Monday, May 11, 2020

SAVING THE PLANET DOES NOT NECESSARILY COST THE EARTH


Beware Fake News  on the economic and other choices we have to make.

There are longstanding debates about the economic costs of moving the world away from its addiction to the fossil fuels that are the prime source of the greenhouse gases causing temperature and climate change. There will be renewed attention to the challenges as the world slowly emerges from the covid-19 pandemic.
There are many elements to this discussion, from estimates of aggregate cost to macro-economic issues of reviving economies through Green investment. Some are discussed in a forthcoming article in the Oxford Review of Economic Policy.[1]   Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?
However, the propaganda battle has also begun, and so have the invented stories. On 7th May the Financial Times commissioned an exchange of views between Christina Figueres, a former leader of the UN climate secretariat, and Benjamin Zycher of the American Enterprise Institute. Can we tackle both climate change and Covid-19 recovery?

Taxes at $30 for a gallon of petrol? Really?

Zycher, after a fairly conventional if disputable assertion of essential connections between economic growth and energy consumption, claimed that the Intergovernmental Panel on Climate Change (IPCC) advocates carbon taxes for 2030 with a midrange equivalent to $30 per gallon of petrol.
I have always been a natural enthusiast for Twyman’s principle, also attributed to the distinguished statistician, the late Andrew Ehrenburg. The “principle” is that any “interesting” statistic is probably wrong. In other words, if a number looks wrong, then quite likely it is wrong. This one was specially “interesting”; my own familiarity with energy statistics, and energy costs and prices, indicated an order of magnitude error.

If it looks wrong, there’s a good chance it is wrong!

Quite apart from the numbers, the attribution of this statement to the IPCC was intrinsically improbable, as the IPCC does not take policy positions. Its function is to report and summarise the literature of thousands of scientific and other publications, including economic modelling. It tells policymakers what we know and don’t know about the risks related to climate change (a bit like the role of the UK’s SAGE in the current pandemic). Its processes are carefully controlled by national governments, and it emphatically does not “do” policy recommendations, or advocacy.

I decided to do a quick check.  Much of the polemic was based on the supposed extremism, and implied naivety or hostility to humanity, of environmental campaigners, exemplified by “$30 per gallon”. It seemed quite important to understand how the author had come to this number. If the alleged advocacy was not correct, it seemed to be a particularly egregious example of dishonest reporting and misinformation.

First this meant chasing up the citation[2], given as Chapter 2 of the IPCC Special Report: Global Warming of 1.5 ÂșC. That report also has a Summary for Policymakers. Inspection of that summary did not reveal any mention of carbon taxes or carbon prices. If IPCC were really engaging in advocacy, it is in a summary for policymakers that one would expect to find it. It was not there.

I turned to Chapter 2, which appeared to be where Zycher had extracted his dubious statistic. The chapter consists largely of a technical summary of modelling methods, and hundreds of modelling outputs, all heavily qualified as to assumptions, meaning and interpretation. It does discuss the theoretical impact of carbon prices, but the relevant section, around page 78 of Chapter 2 emphasises the “real world distinction … between implementable and notional [model] carbon prices …” and that any “price … estimated in modelling studies needs to be compared with what is feasible”.

Turning to climate policy discussions, some proposals for more aggressive carbon pricing do indeed favour CO2 prices (or taxes) higher than today’s, typically of $100-200 per tonne. The same section of the IPPC report does identify evidence in support.  “Literature has identified a range of factors … that support [social cost] SCC values above $100.”  But for petrol that would be around 90 cents per gallon, an amount almost lost in the noise, not Zycher’s hysteria-inducing 30 dollars. Focusing on petrol prices in an electric future seems inappropriate but is presumably intended to link back to an everyday price with which most people are familiar.

If anything, environmental campaigners might be concerned that carbon taxes, even at the quite aggressive level suggested above, have so little impact on pump prices to consumers. An amount of 90 cents (or pence) a gallon is less than European governments already levy in tax, and within the range of the normal fluctuations in fuel prices in recent years. It is widely assumed among energy economists that taxing petrol is not a particularly effective instrument for promoting low carbon transport, and that more of the solution lies with electric (or hydrogen) vehicles. A more common financial concern is that governments will be reluctant to face the loss of the fuel tax revenues that stem from petrol and diesel.

Setting up straw men is, I am afraid, a standard tactic for this camp in the climate debate and the wider culture wars. This was a prime example.


[1] Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change? Cameron Hepburn, Brian O’Callaghan, Nicholas Stern, Joseph Stiglitz and Dimitri Zenghelis. Forthcoming in the Oxford Review of Economic Policy 36(S1).
[2] Chapter 2: Mitigation pathways compatible with 1.5°C in the context of sustainable development. https://report.ipcc.ch/sr15/pdf/sr15_chapter2.pdf .