Have We Entered a Post-Analysis Phase of the Climate Debate?
February 21st, 2007Posted by: Roger Pielke, Jr.
The New York Times today has an interesting summary of a debate between Sir Nicolas Stern and Professor William Nordhaus of Yale University on the economics of climate change. The article raises the question, for me at least, at what point do policy analyses cease to matter? In the language of my forthcoming book — The Honest Broker — has climate politics become “abortion politics”? The answer to my own question is that, yes, we may indeed be in a situation where analysis is viewed as being more useful as a tool of persuasion than clarifying the consequences of a wide range of alternative courses of action. In such a situation policy analyses will be far less important than the political dynamics.
A recent example of such a situation that will be familiar to most readers is when the Bush Administration decided to invade Iraq and then fixed the intelligence to meet the policy. Any analysis that supported invasion, regardless of its intellectual merits, then became “right” even if for the “wrong reasons.” Sure, some policy analyses were still needed after that decision, for instance, to determine whether 110,000 versus 130,000 troops would be needed. But I view this as a far different sort of analysis than focusing analytical attention on the broad question of what might have been done about Saddam Hussein. In that situation, once the politics were settled, then such wide-ranging analyses became completely irrelevant. But arguably that is exactly the sort of analysis that mattered most of all and for the lack of which were are suffering today Climate change, of course some will say, is different.
Here is an excerpt from the Times article, which describes these dynamics:
Technically, then, Sir Nicholas’s opponents win the debate. But in practical terms, their argument has a weak link. They are assuming that the economic gains from, say, education will make future generations rich enough to make up for any damage caused by climate change. Sea walls will be able to protect cities; technology can allow crops to grow in new ways; better medicines can stop the spread of disease.
No one knows whether this is true, let alone desirable, because no one knows what life will be like on a planet that is five degrees hotter. “If ever there was an example where there was uncertainty, this is it,” said Martin L. Weitzman, a Harvard economist who attended the debate.
While sitting there, I was reminded of the speeches that Alan Greenspan gave a few years ago about the risks of deflation. It wasn’t the most likely outcome, he said, but the consequences of it could be so bad that policy makers had to take steps to prevent it. Focusing attention on this point — the catastrophic risks of climate change — is Sir Nicholas’s biggest accomplishment, whatever you think of his math.
As Mr. Weitzman puts it, the Stern Review is “right for the wrong reasons.”
Even its critics seem open to this idea. When Mr. Nordhaus and Sir Nicholas were exchanging e-mail messages before the debate — to their credit, some academics keep their arguments from becoming personal — Mr. Nordhaus sent a note that summed up his view. “I think it’s a great study, but it’s 50 years ahead of its time,” he recalled writing. “Since everybody else is 50 years behind the times, if you average the two, you might come out just right.”
In other words, it’s time for a tax on carbon emissions.
Once your have the political answer in hand, analysis then ceases to be a tool that provides insight on alternatives and then becomes a tool of marketing, and sometimes a way to limit debate. Harvard’s Martin Weitzman acknowledges this explicitly in the review paper (here in PDF) on Stern cited in the Times article:
The Stern Review is a political document –in Keynes’s phrase an essay in persuasion –as much as it is an economic analysis, and in fairness it needs ultimately to be judged by both standards. To its great credit the Review supports very strongly the politically-
unpalatable idea, which no politician planning to remain in office anywhere wants to hear, that the world needs desperately to start confronting the reality that burning carbon has a significant externality cost that should be taken into account by being charged full-freight for doing it. (This should have been, but of course was not, the most central “inconvenient truth”of all in Al Gore’’s tale about inconvenient climate-change truths.) As the Review puts it, “establishing a carbon price, through tax, trading, or regulation, is an essential foundation for climate-change policy.” One can only wish that U.S. political leaders might have the wisdom to understand and the courage to act upon the breathtakingly-simple relatively-market-friendly idea that the right carbon tax could do much more to unleash the decentralized power of greedy, self seeking, capitalistic American inventive genius on the problem of developing commercially-feasible carbon-avoiding alternative technologies than
all of the command-and-control schemes and patchwork subsidies making the rounds in Washington these days. As I have made clear here, a generous interpretation might also credit the Stern Review with intuiting the greater significance of insuring against catastrophic
uncertainty than of consumption smoothing for the climate problem, even if this intuition remains subliminal and does not formally enter the analysis through the front door.To be honest about the economic-analysis side, the Stern Review predetermines the outcome in favor of strong immediate action to curtail greenhouse gas emissions by creating a very low value of r ~1.4% via the indirect route of picking parameter values p ~ 0 and n~ 1 1that are more like theoretically-reasoned extreme lower bounds than empirically-plausible estimates of representative tastes. In this sense, it must be said staightforwardly that the subconsiously-reverse-engineered output of PAGE and the goal-oriented formal economic analysis of the Review are not worth a great deal. But we have also seen that a fair recognition of the truth that we are genuinely uncertain about what interest rate should be used to discount costs and benefits of climate changes a century from now brings discounting rates down from conventional values r 6% to much lower values of perhaps r ~ 2-3%, which would create a more intermediate sense of urgency somewhere between what the Stern
Review is advocating and the more modest measures to slow global warming advocated by its mainstream critics. The important remaining caveat is that such an intermediate position is still grounded in a conventional deterministic consumption-smoothing approach to the
economic analysis of climate change that, at least formally, ignores the issue of what to do about catastrophe insurance against the possibility of rare disasters.On the political side of the Stern Review, my most charitable interpretation of its urgent tone is that the report is an essay in persuasion that is more about gut instincts regarding the horrors of uncertain rare disasters whose probabilities we do not know than it is about economic analysis as that term is conventionally understood. Although it is difficult enough to analyze people’s motives, much less the motives of a 600-page document, I can’’t help but think after reading it that the strong tone of morality and alarm is mostly reflecting a fear of what is potentially out there with greenhouse warming in (using ponderous terminology here to make sure the thought is exact) “the inherently-thick left tail of the reduced-form posterior-predictive probability distribution of the growth rate of a comprehensive measure of consumption that includes the natural environment.” I have argued that this inherently- thick left tail of g is an important aspect of the economics of climate change that every analyst –Stern and the critics of Stern –might do well to try to address more directly. History will judge whether the economic analysis of the Stern Review was more wrong or more right, and, if it was more right, whether as pure economic analysis it was right for the right reasons or it was right for the wrong reasons.
February 21st, 2007 at 9:37 am
and interesting that the article ends with “In other words, it’s time for a tax on carbon emissions.” Which of course will be the next big fight — carbon tax or cap-and-trade? — moving us away from the climate science and into the lap of economic science.
February 21st, 2007 at 10:51 am
Hi,
If we are indeed moving to a “post-analysis” phase, it can easily be successfully argued that no scientifically valid analysis has ever been performed. So it’s more like we’re continuing on without any valid scientific analysis.
The temperature projections in AR4 (Asssessment Report #4) have no scientific validity, since they don’t estimate the probabilities for each of the scenarios, or the probability of scenarios resulting in temperatures above or below the scenarios given.
This is exactly like the temperature projections in the TAR (Third Assessment Report).
So we’ll have decisions based not on science, but non-science…aka, nonsense. This doesn’t seem like a step forward.
February 21st, 2007 at 11:28 am
Much of the debate over the Stern report focuses on the matter of time-discounting. Economists criticising Stern assert that empirical evidence that people use time-discounting in practice for short-term decisions means that we should use exponential time-discounting with roughly current rates of return for judging long-term decisions.
This has problems both because people’s actual behavior demonstrates hyperbolic rather than exponential time-discounting and because long-term consequences are qualitatively different from short-term ones: Exponential time-discounting suggests that a futures contract for the delivery of 10 billion barrels of crude oil in one thousand years should cost less than a dime today. The fact that it doesn’t shows that markets don’t blindly apply exponential discounting over multi-generational time spans. Also, the fact that people have nonlinear utility curves means that the value of (A+B) may be either much greater or much less than the value of A plus the value of B considered individually [see, e.g., D. Kahneman and A. Tversky, "Choices, Values, and Frames," (Cambridge, 2000) or P. Slovic, "Perception of Risk" (Earthscan, 2000)].
Ignoring these real-world complications in order to produce simple economic models frequently leads economists and policy analysts to conduct normative arguments in the disguise of objective quantitative analysis. This is particularly evident when we combine monetizing lives saved or lost with time-discounting monetized values. For instance, we run into the well-known and prima facie absurd conclusion that saving one life today outweighs saving 6 trillion lives from a global catastrophe in the year 3007.
The lesson I take away from the detailed technical arguments about costs and benefits between Stern and his interlocutors is not that these things prove that Stern is right or wrong to reject discounting, but that the same sorts of cautions that apply to taking scientific models too seriously apply as well to economic analyses of costs and benefits. When the policy question is reduced to technical economics of which discounting model to use, we know that we’re seeing the same sorts of meaningless precision that plagues arguments that start from the premise that knowing exactly how high the sea level will rise by 2100 is somehow going to settle normative policy disputes about adaptation vs. mitigation.
Harvey Brooks’s very wise essay, “The Resolution of Technically Intensive Public Policy Disputes” [Science, Tech., and Human Values 9, 39-50 (1984)], points out that when there are not universally acknowledged hard facts to test models, scientists and engineers (and by extension economists) tend (perhaps unconsciously) to bias their estimates of uncertain quantities in favor of the policy outcome they support: “The more an issue is in the public eye, the more expert judgments are likely to be influenced unconsciously by pre-existing policy preferences or by supposedly unrelated factors such as media presentations, the opinions of colleagues or friends, or even the emotional overtones of certain words used in the debate.” [p. 40]
So I agree with the Stern critics that Stern seems to have crafted his analysis to conform with his prejudices, but I would add that in choosing to advocate the use of exponential time-discounting using current rates of return, his critics are doing the same thing. Choosing your time-discount model is a normative, not an analytic or descriptive action.
All of which puts me squarely in line with Pielke’s assessment: “we may indeed be in a situation where analysis is viewed as being more useful as a tool of persuasion than clarifying the consequences of a wide range of alternative courses of action. In such a situation policy analyses will be far less important than the political dynamics.”
February 21st, 2007 at 1:31 pm
“No one knows whether this is true, let alone desirable, because no one knows what life will be like on a planet that is five degrees hotter.”
The fundamental flaw is that climatesceptics think that 5 degrees is a preposterous claim in the first place.
February 21st, 2007 at 2:42 pm
Jonathan,
The discount rate is a mix of ethical and empirical considerations.
On the ethical side, there is the question how much we should care about the future.
On the empirical side, there is the question how much we do care about the future.
The answers are very different.
Stern came down on the ethical side, without sensitivity analysis, and without consideration of the wider implications. Dasgupta, for instance, computed that Stern argues that we all should save 97.5% of our income.
Besides that, Stern although a civil servant at the time, ignored the discounting guidelines of his own ministry. That implies, for instance, that Stern argues that a death caused by climate change is more important than a death caused by unsafe roads or substandard medical care.
February 21st, 2007 at 4:29 pm
Richard,
Thanks for your thoughtful response to my comment. I agree with much that you say. However, I assert that the critics of Stern also apply a discounting model that’s got little empirical basis.
I agree with your assessment that Stern values climate-related deaths far more than those caused by other, more common hazards, but his critics value a death today from any cause almost twice as much as ten deaths 100 years from now from any cause. Unlike money, lives are not fungible so there’s invariably a moral aspect to choosing a discount model.
You seem to agree with this, but argue that there’s an empirical basis for saying that people’s actual behavior reflects exponential time-discounting of lives and I dispute this.
Taking a model (exponential discounting) that works well for certain types of market transactions across years or decades and applying it to completely different sorts of transactions across centuries for which markets don’t exist seems rather Procrustean to me. As a normative exercise (we should discount future deaths exponentially at current rates of return), it’s as good a starting point as any other, but I’m not convinced that choosing such a model is anything more than a statement of moral preference.
Even on the short term, people’s behavior regarding smoking, wearing seat belts, and purchasing insurance, or saving for retirement do not come close to exhibiting exponential discounting. Moreover, people’s preferences depend more on how the issue is framed (in Kahneman/Tversky’s sense of the word, not Lakoff’s) so any effort to quantify time preferences ends up rather forced because the data are so dependent upon the cognitive context in which the decision is taken.
I agree that there’s a strong empirical basis for saying that markets for money or commodities exhibit exponential time-discounting over periods of years to decades.
What I dispute is the notion that there is an empirical foundation for saying that people’s preferences for intergenerational transactions in human lives exhibit similar exponential discounting.
February 21st, 2007 at 8:32 pm
“Exponential time-discounting suggests that a futures contract for the delivery of 10 billion barrels of crude oil in one thousand years should cost less than a dime today. The fact that it doesn’t…”
Who says it doesn’t? What IS the price of a futures contract to deliver 10 billion barrels of oil in 1000 years?
February 21st, 2007 at 8:44 pm
“…but his critics value a death today from any cause almost twice as much as ten deaths 100 years from now from any cause.”
No, his critics value a death today from any cause almost twice as much as ten POSSIBLE deaths 100 years from now from any cause.
You have no idea whether or not people will be immortal 100 years from now. In fact, there is a reasonable possibility that people will be.
February 21st, 2007 at 8:52 pm
“No one knows whether this is true, let alone desirable, because no one knows what life will be like on a planet that is five degrees hotter.”
“The fundamental flaw is that climatesceptics think that 5 degrees is a preposterous claim in the first place.”
Is that 5 degrees Fahrenheit (2.8 deg C)? If so, I’d say it’s unlikely, but not “preposterous.” On the other hand, I WOULD agree that 5 degrees Celsius is “preposterous.”
February 21st, 2007 at 11:58 pm
Jonathan:
Stern and his critics all use exponential discounting, so the internal discussion is about the discount rate.
But yes, perhaps exponential discount rates should be abandoned.
Mark:
People do discount future health risks, so it is not unreasonable that an analyst assumes the same.
February 22nd, 2007 at 7:53 am
Richard,
Good point about everyone using exponential discounting. I see Stern’s low rate as a quiet way to de-emphasize this model, but I must concede that when both sides of the argument buy into the same equation and argue only about one parameter, it weakens my position.
A revised, weaker version of my argument would ask whether, accepting exponential discounting and arguing about rates, the short-term rate (around 3%) is empirically justified for long-term intergenerational calculations.
I’d agree at the outset that there is MORE empirical basis for a rate around 3%, as Stern’s critics assert, than for a rate less than 1%, as Stern uses—because a few percent more accurately reflects short-term (decadal) preferences while we don’t see sub-percent rates anywhere in practice—but I’m concerned that we don’t know very much at all about whether this short-term rate actually reflects people’s long-term (200 years or more) preferences. In other words, there’s more evidence in favor of a more conventional discount rate, but not enough to convince me that the higher rate is actually even approximately correct for this exercise.
In searching for empirical evidence for intergenerational time-preferences, is it valid to apply our equations retrospectively? Just as we ask climate models to account for ice ages we might ask whether it truly reflects people’s preferences to say that one death in the year 1307 would be equivalent to one billion deaths today (3% time-discount rate). Or is this line of inquiry misleading?