Tuesday, April 27, 2010

Paul Krugman explains Environmental Economics: a good read

Paul Krugman, Laureate of the Sveriges Riksban...Image via Wikipedia
My mother sent me an article from the April 11 issue of NY Times Magazine (which I do not subscribe to) by Paul Krugman entitled "Green Economics - How we can Afford to Tackle Climate Change."  There was not really anything in the article that was news to me (I studied the relationship between sustainability and economics in a course at UCLA), but it was a very concise explanation of the strange arranged marriage between economics and climate science.  I highly recommend giving it a read, for anyone who is either interested in or confused by how these issues interrelate.

I have a lot of respect for Krugman, who is particularly good at explaining complex economic models in layman's terms (he is also particularly good at explaining them in academic terms, and received a Nobel Prize for his efforts).  And after reading this article, I must say, I have changed my mind about one thing: I previously stated that Carbon Credit Markets (CCMs) don't do anything, and after reading this article I understand two ways in which they could.  When I talked about CCMs in my previous blog post, I suggested that the cap and trade model which was so loved by businesses and politicians alike was really just a more palatable version of mandated carbon reductions or pollution taxes, except the money goes to the private sector instead of the public.  While that is still true, I see now that as a virtue of being more palatable they are more likely to make it into law and to be accepted by businesses.

Furthermore, even though the trading of Carbon Credits benefits private companies rather than government programs for environmental concerns, as Krugman points out, these credits could be auctioned off instead of being just handed out, which could result in some government revenue for environmental projects and programs.

Most importantly, however, Krugman dispels the myth that capping emissions through government mandate would be 'ruinous' to our economy, as we hear over and over again in the media.  Just as the scientific community generally agrees that global warming due to the green house gas effect is real, so too apparently do economists agree generally that our economy, both as a nation and as a planet, would do just fine with mandated carbon emission reductions.  Basically they all say it would slow growth a little, and enough to make it important to consider the alternatives, but not nearly enough to be 'ruinous.'

So then, from an economic point of view, we stand to lose a little from acting to stop climate change.  What a good economist does next is weigh that loss against possible scenarios of ignoring climate change.  So, what happens if we don't do anything?  Business As Usual?  The answer: potential for massive disruption of every market around the world.  If you believe that the scientists are right about global warming, the cost of inaction obviously outweighs any costs of curbing climate change.  Even if you are not convinced that global warming is real, if you believe there is a chance it is real, the potential cost of inaction is a very heavy risk compared to the alternative that reducing emissions will hurt a very small amount.  If you, on the other hand, are absolutely convinced that global warming is a giant hoax then I probably cannot say anything to convince you otherwise.

I, for my part, am never 100% sure of anything.  I am 99.9% sure that the sun will come up tomorrow.  I'm 99% sure that global warming is real (I can't read every study and check every single fact), 98% sure that human actions are causing global warming and human actions can reduce it.  I think anyone who is not willing to hear arguments that they don't agree with and never allows their mind to be changed is at least a little foolish.  So if you are pretty sure that I am wrong about global warming, but you are not a fool, I ask you this question: how sure are you, and at what point is it worth gambling with our future?  If a possible negative outcome is too terrible, I think there is a point at which it is not worth gambling no matter what the odds.  Krugman, in his article, paraphrases Martin Weitzman (a prominent environmental economist at Harvard): "it's the non-negligible probability of utter disaster that should dominate our policy analysis."

In summation: the risks of inaction are too great, the costs of action are low, and the longer we wait the more difficult the situation becomes.  Scientists agree that there is a problem, economists agree we can afford to fix it (or at least start to mitigate it), and now all we need to do is agree that it should be done.
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1 comment:

  1. Excellent gloss - we all need to work hard to get this rock rolling!