Climate economics

Do you need a reason to be even more depressed than when reading the news from Greece? No? I am sorry to disappoint you, but I have just such a thing. I have such news and I will start here a sequence of posts that will describe the situation from my point of view and look very hard for a policy that we puny humans can follow to avoid destroying the future of our children.

It has been pretty obvious to climate scientists that human activity is changing the Earth’s climate at a scary rate. Even the Pope recently said that recently, but ruled out the one solution that has a chance of success: carbon pricing.

I understand why people are suspicious of the proposals of economists, especially since economists in the past often understated the instability of markets, especially financial ones, that bit our behinds starting in 2007 and still threatens major catastrophe to the world’s economies, rich and poor alike. It would be nice to think that voluntary actions, undertaken worldwide, will be enough to mitigate the coming climate disaster. It also would be dangerous daydreaming.

The reason is the old bugaboo of the Prisoner’s Dilemma. I wrote about that not too long ago, in a post about capturing birds (here) where I also connected the environment more generally to the bleak implications of the Prisoner’s Dilemma. (If you think the works of Ostrom mentioned in that post can help, consider that the climate change problem is world-wide, while the examples of communities handling tragedies of the commons that she found were small in scale. Getting the whole planet to agree and act is the problem I am focusing on here.)

Today I want to point you in the direction of two lucid contributions by thoughtful economists, who point out that the voluntary actions never come at the needed level, and pricing carbon worldwide is the one policy that, obvious as it is to economists, has not been tried. Everything that has been tried, such as the Kyoto protocol, has failed.

The first contribution is in this PBS post by Gernot Wagner and Martin Weitzman. They argue that we are foolish not to insure against ecological catastrophe of gigantic proportions, and the way to insure is by means of pricing carbon.

The second is a collective effort with a well-named website. There you can find links to papers written for a special journal issue coming out in September. The papers are free to download. While they are written by economists (including Nobel prize winners Joseph Stiglitz and Jean Tirole) and thus are not literary masterpieces, they are clear enough about what humanity needs to do and have practical suggestions on how to get to it by international negotiations.

I will return to this topic soon. Meanwhile, read on, my friends.