Before I went into summer mode, I finished William Nordhaus’s book A Question of Balance (read short excerpt). The book’s subtitle is Weighing the Options on Global Warming Policies. The book is somewhere inbetween a popular account of the economics of climate change and a technical report on Nordhaus’s (and his team of research assistants’s, one might add) analysis of different approaches to mitigate global warming. A lot of details are saved for the actual technical reports available online. (Note: Details have been updated since the book was published ). Nordhaus still goes through and explains the main equations of the famous DICE model (Dynamic Integrated model of Climate and the Economy), such that most economists could use his online computer code to verify results and further play around with the model.
Before the technicalities, however, Nordhaus provides a ‘Summary for the Concerned Citizen’ (slightly pompous guy, this Nordhaus). The chapter gives a fair overview of the current concerns over global warming and how economists view and deal with them. I find it interesting how Nordhaus, who has already made sure readers are ‘concerned,’ tries to establish the DICE model as trustworthy:
The DICE model is like an iceberg. The visible part contains a small number of mathematical equations that represent the laws of output, emissions, climate change, and economic impacts. Yet beneath the surface, so to speak, these equations rest upon hundreds of studies of the individual components made by specialists in the natural and social sciences [pp. 7-8].
Among the important results Nordhaus reports to the Concerned is the policy ramp, where relatively small policy adjustments are made in the early period while rather heavy adjustments are necessary later. The delay of action limits the costliness of the policy plan. It’s effect is also limited, as calculated damages sums to $17 trillion globally. The results are of course highly uncertain, and although Nordhaus returns to the uncertainty issue several times, I still think he underplays the uncertainty in his results.
Nordhaus is clear on what he thinks about subsidies. He also instructs the Concerned on how to think about climate change policies:
To a first approximation, raising the price of carbon is a necessary and sufficient step for tackling global warming. The rest is at best rhetoric and may actually be harmful in inducing economic inefficiencies [p. 22].
Nordhaus closes his address to the Concerned with a clear message:
Global warming is a serious problem that will not solve itself. Countries should take cooperative steps to slow global warming. There is no case for delay [p. 28].
Again, the summary for the Concerned give the interested a fair idea of economists approach to climate change and their results, and while the rest of the book is rather dry (ideal for falling asleep), economists dabbling in related fields should at least be familiar with the summary.
Now, the remainder of the book is more like a light-version technical report on Nordhaus’s economic analysis of climate change. While the research is well carried out and well documented (one might question the approach to the uncertainty analysis [eh, don’t ask]), I am now reminded of Weitzman’s presentation at WCERE 2010. (“This paper asks how much we might be misled by our economic assessment of climate change when we employ a conventional quadratic damages function and/or a thin-tailed probability distribution for extreme temperatures.”) Weitzman concluded that what’s necessary is not research on the median scenario (like IPCC and Nordhaus), but rather research on fat tail distributions and catastrophic events. Weitzman argued forcefully for his conclusions and it is hard not to agree, horseshit or not.
Nordhaus carries out comparisons with well-known alternatives to climate change policies. The most prominent one, presented in the Stern Review, is found to induce ‘major inefficiencies’ (p. 76). Later in the book, a whole chapter is devoted to discussing the Stern Review approach.
A Question of Balance is a rather dry read. Perhaps expectedly, and somewhat ironic, one of the more interesting passages is found in footnote 1 to chapter VII and deals with interpretation of uncertainty (p. 215). Notwithstanding, it is clear that William Nordhaus is a major voice in the current debate over global warming mitigation. One of his main messages, and one I agree with, is his preferred choice of instrument: an internationally harmonized price on carbon. Whether the numbers he come up with are relevant remains to be seen, but they are at least scary. Really scary.