William Nordhaus

William Nordhaus, an economist who has been researching the implications of climate change for many years and in 2018 received a Nobel prize for his work, published an article in The New York Review of Books in 2012 titled “Why the Global Warming Skeptics Are Wrong.” It was written as a response to an opinion piece in the Wall Street Journal titled “No Need to Panic About Global Warming.” He wrote, quoting them:

The first claim is that the planet is not warming. More precisely, “Perhaps the most inconvenient fact is the lack of global warming for well over 10 years now.”

And in response offered a graph of global temperature:

We do not need any complicated statistical analysis to see that temperatures are rising, and furthermore that they are higher in the last decade than they were in earlier decades.

We do not need any complicated analysis to see that temperatures have risen over the period 1900 to the present, but the piece he is attacking did not say that they didn't. It said that they had not been rising for more than ten years which, so far as one can tell from the graph, was true.  Among those critical of AGW there are at least a few who deny that warming has occurred at all but Nordhaus limited himself to the claims in a particular article and that was not one of them. The observation that temperatures are higher than in earlier decades implies that they rose in earlier decades, not that they are rising in the current decade. An economist should be able to distinguish between a level and a rate of change.

Responding to a criticism of the climate models Nordhaus wrote that "the projections of climate models are consistent with recorded temperature trends over recent decades only if human impacts are included." That is a statement about the ability of models to fit past data. The distinction between the ability of a theory to fit past data and its ability to predict data not used in building it is another thing one would expect an economist to be familiar with. As I demonstrated in my previous post, all of the first four IPCC reports do a poorer job of predicting temperature than a simple linear fit to the data from 1965, when warming restarted after the mid-century pause, to the date of the report. That does not show that the models are wrong — for all but the first, what happened was at least within the predicted range — but it is weak evidence that they are right.

Nordhaus next responded to the article's attack on the description of CO₂ as a pollutant.

In economics, a pollutant is a form of negative externality—that is, a byproduct of economic activity that causes damages to innocent bystanders. The question here is whether emissions of CO₂ and other greenhouse gases will cause net damages, now and in the future. This question has been studied extensively. The most recent thorough survey by the leading scholar in this field, Richard Tol, finds a wide range of damages, particularly if warming is greater than 2 degrees Centigrade. Major areas of concern are sea-level rise, more intense hurricanes, losses of species and ecosystems, acidification of the oceans, as well as threats to the natural and cultural heritage of the planet.

The critical issue is the sign of net damages. That CO₂ increase causes damages is not sufficient to make it a pollutant in the economic sense, since it also produces benefits. Neither Nordhaus, Tol, nor I knows whether the net externality is positive or negative, since it depends on unknown future events. My first post discussed positive effects that might outweigh the negative at the levels of temperature increase suggested by the IPCC models, in which case the net externality would be a benefit not a cost. Tol himself found that the early stages of warming produced net benefits, the later stages net costs.

Nordhaus’s final and most important point was based on his own research.

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 spread over the entire globe and an extended period of time. I initially assumed his calculations of cost were for the rest of the century, making his $4.1 trillion total about $48 billion a year, but in A Question of Balance he appears to be summing over the next 250 years which reduces the annual cost to $16 billion.

Current world GNP is about $85 trillion/year. The annual cost of waiting, on Nordhaus's numbers, is about one twentieth of one percent of world GNP assuming the shorter period, one fiftieth assuming the longer.¹

I suggest a simple experiment. Let Nordhaus write a piece explicitly arguing that the net cost of waiting fifty years to do anything about climate change 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.

Was his conclusion that we ought to have a carbon tax correct? In a world of certainty run by benevolent philosopher kings the fact that a policy has even a relatively modest benefit would be a good argument for it but we do not live in such a world. Policies aimed at reducing warming will be designed not by William Nordhaus but by political actors subject to political incentives. For a sample of what that is likely to produce, I suggest looking at the Waxman-Markey bill, the cap and trade bill that passed the House in 2009 but did not make it through the Senate. It was not written by Nordhaus. The further the policies are from the optimal the lower their net benefits. Nordhaus himself recognized that in the discussion in his book of alternatives to his optimal policy, including one proposed by Al Gore, and in his observation that the cost of permits in the EU trading system was almost four times his estimate of the optimal carbon price.

One chapter of A Question of Balance is a discussion of the unavoidably large uncertainty in his calculations.² It never seems to have occurred to him that, since uncertainty decreases over time as more information comes in, the existence of uncertainty is an argument for delay, a stronger argument the greater the uncertainty. Fifty years from now it may turn out that warming has been much less than the IPCC projected due to technological changes that lower the cost of solar or nuclear power below that of power from fossil fuels, sharply reducing CO₂ output. It may turn out that warming has followed the projected path but costs have not, that the projected increases in droughts and the strength of hurricanes have not happened. It may turn out that benefits from milder winters, CO₂ fertilization of agriculture, expansion northward of habitable land area, turn out to be larger than in Nordhaus's calculations. It may turn out that progress in other technologies has provided us with easy and inexpensive ways of modifying either the CO₂ content of the atmosphere or global temperature.  The future is very much too uncertain to have confidence in estimates of what will be happening fifty years from now.³ If we follow Nordhaus's current advice and tax carbon now in order to slow future warming it may turn out that doing so was unnecessary or even counterproductive. We may be bearing costs in order to make ourselves poorer.

I conclude, on the basis of Nordhaus's report 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 better reason than we now do to believe it.

Is William Nordhaus a Climate Skeptic?

Not judged by his rhetoric; the article I have been discussing was titled “Why the Global Warming Skeptics Are Wrong.” But if you look not at his words but his numbers, the answer becomes less clear; his estimate of the cost of waiting fifty years to take any action against global warming implies that, seen on the scale of a world economy, it is tiny. And in his book he writes:

the best guess in this book is that the economic damages from climate change with no interventions will be on the order of 2.5 percent of world output per year by the end of the twenty-first century (A Question of Balance, p. 6)

He offers that as an argument in favor of a carbon tax. Compared to the usual lurid accounts of impending catastrophe it makes climate change look like a wet firecracker.

I have interpreted Nordhaus in the past as trying to bias the output of his work as far in the orthodox direction as he can subject to not lying about his equations or what they imply. An alternative interpretation is that he is doing his best to hold down the wildly exaggerated response to climate change of the climate community. If he says that climate change is not a problem nobody will listen to him. But if he tweaks his work just enough to support doing something about it but not a very drastic something, …

Acts vs Words

Nordhaus attacked the claim in the Wall Street Journal piece that climate scientists are under pressure not to take positions skeptical of global warming, making fun of the comparison to the enforcement of orthodoxy under Stalin. While the piece did contain that comparison, its actual argument was that dissenting scientists "are afraid to speak up for fear of not being promoted—or worse… ." Pointing out that "No skeptics have been arrested or banished to gulags or the modern equivalents of Siberia" did not answer that. Nor did his observation that "the dissenting authors are at the world’s greatest universities." Firing tenured professors is difficult, failing to hire or to promote much easier. And while the scientists who signed the WSJ piece were employed by major universities most of them were not in climate science hence unaffected by whatever pressures, social or professional, exist for climate scientists.

His conclusion was:

"I believe the opposite of what the sixteen claim to be true: dissident voices and new theories are encouraged because they are critical to sharpening our analysis."

The arguments he offers in support of that claim I find unpersuasive but that does not imply that the claim itself is false. The piece he is criticizing offered no evidence in favor of its claim in the opposite direction. Nordhaus himself, however, provides some, not in words but in deeds.

The claim of the critics is summed up in the title of their article: "No Need to Panic About Global Warming: There's no compelling scientific argument for drastic action to 'decarbonize' the world's economy." The claim of those on the other side is the opposite, that global warming poses a severe threat to human welfare and drastic action is needed to slow it. Which side of that argument does Nordhaus' own research support?

The answer is clear. He finds that the net cost of waiting fifty years instead of taking the optimal actions now is $4.1 trillion dollars. Spread out over the entire globe and an extended period of time that comes to a tiny fraction of world GNP. Which position is that closer to, that there is a need to panic and take drastic action or that there is not?

And yet, when Nordhaus publishes an article in a high-profile publication it is an attack on the critics not on those who, according to his own research, vastly exaggerate the scale of the problem and the need for immediate, drastic action.

A central idea of economics is revealed preference; we judge people by what they do, not what they say.

Why Nordhaus is Wrong About Academia

Academics have three ways of gaining income and status in their profession. One is by being hired by a university, preferably a top university, preferably with tenure. A second is by publishing articles in journals, preferably top journals. A third is by publishing original work that the rest of their profession finds convincing. What are the implications for each of being a dissident, someone who rejects the current orthodoxy in one's field?

Hiring and promotion decisions are made by senior faculty members. Senior faculty members mostly subscribe to whatever is the current orthodoxy — that is part of what it means for a view to be orthodoxy. From the standpoint of the people deciding the dissident's fate he is someone who has rejected truth in favor of error, not a job qualification. If sufficiently able he may overcome that handicap by persuading them that he is brilliant, technically able, unusually hard working. But it will not be easy.

Much the same applies to the second route to success. The articles he submits will be reviewed by other people in his field. They too are likely to subscribe to the orthodoxy he rejects. Here again, the situation is not hopeless. If an article is sufficiently brilliant the reviewers may conclude that it is worth publishing even if wrong. They may even be convinced that it is right — but that is not the way to bet. Most of us are more open minded in theory than in practice.

It is only with regard to the third route that being a dissident can be an advantage. Work that supports what everyone else already believes may get you hired and published but work that offers convincing arguments against the accepted view and for an alternative attracts more attention, not all of it hostile. It may make you the leader of a new school of thought within your field. It may even win you a Nobel prize.

In order to achieve that sort of success, however, you have to get your work published. That is easier if you are offering your arguments from the pulpit provided by a tenured position at a top university. Those are conditions that the dissident may have trouble satisfying.

I am not arguing that new views can never replace old—obviously they sometimes do. But the situation as I have observed it is the opposite of the rosy picture offered by Nordhaus. When Nordhaus writes that new theories are encouraged because they are critical to sharpening our analysis he is describing how the academic system should work, not how it does work.

1. His total is a present value. I assume for simplicity that world GNP grows at the interest rate he uses for discounting, making the present value of a given fraction of GNP the same for every future year. If GNP grows more slowly than that, the fraction of annual GNP needed to give a present value a given amount grows over time at the difference between the two rates.

2. He writes “we have relatively little confidence in our projections beyond 2050.” That means, if Tol is correct in estimating positive effects from the early stages of warming, that Nordhaus has little confidence in his projections over the entire period in which he finds damages of climate change to be larger than benefits.

3. For an extended demonstration, see my Future Imperfect, which discusses the implications of technological revolutions that could happen over the next few decades.