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Friday, December 14, 2007

Economics of Climate Change: A Different Approach, or Much Ado About Nothing?

Frank Ackerman, Director of Research and Policy at the Global Development and the Environmental Institute at Tufts, has this new paper out published via the Post-Autistic Economic Review. He argues for a solution beyond market mechanism solutions, pigovian taxes etc. to climate change (Pigovian taxes, Cap and Trade etc). He also provides a very easy-to-follow critique of neoclassical economic models' application to climate change solutions:

Neoclassical economic models are too static to be able to deal with Climate Change -
static pareto optimality is not sufficient as a solution.

Costs of climate change cannot easily be monetized, and probabilities of climate change are unknown, making hard mathematical optimal calculations impossible.

Standard fixed-rate discounting of time preference is unrealistic.

...But for all that, he, like may in the Post-Autistic circle, offers up no real alternatives. His most concrete solution is this:

"There is no formula for optimal public decision-making; instead, a deliberative process of discussion is required....
In short, an entirely different conversation about public goods and priorities is needed, one that respects the importance of the underlying values - and one that includes, but is not always dominated by, the best available information about costs. It is a conversation which, sadly enough, Americans have been able to have in recent years only about national security, protection against terrorism, and military spending. The empirical content of that conversation has remained controversial; recall the search for Iraq’s alleged weapons of mass destruction. Unfortunately, while confidence in the public sector and its unquestioned responsibility for our collective welfare is alive and well in decisions about the military, it has wasted away in civilian life. "

I'm all about "conversation," but I'm not hippie enough to think that the world is going to join hands, share a few daisies, sing kumbaya, and then have a deep long-lasting discussion about climate change. What we need is a. to really determine if our environmental situation is really that serious and in what ways (there is still a healthy debate, despite what Al Gore thinks), and b. (if it is that serious) start trying out real solutions - try modifications to CAFE, try cap and trade (US style), try pigovian taxes, or a combination of these or others. Who cares about the theory. If it/they don't work either financially or otherwise, scrap it and move on to the next attempt/policy.

If we are really standing at the edge of a cliff, why are we still "talking" about this. We don't need any more sound bites and things that sound philosophical but are really just cop-outs.

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