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The Bear's Lair: Warming after Kyoto

By MARTIN HUTCHINSON, UPI Business and Economics Editor

WASHINGTON, Dec. 15 (UPI) -- Assuming the Russian reluctance to sign the Kyoto protocol on global warming holds, the treaty isn't going anywhere. Meanwhile, whatever global warming was occurring is still occurring. What to do? A Cato Institute conference Friday discussed the problem, and produced some fairly clear answers.

The science on global warming is murky, but becoming less so. There IS a global warming effect from carbon emissions, but it appears to be somewhat smaller than was postulated ten years ago. Two factors need to be considered: the rate at which carbon emissions are increasing, and the effect on global climate of a doubling in atmospheric carbon levels.

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Ten years ago, most models postulated that carbon emissions were increasing at about 1 percent per capita per annum. According to Patrick Michaels of the University of Virginia, that figure is too high, and well above the clear linear trend seen from the last 25 years, the period over which global warming has become an issue. He suggests that with increasing efficiency in carbon usage (for example, a declining share of coal in the world's energy supply) the true figure for carbon emission increase per capita is around 0.4 percent per annum. Over 100 years, that translates to a huge difference in level, of course; roughly the difference between an emissions increase of 150 percent in that time and an increase of only 50 percent.

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The effect on global climate of a doubling in atmospheric carbon levels is less clear, because of the many other factors, both man-made and natural, that affect global climate. Sulfates, for example, emitted from coal smokestacks before the U.S. Clean Air Act of 1970 and equivalent international legislation, have a generally cooling effect on the atmosphere. Conversely, recent research suggests that the beginning of settled agriculture, around 8,000 BC, may have had a modest warming effect that was sufficient to disrupt the planet's ice age cycle which would, had it continued its previous pattern, have plunged the planet into renewed glaciation by now (the Cato panel were respectful of the research, but doubtful of the validity of its results.)

Three of the four Cato panel members believed it to be reasonably well established that a doubling of atmospheric carbon would increase temperatures by somewhere in the 1.5 to 3 degrees Celsius range, the fourth, professor Michael Schlesinger of the University of Illinois, believed that much uncertainty still existed, and that there was a 5 percent chance that a doubling in atmospheric carbon could increase temperatures by as much as 9.3 degrees Celsius.

One important factor is that the temperature's response to atmospheric carbon is logarithmic, not linear. This means that if a doubling in atmospheric carbon increases global temperatures by 2.5 degrees, a further doubling will increase it, not by a further 5 degrees but only by a further 2.5 degrees. Hence provided human population and carbon emission do not increase exponentially, then global temperatures will increase only gradually, rather than spiraling out of control as was postulated by the environmentalist Club of Rome in the 1970s. As with most environmental factors, it is clearly important to keep world population growth as low as possible.

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The economic effect of a rise in global temperatures, unfortunately, is neither linear nor logarithmic but fairly close to exponential. To take an extreme example, whereas a 2 degree Celsius rise in world temperatures, if occurring over a long period such as 100 years, would have relatively little cost, a 20 degree rise would not cost a mere 10 times as much as a 2 degree rise, but would be close to ending human life altogether -- at some point, human body chemistry, attuned to a blood temperature around 37 degrees Celsius, could not cope with the additional heat.

Thus the cost of global warming, and the appropriate actions to take to forestall it, depend heavily on two factors: the likely scale of the warming effect, and the length of time over which it takes place. At the same time, actions cannot be delayed until a substantial warming effect is already apparent, because the world's ecosystem contains substantial lags; the level of atmospheric carbon at a particular point in time has its full effect on world temperature only about 30 years later. Also, the full effect of global warming will not be felt by 2100; according to professor William Cline, of the Institute for International Economics, the effects, while not increasing linearly, will continue after 2100 at close to the rate of the next century. Thus if Schlesinger's "worst case" forecast of a 9.3 percent rise in temperature through a doubling of atmospheric carbon is correct, a "worst case" estimate of the global warming effect by 2300 might be 25 degrees Celsius -- the cost of which would be close to infinite.

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Actions that can be taken in respect of global warming are of two types: actions to mitigate (reduce) the global warming itself, and actions to adapt to its effect. The latter actions, poorly considered by the Kyoto negotiators, reduce the cost of a particular moderate global warming very greatly if it takes place over a substantial period. Over a century, buildings can be replaced, farming techniques modified, new agricultural land brought into production and flood defenses built.

In agriculture, for example, according to professor Robert Mendelsohn of Yale University, moderate global warming is likely to move the prime agricultural zone further north (which thus justifies the Russians in their skepticism over Kyoto.) The principal losers from a substantial global warming will be the tropical countries, the principal winners will be northern countries, whose agriculture will become more productive, bringing unused northern land into cultivation (particularly as, according to Mendelsohn, the greatest warming effect appears to be taking place in the polar winter, mitigating which is obviously attractive for its sufferers.)

Kyoto, which used a command-and-control mechanism and politically-agreed targets to achieve a moderate reduction in global warming over a relatively short period, could have had very little effect on world temperature by 2100, of the order of hundredths of a degree, while its cost was estimated to approach $100 billion, principally to be paid by the United States. It also failed to include developing countries, the two most important of which in the long run are China and India, in its targets, thus greatly reducing even the modest progress against global warming it could have made.

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The consensus among the panelists was that, while it would be possible to spend the next generation simply studying the potential for global warming, it was preferable to adopt such low cost measures as could be devised to mitigate it, while continuing the attempts to determine its magnitude and potential timing.

In particular, a carbon tax, set initially at a low level by international agreement, would provide incentives to discover the "low hanging fruit" methods of mitigating carbon emissions, while setting in place a mechanism that could be made more draconian should further research prove Schlesinger's "worst case" scenario to be a serious threat. To maintain flexibility and reduce uncertainty, the agreement establishing the tax would provide for review every 5 years, with no change in rate being more than (say) 25 percent in real terms. In this way, if a sharp increase was needed, it would happen not immediately but over a period of 25-50 years.

To the extent that the tax simply replaced other taxes (or, in countries such as the United States, merely reduced somewhat the budget deficit) it would have an insignificant economic cost, simply adjusting the incentives in the private sector so that (for example) coal fired power stations could attractively be converted to natural gas. By this mechanism, global warming would be fought by incentives in the private sector rather than by often misguided and generally inefficient "policymakers" in the public sector.

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The tax, collected locally, would remain within the national jurisdiction, thus avoiding the difficult international equity problems that bedeviled Kyoto. If a particular country (other than the United States, because of its economic importance) wished to stay out of the tax agreement, this would not prove a huge "free rider" problem or give it an undue economic advantage.

Only if the tax needed to be increased beyond a modest level would there be a problem of equity, since in that case Russia and Canada, for example, would be paying a high tax to address an environmental change that would somewhat benefit them, affecting more severely the tropical countries of the Third World. In that case, the negotiation of the appropriate rate for the tax could prove difficult, even though its yield remained within the domestic economy; it might prove necessary to maintain the tax imposed on a few such sparsely populated northern countries at a lower rate.

Professor William Nordhaus has calculated the optimum carbon tax as $10 per ton of carbon emitted, rising to $60 per ton in stages to 2100 (under the 25 percent capped quinquennial increase formula, the maximum tax imposable in 2100 would be $694 per ton in today's money.) At least Nordhaus' initial tax appears reasonable; with 6 billion tons of carbon emitted by the world annually it would bring a yield of $60 billion, spread among the world as a whole, which would be meaningful enough to encourage large emitters to find alternatives, without doing appreciable economic damage. Further, its incidence would fall primarily on those countries already emitting large amounts of carbon, primarily the United States, Europe and Japan, while rapidly growing economies such as India and China would become important payers of the tax only if they did not adjust their growth pattern to reduce carbon emissions.

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Kyoto is dead, and rightly so; to the extent it was Al Gore's baby it makes imagination boggle as to what communications would look like if Gore had indeed invented the Internet! However the problem Kyoto attempted to address is real, and may in the long run be serious, although this is rather unlikely, Hence a modest but immediate carbon tax, that preserves market incentives, and could be scaled up over a period if it proves necessary, would provide a low cost solution on which most (but inevitably, not all) countries ought to be able to agree.


(The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that, in the long '90s boom, the proportion of "sell" recommendations put out by Wall Street houses declined from 9 percent of all research reports to 1 percent and has only modestly rebounded since. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

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