At his blog, David Friedman links to a recent New York Review of Books article by William Nordhaus (itself a response to a Wall Street Journal article) which argues for economic action to address the impact of global warming:
His final, and possibly most important point, is based on his own research, which he complains that the WSJ article is misrepresenting. He starts with a correct point—that it is the difference between benefit and cost, not the ratio, that matters. He goes on to summarize his conclusion:
My research shows that there are indeed substantial net benefits from acting now rather than waiting fifty years. A look at Table 5-1 in my study A Question of Balance (2008) shows that the cost of waiting fifty years to begin reducing CO2 emissions is $2.3 trillion in 2005 prices. If we bring that number to today’s economy and prices, the loss from waiting is $4.1 trillion. Wars have been started over smaller sums.
What he does not mention is that his $4.1 trillion is a cost summed over the entire globe and the rest of the century. Put in annual terms, that come to about $48 billion a year, a less impressive number. Current world GNP is about $85 trillion/year. So the net cost of waiting, on Nordhaus’s own numbers, is about one twentieth of one percent of world GNP. Not precisely a catastrophe.
I suggest a simple experiment. Let Nordhaus write a piece explicitly arguing that the net cost of waiting is about .06% of world GNP and see whether it is more popular with the supporters or the critics of his position. I predict that at least one supporter will accuse him of having sold out to big oil.
The future is very much too uncertain to have confidence in estimates of what will be happening fifty years from now — for an extended demonstration, see my Future Imperfect. If we follow Nordhaus’s current advice and tax carbon now in order to slow warming, it may turn out that the costs were unnecessary or even counterproductive. We may be spending money in order to make ourselves poorer, not richer.
I conclude, on the basis of Nordhaus’s own figures and without taking account of my past criticism of his calculations, that he has his conclusion backwards. The sensible strategy is to take no actions whose justification depends on the belief that increased CO2 produces large net costs until we have considerably better reason than we now do to believe it.