My Climate Change Policy Assumptions and Expectations

Matthew Kahn posted a list of his working assumptions on climate change. I think it is really enlightening to see these laid out rather than just expressed implicitly. So I thought I'd list my ideas in response to each of Matt's points. In the following, Matt's points are in bold and mine in plain text.

1. I believe that global GHG emissions will continue to rise for decades. 

Technological change in non-carbon emitting energy technologies has been surprisingly fast despite climate policies having been relatively weak. This makes me optimistic that emissions will soon begin to fall. We used to talk about steeply rising emissions paths like RCP 8.5. In the most recent IPCC report, business as usual is now a fairly flat emissions path (not that we should put too much weight on consensus). On the other hand, I am pessimistic on energy intensity falling by as much as is assumed in many integrated assessment models (IAMs).  So, my expectation is for some fall in emissions or at least a flat path till 2050. I don't expect a steeply declining path because so much fossil fuel infrastructure continues to be built. My best guess is that we will somewhat overshoot the 2ºC target but in the later part of this century we will get really serious about carbon sequestration, which will eventually bringing the temperature down again. If we are lucky, impacts will remain fairly linear and we will avoid tipping points.

2. I do not take integrated assessment models of the impact of climate change seriously.

In general, I agree. On both the impact and technological change sides they are mostly just speculation, particularly on the impacts side. On the other hand, having some idea of how much we need to cut emissions at what cost is useful... and they can generate the social cost of carbon (see below). 

One of my standard assumptions is that technological change in terms of increasing technical efficiency of production will eventually end. It's likely that the level of technology will follow a big S shape curve from the Industrial Revolution on, and we are somewhere near the middle of the curve right now.

3. /4. Urbanization increases one’s income as one acquires more skill to succeed in the urban market. Private income growth fuels adaptation as people have more resources to protect themselves from the serious threats we now face.

Urbanization is part of the development process that increases energy use and to date carbon emissions but also provides some more adaptation capacity though it reduces other abilities to adapt. Density reduces the overall need for transport and for heating but increases the need for cooling. So overall I don't have a strong opinion on urbanization.

5. Due to market innovation, I believe that the Social Cost of Carbon (SCC) will actually decline over time.

The resource scarcity literature teaches us that the expectation that the efficient path of a price of a non-renewable resource is simply to grow at the discount rate as in the simplest Hotelling model isn't necessarily true. And if we solve the climate problem, then maybe the SCC will come back down again. I say "maybe" because though carbon in the atmosphere might be falling, we will have more to protect from impacts? In the long run, the carbon sink isn't a non-renewable resource. However, in the near term it seems reasonable to expect that the SCC is rising. Of course, the SCC is just an estimate, which is either generated by an IAM or depends on the same assumptions as an IAM. On the other hand, as long as we don't have an effective carbon price, we need a social cost of carbon number to put in cost benefit analyses.

6. The proper role of government here merits much more research. When do government efforts protect the poor versus when do government investments and rules create moral hazard and “Peltzman” effects such that we take on more risks such as moving to a risky area that the government has invested in sea walls to protect?

I think the government needs to take climate change into account when planning and adapting public infrastructure. And it has an important role in providing people information about climate change. But beyond that I don't see it has a role in adaptation. People bear the costs of adapting privately. I don't see a market failure there except due to information. So, I don't know why this should get specific attention rather than just be a side effect of general social welfare policy. Should we be building sea walls to protect land from flooding and is that a coordination problem? Well, I can't see how that can be anything but a short-term solution and so probably we shouldn't.

7. I am a fan and a producer of reduced form climate correlations. For example, over the last 4 decades how much lower has the growth rate of a nation’s per-capita income been during years when it very hot? These correlations are interesting. They play a “Paul Revere” role teaching us what future costs we could bear if we fail to adapt.

I am not a fan of this literature. I think it is more or less meaningless regarding climate change in general. If there is a one time hot year, you are not going to do long-term adaptation as Matthew points out. On the other hand, long-term impacts of climate change like sea level rise and species extinction won't happen due to one hot year. The literature can tell us something about what will happen if there are more of these exceptional years in the future but that's about it in my opinion.