Climate Change, Backstop Technology and Thanksgiving

There is a whole class of economic models of climate change that reach the conclusion that we can (and, indeed, should) wait with climate protection measures, and reduce greenhouse gas emissions slowly in presence. In the future (after some 20-30 years), when “optimal, efficient technologies” have been developed and we will be able to invest in climate protection at less cost – then we should engage heavily in mitigation of climate change (this approach is sometimes called the “climate policy ramp”). The most influential models of this class – William Nordhaus’s DICE and Richard Tol’s FUND – reach their conclusion as a consequence of two factors mainly: their discounting practice (which I wrote on recently), and the assumption that there exists a so-called backstop technology (a concept going back to… William Nordhaus). Meanwhile, there are reasons to fear that there make come a Thanksgiving for this technology optimism.

Let’s start with the backstop technology concept. In short, the assumption is that no matter what (environmental) problems we are to create through economic activity, there always will be a backstop technology – a technology enabling us to solve the problem, developed and becoming affordable as a result of the increasing scarcity arising from our overuse of some natural resource (e.g., oil) or sink (e.g., the atmosphere and oceans in the case of global warming). This  is assumed to be an ever-working, automatic mechanism: some prices (reflecting scarcities, as prices are believed to do) are going up, so firms and individuals have incentive to seek and invest in alternative solutions, and due to human ingenuity they find them in time.

To some extent all this is based on historical experience: so far humanity has been able to solve any major problem thanks to a sudden technological “quantum leap”. Nevertheless, the technology optimism of Nordhaus and others appears to be somewhat naive and similar to what Nassim Nicholas Taleb (the author of “The Black Swan”) described using an allegory (going back to Bertrand Russell) about a turkey:

Imagine a turkey that has lived for 1000 days on a farm, well fed, with proper shelter, playing with the farmer’s children and so on. The turkey has reason to expect, based on its historical experience, that this will go on forever – the 1001st day, the Thanksgiving, not being an exception.

I am not trying to argue here that there cannot be a backstop technology. The fact is that we cannot know whether there will. But since we don’t know, it appears reasonable to assume the worst case – that there will be none – (according to the precautionary principle), and do what we can now to prevent what may come – catastrophic climate change, for instance.

P.S. What I described here is similarly valid for economic growth and its limits.

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10 thoughts on “Climate Change, Backstop Technology and Thanksgiving

  1. The ‘backstop technology’ fairy is just yet another tool in the box for the professional lobbyists. When all else fails (and denialism becomes unsupportable in the face of the evidence), they’re going to tell us that we can ‘wish’ AGW away.

    Why does Tol get taken seriously any more? It’s not as if he hasn’t nailed his colours to the mast with his partnership with Lomborg and membership of the rabidly AGW denialist GWPF.

  2. In my opinion Tol is not that much of a problem. But Nordhaus’s economics of climate change is very similar in its results – and Nordhaus is one of the most prominent economists in the world, considered to have good prospects to get a “Nobel Prize” (by the way – the “Nobel” Prize in economics would be another interesting subject for a post here). Much of his research is highly interesting (e.g., his classic paper “Is Growth Obsolete?” with James Tobin), but his economics of climate change is… wrong, I would say.

  3. “Quantum leap”? I would be careful here. On closer examination one will discover that a lot of technologies in use today are quite old. In most cases we have been able to achieve improvements by application of another technology ( for example computing systems). In addition all of that has its roots in the extraction and processing of minerals and other “goods of nature” as it had been thousand years ago. We look at a complex phenomena of climate change and simply call technology to the rescue. However, technology in itself is as complex as the climate change itself. If in addition solutions are being sought by economist ( no pun intended), it is difficult to have any serious hope.

    Regards,

  4. If in addition solutions are being sought by economist ( no pun intended), it is difficult to have any serious hope.

    I think, you are underestimating the importance of economics somewhat. Of course, it is important that economists, when dealing with technology issues, work together with engineers and natural scientists. But technology (development) is not just an engineering issue. Institutions matter. Markets matter (engineers need incentives to work on a particular technology, they mostly don’t do it “just like that”). To work out how technological progress can be stimulated, you need a bright interdisciplinary approach. And economics is as obviously a part of it as engineering sciences.

  5. I suspect you have missed my point. As a matter of fact I do not see any profession any more or less important within society.
    My old ( 1965 issue) “Oxford Illustrated Dictionary” provides a very nice definition of technology: “Scientific study of practical or industrial arts.”
    In view of that technology and engineering are one and the same. Why do you believe that engineering progress needs special incentives ? As in any other sphere of human activity engineers are as curious as economists, climatologists and philosophers.

    Regards,

  6. Why do you believe that engineering progress needs special incentives ? As in any other sphere of human activity engineers are as curious as economists, climatologists and philosophers.

    And they have enough time to work on every single idea that comes to their mind? (a rhetoric question) They need incentives since they (as every scientist and, for that matter, every human being) have to choose which activities to spend time on. Some of them are more needed by society (e.g., alternative energy sources), some are less needed or even harmful (e.g., at least in my personal opinion, nuclear fusion).

    This is not to say that there is no possibility of people just inventing something useful, without external incentives. In many cases, this is how things are going. But why not try to “steer” the invention process if we need research in some areas more than in others? (by the way: incentivizing is what policies are doing all the time, in various ways, e.g. through taxes)

  7. Time constraints apply to all of us( and not only time), irrespective of the profession. Looking at it this way all of us need “steering” in a very broad sense , without preference and/or prejudice.

    Regards,

  8. Yes. But if we agree that technology is particularly important in solving a problem, then we need incentives that provide for a cummulation of effort in the respective field. The same is valid for every problem, but since we are talking here about climate change, it is technology that is at the centre.

  9. Causes of climate change are multiple, one may name technology, economic model currently in place and human behaviour + some others. It is interesting how much emphasis is placed on technology. In my view technology, even taking into account progress, may struggle to deliver expected results – if ever. Why don’t we start with the current economic model founded on the concept of permanent expansion. That is what has directed population towards rapacious consumption. In my view we are not honest when it comes to economy. Current arrangement is very convenient in its simple workings, consequently it is easier to impose “green tax” than change the system.
    An interesting footnote here. Our government is considering imposition of a carbon tax. Power generation will be one of the most affected and the utility stated it would pass the cost down the line – increasing electricity cost are already creating economic and social problems. However, the government concluded that further increase in the costs will reduce the demand – in their view it is great. Together with declining industrial activities , in a country where officially at the best of the times unemployment stands at 25% ( officially, while amongst the young it stands at almost double that) this will lead to a social disaster. But it is easy and simple.

    Regards,

  10. You have been reading my blog for some time already. So you should know that I am not placing more emphasis on technology than I do on economic theory (the post above was actually “against” mainstream economic theory).

    Nevertheless, technology is important as well. You say that you don’t believe it can deliver solutions – this may be. If I may be honest: I don’t really believe, economics or any other will. Because people are the problem. And they seem not to be able to change.

    Current arrangement is very convenient in its simple workings, consequently it is easier to impose “green tax” than change the system.

    Of course. Although this is not that much about economics – it rather is a political problem. There are numerous proposals by economists (and others) what to do to mitigate climate change. Some are better, some are worse. Politicians tend to pick out the seemingly “easy” ones. (This is not meant to claim that economists are not “guilty” in some sense. They are – otherwise I would see the need for writing things as the post above.)

    With regard to your example – in a poor country (and South Africa is, by many measures, a poor one) carbon taxes are indeed problematic. I could imagine there are better alternatives. But you cannot generalize the failure of one particular government to dismiss an instrument of economic policy.

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