Why Economics of Climate Change?

Anthropogenic climate change is a scientific fact. It may be regarded as the greatest challenge humanity has ever imposed over itself. Yet, it is an extremely complex challenge. It has, of course, a scientific component – without the advances in science, especially in climatology (but also, e.g., physics and geology), we probably wouldn’t be aware of the problem we face. Furthermore, as Kristen Sheeran rightly notes,

[m]any will argue that, at its core, the climate crisis is about ethics, rights, and responsibilities.

But, why is there economics of climate change? Do we need it? And if yes, what for?

It is clear that many issues arising while we are dealing with the climate crisis are not economic ones. The question of who is (historically) responsible for the changes, who should bear the most effort in mitigation and adaptation, what is our obligation toward future generations, what is the link between combating climate change and the right of poor countries to develop… All these, and many more, are problems related to economics, but not strictly economic. Ethics, philosophy, sociology may deal with them, perhaps much better than economists do. But, nevertheless, it is important that economists participate in the process of tackling climate change. Here we may quote Sheeran one more time:

But the drivers of, and solutions to, climate change are economic and political.

The first link between economics and climate change is, indeed, the fact that human economy has been the main driver of the latter. The formerly unseen success of especially the developed countries since the Industrial Revolution, but also of at least some of the developing countries in the nearer past, have put huge pressures on the Earth’s ecosystems. Here ethics plays a role again: one could say that we owe our affluence to our descendants – since we have used more that would be our sustainable share of the services and endowments Nature provides. On the one hand it cannot be denied that the last 200 years have greatly improved the well-being of the world population – this is a very important, yet not closed achievement. But, on the other hand, the environmental costs of this development are, as we now realize, severe. Biodiversity loss, climate change, desertification are only a few examples of ecosystem damages caused by their overuse which has fueled the world economy. In the case of global warming, signs of this overuse have been especially: the burning of fossil fuels, the intensive agriculture and deforestation. All these effects belong to the domain of economics, since they have been caused by our pursuit of wealth.

Since economy appears to be the main driver of climate change, it is logical that it is also the area where we should seek solutions. But, at the same time, we shall not forget that economics is only a part of the solution – many politicians and, indeed, economists, seem not to recognize that. Mainstream economic models of climate change are highly problematic in their methodology, since they tend to reduce all damages due to climate change to monetary ones (and to omit those which cannot be monetized). As I already have shown, this often leads to underestimating the severity of the potential consequences of business as usual. Problems of the appliance of cost-benefit-analysis, discounting considerations, treatment of uncetrainty… are at least partly caused by a tendency to overextend the scope of economic analysis, where e.g. ethics should be applied.

So, what are the tasks of economics/economists when dealing with climate change? Again, Kristen Sheeran put it well:

Economists, therefore, can contribute to the global effort to mitigate climate change by: translating the climate science into economic impacts [as far as it is possible and feasible – BB]; designing policies to stimulate the transition to greater energy efficiency and clean energy; demonstrating the benefits [as well as the potential dangers – BB] of building a clean energy economy; documenting the costs of alternative paths in the transition to clean energy; and informing equitable public policy interventions to distribute transition costs fairly.

I would add, further, the task to demonstrate (using, e.g., game theory) that global joint action is needed and in the interest of every country – i.e., that free-riding doesn’t pay in the long run (a very important issue when one considers the failure of past climate negotiations to reach a productive compromise).

We may conclude that, indeed, the economics of climate change has a “right to exist” (though not necessarily in its “mainstream” form) and that we need it in the global effort to tackle the anthropogenic climate change. To achieve this, economists must work together with scientists, politicians, ethicists, philosophers and other stakeholders – i.e., with the whole society. Unless we all cooperate, we probably cannot avoid a catastrophe.

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23 thoughts on “Why Economics of Climate Change?

  1. “Anthropogenic climate change is a scientific fact”

    Where on earth did you get that idea from? There is no proof for the “Anthropogenic CO2 causes Global Warming” hypothesis.
    All that is relied on are some rather poor correlations, and every freshman in statistics knows that correlations are never proof.

    Read my blog !

    I too am an economics graduate.

    One of the first things I assumed that the IPCC would do would be to report an economic analysis of the cost to society of meeting their CO2 emmission reduction schedules.

    Strangely enough, this very important piece of work seems to be missing. Why would that be do you think?

    What do YOU think that the economic effect on Western economies would be, given the current state of technology, if we reduced our CO2 emissions by 60%?

    Cheers

    Roger

    http://www.rogerfromnewzealand.wordpress.com

  2. All that is relied on are some rather poor correlations, and every freshman in statistics knows that correlations are never proof.

    And every freshman knows that you cannot prove a hypothesis in natural sciences, you can only falsify it (read Karl Popper). I don’t know why you call the correlations found by climate scientists “poor” – those I read about are rather strong.

    One of the first things I assumed that the IPCC would do would be to report an economic analysis of the cost to society of meeting their CO2 emmission reduction schedules.

    Then your assumption was wrong. The IPCC’s reports are mainly about climate science, not about economics of climate change. Though there are economic aspects elaborated by Working Groups II (Impacts, Adaptation and Vulnerability) and III (Mitigation of Climate Change), they are only a part of the story. If you want economic analysis, read Nordhaus, or better Stern, or even better Ackerman.

    What do YOU think that the economic effect on Western economies would be, given the current state of technology, if we reduced our CO2 emissions by 60%?

    It is a hard task, indeed, and the costs will be high. But the question is: what will be, if we don’t? And you shall not forget that the emission cut is not meant to occur over night. It is going to be a smooth process. If we start soon enough.

    • zielonygrzyb,

      I was looking forward to a good economic discussion with you and then I read this statement you left.
      “What is so bad about labour intensive processes?”
      Really, Have you forgotton your economics101? or did you actually do the course?

      Just to answer your assertions in your reply, I leave you with these,

      “And every freshman knows that you cannot prove a hypothesis in natural sciences, you can only falsify it”

      Yes I have read a little Popper but if the “Anthropogenic CO2 causes Global Warming” hypothesis is valid, after all the resources thrown at the subject, it is reasonable to expect a conclusive result by using at least one of the following methods.

      1 Empirical proof that shows the causation factor of CO2 with respect of Global Warming.

      2. Statistical proof of Anthropogenic CO2. In case you dont know it, correlations are never proof.

      3. Evidence for the “Anthropogenic CO2 causes Global Warming” hypothesis to be adopted over the null hypothesis?

      This fits in a little with your statement but you may need a little reading to understand what these things are. Here is a site which describes what is needed for #3 which might help. http://www.experiment-resources.com/null-hypothesis.html

      The IPCC is a political organisation (although they claim otherwise, their activities contradict that), and it does for example spend some considerable resource in discussing the costs/ cost/effectiveness of “Mitigation of AGW” (which is political), but which is not quite the same thing as the cost of meeting their emission demands which I still maintain is as equally if not more relevant.. http://www.ipcc.ch/pdf/assessment-report/ar4/wg3/ar4-wg3-chapter12.pdf

      I have read Stern’s report and he seems to have forgotten his Economics 101 and he well deserves the widespread criticism. Once again his report is a political document.

      Yes the cost of meeting the IPCC CO2 emission reductions will be very high indeed.
      Will the consequences of not following them be greater? Well that depends on how accurate and certain the science is. If we are going to bear this terrible cost, we had better be very sure that AGW is fact. Hence my emphasis of finding a reasonable scientific proof discussed above.
      http://rogerfromnewzealand.files.wordpress.com/2010/01/lindzen_testimony_11-17-2010.pdf (Check out the slide #25 and read the very last slide especially carefully)
      http://www.examiner.com/seminole-county-environmental-news-in-orlando/global-warming-scare-industry-suppresses-benefits-of-co2 This blog echoes my opinion exactly. If you want a brief analysis that supports this (see the last statement), I can give you one, but you should be able to figure it out for yourself.

      Cheers

      Roger

      http://www.rogerfromnewzealand.wordpress.com

      • Really, Have you forgotton your economics101? or did you actually do the course?

        I can think by myself and just don’t recognize some (main) assumptions of mainstream economics. I still do courses but in my opinion economists are wrong in many aspects (since you recommend your blog, I can recommend reading mine, since I have no time to make a detailed argumentation here).

        The IPCC is a political organisation

        The IPCC may be a political organization, but its reports are written by distinguished scientists. And they have been able to show convincingly that climate change is anthropogenic.

        I have read Stern’s report and he seems to have forgotten his Economics 101 and he well deserves the widespread criticism.

        That he doesn’t use the same methodology as most economists do (e.g. Nordhaus or Tol in the field of economics of climate change) doesn’t mean that he “has no idea” (=has forgotten his Economics 101). Again, apparently it’s not quite right what one learns in one’s Economics 101, as you call it. I read his report and part of the criticism as well – though I think the use of cost-benefit-analysis in economics of climate change makes no sense, I appreciate greatly how he dealt with discounting and uncetrainty (though here, again, I think that Martin Weitzman was right in his criticism, claiming that Stern still underestimated the risks).

        Once again his report is a political document.

        Why? Or: which economic analysis is not?

        One more thing (a technical note): may you please use HTML to put links into your comment?

  3. After reading Kristen Sheeran’s pronouncements on job creation by “green” economy I do not know if I should laugh or cry. How are we going to do that unless we start marching backwards towards labour intensive processes? A simple fact is frequently forgotten. Whatever we do is in fact very inefficient but introduction of computing technology allowed improvements which otherwise would have been not possible. The downside is that now less people ( with higher skills for that matter) is needed to produce, control and manage than before. So?

    As for the “the right of poor countries to develop…” they will be the first to suffer under new “green” order, at least for a very long time. Once again, due to wealth and technology gap, poor countries will be forced into ” green colonial” dependance – not much to cheer about for them.

    Regards,

  4. How are we going to do that unless we start marching backwards towards labour intensive processes?

    What is so bad about labour intensive processes? We are complaining about unemployment – couldn’t this problem be alleviated by going a step back to more labour intensity? (of course without carrying it to excess) I am not a Luddite, but I think we are too fixed on improving productivity of labour (just as we are too fixed on economic growth).

    As for the “the right of poor countries to develop…” they will be the first to suffer under new “green” order, at least for a very long time. Once again, due to wealth and technology gap, poor countries will be forced into ” green colonial” dependance

    If we don’t accomplish the transition, they will certainly suffer severely from climate change. That’s one point. The other is: I don’t see why green technologies should be enlarging dependence when compared with traditional ones (what about nuclear power? even developed countries like Poland are fully dependent on “foreign” technologies here). Instead, since they would put an end to “colonial” pressures from multinationals wanting cheap resources (uranium, oil etc.), they have the potential to reduce the gap… But this is a subject we already have discussed without reaching an agreement.

  5. “What is so bad about labour intensive processes?”

    Nothing wrong in general but there are practical problems. Who is going to be the labourer? A highly paid worker in Germany or France? If yes, are we going to cut their pay? And so on. All those high flying proposals lack attention to detail and are based on fanciful ideas. It is a little bit like political promises before elections.

    Regards,

  6. We are not talking about cleaning services, but about jobs where one needs some skills. But, yes, the pays may fall (on average). Therefore the transition must be coupled with better (re)distribution tools (really progressive taxes are the easiest example).

    I cannot emphasize it often enough apparently: the transition to a “green economy” will come at a cost. But not making it is probable to cost much more.

  7. “We are not talking about cleaning services, but about jobs where one needs some skills.”
    So which skills will qualify?
    ” Therefore the transition must be coupled with better (re)distribution tools (really progressive taxes are the easiest example).”
    What do you mean? You will take away from those not affected to pay those affected? What happens if everybody decides to move to the actvities compensated for being disadvantaged?

    “I cannot emphasize it often enough apparently: the transition to a “green economy” will come at a cost. But not making it is probable to cost much more”

    I suggest a simple exercise. Let’s design a beam of certain span and carrying certain load. Now let’s design a system of 100 beams where each will carry only 0,01 of the original load. If all beams are made of the same material a combined mass of the 100 beams will be several times higher than of the single, high load beam. With that goes: increased use of materials, increased waste generation, increased use of energy, increased costs etc. The same applies for the costs of running and maintenance of a single big unit vs equivalent sum of multiple small ones. This is what we know today. Obviously we may play with some of the components and factors. In the case stated above one may use special steel. But that, most likely, will come with increased costs, special techniques when manufacturing etc. So, please explain to me, how we can get more for less ( or at “slightly” higher cost ) if our current knowledge does not support such contention and practice lacks tools to achieve this.

    Regards,

  8. I mean a general redistribution with the goal that we come closer to (without arriving at) a equitable (just?) income distribution. Then wages of the lower bound would not be that low, since, assuming the average would be held, the higher ones wouldn’t be that much above average.

    I suggest a simple exercise.

    Too simple, I am afraid. You are implicitly assuming that your “beams” (and in reality, power generation unit) have the same attributes: consume the same resources, emit the same pollutants and so on. But this assumption does not hold.

    So which skills will qualify?

    The main reason why “green technologies” are more energy-intensive is the higher maintenance need (since the units of energy production would be far more dispersed and many more in numbers). I don’t know why someone should dislike doing such a job, while so many jobs are working as clerks, e.g.

  9. I just read a commentary about the new IPCC special report on renewable energies. It is worth reading, since it touches our discussion subject directly. The report itself can be accessed here (for the time being only a summary is available, the whole report is coming May 31st).

  10. ad 1. I am not for the situation when one has more money than one can spend in a lifetime and the other dies of hunger but…. What do we have in mind when we say “just” or “equitable”? Developed countries, Europe in particular, have developed mechanisms to minimise social contrasts. This is great, no doubt about that. However, is it just? It is difficult to say, and the answer depends on the circumstances.

    ad 2. My example is is a simple one, commonly done by first year students of engineering. But the rule is common in all respects. This is why public transport is more effective than private cars and goods are transported by minimal number of very long trains not a big number of short trains, and some export terminals will not load ships smaller than 100000 DWT. Why over the decades whe have decided to built bigger and bigger units instead of smaller in bigger numbers. I am not trying to argue about things I don’t know but in this case it happens that I know. Yes , you are right that sometimes there could be other benefits ( higher flexibility for example, standby facility etc.) but, as it is, our knowledge and experience has not changed in any dramatic way. Sometimes problems have been shifted to another area ( when horse drawn transport in New York had been replaced by petrol engine driven one the change was regarded as a major contribution to the protection of environment, similar thing with the steam and electric locomotives) but the problems are still there ( today we dont like our cars, our power stations for the same reason). What I have tried to convey, without any success, is that our civilisation is dependent on minerals and their processing. Steel is still the main structural material we use. We have other materilas which can, in some instances, replace steel but there are all sorts of problems with that and there are significant limits. In essence, a spoon which you use every day, a bearing in a wind generator or my car’s bodywork may have started their useful lives in the same mine somewhere in Australia, South Africa or Brasil.
    Let me put it like this. High expectations are being created, promises are being made but our current knowledge tells us that not all of the promises can be realised. It is great to have clean, CO2 free environment but that may come at a cost which societies are not prepared to accept.

    ad 3. IPCC reports are greate stuff but…between them and practical implementation of various ideas is a great gap. One may compare the situation to a project called “Climate Change and CO2 Reduction”. IPCC may be compared to corporate client who has done various evaluations on a more or less grand scale. The client arrives at the door of a project manager ( in this case politicians) and tells him what is to be done to avoid a corporate disaster. The project manager turns to a team of researchers and practitioners to develop and implement the project. When the button is pressed and the people affected by the final result start complaining the following happens:
    a. The client says, that top brains have been employed to develop the project and it is not their fault that “the bloody thing” doesn’t work as it was intended.
    b. The project manager shows that the paperwork is in order, “the bloody thing” was delivered on time and in accordance with the client’s specification.
    c. The practitioners say. Look, we knew about problems and limitations, we knew about unrealistic demands. However, each time we tried to draw attention to those issues we were told not to come with the problems but solutions.
    This not my invention, this is our life in its simplicity.
    Just think of the Challanger disaster ( a seal, everybody knew would fail in low temperatures) or financial implosion of 2008 etc.

    So much for now.
    Regards,

  11. However, is it just? It is difficult to say, and the answer depends on the circumstances.

    Of course. But this is by no means a reason not to try to achieve a equitable distribution of wealth. Especially between nations, but also within.

    It is great to have clean, CO2 free environment but that may come at a cost which societies are not prepared to accept.

    I think this is the reason why we are talking past each other. You emphasize the costs of the transition to a “green” world economy, while I am emphasizing that we have no choice. The costs of not doing this are expected to be tremendous – because of floods and droughts, reduced agricultural output (a study was recently published in “Science” showing that the sensitivity of major crops (wheat and maize) to temperature increases is alarmingly high),…

    Sometimes problems have been shifted to another area […] but the problems are still there

    Acting consequently according to this argument, as I understand it, we shouldn’t do anything, since (and here you are right) humanity has an annoying tendency to create new problems while solving old ones.

    IPCC reports are greate stuff but…between them and practical implementation of various ideas is a great gap.

    But exactly this is their actual task (and economists’ as well): to draw attention to possibilities and how they could be realized. It is clear that in the end we will arrive at some suboptimal solution, due to political, social and “natural” (uncertainty) obstacles. But this is no reason to stop trying. The alternative would be business as usual, which in this case (and in others, e.g. our financial systems) cannot be accepted.

  12. I think you have missed the point.

    It is not that we should not do anything. Progress is a constant process. Just to give an example. Today there is a lot of talk about energy efficiency. In fact various industries have been doing a lot of research in that field for decades. Not because of the desire to be “green”, this is the latest trend, but because being energy efficient improved their operation, reduced costs and made them competitive. The fact that it has not been advertised created an impression that only now the issue has been on agenda and properly attended to. Today everybody, any “Harry and his dog”, jumps on the band wagon and claim to be energy efficient – are they really? Knowing bolts and nuts of the problem ( at least in my area of expertise) I can tell you, it is not that easy and instant.
    I do not know if we have choice or not. Or in a different way, is this a 0 -1 situation? I am not so sure. Yes, the costs will be enormous due to technological reasons. And this we know as a fact, this has been determined long time ago. Your understanding is incorrect in another aspect. The high costs are not the costs of transistion. High costs will stay with us because many of the concpets proposed are costly to install, costly to run and maintain and in a way inefficient. I cannot comment on the climate related predictions and costs. It is not my field and have no choice but to accept them as they are. In a descriptive way I tried to ask a question: who takes resposibility for the future outcomes? Specially if our predictions and actions will result in a “blody thing that doesn’t work as expected”?

    Regards,

  13. You are right that energy efficiency is not that new a phenomenon. Nevertheless, for some reasons (lack of information/knowledge, high sunk costs etc.), it has improved far less than the technologically possible. Then there is the Jevons/rebound effect, which we do not exactly know how to deal with. So, the issue itself is not new, but the necessity for it is. And therefore the emphasis.

    Or in a different way, is this a 0 -1 situation?

    Perhaps not. We just do not know, since the uncertainties (with regard to the consequences of climate change) are high. You can draw two conclusions from this fact: either, like many economists (e.g., William Nordhaus), that we have to wait until we get reliable technologies to deal with climate change. Or, like some others (e.g., Martin Weitzman), that the “worst case” would be so dramatic that it is better to “overinvest” in mitigation than to face the danger of “underinvesting”.

    High costs will stay with us because many of the concpets proposed are costly to install, costly to run and maintain and in a way inefficient.

    I am not an engineer as you are (?). But I have read a bit on this subject, and have the impression that you somewhat exaggerate the problems (which certainly exist).

    who takes resposibility for the future outcomes?

    I might ask the same.

  14. ad 1. I would say that more was done than excpected by society. At the time there was no interest is so called energy efficiency, consequently today the tendency is to ignore the past.

    ad 2. We do not have to wait. There is sufficient knowledge and experience to make sound decsions and apply technologies efficiently in every respect. “Overinvestment”? This is a common symptom of lack of understanding of problems and solutions with consequent application of “misguided” ideas. More problems in the long run than benefits, simply saying – waste. And in the long run “thing come back to bite you”.

    ad 3. You think I am exaggerating. Let me put it like this. If what is proposed is really almost as efficient and as cost effective as our current systems why do we try to manipulate costs? Solar water heating is “the thing to have” in my country. Great idea, impressive results – on paper. Each time when approached with an offer and trying to compare the claims with reality I do not get the results . Simple thing, you need a pencil a sheet of paper and a calculator ( if one wants to look scientific). Promised benefits are not there or at least not to a degree presented. The reasons are obvious. Various “evaluation” costs have been exaggerated. The so called “average” electricity costs for an “average household” are an invention . Further houshold electricity usage depneds on a number of factors of which water heating is just one
    ( this in turn can be subdivided further) etc.

    So once agian. Who takes responsibility for the furture outcomes?

    Regards,

  15. “Overinvestment”? This is a common symptom of lack of understanding of problems and solutions with consequent application of “misguided” ideas.

    This would apply if the uncertainties were not there. But they are. We do not exactly know how much investment is needed, since we cannot look into the future. It may be that we do too much. But, let’s be realistic: this won’t happen. We are rather on the course to do much too little.

    If what is proposed is really almost as efficient and as cost effective as our current systems why do we try to manipulate costs?

    This is simple (and I repeat it over and over again): because the costs we pay (for fossil or nuclear energy) are not the full costs. They are severely underestimated due to external costs, borne mainly by future generations.

    Who takes responsibility for the furture outcomes?

    We. Whether we do enough to tackle climate change, or too little, or too much – it is us who bear the responsibility. The whole society (perhaps excluding people in poor countries).

  16. ad 1. Just let’s forget at the moment about predictions for the climate change. The goal is to reduce emissions of CO2, for whatever reasons. Uncertain aspects are gone. We have to do it in a cost effective, efficient way within our means. Like in Formula 1, right now we have what we have, if it doesn’t rain we use slick tyres. With time technologies may advance, new research may carry on but today we “use slick” tyres. By saying “ifs , buts and maybes” ( the uncertainties ?) we are blurring the issues. If the the rail transport is not used to its full potential there must be a reason and it should be identified. Onle then an efficient solution may be found and applied. And so on and on….

    ad 2. Well this is statement commonly used. So what are the full costs? Why they have been hiden for so long? On the other hand it is like saying “speed kills”. Well, to a degree but not exactly. I have serious doubts about validity of many claims in that respect. May I ask you, what was the number of death as a result of Chernobyl accident? The figures given range from several to tens of thousands and hundreds of thousands – make your choice. The accident in Japan, was that an accident of a nuclear power station or an accident which caused mulfanctioning of various systems inside the plant. The end result may be the same but in terms of identifying causes it makes a significant difference. At the same time we are not able to provide full costs of proposed solutions for two major reasons:

    1. What we have is based on a small scale operations.
    2. Due to above we do not know what the consequences are going to be once a shift to big scale operation becomes reality ( if ever!!!).

    ad 3. Obviously we but then equal hearing should be given to all of us not just to those who say what many of us would like to hear.

    Regards,

  17. Just let’s forget at the moment about predictions for the climate change. The goal is to reduce emissions of CO2, for whatever reasons. Uncertain aspects are gone.

    I think it is time to end this discussion. We have been going round in circles for over a month already.

    Well this is statement commonly used. So what are the full costs? Why they have been hiden for so long?

    “In economics, an externality (or transaction spillover) is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit. A benefit in this case is called a positive externality or external benefit, while a cost is called a negative externality or external cost.
    In these cases in a competitive market, prices do not reflect the full costs or benefits of producing or consuming a product or service, producers and consumers may either not bear all of the costs or not reap all of the benefits of the economic activity, and too much or too little of the good will be produced or consumed in terms of overall costs and benefits to society. For example, manufacturing that causes air pollution imposes costs on the whole society, while fire-proofing a home improves the fire safety of neighbors. If there exist external costs such as pollution, the good will be overproduced by a competitive market, as the producer does not take into account the external costs when producing the good. If there are external benefits, such as in areas of education or public safety, too little of the good would be produced by private markets as producers and buyers do not take into account the external benefits to others. Here, overall cost and benefit to society is defined as the sum of the economic benefits and costs for all parties involved.” (External costs.)

    Obviously we but then equal hearing should be given to all of us not just to those who say what many of us would like to hear.

    You say that. Look at how popular “my” point of view is (in “realpolitik”).

  18. ad 1. I do not thing it is futile. I wrote: ” The goal is to reduce emissions of CO2″ and this is a common point of our exchange of views. I thought it would help to separate various issues.

    ad 2. You are missing the point. I am not asking what the definitions are. The point was how those costs are generated.

    ad 3. Yes, your point of view is popular. In the same way other views are as popular as yours. There is nothing wrong with that, does not make any of the views superior.

    Have a nice weekend.

  19. I thought it would help to separate various issues.

    Are they separable? My point is: yes, you may be right that a “transition” is hardly possible at low cost. But since not achieving it would come at much higher a cost (not necessarily monetizable), it must at least be tried. Whether we are going to stop climate change or not, is a fully other issue (my prediction: we are not going to). So, I accept your arguments, especially since you are an engineer and I am only an economics student. But I think they are not enough not to try what I am advocating.

    The point was how those costs are generated.

    What do you exactly mean? Let’s take the case of CO2-emissions: a coal power station is generating electricity and selling it at a price. The price is set through the interplay of supply and demand at markets. That’s what we consumers are paying. But then there are external (side) effects of the power generation. One of them are CO2-emissions. Through their contribution to climate change they are imposing costs over future generations who will have to cope with the consequences of the then destabilized climate. But the operator of the power station does not include these costs in his accounting porcedures, since she has not to compensate those harmed by her activities. And these and further external costs plus the market price are the real/social costs of economic activity. (Note that the harmed ones are not necessarily our descendants. There are plenty examples where they live today.)

    Yes, your point of view is popular.

    I don’t think so. My view is popular in terms of talking, not doing. But you are right, this is not important.

    Have a nice weekend, too.

  20. ad 1. I think there is a misunderstanding here. Yes, the whole issues is about climate change. But technically speaking it is about limitation of CO2 emissions. So the question which I am putting forward is: can we by better management of current assets and through available knowledge achieve better results? My response is, yes. This is important if so frequently word “efficiency” is used. In practical terms efficiency defines how much of our inputs is used in a productive way and how much is wasted. It is equally valid for the technologies of today and tomorrow. While tyou claim that only transition will be costly, I ( based on my professional experience) believe that if new systems introduced are not efficient they will be such until the end of their service life ( and consequently costly).

    ad 2. Let me ask you. If you buy a bottle of wine, do you pay full costs? Do you pay for so called social costs like treatment of alcoholics, beaten up wives and molested children? I also disagree that what we pay for electicity is simply price arrived at by interplay of supply and demand. Contrary to what you think a lot of “social costs” is included in the price. There is, however, a problem with their generation ( specifically linking sometimes distant events into one cause-effect set up) – once again my question about “true” number of Chernobyl casualties comes back.

    ad 3. Exchange of ideas is also a form of contribution. We always learn something from discussions.

    Regards,

  21. So the question which I am putting forward is: can we by better management of current assets and through available knowledge achieve better results?

    And my answer is: yes, we can. But this won’t be enough.

    While tyou claim that only transition will be costly, I ( based on my professional experience) believe that if new systems introduced are not efficient they will be such until the end of their service life ( and consequently costly).

    First: I am not claiming that only the transition is going to be costly. Though I believe that, I am aware that you may be right. The question is (and that is the second point): is the fact that “green” technologies may be costly till the end of their lifetime reason enough not to try to switch to them? And my answer is: no. It is not. You see, the difference is between mainly “monetary” costs of (probably) inefficient energy generation on the one hand, and mainly non-monetary ones of unchecked climate change on the other (e.g., biodiversity loss, deaths due to heat waves, hunger due to changed precipitation patterns or extreme weather events).

    If you buy a bottle of wine

    I don’t drink alcohol;-)

    do you pay full costs?

    No. I don’t. And, still worse, producers do not as well (since the consumer may be bad informed about external costs, while producers mostly have at least a vague idea about them).

    There is, however, a problem with their generation ( specifically linking sometimes distant events into one cause-effect set up)

    In the case of climate change the correlation between coal/oil/gas burning or wood logging and CO2-emissions is fairly obvious.

    Contrary to what you think a lot of “social costs” is included in the price.

    First: Can you name an example? Second: Some may be included. But not all, not even the majority. And that is the problem.

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