When it comes to determining and implementing policy, however, the social scientists can be just as important.
Professors of politics can advise how to nudge governments towards unpopular decisions, and the economists know more than anyone how to calculate the financial cost of rescuing the planet. Few economists have worked as hard on such problems as William Nordhaus and in this new book, he’s on top form.
He begins with a fine account of how global warming works: the causes and the consequences. There’s nothing particularly innovative or surprising here, but these sections offer a useful primer, and the detailed analyses of the impact that climate change has upon different economic sectors and how a typical US household uses and abuses natural resources are fascinating.
The second part of the book is what we truly need. Here, Nordhaus demonstrates that responding to climate change is an economic conundrum. We can produce endless data and predictions, but we also have to do the maths.
Nordhaus is clear that mitigation is the key. He doesn’t dismiss processes of adaptation or technological breakthroughs, but reducing greenhouse gas emissions is his priority.
A basic economic principle is at our disposal: modifying behaviour through financial incentives and penalties. There are two obvious candidates: a tax on carbon or a ‘cap-and-trade mechanism’, whereby an overall limit on emissions is set but in which permission to emit can be traded between parties. Nordhaus doesn’t mind which tactic is privileged. He prefers taxation, but if cap-and-trade is deemed more acceptable in a particular location (as it would be, for instance, in the tax-averse USA), then it’s just as worthwhile.
The tricky part is working out what targets to set and the pace at which they should be introduced. Nordhaus provides a wealth of calculations that show how much specific goals would cost and how their pursuit might operate.
It’s naive, he suggests, to set a firm goal for limiting the rise in temperatures: ‘We should aim for a lower temperature target if it is inexpensive, but we might have to live with a higher target if costs are high or policies are ineffective.’ Perhaps it’s better to be pragmatic ‘rather than spend a fortune limiting warming to the lowest feasible level’.
We should all want to do the best that we can, but our dreams have to survive in the real, hard world of politics and the market. Nordhaus takes the dangers of global warming very seriously but he’s simply looking for a workable solution. Some will be alarmed by all his talk of cost/benefit analysis but that, for better or worse, is how our masters also think.
Not, for the record, that Nordhaus is any kind of extreme free-marketeer. He argues passionately that governmental curation and intervention is crucial. His sums only add up if we embark on the path towards a truly global solution in which all nations participate. He has no problem, therefore, with penalising free-riders who refuse to join in or fail to live up to their commitments. The villains can expect trade sanctions and tariffs on their exports.
It comes down to this – changing how the world’s economy and industries work by lowering CO2 emissions would carry a significant, but not excessive, price tag; our lifestyles wouldn’t suffer too many deleterious changes and we would be trading minimal present-day costs for vital future benefits. This is surely an obvious choice, and when it’s advocated by a skilled economist it presumably has a better chance of influencing the powers that be.
There’s nothing Utopian about Nordhaus’s analysis, but it encourages us to free ourselves from our various kinds of intellectual captivity. As he puts it, we’re prisoners of nationalism and economic self-interest, and we’re reluctant to do the future a favour if it costs the present too much.
It may take a balance sheet to snap us out of our selfishness and complacency. The bottom line: it wouldn’t cost the Earth to save it.
THE CLIMATE CASINO: Risk, Uncertainty, and Economics for a Warming World by William Nordhaus, Yale, £20