NOTE: for papers on State-Contingent Emission Pricing (i.e. the temperature-indexed tax) see this page.
CLIMATE SENSITIVITY, AGRICULTURAL PRODUCTIVITY AND THE SOCIAL COST OF CARBON IN FUND
I have published a new paper with Kevin Dayaratna and Pat Michaels on the Social Cost of Carbon taking account of updated evidence on aerial CO2 fertilization and Equilibrium Climate Sensitivity.
Suppose we take a standard model of the Social Cost of Carbon (same as the EPA uses) and the latest mainstream science literature estimates of climate sensitivity to greenhouse gases (based on IPCC forcing estimates) and the mainstream measurements of crop/grassland responses to rising CO2 levels (based on satellites and experimental measurements) and put them together. Do we get evidence of a climate crisis? No, the opposite. We get evidence that the marginal damages of CO2 emissions are basically zero through the mid-21st century. In other words even if you accept mainstream climate science it still doesn't justify costly policy measures.
RESPONSE TO COMMENT ON "Climate sensitivity, agricultural productivity and the social cost of carbon in FUND"
In a 2020 paper, Kevin Dayaratna, Pat Michaels and I showed that updating the ECS parameter distribution and the CO2 fertilization effect in an Integrated Assessment Model substantially reduced the Social Cost of Carbon (SCC) path through the 21st century. In December 2022 Philip Meyer published a comment questioning some of our modeling decisions and recommending use of a new ECS distribution by Nic Lewis. Meyer didn't recompute the SCCC distribution however. Kevin and I have published our response here in which we go through Meyer's comments and recompute the SCC according to his recommended parameterizations:
In a nutshell, taking all of Meyer's comments into account (even the ones we don't agree with) hardly changes the SCC. His preferred parameters yield a value of the SCC of $3.39 in 2050, with a 33% chance of it being negative mid-century.
EMPIRICALLY-CONSTRAINED CLIMATE SENSITIVITY AND THE SOCIAL COST OF CARBON
I have completed a study with Kevin Dayaratna of the Heritage Foundation in Washington DC and David Kreutzer of the EPA, which recomputes standard Social Cost of Carbon (SCC) estimates using updated empirical estimates of the equilibrium climate sensitivity (ECS).
A PRACTICAL GUIDE TO THE ECONOMICS OF CARBON PRICING
A lot of people are talking about carbon pricing these days, but few people seem to have studied the underlying economics in any depth. The design of market-based instruments is definitely an area where seemingly obscure technicalities have large practical implications. I was invited by the University of Calgary School of Public Policy to write a survey paper on the economics of carbon pricing and the resulting report has been published as
PIPELINE UNCERTAINTY AND THE MARKET VALUE OF CANADIAN ENERGY FIRMS
Elmira Aliakbari and I looked at the question of whether unanticipated events that have bearing on whether pipeline projects get approved affects the market value of Canadian oil and gas firms. The working paper version of our study is here:
CLIMATIC VARIATIONS AND THE MARKET VALUE OF INSURANCE FIRMS
Bin Hu and I published a study looking at how climate variations, in particular indicators of extreme weather, have historically affected the share prices of major insurance firms. The insurance industry has raised the concern that climate change poses a financial risk due to higher payouts for weather-related disasters. However, if extreme weather is increasing, presumably that means they have an opportunity to sell more insurance products as well, which may increase profitability. In our paper:
EMISSION PRICING: In 2007 I was asked to talk about emission pricing at a conference organized by Queen’s University. This powerpoint deck gives a quick overview and introduced the state-contingent pricing concept. For more on that topic see this page.
NORTH AMERICA vs EUROPE: In 2007 I gave a talk at Wilfrid Laurier University's Viessmann European Research Centre, comparing US and European approaches to climate change. My point was that while they have outlined different objectives, the constraints are so tight that the outcomes are pretty much the same.
MITIGATION VERSUS COMPENSATION: This little paper sets out an argument that if we are unable to tell, ex post, whether a given weather event was due to global warming or not, we are unlikely ever to be able to compute the marginal damages due to carbon dioxide emissions. As such, we are better off planning to compensate victims ex post rather than trying to mitigate damages ex ante. If I was smarter and less distracted I would develop it into a more formal revision to the Integrated Assessment Model approach, which assumes away all the uncertainty over attribution.
DOUBLE-DIVIDEND SIMULATIONS: This paper came out of my PhD thesis work, using a computable general equilibrium model to show that revenue-neutral carbon taxes can achieve some emission reductions at no net macroeconomic cost. It wouldn’t get us to the Kyoto target, but I do believe that a low carbon tax of up to about $20 per tonne, if fully recycled into payroll and income tax cuts, would not harm the economy. Of course it wouldn’t reduce emissions much either.
ECONOMIC ANALYSIS OF THE 2022 FEDERAL CLEAN FUELS STANDARD
I have published, through LFXAssociates.ca, an analysis of the proposed federal Clean Fuels Standard over the interval from 2021 to 2040.
This is the first application of a new version of the LFX Canadian Model which I started developing in 2020. This version embeds many new features including recursive dynamics and endogenous savings behaviour. My analysis shows that the CFS will be a drag on output and growth, so that by 2030 the economy will be 2.8 percent smaller than it otherwise would be and labour demand will be reduced by 72,000 jobs nationally. If compliance can be achieved through creation of credits at a capped price of $275 per tonne the costs in terms of lost GDP are roughly halved and the employment losses are about a third. While Canadian GHG emissions at the consumer stage drop, since US-based ethanol has the same lifetime GHG emissions profile as gasoline, no net global GHG emissions reduction occurs.
THE ECONOMICS LITERATURE DOES NOT SUPPORT THE 1.5C TARGET
Robert Murphy and I have published a study for the Fraser Institute arguing that standard mainstream economic analysis does not endorse the 1.5C target.
We don't conduct a cost-benefit analysis ourselves. And we point out that the IPCC SR1.5 likewise didn't do a cost-benefit analysis (they even admit as much early in the report). Instead we show that the economists who have done CBA's have found that the costs of trying to keep to a 1.5C warming target vastly exceed the benefits. Nordhaus' analysis, for instance, shows that it would be better to do nothing at all than to try to get warming down to 1.5C. And he got a Nobel Prize.
IMPACTS OF A $170/TONNE CARBON TAX ON THE CANADIAN ECONOMY
Elmira Aliakbari and I completed a study for the Fraser Institute modeling the effects of imposing a high carbon tax on the Canadian economy. The federal government has said it won't have any effect on GDP and most people will end up better off, but this is nonsense.
We project a GDP decline of about 1.8% and a loss of 184000 jobs nationally [Updated]. And we show that these estimates are right in line with numbers computed for policies at the time of Kyoto. The underlying model I developed is a hybrid CGE/Input-Output model with considerable provincial and sectoral detail. I developed my first CGE model (as part of my Ph.D. dissertation) which I used to model carbon taxes back before most people had ever heard of them. The data availability and computing power have improved a lot since then. Unfortunately what has not improved is government policy analysis: it's all but vanished. One of the themes in our report is the contrast between the extent of analysis and disclosure 20 years ago regarding the costs of implementing Kyoto versus the total absence today. Some of the modeling groups and capabilities are simply gone, but more generally the government has decided it doesn't want to know the answer.
CLIMATE POLICY: WHEN EMOTION MEETS REALITY
I have done a few talks recently on the theme of why CO2 emissions, unlike other types of air pollution, have proven so hard to reduce. One such presentation was for the Irish Climate Science Forum and is available online:
My talk covers some of the main reasons why, after 30 years of concerted public policy effort, there has been so little achieved on climate policy, and why I think this will continue to be the case going forward. Governments do a disservice to the public when they keep promising more than they can deliver and when they try to rally support for climate policy by claiming not only will it not cost anything but will make us wealthier. Marcel Crok wrote an article about the presentation for Clintel here.
IMPACT OF THE FEDERAL CARBON TAX ON THE COMPETITIVENESS OF CANADIAN INDUSTRIES
CANADA'S BIOFUELS POLICY BLUNDER
Doug Auld and I wrote a study for the MacDonald Laurier Institute on biofuels policy in Canada. The bottom line is that they fail basic cost-benefit tests, costing about $3 for every $1 in benefits (including emission reductions) at best. But it's difficult even to make the case that they reduce GHG emissions at all.
Associated with this paper we published an op-ed in the Post.
ENERGY ABUNDANCE AND ECONOMIC GROWTH
Along with PhD candidate Elmira Aliakbari, I published a report for the Fraser Institute on the relationship between energy and economic growth. It might seem obvious that energy is important for growth, but a surprising number of policymakers and activists (e.g.) seem to think that cutting energy consumption is an important end in itself. We review econometric evidence from around the world, supplementing it with some new results on Canadian data, that indicates a Granger causal connection between energy abundance and GDP growth.
ASSESSING THE PROSPECTS FOR A BINDING, EFFECTIVE, GLOBAL CLIMATE TREATY
I was an invited speaker at the 2014 Global Business Forum in Banff, Alberta, September 18-19. I was asked to be on a panel discussing climate and energy policies. The format allowed me about 10 minutes to present my perspective on these issues to an audience of CEOs, business leaders, a few academics and other VIPs from Canada and around the world. I decided to eschew powerpoint and simply give a short speech, which is available here.
THE HIGH PRICE OF LOW EMISSIONS: I wrote a report for the Ottawa-based MacDonald-Laurier Institute on the difficulties of reducing GHG's from motor vehicles in Canada.
The bottom line is that if a moderate carbon tax were introduced (i.e. at around $25/tonne) driving habits in Canada would not change much. If policymakers decide that's not good enough and try to force large changes in driving habits anyway, the result will be high costs that outweigh the benefits, including environmental benefits. So if transport-related policies are being considered, the prospect of GHG emission reductions should not be considered a trump card that overrides other cost-benefit considerations.
WUWT-TV PRESENTATION: I appeared on Anthony Watts' 24-hour web telethon on November 15 2012, speaking on "Energy, Pollution Control and Economic Growth." The video is online here. There are a few sound glitches, Skype being what it is, but generally the transmission quality was decent.
CANADA'S CLIMATE POLICY OPTIONS: In 2007 the Ottawa Economics Association invited me to address the question of Canada’s options on global warming policy, on the eve of the new Conservative government’s announcement. In this paper I explain why pricing instruments are preferred to quantity targets, and what the literature says about the approximate marginal damages due to CO2 emissions.
THE KYOTO PROTOCOL: During the debate over whether Canada should ratify Kyoto, Randy Wigle and I published (through the CD Howe Institute) a critical review of the federal government’s work on implementation costs. A little later I was asked to discuss the government’s plans as they were reflected (or not) in the 2003 budget, for a conference at Queen’s University.
REGULATING CO2: In 2001 I wrote this paper for the Competitive Enterprise Institute (for which they paid me a $1000) explaining why cap and trade and similar methods for controlling CO2 emissions are bad ideas.