Free Lunch here

Yet another blue-ribbon report on the high costs of delaying action on climate disruption, this one from the US President’s Council of Economic Advisers. It won’t change closed minds. I suppose the drip-drip effect may bring round a few waverers, or shift some real journalists away from false balance.

What it should do is prompt a rethink on strategy among the reality-based.

A money graf from page 14 (italics added):

Recent research shows, however, that even if a delay in international mitigation efforts occurs, unilateral or fragmented action reduces the costs of delay: although immediate coordinated international action is the least costly approach, unilateral action is less costly than doing nothing.

Read this together with recent findings that the absolute GDP costs (footnote) of strong mitigation are very low or nil. In the wooden prose of the IPCC Fifth Assessment Report, WG 3, Summary for Policymakers, page 15:

Under these assumptions [all countries of the world begin mitigation immediately, there is a single global carbon price, and all key technologies are available] mitigation scenarios that reach atmospheric concentrations of about 450 ppm CO2-eq by 2100 entail losses in global consumption – not including benefits of reduced climate change as well as co-benefits and adverse side-effects of mitigation – of 1% to 4% (median: 1.7%) in 2030, 2% to 6% (median: 3.4%) in 2050, and 3% to 11% (median: 4.8%) in 2100 relative to consumption in baseline scenarios that grows anywhere from 300 % to more than 900% over the century. These numbers correspond to an annualized reduction of consumption growth by 0.04 to 0.14 (median: 0.06) percentage points over the century relative to annualized consumption growth in the baseline that is between 1.6% and 3% per year.

0.06% a year is well within the error of any model forecasts. Over 50 years, it’s noise. The takeaway is: to a first approximation, mitigation costs nothing. (footnote 2).

There is no free rider problem. It does not make sense for the US or the EU to wait for China. Just get started. The same argument applies for China: don’t wait for the USA. It even applies to Costa Rica (which is already showing them an example).

This calls for a rethink of the assumptions that have governed the long and hitherto fruitless struggle for a comprehensive international agreement, replacing and strengthening the partial Kyoto Protocol of 1997. These were:

  1.  Coordinated action is the cheapest and most effective mitigation strategy. (True).
  2. A uniform global cap-and-trade scheme or equivalent carbon tax is the most efficient and least dirigiste way of achieving any given carbon reduction target. (Fair enough, with the large exception of technology development – footnote 3.)
  3. It is essential to get everybody to sign up to the agreement setting out targets and mechanisms, otherwise countries that stay out will enjoy a free ride at the expense of those that do. (False.)

It is assumption 3 that has stymied the process so far. Saudi Arabia and Canada and Bush’s USA (or whoever is competing for the lanterne rouge slot that year) have to be on board, so they get an effective veto. With such a veto, no conceivable universal deal can be an adequate one.

But we don’t need a universal deal and should not try. Instead the aim should be an open-ended coalition or coalitions of the willing, driven forward by the brave and firmly based on the science, not held back by the cynical, cowardly and ignorant. Think of a large city marathon, with élite runners, weekend club ones and sponsored jokers all in the same race.

For an example, one of the coalitions could be to phase out coal: no new coal generators without CCS, sunsetting of existing non-CCS plants by 2030, retraining for miners, etc. There are a lot of countries that don’t use coal today that could sign immediately. The USA and China would join later. But the standard would be down in print.

* * * * * *

Footnote 1
These estimates all use cost in GDP. We should of course use NNP, after depreciation. Talking about the environment, the weaknesses of this as a measure of welfare are no longer marginal. In an NNP estimate, with its corresponding definition of the capital stock and its depreciation, we necessarily assume that apart from a tiny amount of services to ecotourism:

  • Value of polar bears and hundreds of other threatened species: $0
  • Value of Amazon forest: $0
  • Value of Antarctic icecap: $0
  • Value of Himalayan glaciers and snowfields: $0
  • Value of coral reefs: $0
  • Value of anxiety of human populations about climate-driven disasters (hurricanes, floods, droughts): $0 (We are already capturing the costs of the disasters after they happen.)
  • Value of anxiety of human populations about long-term climate change: $0

You don’t have to put a specific money value on these factors, or even think it’s possible to do so, to agree that a GDP/NNP measure substantially underestimates the true welfare costs of climate disruption. So it necessarily greatly overstates the net costs of preventing it. The call isn’t even close.

Footnote 2
Does the low-cost conclusion hold up if action is incomplete? Why not? Where are the strong cross-border interdependencies in efficiency measures, deployment of renewables, etc? There can certainly be mutual learning, and benefits from economies of scale realized elsewhere, but you don’t need a world treaty or bureaucracy for this. Everybody else has benefited from Germany’s solar policy in the last decade. The European coordination imposed by the EU Commission has been at best pointless and at worst harmful in Germany, pressing for the replacement of tested and well-liked FITs by untried “direct marketing” and auctions. Jean Monnet would not have agreed that short-run Pareto efficiency trumps long-run growth.
It’s possible that impacts are non-proportional to CO2 concentrations, so comprehensive action is less costly. By the time we know for sure if the damage curve is non-linear, it will be too late.

Footnote 3
All cost estimates are sensitive to assumptions about technologies. WG3 assume that cost-effective CCS will become available soon, a very big ask. SPM table 2, page 16. Erring on the other side, in pricing renewables they give a median LCOE @ 10% cost of capital of $160 per Mwh for utility solar in favourable regions and $84 per Mwh for onshore wind. Annex 3 to full report, page 7. These are over  twice the going PPA rates in the US Southwest; not distressed prices, but profitable commercial deals. (Wind, solar.) This is one drawback of relying on outdated peer-reviewed scientific literature rather than ordinary news, which for simple prices is just as reliable. General experience with pollution controls and indeed with normal (non-nuclear) technologies is that costs fall faster than initially expected.

You can get a free-rider problem back through technology: why not wait until the Chinese have got solar system costs down to 50c a watt? Maybe so, but it’s imprudent. First, if a lot of people wait and then all rush in at the same time, there is every chance of a spike or plateau in costs – as happened to both US wind and global solar around 2008, for different reasons. Second, you usually save money by taking it steady, planning things right, and building up expertise and supply chains. Third, early movers dominate the equipment market. Look for (rather than at) Britain’s nonexistent solar manufacturing industry. Fourth, in all developing countries demand for energy and especially electricity is rising rapidly. The demand has to be met now, like a teenager’s for a smartphone, next year’s better model be damned. Since wind and solar are already cheaper than fossil fuels in many places, it pays to invest today, even knowing that the gear will be cheaper next year.


  1. paul says


    It seems to me that the incomplete-action case is moot. Unless you're positing that consumption by non-acting nations will involve durable goods and infrastructure that will be of particular use in a warmed world, it's likely that future generations will apply a steeply discounted valuation to the increased consumption by their non-mitigating ancestors.

    • JamesWimberley says


      For my free lunch argument, the only relevant evaluation needed is that within a country. For Costa Rica, the effect of its mitigation is infinitesimal (but an infinitesimal with the right sign), so all it needs think about is net costs. If these are zero, why not do it anyway? There is a tiny cross-border example effect (as through this post), also with the right sign. In the case of large emitters like the USA, China and the EU, unilateral; action has a significant effect on global concentrations and future climate. In the worst-case scenario, the EU (say) acts but China, the USA, India etc do nothing. The world still hits the apocalypse but later. A decade of civilisation in Europe is worth having, again at negligible net cost. Sum over the scenarios weighted by probability – including China and the USA follow, but late – and you come out ahead, within your own borders. In such cases future generations of Americans and Chinese will regret their leaders' choices, but not Europeans.

  2. BardTheGrim says


    Regarding "retraining for miners": I read something a few years ago, perhaps here although I can't find it, about the large economic benefits of building non-twisty-turny all-weather highways across West Virginia. The closest reference I can find is this; maybe Keith Humphreys can do better. In any case, my dream is that Obama proposes the following deal: Yes, WV relies heavily on coal mining and it will be disproportionately hurt by rules that reduce the use of coal. In exchange for suffering the effects of those rules (so that the rest of the country and world can enjoy the huge benefits of those rules), WV will receive decade-long funding to build highways (described above) and retrain coal miners to build those roads. Miners get new jobs. WV as a whole benefits from improved trade connections and tourism (now that it's not so hard to get anywhere). I envision WV as a sort of Switzerland, with tunnels through mountains and funiculars acting as tourist attractions in themselves! (OK, that's a stretch, but it's inspiring.)

    Miners know their current jobs can't last–it's just a question of how quickly they're lost. Give them a real alternative somewhat similar to what they do now, that's less dangerous and improves the future for their families and state, and shows that the Fed gubmint is fair and useful. The improved economy can absorb the ex-miners/highway-builders as road construction winds down over several years.

    • JamesWimberley says


      Obama is hiding behind the fiction that his policies will not in fact lead, as they should, to the demise of coal. I once suggested here nationalisation of the industry. in order to wind it down in a civilized way: a proposal about as feasible as yours. But a serious federal programme for Appalachia might be doable, loosely modeled on the TVA. Back in the early days of the Internet, the British government equipped the remote, beautiful and poor Outer Hebrides with ISDN connections, the state of the art at the time. They did succeed in creating some IT service jobs,

  3. J_Michael_Neal says


    You're confusing "no net loss" with "free lunch". They are not at all the same thing. Some entities within a country will face very high costs. Others will receive benefits. That alone eliminates any possibility that it can be treated as a free lunch type setup, because those facing costs will fight harder than those who might receive benefits. It's human nature. And even those who would get benefits would also face change and human beings naturally resist change, so those for whom the benefits would be small have a fair chance of being opposed.

    Every time you write one of these Pollyannaish posts about how climate change mitigation would be free! free, I tell you! you ignore basic human nature. It's not free and the economists aren't really considering the way humans actually behave.

    • JamesWimberley says


      If it's a Pareto improvement nationally, in principle the government can compensate the losers fully. In practice this never happens, so there are no actual Pareto improvements, and always some losers as well as winners. (ACA is a good example; Obama tried everything to make it a Pareto deal with something for everybody, but still failed.) Your approach leads to the conclusion that rational policy, working back from a view of the national interest, is impossible. No. It's merely very, very difficult. We have a perch here to call for difficult reason.

      In fact I have a lot of sympathy with what I understand to be Obama's salami tactics. Go for coal first, politically the weakest lobby as well as climatically the worst polluter, while pretending to support domestic gas and oil. Stall endlessly on Keystone, leaving it to Hillary: by then coal will be moribund, the gas bubble collapsing, and she can take on the Kochs.

  4. NCGatSmFcts says


    James, your posts are some of the only things that give much hope these days. Thank you.

    So, being a tad of a pessimist as I am, and thinking that this planet is basically run by the 1%, now including the US fed and local govts … maybe what we need is some kind of competition for the megawealthy, to see who can force these programs through. If you built in revenue neutrality, or some kind of protection for poor people, I don't see how it could make anything worse. What we need to do is self-engineer ourselves out of this state of fear and inaction. Not sure how to do that though. It's true, there are some nice things happening locally. How to build on that?

    • JamesWimberley says


      Angela Merkel got reelected: the Energiewende is no longer controversial in Germany, though there was a big fight recently basically about short-term losses to fossil generators. I know less about Denmark, Norway and Costa Rica, but I've no reason to think their even more ambitious targets are in danger. These are less unequal societies than the USA, but their elites (and I think this generalises to many other countries, including the UK and China) have come to terms with the facts. Without rapid mitigation, their wealth and position are screwed. Denialism is not in the interest of the US 1% or 0.1%. Bloomberg and Buffett are better representatives of their class interest than the Kochs and Murdoch.

      "What we need to do is self-engineer ourselves out of this state of fear and inaction." A very nice phrase. Hear hear. How much denialism is driven by a realization that AGW is true, and a despairing belief that it is impossible to build an Ark before the Flood?

      • KatjaRBC says


        I'd argue that Angela Merkel got reelected largely because the German economy is doing well. One could also argue about whether one could say that she was reelected: while her party gained votes (largely at the expense of the classical liberal FDP), there's currently a left of center majority in the German parliament. She remained chancellor because the Left party is too toxic for the Greens and the Social Democrats to form a coalition with, so they went with a conservative/social democratic coalition.

        There most definitely are concerns regarding the "Energiewende", primarily the price of electricity in Germany currently being at €0.29 Euro (about $0.40) per kWh, about half of which is taxes. Even more so since some "energy-intensive" industries are exempt from some of these taxes (in order to remain competitive), which not only is getting Germany in hot water with the EU (which doesn't allow market-distorting subsidies), but also means that it's primarily private households and small and medium enterprises paying the bill, which, to say the least, is not very popular.

        This does not mean that it doesn't make sense: Germany's subsidies for renewable energies, especially PV, have helped with economic growth and job creation (even in the long term, as the German industry is building expertise and a patent base in the area of renewable energies). The problem is that these subsidies are financed through regressive taxes.

  5. nycster says


    "There is no free rider problem. It does not make sense for the US or the EU to wait for China."

    I would even challenge the use of the term "free rider" in this context. When we (the US) emit twice as much greenhouse gases per capita as many other industrialized countries (and China), we are supposed to start first. Once we hit the level of those other countries, we can start pointing at others. Compared to Europe, which has already made some steps, the US has been the free rider. So we don't get to point that finger even if we take some steps.

    Note that I understand that of course we need other countries to pitch in asap. But the way in which even reasonable people in the US pitch this as a multi-party conundrum actually plays into the hands of those who are trying to impede progress. And every article (not yours) that blames other parties for having the fastest growth in emission, or the highest total amount of emissions, without even mentioning emissions per capita, is actually misinforming people and making an international agreement less likely. A little more modesty on the US side is warranted, and less posturing about tricky free rider problems to cover up the real goal of grandfathering into any agreement as much of our high emissions as possible. The most realistic way to get to a fair agreement is not to push other countries in "the right direction", but to push the Overton window within the US on this topic.

    And yes, realizing that it is in our interest may help move that window. But it should not be necessary.

  6. Mitch Guthman says


    James: I think that everything you say here is unquestionable right, and I agree with every word, but it's also completely irrelevant. Almost nobody outside of the cloistered worlds of libertarianism and movement conservatism actually believes either that climate change is a hoax or that the cost of fixing the problem might be larger than the cost of the damage that if be sustained. The world is awash with good, cost effective plans to fight climate change (of which these are excellent examples). Yet nothing is done and it is clear that nothing will be done simply because there are good, cost-effective solutions—by which I mean that the mere existence of good solutions won't matter at all unless we are first ready, willing and able to deal with the forces that obstruct every effort to deal with the problem.

    It seems to me that one major impediment is our quasi-religious attachment to “market based solutions,” that limit the range of solutions that can be considered that can make an immediate profit based on the current state of markets. Meaning that, as long as we try to force solutions into the "free market" ideology nothing can be done until it's too late because, for example, private actors generally can't make money on alternative power sources until the cost of fossil fuels rises either because of scarcity or because political action has forced fossil fuel companies to bear the costs (pollution, bad health, climate change) that are currently being borne by society at large. Our misguided attachment to unrestrained “free markets” as an ideal and the Libertarian belief that forcing people pay for the harmful effects of their activities on other people and, indeed, on society itself means that we cannot implement the kinds of rational, cost-effective solutions being discussed in this post.

    An important corollary is that our unwillingness to act decisively against incumbents makes it impossible to dislodge them. Which, in turn, makes it impossible to formulate rational plans and enact programs that will benefit all mankind. Unless we can generate the political will and the necessary ruthlessness to make it clear to incumbents that efforts to prevent our taking the necessary steps to halt climate change are dangerous, high-stakes gambles in which they risk horrific retribution, the oil and coal companies will have no reason to stop funding efforts to derail fixes for climate changes; and politicians, judges and academics will have no reason to stop taking bribes to help them.

    We need to begin to develop a political movement which offers both carrots and sticks to polluters and fossil fuel companies. Yes, there must be help and subsidies to undertake the necessary transition away from a fossil fuel based economy but with the clear understanding that those who obstruct mankind’s quest stand to lose everything. As the philosopher and leading entrepreneur Al Capone sagely observed: “You can get much father with a kind word and a gun than you can with a kind word alone”. Anyway, that's what I think.

    • JamesWimberley says


      Technical note: I had to fight WordPress to get it to display your comment. I think it didn't like the blank line at the start, which I removed. Sorry for the delay. J

    • JamesWimberley says


      If I were Blofeld chairing the annual meeting of Denial-SPECTRE, I don't think I'd be happy with the overall performance of the underlings. In fact, I'd be sending quite a few of them to the piranhas. The Disinform department is clearly failing. Policy in China, the USA, and India is moving against us. Even the Saudis and Iran are going solar. Renewable electricity and (at an earlier stage) electric transportation continue to grow very fast, and in a widening set of countries. More and more of our fellow-capitalists, even first-tier banks, are deserting us. Victories in Australia and continued neutralization of the US Congress don't make up for this. Remember that the greenies don't have to reach their objective of carbon neutrality to ruin us; all they need is enough renewables to strand our high-cost assets, which they are on track for.