

But none of these conclusions can be derived from the Yohe/Tol work, and since Lomborg first refers to them, it is a puzzle that he did not do a better job of distinguishing their conclusions from those of the CC voting panel of economists.

2. The disjunction between Lomborg scoffing at Tickell’s concerns about the immediate and long-term effects of a global average warming by 2100 in the range of 3-4 degrees C (with costs to global GDP of only a few %) and but then nevertheless insisting that climate risks “requires us to invest massively in energy research and development (R&D)” is more than a bit much.

If there’s no serious problem, why should our governments do anything about it? If there is - and a global average temperature increase of 3-4 degrees C sounds EXTREMELY serious to me - why is having governments throw money at the best solution? Why does Lomborg think the CC ranking means we should ignore what the entire economics profession has been telling us for decades about pricing carbon, and about letting private markets determine where investment funds should flow and what other behavior changes are warranted?

3. Lomborg’s assertion that “climate panic” makes us focus exclusively on cutting CO2, at the expense of R&D, is not merely unsupportable but manifests a fundamental misconception - apparently also embedded in the CC process - as to what drives (and who makes) investment in market economies.

Absent a serious concern about climate change, there is simply little justification for government funding of low-carbon energy R&D investments. That we are finally seriously talking about such investments in the US (Warner-Lieberman was full of such pork) is only a result of what Lomborg dismisses as “climate panic”. Clearly, then, mitigation and government R&D funding can go hand-in-hand and in fact are intimately linked.

But the more basic confusion is that R&D of the type Lomborg and the CC calls for is in fact already underway - in the private economy. Because there is really little justification for the government to directly be making such investments, it is wrong to somehow lump this R&D into government expenditures, in the manner that both Lomborg and the CC do. Rather, the vast bulk of such investments can be made by the private economy once carbon pricing mechanisms - which are really a form of factor pricing with respect to what has until now been a valued but unpriced open-access resource - are in place.

For purposes of the CC valuations, the only real governmental cost that should be measured is the cost of establishing measures to administer carbon prices; these can be extremely cheap if carbon taxes are used, or more expensive if politicians prefer opacity and side deals for rent-seekers (cap and trade). In either case, the administrative costs will be much less than the level of private R&D that carbon pricing will elicit from markets.

 

Round 2:

 "I would agree with davidacoder: the misrepresentation here lies in the silly rules of the CC exercise and the liberties Lomborg takes in describing the conclusions.

The whole premise of the CC is that if governments are going to spend a limited pot of money, what would they spend it on? The economists’ panel recognized the foolishness of this in part by putting Doha at second to the top - and explained that freeing trade costs nothing and in fact improves GDP. Much the same for climate change - although in this case the economists didn’t focus on the question of whose pocket the money was coming from. To pose the issue starkly, if governments imposed and fully rebated carbon taxes, what do the carbon taxes cost the governments? Nothing, but an effective mitigation industry nevertheless springs up. Meanwhile, governments remain free to spend on other priorities.

Of course, an observer might note that if governments DON’T rebate carbon taxes or permit revenues, they actually have MORE revenues to spend on a Copenhagen Consensus agenda, not less.

Accordingly, the CC ranking tells us almost nothing about climate change policy.

Thomas Schelling’s explanation for the low ranking for climate change specifically confirms that they were looking only at government dollars spent, for which one looks at mitigation only if it is the government paying industry/utilities to mitigate:

“The reasons why climate change measures came out so low on the list of priorities are that, for one, the Conference tried to look at cost-benefits, and, for another, its original idea was to rank things in terms of priority for immediate expenditure of money. Therefore, we proposed to eliminate poverty over and above anything else. The trade liberalization ranked fairly high. This was expected, whenever economists got together to talk about a variety of things including trade liberalization. The climate issue became lower ranks, because the paper on climate advocated for the project that stretched out to the year 2250 with the estimated costs to be in many trillions of dollars. We did not see how spending any part of 50 billion dollars on climate change measures would make a difference, although putting way down the list did not necessarily mean that we considered it as not an urgent subject. We put climate way down the list of priorities, because we did not see how spending a little bit of money over next few years would significantly improve the cost effectiveness.”
http://www.gispri.or.jp/english/Annual/2005-9.html

Further, as I and others have noted, the papers presented and the conclusions of the economists panel certainly don’t tell us, as Lomborg would have it in his editorial, that mitigation strategies “cost more than they do good”. This is a liberty too far, not only from the Yohe/Tol paper, but from Chris Green’s as well. Green specifically suggests using a mitigation-spurring carbon tax to raise the pot of money for government-spent R&D:

“If the $60 billion were raised by a carbon tax, then even a tax with a 25% cost of public funds would stay within the CC budget constraint ($60 + 25(60) = $75 billion). A tax of $4 per ton CO2 on just 50% of the approximately 30 GtCO2/yr (~8GtC/yr) currently emitted would raise 60$ billion/yr. But frankly, if it were politically feasible, I cannot see why we cannot do better by starting with a more robust $8-10/tonne CO2, and then allow the tax to rise gradually over time. To keep within CC ground rules the extra revenues could be used to reduce other taxes that have even higher marginal costs of public funds.”

 

Round 3:

 "Roger, as to justifications for government R&D soending, I think my main point stands; namely, that Lomborg is wrong to blame “climate panic” and a focus on mitigation for stymieing low-carbon energy R&D investments.

In market economies, it is the private economy that makes investment decisions and drives wealth, not the government. While there is plenty of low-carbon energy R&D investments already underway, one of the the most effective ways to get more research done is to send the market carbon pricing signals. The government may of course decide to drive research by spending for it itself, but this is money that has to come out of the pockets of the private economy.

In either case, the government can only act in a meanful way if politicians are supported by a sufficiently serious concern about climate change. Those who argue for mitigation are NOT getting in the way, but are obviously pushing things along. If Lomborg believes that the best way to move policy along is to bash his putative allies and throw government money/pork to those are blocking policy change, then even while I oppose pork I’d at least be able to understand where he is coming from.

In response to my position that “Absent a serious concern about climate change, there is simply little justification for government funding of low-carbon energy R&D investments,” you argue that “The costs of energy, energy demand, energy security, and non-climate environmental concerns all provide solid justifications for such investments.” In this, apparently I am even more of a “non-skeptic heretic” than you, who take a classic big-government position (hard to say whether your position is liberal or conservative these days, after we’ve just wasted trillions in Iraq on an “energy security” fantasy).

The market addresses all of these concerns well. The only items I have sympathy for are some you haven’t listed - but which Jim Manzi argues for at Cato:

“improved global climate prediction capability, visionary biotechnology to capture and recycle carbon dioxide emissions, or geo-engineering projects to change the albedo of the earth’s surface or atmosphere”

http://mises.org/Community/blogs/tokyotom/archive/2008/08/23/more-on-manzi-cato-on-climate.aspx

We should leave decisions on particular investments in energy technologies with private markets. Governments will never have more knowledge than markets do, and they tend to give us pork-barrel boondogles instead, like synfuels and corn-fed ethanol."

 

Published Thu, Sep 4 2008 3:10 PM by TokyoTom