William D. Nordhaus, one of the leading economists in studying the effects of global warming, is a first-rate economist. Indeed, he was co-winner of the 2018 Nobel Prize in economics for his work on global warming. Unfortunately, he sometimes abandons economics and even basic reasoning to make his case that global warming is likely to do great harm and that the only solution is a global tax on carbon. I noticed this tendency in his 2012 article in the New York Review of Books. In it, he challenged a Wall Street Journal article by sixteen scientists who were/are global warming skeptics. There’s nothing wrong with challenging them, but Nordhaus did so, in part, by responding to claims they hadn’t made.
Earlier this year, Nordhaus published The Spirit of Green: The Economics of Collisions and Contagions in a Crowded World. In it, he advocates a global tax on carbon, but his style of arguing has, if anything, gotten worse. At various points, he makes his case well, arguing that carbon usage creates a negative externality: a cost imposed on others that users of carbon don’t take account of in their decisions. He distinguishes his own thinking from that of advocates of the Green New Deal, pointing out that the GND is not primarily about environmental policies but about taking income from some and giving it to others. Nordhaus calls this redistribution “fairness,” but at least he doesn’t claim that it’s about the environment or global warming.
Unfortunately, Nordhaus doesn’t seriously consider the arguments of global warming skeptics and instead calls them “deniers.” He also gives short shrift even to his own Dynamic Integrated Climate-Economy (DICE) model, a model whose bottom line is that too high a carbon tax can be more destructive than a zero carbon tax. He also, disappointingly, makes the obligatory attack on the Koch brothers, something I had not seen him do in his previous work. Moreover, Nordhaus claims, incorrectly, that the only way to have an effective policy of global warming is to raise the price of carbon.
These are the opening 3 paragraphs of David R. Henderson, “The Problem with Nordhaus,” Defining Ideas, August 27, 2021.
Another excerpt:
While Nordhaus has never been particularly fair in his treatment of those he disagrees with, he has become even less fair. In a chapter titled “Green Corporations and Social Responsibility,” one of the corporations that he consigns to Dante’s “ninth circle of hell” is ExxonMobil. Why? He claims that the company suppressed the science of climate change and funded “climate deniers.” Nordhaus never tells the reader exactly what a “denier” is, but in context it seems to include those who doubt that global warming is occurring, those who doubt that it will be very harmful, and those who are skeptical about government solutions. In one passage, Nordhaus writes, “I have studied climate science for decades and find it solid and convincing. But there are skeptics.” He seems to be saying that because he, William Nordhaus, finds climate science persuasive and convincing, that should be enough to persuade us. Yet in a 355-page book, Nordhaus hardly discusses the science at all, apparently expecting that an argument from authority is sufficient. And he makes the case against skeptics not by quoting the large number of climate scientists who are skeptics but, rather, by quoting only one scientist and mentioning Donald Trump, US Senator James Inhofe, and an adviser to Vladimir Putin.
Read the whole thing.
Here’s his bio at David R. Henderson, ed. The Concise Encyclopedia of Economics.
READER COMMENTS
Don Boudreaux
Aug 28 2021 at 12:24pm
David:
Great piece; thanks for writing it.
I’ve a sincere question that I wouldn’t be prompted to ask had I read Nordhaus’s new book. (I’m unlikely to read it simply because it’s too far afield from my core interests and what I’m now working on.)
My question is rooted in the findings of two of Nordhaus’s most celebrated papers – each of which you appropriately praise in your Hoover essay. The first finding is that the real cost of artificial lighting has fallen spectacularly. (And since the publication of his paper on lighting in 1996, the real cost of artificial lighting, I’ll bet, has fallen even further.) The second of Nordhaus’s findings that prompt the question I’m about to ask is reported in his 2004 paper “Schumpeterian Profits in the American Economy: Theory and Measurement.”
Does Nordhaus in his book (or anywhere else) weigh the positive externalities that are explicitly identified in the second paper, and that are certainly implicit in the first, against the negative externalities of carbon emissions?
Most, and perhaps all, of the innovation in the U.S. during the second half of the 20th century was powered by carbon fuels. Because 97.8 percent of the full value of this innovation was captured by the general public (with only 2.2 percent captured by the innovators themselves), surely the value of this massive positive externality should be weighed against the value of the negative externality of carbon emissions. Assuming that what was true during the second half of the 20th century regarding capturing the gains from innovation continues to hold true today, it’s not at all clear that that carbon emissions on net create an externality that’s negative.
I realize that whether or not carbon emission do create a net negative externality depends, in part, upon the net cost of whatever fuel(s) would substitute for carbon-based ones. But without crawling down a rabbit hole, I simply wish to note that the externalized gains from innovations made economically possible by carbon fuels must be weighed against the externalized costs of the use of carbon fuels. Does Nordhaus acknowledge this reality?
As for the lighting paper, does Nordhaus ever acknowledge the enormous reduction of indoor pollution made possible by electric lighting? This pollution – breathing in the particulate matter emitted by burning logs and candles, as well as the risk of fire caused even by indoor gas lighting – was quite toxic. (Or so I recall reading somewhere, the source of which now escapes me.) Electricity of course must be generated to supply electric lighting, and the generation of electricity is (I assume) a major source of carbon emissions. So, yes, let’s count that as a negative externality. But this negative externality must be weighed against the benefits from a significant reduction in indoor pollution – a reduction that, if Nordhaus’s 2004 paper is correct, was largely a positive externality bestowed by market processes on ordinary people from the innovations of people such as Edison, Tesla, and the legions of unsung engineers and marketers and accountants over the years at companies such as GE and Westinghouse.
David Henderson
Aug 29 2021 at 2:55pm
Thanks, Don, and you’re welcome.
You wrote:
I’ve read a fair amount of what he’s written and I’ve never seen him do that. He certainly doesn’t do so in his latest book. It’s possible that he has done so elsewhere but I would given 10 to 1 odds that he hasn’t.
You wrote:
He doesn’t do so in his latest book.
You wrote:
I wouldn’t be surprised if he does but it’s been a long time since I’ve read that paper.
BS
Aug 28 2021 at 2:18pm
Most plant life benefits from increased CO2. Is that ever included in the calculations?
David Henderson
Aug 29 2021 at 2:57pm
Some people do. Nordhaus thanks and cites (I think–I’m at home and my copy of the book is at work) his Yale colleague Robert Mendelsohn, who, if my memory serves me, I think has written on this extensively. So I wouldn’t be surprised if he has netted out this gain.
Todd Kreider
Aug 28 2021 at 6:42pm
I’m glad Henderson’s fair criticisms of Nordhaus were published in the WSJ.
I watched an interview of Nordhaus by Skeptic magazine founder Michael Shermer and was shocked at how little Nordhaus knows about energy and climate change. For example, he said batteries have become “vastly more efficient over the past two decades” which isn’t true even if they probably will over the next two (or three) decades.
Nordhaus told Shermer: “C02 is maybe a little like the coronavirus: you can’t smell it, you can’t hear it, you can’t see it and you can’t taste it – but it’s deadly…It’s longer term and there is no vaccine for the CO2 problem…It’s just as deadly as the coronavirus.” Sigh.
Nordhaus claims what we are seeing today is what the models were predicting 30 years ago, which is again false. He adds that “it is a mature science”. He either hasn’t read or hasn’t understood energy physicist Steve Koonin’s book on climate change, “Unsettled”, if he thinks that.
Nordhaus made several strawman arguments during the hour-long interview and a disappointment.
David Henderson
Aug 29 2021 at 2:59pm
Thanks for these thoughts. My article, by the way, was published on Hoover’s Defining Ideas, not the Wall Street Journal.
Thomas Lee Hutcheson
Aug 28 2021 at 9:33pm
A better differentiation of the issues, where Nordhaus is wrong on each one, and the correct answer would be helpful.
1. The effects of increasing CO2 concentrations on various planetary systems: ice sheets, sea levels, rainfall patterns.
2. The net costs of these changes.
3. The effects of different levels of (trajectories of) a net tax on CO2 on net emissions
4. The deadweight loss of the net CO2 emissions tax net of the deadweight loss of whatever tax it replaces.
David Henderson
Aug 29 2021 at 3:01pm
On your 4th item, “The deadweight loss of the net CO2 emissions tax net of the deadweight loss of whatever tax it replaces.”
If some of the geo-engineers are right about the low cost of geo-engineering solutions, then the deadweight loss of the net CO2 emissions is huge no matter which tax the carbon tax replaces.
Knut P. Heen
Aug 30 2021 at 11:30am
I do not think carbon taxes will work because someone receives the income from the carbon taxes. This person or organization will have an incentive to keep the money flowing. Hence, the tax will be set such that it maximizes tax revenue rather than solve the problem with emissions. If emissions are zero, there is no tax revenue. If someone came up with a technology which reduced the emissions to zero, it will simply be banned because the revenue from the carbon tax is “necessary”.
Moreover, the organization which receives the carbon taxes have no incentive to cut their emissions. They are paying carbon taxes to themselves.
Dylan
Aug 30 2021 at 6:06pm
As generally envisioned, everyone would receive the revenue from carbon taxes. This should neatly reverse the issue we see with arguments for protectionism, where the benefits are concentrated and the loses diffuse. In this case, each individual has a strong incentive to reduce their individual emissions, but much less of an incentive to keep the rebate flowing, as this will be relatively small.
Knut P. Heen
Aug 31 2021 at 5:38am
I am thinking about state owned airlines, postal services, national defense etc. The carbon taxes they pay go to the government. Clearly, the government as an owner loses money by making costly investments to reduce the emissions.
robc
Aug 31 2021 at 11:36am
The answer is to not have the carbon tax revenue go to the government, but literally to “everyone”. Everyone gets a check for (in the US) ~1/325,000,000th of the total collected revenue. State owned etc would still pay the carbon tax to everyone.
Knut P. Heen
Sep 1 2021 at 11:17am
I think it is similar to Bengt Holmstrom’s team incentive problem. It was published in the Bell Journal of Economics back in 1982.
You need a budget breaker to solve the free-riding problem, otherwise you are just moving money around. The team (or in this case society) must feel it if the goal has not been reached. Moving money around from one team member to another does not help the team.
Example. You cannot pay a sports team the same bonus budget if they win or lose, and hope that the individual distribution of the bonus budget between team members give them an incentive to win. You need a larger bonus budget when they win, and a smaller one (or none) when they lose. The owner act as a budget breaker. He saves money when the team loses.
In the case of carbon taxes, you need to burn the tax money (or give it to aliens). The total budget will then be smaller if emissions are high and bigger if emissions are low.
Christophe Biocca
Sep 2 2021 at 11:07am
The Holmstrom paper is about incentivizing agents wrt. taking a nonobservable action. But a carbon tax is predicated on actually observing the actual action of emitting CO2 (or a close enough proxy in the form of purchasing fossil fuels), so the conclusions are not applicable here.
There still is an incentive effect of giving everyone a fixed check. It incentivizes people to join the set of “everyone”: immigration, having more kids, etc. But the amount is tiny, working out to about $200 per year per person up here in Canada, which isn’t going to drastically change fertility rates, and pales in comparison to the other incentives to immigrate.
The better fix is still do give everyone a pro-rata discount on a tax that definitely has bad incentive effects, like the income tax. It’s just not politically popular because of the large chunk of the population that does not pay any income tax but would pay higher prices for gas and everything else.
But then again, neither is relying solely on a carbon tax to address CO2 emission externalities. Which is why countries that have one also end up doing much more inefficient measures on top, to show that they’re “serious”.
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