Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Wednesday, December 20, 2006

What Should We Be Doing About Global Climate Change?

There are lots of fake disputes over global climate change. Does carbon dioxide in the atmosphere act like a giant blanket warming the earth? (Yes.) Does uncertainty about global warming mean that we should delay action? (No.) Should we be spending a much bigger fortune than we are on research: research into carbon-neutral power technologies, research into carbon-sequestration technologies, research into albedo-increasing technologies? (Yes.) Should India, China, and company have to bear a substantial part of the medium-term burden? (No: the rich countries got to take an easy carbon emissions-intensive path to industrialization and riches; theirs is the medium-term responsibility for dealing with the problem.) Should we be building or blocking the formation of the international institutions that will manage our reactions to global climate change over the next several centuries? (The first.)

There is, however, one real dispute: what else, besides research, should we be doing over the next decade or two? We economists like to think of things in terms of prices. And when we economists see something going wrong in the sense of having destructive side-effects, we like to tax it. Taxing it makes the individuals who are undertaking actions feel in their wallets the destruction they are causing elsewhere. Maybe the action is still worth doing, and maybe not. Imposing a tax--imposing the right tax--on those who are, say, driving low-mileage SUVs is a way of harnessing the collective intelligence of humanity to deciding in which case the bad side-effects are a reason to stop. But it needs to be the right tax.

An SUV going ten miles in the city and burning a gallon of gasoline pumps about 3 kilograms--6.5 pounds--of carbon in the form of carbon dioxide into the atmosphere. Should the extra tax on this--and on all carbon emissions--appropriate for global warming be on the order of five cents a gallon, fifty cents a gallon, or a dollar fifty a gallon? Our views will change as we learn more, but at the moment whether the tax should be five or fifty cents a gallon hinges on a question of moral philosophy: how much do we believe that we owe our distant descendents?

Australian economist John Quiggin has a very illuminating discussion on his website http://johnquiggin.com/wp-content/uploads/2006/12/sternreviewed06121.pdf. The Stern Review on Global Climate Change (on the internet at http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm) which comes down more on the side of fifty cents a gallon, immediately, does so because they project that spending today to reduce carbon emissions is a very good investment for the future. If the world grows in per capita income at about 2% per year, a marginal expenditure of roughly $70 today in cutting carbon emissions would be worth it if it were to enrich the world of 2100 by about an extra $500 of year-2006 purchasing power, once all the damages to the world economy and environment from global warming, costs of adjustment, and so on are taken into account. This looks like a very good deal to Nick Stern and his team.

On the other hand, critics point out that the world today is poor: average GDP per capita at purchasing power parity today is roughly $7000. We expect improvements in and the spread of technology to make the world of 2100, at a 2% per year growth rate much richer than the world of today: $50,000 per capita of year-2006 purchasing power. We today can use the marginal $70 per capita, critics say, much more than the richer people of 2100 will need the $500 or so they would gain from not having to suffer from the effects of global climate change.

What critics don't often say is that the same logic applies to the world today. The U.S., Japan, and Western Europe today have average incomes of roughly $40,000 per capita. The poorer half of the world's population today have incomes of less than $6,000 per capita. The same logic that says that we today need our $70 more than the people of 2100 need an extra $500 also tells us that we ought to tax the world's rich in the OECD more and more to fund world development as long as each extra $500 in first-world taxes generates even as little as $70 in extra poor-periphery incomes. If we in the world's rich now are stingy toward the (likely to be much richer) future and want to leave them our environmental mess to deal with, we should be lavish toward our poorer brothers and sisters today. If we today are stingy toward our poorer brothers and sisters now, we should be lavish toward our descendents.

At least, that is what we should do if we want to fulfill our part of Edmund Burke's great worldwide social contract between the dead, the living, and the unborn. If we

0 Comments:

Post a Comment

Links to this post:

Create a Link

<< Home