A few weeks ago I wrote about the seemingly different futures foretold by climate science and climate economics. The former is filled with peril and haunted by the unthinkable, the latter blithely assured of continued prosperity. Most economic modeling, you’ll recall, forecasts the continued rise of global gross domestic product (GDP) — people in the future will be richer than we are today. Depending on various assumptions, climate damage will reduce the rate of GDP growth anywhere from 2 to 20 percent by 2050, but under no scenario does climate damage stall or reverse that rate of growth. Collapse is absent from most models, even as a worst-case scenario.

How should we react to what the economic modeling tells us? A survey of the wonk landscape reveals three broad camps: conservatives, liberals, and reformists.

Conservatives

Economic conservatives rely on a seemingly commonsense argument: It doesn’t make sense to pay more for carbon reduction than it’s worth, and it isn’t worth that much, at least in the short-term. The hit to GDP growth from an aggressive near-term carbon tax, they say, would be bigger than the hit from near-term climate change. Remember, people in the future are going to be richer than us. That means they’ll also be better equipped to address climate change — by building seawalls, deploying clean energy, migrating to warmer climes, what have you. Jim Manzi puts it thusly:

This is the central problem for advocates of rapid, aggressive emissions reductions. Despite the rhetoric, the best available estimate of the damage we face from unconstrained global warming is not “global destruction,” but is instead costs on the order of 3 percent of global GDP in a much wealthier world well over a hundred years from now.

From the conservative perspective, the best climate change policy is to make our descendents as rich as possible. The goal should be to maximize GDP growth, perhaps allowing for a small and rising carbon tax to fund research on the advanced technologies.

In part because of this optimistic view (and for many other reasons [PDF]), conservatives favor a high discount rate. That is to say, they believe we should value the interests of future people considerably less than our own interests, which leads to modeling that recommends cautious, modest action.

In this camp I would locate Manzi, Yale economist William Nordhaus, and latter-day Bjorn Lomborg.

Liberals

Liberals accept the basic contours of economic modeling but add an important moral caveat. GDP, they point out, is not the only indicator of human welfare that matters, nor even the one that matters most. Robert F. Kennedy Jr. was eloquent on this score. Gross Domestic Product, he said

… counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.

Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.

Hard to improve on that! Suffice to say, a great deal of suffering and death can take place in the midst of rising per-capita income. (After all, the world could lose the entire continent of Africa and suffer only a few percent reduction in GDP.) Matt Yglesias puts it this way:

Imagine someone telling you in February of 1925 that he’s optimistic about the next 30 years. In 1955, he argues, per capita living standards will be higher than they are in 1925. In reality, the 1925-1955 period saw a Great Depression, Stalin’s Great Terror, the Holocaust & World War II, the partition of India, etc. It sucked. And yet per capita living standards were higher in 1955 than they were in 1925. It’s a very interesting and important fact about the past 200 years of world history that for all N, global GDP per capita is higher in N+30 than in N. But this doesn’t really suffice as an analysis of any particular problem. Avoiding the Depression, or Nazism, or Maoism would have been huge wins for humanity.

Liberals accept the basic economic faith that free, open markets maximize welfare and that, generally speaking, government should intervene only in the case of market failures or unpriced externalities. They differ from conservatives in that they assign a higher cost to carbon emissions than what’s indicated purely by GDP (because of all the dead poor people).

That leads to modeling that recommends immediate action, by which liberals (especially neoliberals) almost uniformly mean a high and rising price on carbon. (There’s huge variation among them, of course. Some recommend a crash program of carbon pricing, regulation, and clean energy subsidies, some are suspicious of government intervention beyond carbon pricing and R&D.)

In this camp I would locate British economist Nicholas Stern (of Stern Report fame), Nobel-winner and New York Times columnist Paul Krugman, Harvard economist Robert Stavins, EDF (and now White House) economist Nat Keohane, my favorite Twitter sparring partner Ryan Avent, and most of the respected establishment economists who take climate seriously.

The reformists

This, I admit, is a bit of a grab-bag category, meant to include a wide range of perspectives that aren’t necessarily consonant with each other. But this post can’t go on forever, so it’ll have to do.

Everyone in the reformist camp believes that mainstream economic modeling of climate change has gone deeply wrong in some way or another. There are lots of people and perspectives that could be included here, but I want to hone in on three critiques: that the modeling a) underestimates the social cost of climate impacts, b) fails to account for long-tail risks, or c) overestimates the cost of reducing climate emissions.

Underestimating social cost: In the first category are those who believe that the modeling substantially underestimates what’s called the social cost of carbon (SCC). Frank Ackerman explains SCC this way:

The SCC is the estimated price of the damages caused by each ton of carbon dioxide (CO2) released into the atmosphere. In cost-benefit analysis of government regulations, it’s a sort of volume dial: The higher the SCC, the more stringent the standards — if it’s $5, say, only regulations that cost less than $5 to implement would be deemed worthwhile; if it’s $500, the demands imposed on polluters could be correspondingly greater. (With no price on carbon emissions at all, of course, the effective price is $0, and no reductions are “worthwhile.”)

Last year, the Obama administration’s figure for the social cost of carbon was $21 per ton. But some economists argue that figure doesn’t account well for the latest research. Here’s a histogram of where an array of studies have pegged the SCC (click for an interactive version):

Social Cost of Carbon estimates from economic studies Many EyesFor an interactive version, see Climate Central.

As you can see, $21 is on the low end and more or less ignores the long tail to the right. And even these studies may be underestimating impacts, using outdated science. Laurie Johnson, chief climate economist at the Natural Resources Defense Council, tried using the latest data:

Johnson derived her data from an updated version of the “Policy Analysis of Greenhouse Effect,” or PAGE, model, one of three widely used models known for their ability to blend physical and economic projections.

Federal economists used a 2002 version of PAGE.

The older version assumes a one percent chance of catastrophe—such as the melting of a major ice sheet—should global temperatures rise above 2ºC (3.6ºF) compared to preindustrial levels, Johnson said.

The newer version, based on recent observations and science, assumes a 10 percent chance of catastrophe for the same threshold, among other refinements, she said.

The result: While the federal economists pegged a mid-range value of climate damages at $30 per ton of emissions using the 2002 version of PAGE, the revised version suggests the number is closer to $63, Johnson found. [my emphasis]

Needless to say, the level of policy response justified by an SCC of $63 is substantially more ambitious than the one justified by $21.

Ignoring long-tail risks: The very attempt to peg a precise SCC may be folly, say a group of economists led by Harvard’s Martin Weitzman. To simply determine the average of a broad range of estimates, he says, misses the very sort of dire threat climate scientists are most freaked out about: the low-probability, high-impact outcomes that could impose effectively unlimited liability. When you estimate an average SCC, he says, modeling ends up being “a knob-twiddling exercise in optimizing outcomes.” By contrast, when you squarely face the possibility of extreme, catastrophic outcomes (long-tail risks) you start thinking in terms of buying insurance.

Overestimating emission reduction costs: A third perspective comes at the modeling from the other side, saying that it tends to overestimate the cost of emission reduction policies. I wrote about the many reasons to believe this is true here; see also this post from Pete Altman. The main reason to think new environmental regulations might be cheaper than projected is that virtually all the past ones have been. All over the economy, people, companies, and states are reducing carbon emissions at a profit; it’s happening everywhere but in the models.

A few notables in the reformist camp: economists Ackerman and Weitzman, law professor Lisa Heinzerling, the inimitable Joe Romm, ecological economist Herman Daly and his intellectual descendents (like Robert Costanza), and probably many more I should know better. I also count myself in this camp — I buy some version of all three critiques.

This exercise is clarifying, I think, but it shouldn’t obscure the fact that virtually every serious economist recommends action. Nordhaus puts it well: “While there is debate about whether the ‘right’ number for a carbon price is $10, $20 or $100, the global average today is close to $1 and moving nowhere. So we have a long, long way to go before we even enter the range of debate.”

There’s no excuse for inaction.