Counterfactual opinions and the peril to the planet: A commentary on Paul Baer’s essay ‘the worth of an ice sheet’

Posted March 12th, 2007 by Jerry Ravetz and filed in A post-normal climate

Paul Baer has done great service in reminding us that Stern did not merely warn of possible catastrophe, but that he also effectively set a ‘safe limit’ for CO2. Thus both the environmental and the economics communities can feel satisfied.

It would appear that Stern’s relative optimism derives from a study that recorded a thousand runs of a ‘Monte Carlo’ computer simulation of the economic effects of different temperature increases. These effects are divided into three categories: market impacts, non-market impacts, and “catastrophic” impacts. Paul’s essay shows the results for the last of these three. A glance at the graph shows that in the distribution of possibilities, there’s nothing much to worry about until things hit 3 degrees C. Hence on Stern’s figure showing various possible impacts, on the really serious irreversible global threats (at the bottom) we don’t in practice get into the ‘warm’ orange zone until we are well past two degrees. At a mere two degrees, there might be some local nasties, like coral and glaciers disappearing and the Sahel drying up even more, but otherwise things are generally OK.

Stern’s policy conclusion is a reminder of the folkways of mainstream economists in the management of uncertainties. I have sketched a theoretical explanation of this tendency, in terms of the harmony between the socio-political functions and the methods of mainstream economics. [Ravetz 1994-5] In the study that Silvio Funtowicz and I did on the ‘magic number’ of 2% GDP produced by W.H. Nordhaus [Funtowicz & Ravetz 1994], we analysed his ingenious management of uncertainties (which had been presented quite transparently, enabling our critical scrutiny). These produced the ‘magic number’ of 2% of GDP, something big enough to give the author credibility in the debate, but small enough to keep complacency going for another decade.

In this present case we find that Nordhaus’ contribution again plays a crucial role. But here the stakes are much higher, and the issues of uncertainty more critical. The ‘effects’ study on which the whole simulation of catastrophic impacts in PAGE is based was organised by Nordhaus himself, and done nearly fifteen years ago, when the scientific debate on climate change, and public awareness of its consequences, were still in their very early stages. Even as information about opinions, it is scientifically obsolete.

It is very far indeed from being an established scientific fact. It would be disastrously naïve to make uncritical use of such an unsure data item in a policy argument. For that is the ‘multiplier’ that converts physical data to economic damage. With a different number put into the calculations, the dots on the graph would not lie so tamely near the zero axis, but could jump up and warn us of trouble ahead even at one extra degree of warming.

Thus this opinion-based coefficient is even more crucial in the calculation than the ‘social discount rate’ that expresses the value of what posterity has done for us, as assessed either by ourselves or (as Nordhaus prefers) by ‘the market’. [Nordhaus 2007, p. 21]

In the view of the recognised danger that the world climate system could soon tip over into an irreversible destructive process, is that single piece of obsolete evidence about counterfactual opinions sufficiently robust to function as a support for a conclusion that a little bit of global warming won’t hurt too much? What are the error-costs of accepting a two-degree safe limit? Have these been considered by Dr. Stern or his colleagues? Invoking error-costs does not require the radical perspective of Post-Normal Science, but only the elementary prudence that even Rational Actors are supposed to have. But of this consideration, we see nothing. The really serious flames on Dr. Stern’s graph all lie to the right of the critical two-degree line.

As a piece of politically oriented economic analysis, the Stern report is a magnificent success. It has certainly provided the imprimatur of Economics to the growing concerns about global climate change. But as Paul Baer discovered, tucked away inside there is a source of comfort for the ‘skeptics’ who still need to believe that our profit-oriented system can solve whatever global problems it confronts, and will do so in good time. Which aspect of Stern will be more important in the debate?

References

Clark, J., Burgess, J. & Harrison, C. M. (2000) “I struggled with this money business”: respondents’ perspectives on contingent valuation. Ecological Economics 33(1): 45-62.

Funtowicz, S.O. and J.R. Ravetz, 1994, The Worth of a Songbird: Ecological Economics as a Post-Normal Science, Ecological Economics, 10/3, pp 197-207.

Nordhaus, W., 2007, The Stern Review on the Economics of Climate Change, http://nordhaus.econ.yale.edu/SternReviewD2.pdf

Ravetz, J.R., 1994-5, Economics as an Elite Folk-Science: the Suppression of Uncertainty, The Journal of Post-Keynesian Economics, 17/2, pp165-184.

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