What should be done about global warming

Global warming has not been proven.  Neither, for decades, was the link between cancer and cigarettes, as tobacco companies kept telling us. But there’s even less proof that your house will burn down. Does that mean you shouldn’t buy fire insurance? We don’t need absolute scientific proof before we take precautions.

Quite a lot can be done rather cheaply.  The trick is good economics:

  • Use smart incentives.
  • Not dumb command and control.
  • Read about Carbonomics

Command and Control:  This means telling people and companies what they can’t use and can’t do. For example Environment Canada is planning on telling coal plants (and even different parts of a single coal plant) how much power they can produce. But isn’t that necessary, if you are going to stop them? Not at all. It’s perfectly possible to tell the owner of a group of plants, that it must cut output to you-name-the-target, and then let the owner decide which plant to cut back how much.

That saves a lot of money and works just as well as telling the owner what to do in detail. So why doesn’t Environment Canada get this (as of 2011)? A lot of environmentalists do, but quite a few are still back in the stone age economically speaking. I’ve talked with them about this and they are not that dumb, so it is either politics or a sort of religious feeling about environmentalism. In any case, it’s terrible for environmental progress. It just makes enemies needlessly.

That’s and extreme case, but there are lots of other cases that are less extreme, but where environmentalist are shooting themselves in the foot because they are still half stuck in the old command and control world .

Even Worse:  Perhaps an even worse that command & control is the frequent refusal by environmentalists to do things cheaply.  (California: how to waste a lot of money.)

Half Way Right:  To avoid using command & control on coal plants, a couple of economists invented cap and trade. Environmentalists like it because it gives them a lot of control, camoflages that with a market. They also like it because it provides a less obvious way to bribe coal plants. Coal plants like it becuase they can make money off of it. Economists bless it because it uses a price that helps minimize the cost of getting the job done.

Pricing Carbon:  Cap and trade is not the best way to price carbon, but it’s usually good step. It has a couple of problems: (1) The price is very hard to predict and scares people so they make the cap weak. (2) Anyone who does better voluntarily just makes it cheaper for someone to do worse and there’s no net benefit. (3) The price risk makes investment cost a lot more, so it wastes money. (4) Internationally it’s a disaster — China is not going to buy credits from the US and India is not going to be capped at our emissions level in 1850.

The Best Incentives:  The untax and feebates are the best way to price carbon. They are completely predictable. They work like taxes except the government collects no money. You can read about these here: Amazon and there will be more about them on zFacts in the comming months. 

Should We Do Something about Global Warming?
That depends on how costly the problem is and how much it costs to reduce it. Almost always, and this case is no exception, doing a little is worthwhile but the more you do the more costly it becomes to improve things. This means the question should be “how much should we do?” and not “Should we do something?”

The fact that we are not completely sure that global warming is increasing the destructiveness of hurricanes is no reason to do nothing. We are not completely sure that terrorists will again attack the U.S. but none of those who claim that “not knowing” is a good reason to “do nothing” about global warming would follow that logic with terrorists. Taking some precautions is almost always a good idea.

We do not know that our house will burn down. In fact we are quite sure that it will not. Yet we all buy house insurance. We do not wait until the scientist can give us a better prediction of the chance it will burn down in the next 50 years. The bigger the risk and the more likely it looks the more we should do about it. The idea of doing nothing until we are completely sure is almost always a bad idea, and it is silly when dealing with a problem that will take decades to bring under control. We will probably not be 100% sure until it is  20 years too late to avoid what we just became sure of.

This does not mean we have to bankrupt the country. For the cost of Katrina or the Iraq war, we could do a huge amount. Why not budget 20% of that for global warming and to reduce international tensions over oil.