Nobelist Krugman attacks “junk economics”: Climate action “now might actually help the economy recover from its current slump” by giving “businesses a reason to invest in new equipment and facilities”

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"Nobelist Krugman attacks “junk economics”: Climate action “now might actually help the economy recover from its current slump” by giving “businesses a reason to invest in new equipment and facilities”"

Nobel prize-winning NYT columnist Paul Krugman has an excellent piece on climate economics 101, “An Affordable Salvation.”  It follows an economic lesson he gave on his blog to anti-green Washington Post columnist Robert Samuelson.  Krugman explains:

It’s important to understand that just as denials that climate change is happening are junk science, predictions of economic disaster if we try to do anything about climate change are junk economics.

Yes, limiting emissions would have its costs. As a card-carrying economist, I cringe when “green economy” enthusiasts insist that protecting the environment would be all gain, no pain.

But the best available estimates suggest that the costs of an emissions-limitation program would be modest, as long as it’s implemented gradually. And committing ourselves now might actually help the economy recover from its current slump.

I do not believe climate action is all gain, no pain — and try hard not to leave that impression on this blog.  I run through what the most credible major independent studies find here:  “Intro to climate economics: Why even strong climate action has such a low total cost — one tenth of a penny on the dollar.”

Krugman cites similar findings from EPA and the Emissions Prediction and Policy Analysis Group at the Massachusetts Institute of Technology:

Even with stringent limits, says the M.I.T. group, Americans would consume only 2 percent less in 2050 than they would have in the absence of emission limits. That would still leave room for a large rise in the standard of living, shaving only one-twentieth of a percentage point off the average annual growth rate.

To be sure, there are many who insist that the costs would be much higher. Strange to say, however, such assertions nearly always come from people who claim to believe that free-market economies are wonderfully flexible and innovative, that they can easily transcend any constraints imposed by the world’s limited resources of crude oil, arable land or fresh water.

Needless to say, people like Newt Gingrich, who says that cap-and-trade would “punish the American people,” aren’t thinking that way. They’re just thinking “capitalism good, government bad.” But if you really believe in the magic of the marketplace, you should also believe that the economy can handle emission limits just fine.

Precisely.

As Krugman put it even more pithily in his dissing of Samuelson, people who push junk economics believe:

Limits on the world supply of oil, land, water “” no problem. Limits on the amount of CO2 we can emit “” total disaster.

Funny how that is.

The opponents of climate action believe in the limitless power of the free market to do everything — everything that is except avoid catastrophic global warming.  If only it were funny, as opposed to utterly tragic.

But Krugman, who won his Nobel prize for international economics work on trade theory, has an extra argument on behalf of climate action now:

Right now, the biggest problem facing our economy is plunging business investment. Businesses see no reason to invest, since they’re awash in excess capacity, thanks to the housing bust and weak consumer demand.

But suppose that Congress were to mandate gradually tightening emission limits, starting two or three years from now. This would have no immediate effect on prices. It would, however, create major incentives for new investment “” investment in low-emission power plants, in energy-efficient factories and more.

To put it another way, a commitment to greenhouse gas reduction would, in the short-to-medium run, have the same economic effects as a major technological innovation: It would give businesses a reason to invest in new equipment and facilitieseven in the face of excess capacity. And given the current state of the economy, that’s just what the doctor ordered.

This short-run economic boost isn’t the main reason to move on climate-change policy. The important thing is that the planet is in danger, and the longer we wait the worse it gets. But it is an extra reason to move quickly.

So can we afford to save the planet? Yes, we can. And now would be a very good time to get started.

The time to act is most certainly now.

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31 Responses to Nobelist Krugman attacks “junk economics”: Climate action “now might actually help the economy recover from its current slump” by giving “businesses a reason to invest in new equipment and facilities”

  1. jalrin says:

    One minor correction:

    The anti-green writer Krugman corrected is Robert Samuelson, the incomptent Washington Post Columnist. Paul Samuelson, with whom Reobert is frequently confused, is actually one of the most brilliant economists of the 20th century. Like I said, just about everybody makes this mistake, but I thought you would want to know.

    [JR: Doh!]

  2. Andy says:

    Capitalism Good; Government Bad.

    Exactly. The whole freaking argument laid out. Idealogues are putting the world in danger over this simple ideology.

    Here in Texas electricity rates jumped with partial deregulation. The power producers and their investors held all the cards. When folks bills jumped up politicians and the usual editorialists and corporate apologists quickly replied “Hey, its the free market at work; it’s good”. Even after it was pointed out that the extra cash wasn’t going to new production nor new transmission but rather into the pockets of a few who were putting together company and asset buy outs. Oh well, so much for the infallibility of capitalism.

    Now if our rates go up a penny or two because of a switch to alternative energy our entire democracy is endangered by government overreach?

    Whatever.

  3. It is obvious you put a lot of care into your posts here. Very interesting and useful info – thanks for informing all of us. Nancy

  4. Rick Covert says:

    You’d think this would take most of the wind out of the Rep’s sails on the bogus claim on how Cap and Trade will cost each American family $3100.00 annually instead of $60.00 to $120.00 per year until 2050 but I think that Newt will prove to be an inexaustable source of wind energy in perpetuating that lie. ;-)

  5. MarkB says:

    “It’s important to understand that just as denials that climate change is happening are junk science, predictions of economic disaster if we try to do anything about climate change are junk economics.”

    Krugman absolutely nails it. The only thing I’d add to that is those predicting economic disaster from global warming action are clearly alarmists.

  6. Pat Richards says:

    What kills me about the “we can’t afford it” argument is that people go around acting like the price of residential electricity has not ALREADY JUMPED way up over the past 10 years. Here in Florida they have gone up over 30% — this was with no investment in building solar or wind and no cap on coal-burning — and the utility commission just approved a rate hike for another 16% on top of that. And last summer the price of gasoline doubled — surely no one is claiming the cost of gasoline skyrocketed because of carbon caps (there were none last summer… and there still aren’t now, and yet gasoline prices are once again climbing, up 20% in the past couple of months).

    So, we have ALREADY been paying rising costs anyway and are going to continue to pay more, even if there is no emission regulation. At least if we put on carbon caps we’ll be getting some long-term benefit for our money instead of simply swelling annual corporate profits.

  7. nathansrigley says:

    “brilliant economists of the 20th century”

    what did trump say about that the other night on the apprentice in responce to ‘brilliant economist’, I can’t remember exactly but its kind of an oxy-moron!

  8. James Newberry says:

    I support most of Mr. Krugman’s comments, yet here is a question: What is the marginal cost of any next billion tons of burned carbon (CO2, carbonic acid gas) if it sets the planet toward automatic abrupt climate change thereby imperiling billions of people, millions of species, priceless architecture and trillions of dollars of infrastructure?

    Gingrich, is a leftover blowhard with ideology from the dustbin of history. I suggest substituting “my client’s financial interests” for “the U.S. economy” in his typical statements.

  9. Zan says:

    Great arguments, Joe.

  10. Leland Palmer says:

    http://www.forbes.com/feeds/afx/2009/03/16/afx6171567.html

    From Forbes.com:

    Vattenfall sees CCS costs falling to 20-25 euro/t
    03.16.09, 11:13 AM EDT
    pic

    LONDON, March 16 (Reuters) – Falling costs should make carbon capture and storage (CCS) technology commercially viable for power generators by 2020, the chief executive of Sweden’s Vattenfall AB said on Monday.

    Lars Josefsson, the head of the company behind the world’s biggest CCS pilot plant, told a conference in London the costs for running CCS were likely to come down to as low as 20-25 euro per tonne of abated carbon emissions by 2020.

    Vattenfall recently opened up a new oxy-fuel combustion pilot plant, which captures its CO2, and this is likely the basis of the claim by Vattenfall AB’s CEO.

    Oxy-fuel combustion occurs at higher temperatures than air combustion, and this opens up the potential of higher Carnot efficiencies than air combustion. In addition, oxy-fuel combustion and CCS can fairly easily be retrofitted to existing coal fired power plants.

    Conversion costs are one time costs, and are not really significant. What are significant are efficiency costs of CCS. Oxy-fuel combustion opens up the possibility of little or no efficiency cost for CCS, if recent results by Jupiter Oxygen Corporation and NETL are replicated elsewhere.

    Adding a topping cycle might be another way to make existing coal plants much more efficient. Many of the proposals for topping cycles in the past, including air turbine and MHD topping cycles have had corrosion problems.

    If biocarbon was substituted for coal, many of the corrosion problems of coal topping cycles might go away, because biocarbon is much cleaner than coal.

  11. Gail says:

    I was very happy to see Paul Krugman addressing climate change in his column, for a change. I hope he writes another.

    The comments are fascinating. There are the usual denier points, citing China and India as intransigent so therefore, why should the US lead? The most amusing though is seeing how they go berserk when a mainstream article has as its starting point that AGW is a given, and that government must take steps to salvage our climate. Oh that makes them weep with indignation!

    Here was my comment to the NYT (and I should have added, how much money is the DOD allocating to potential wars over increasingly scarce resources?):

    Bravo Paul Krugman! Next, how about a column enumerating the costs if we DON’T cut back drastically on greenhouse gas emissions? What are the insurance companies planning to do about bigger, fiercer, and more frequent hurricanes for example? What are the utility companies projecting for tree removal to keep them from falling on the electric lines and causing widespread, expensive power outages? What is widespread drought going to mean for prices in the grocery store?

    Perhaps if you help your readers understand the real cost of inaction we can make some progress on this issue in the government.

  12. john says:

    Leland:

    And the energy budget for getting the oxygen — is that factored in? Answer: no.
    Is it high?
    Answer: yes.
    And the infrastructure costs of transporting and storing the carbon?
    Answer: Equivalent to all that we’ve invested in oil and gas to date, less refrinery costs.

    Soory bud, but you don’t get to draw your bounary lines around the answer you want — you need to deal with reality as it is, and the answer IT gives you.
    Which is — CCS costs a hell of a lot more than any scenario relying on efficiency and renewables.

  13. Leland Palmer says:

    Hi John-

    Energy costs for cryogenic separation of oxygen run about 8 percent of the fuel content, with energy costs for compression for deep injection running about 3 or 4 percent. The overall energy penalty for oxy-fuel is about 11 percent of fuel content, from what I’ve seen.

    But in a recent test by Jupiter Oxygen Corporation and NETL, they succeeded in getting getting about 6.7 percent of that lost efficiency back, by running the oxy-fuel combustion in “untempered” mode, and not recycling the flue gas to bring the temperature down. The 5000 degree F oxygen flame transferred heat more efficiently to the steam than the 3000 degree F air flame, which is why the efficiency was higher. Additional efficiency could be achieved by recovering waste heat from the oxygen plant and from the CO2 compressors, bringing the overall efficiency of oxy-fuel with CCS roughly up to that of air combustion without CCS, I think.

    Really though, the increased efficiency potential from oxy-fuel has not been effectively tapped yet. To do that would require a topping cycle:

    The efficiency of the Carnot cycle
    can be expressed as follows:
    Eta (maximum efficiency) = 1 – T2/T1
    Where T1 is the temperature at which
    heat is taken into the cycle, and T2 is the
    temperature at which the heat is taken
    out. The temperatures are expressed in
    Kelvin degrees or in absolute values.
    Thus 0 oC corresponds to 273 oK. The
    equation states that in the ideal Carnot
    cycle, efficiency is dependent solely upon
    the two temperatures in the engine.

    http://www.wartsila.com/Wartsila/global/docs/en/about_us/in_detail/1_2007/fundamentals_of_power_plants.pdf

    With current coal plants, T1 is 600-800 degrees C, or roughly 1000 degrees K. T2 is roughly 400 degrees K, I think. So T2/T1 is 0.6, and maximum theoretical efficiency is about 40 percent. Most existing plants run at less than this, I think.

    With oxy-fuel combustion and a topping cycle, T1 could be as high as perhaps 2000 degrees K, and T2 would still be about 400 degrees K. So T2/T1 is 0.2, and maximum theoretical efficiency is 80 percent.

    Good economics follows good efficiency, which follows good physics. The higher Carnot efficiency of oxy-fuel combustion can have a huge effect on the economics of this problem, IMO. And the fact that biocarbon is cleaner than coal could make topping cycles practical, IMO.

    Just about all industrial activities of our current technology are somewhat carbon positive.

    Even renewables are somewhat carbon positive at present, because at present it takes fossil fuels to build the renewables.

    Biocarbon/CCS opens up the possibility of practical “carbon negative” energy systems, which could actually put carbon back into the ground.

    Carbon negative forms of energy can have a huge, synergistic effect on the whole climate crisis, and I believe we have to implement them, no matter what the cost.

    The good news is that it is possible to make this conversion by retrofitting existing coal fired power plants, and use the increased temperatures of oxy-fuel to pay for most or even all of the conversion, IMO.

  14. Pangolin says:

    Any way you want to fudge the numbers burning coal represents using a limited capital resource and destroying other capital resources in the form of forests and watersheds. You simply cannot burn coal without causing more damage to the planet than wind, concentrated solar power or solar PV per unit of power.

    Given the simplified equation energy inputs>human stuff>energy wastes wind and solar power are the cheapest way to get the human stuff done without creating excessive wastes. Eventually the wastes will choke off the inputs with our current regime and that will choke off the human stuff.

    A solar panel or wind turbine properly installed produces income. Burning fossil fuels destroys capital. That’s all the economics we really need.

  15. hapa says:

    helpful minorly-corrective comment from economist who worked on the western climate initiative:
    http://econospeak.blogspot.com/2009/05/krugman-contradiction-on-carbon-caps.html

    [JR: I don’t agree with that analysis. May have to blog on it.]

  16. paulm says:

    some subtle costs to climate change?

    The Australian government says it is to spend more than $72bn (£48bn) upgrading its military over the next two decades.
    http://news.bbc.co.uk/2/hi/asia-pacific/8030292.stm

  17. paulm says:

    Here’s a breakdown analysis showing the biggest impact we can have on conserving energy. Bear in mind that the average UK citizen uses 125kWh/d and US one uses 250 KWh/d

    (One kilowatt-hour (kWh) is the electrical energy used by leaving a 40-watt bulb on for 24 hours. )

    ~Put on a woolly jumper and turn down your heat-
    ing’s thermostat (to 15 or 17 °C, say). Put individual
    thermostats on all radiators. Make sure the heating’s
    off when no-one’s at home. Do the same at work.
    20 kWh/d

    ~Read all your meters (gas, electricity, water) every
    week, and identify easy changes to reduce consump-
    tion (e.g., switching things off). Compare competi-
    tively with a friend. Read the meters at your place of
    work too, creating a perpetual live energy audit.
    4 kWh/d

    ~Stop flying.
    35 kWh/d

    ~Drive less, drive more slowly, drive more gently, car-
    pool, use an electric car, join a car club, cycle, walk,
    use trains and buses.
    20 kWh/d

    ~Keep using old gadgets (e.g. computers); don’t re-
    place them early.
    4 kWh/d

    ~Change lights to fluorescent or LED.
    4 kWh/d

    ~Don’t buy clutter. Avoid packaging.
    20 kWh/d

    ~Eat vegetarian, six days out of seven.
    10 kWh/d

  18. Maybe a useful comparison for power plants would be the mandatory emission inspections for old cars. It keeps the air clean and also gets the most polluting cars (the clunkers) off the road. Helps to sell new cars, too, which stimulates the economy.

  19. ecostew says:

    In case you saw Monckton’s letter in the NY Times RealClimate gives their take:

    http://www.realclimate.org/index.php?p=678

  20. David B. Benson says:

    paulm — In these parts the winter time rule of thumb is never leave a thermostat set at lower that 55 F (= 13 degrees Celcius) or you might find frozen pipes when you return home.

  21. Leland Palmer says:

    Hi Pangolin-

    I agree with you that we have to stop burning coal, but not for the reasons you mention. What I advocate, by the way, is not coal, but is instead switching coal fired power plants over to biocarbon, which is one form of biomass energy. I advocate taking the technology of “clean coal” and applying it to biocarbon, and therefore generating power while transferring carbon from the atmosphere to carbon storage in geological formations. This concept is known as “carbon negative” energy.

    The real reason we have to stop burning coal, IMO, is that it is dumping billions of tons of carbon into the atmosphere, and that this may destroy the self-regulating properties of the climate system and send it spinning out of control.

    We have already dumped perhaps 300 billion tons of carbon from fossil fuels into the atmosphere, and it’s starting to look like our self-regulating earth system cannot take any more. If not for that, we could continue to burn coal with our current tolerable side effects, such as radiation released, acid rain, environmental devastation from mining, and so on.

    So I’d like to say that there was no number fudging, but I think that maybe I did make a mistake. In the interest of accuracy, I might as well “come clean” and admit it.

    I think that I have been confusing overall percent thermal efficiency with percent fuel savings from oxy-fuel combustion. If I’m right about making a mistake, the Jupiter Oxy-fuel results are less significant than I thought, by a factor of about 3. If this is so, I apologize to the blog, and will continue to look into it and let you all know whether this is correct or not.

    The Carnot efficiency stuff is rock solid, though, and is the physics basis for all heat engines, of any sort.

    It may be that the Jupiter Oxy-fuel results have been accomplished without changing the Carnot efficiency of the process, too, and were accomplished by simply improving heat transfer to the steam working fluid.

    The bad news is that this means that oxy-fuel still has a significant energy penalty when compared to air combustion with no CCS.

    The good news is that what Jupiter has done leaves the huge Carnot efficiency potential of oxy-fuel untouched, and ripe for huge efficiency gains by a topping cycle.

    This topping cycle may be simpler for biocarbon than coal, because of the much lower sulfur content of biocarbon. This lower sulfur content might make it easier to find ceramic heat exchanger materials for cycles like the external combustion combined cycle, which uses a ceramic heat exchanger to heat clean air which is then expanded through a conventional gas turbine, and the exhaust used to run the conventional steam cycle.

  22. David B. Benson says:

    Leland Palmer — Excess carbon since the beginning of the industrial revolution is more like 500 GtC. Worse yet, the “earth system” is not self-regulating; there are no significant negative feedbacks, only positive ones.

  23. David B. Benson says:

    1 billion tC/yr as fossil coal to be totally replaced by biocarbon in USA. Assume an be obtained at the rate of 10tC/ha/yr, so need 0.1 gigahectare = 1 million km^2.

    Area of USA is 9,629,091 km^2, of which 19% is arable land currently in production and
    Chihuahuan Desert: 518000 km^2,
    Great Basin Desert: 492100 km^2,
    for example, both become monoculture Miscanthus farms.

  24. Peter Wood says:

    There are some important messaging issues here. Polluting industries and others that don’t care about climate change are moving from a tactic of junk science to a tactic of junk economics. This has been very noticeable in Australia where large amounts of emissions intensive firms and their industry bodies have been scaremongering about the effects of carbon pricing. They have been using this tactic quite successfully to undermine climate policy.

    It is really important to get the message out this this sort of scaremongering is junk economics. Any suggestions about how to do this would be much appreciated.

  25. While we need to put a price on carbon for lots of reasons, it is far from clear that pricing carbon alone will significantly change the fuel mix of the power system – long explanation, but the complexities are captured in a recent study by Synapse of the impact on the PJM system of a $25/tonne price on carbon. The best reason to put a price on carbon isn’t because in and of itself it will reduce carbon emissions from power plants (we’ll need an emissions performance standard for that, similar to CAFE standards for cars – California has one and Europe is heading toward adopting one), it’s because if we’re smart about it we’ll recycle the revenues raised right back into energy efficiency retrofit programs for residential and commercial buildings. That’s what is being done in the ten northeastern states that participate in the first cap-and-trade program in the US, now almost two years running, and the first cap-and-trade program in the world with 100% auctioning of allowances. Each of the ten states concluded that between 80% and 100% of the revenues raised from the auctions would be best returned to customers in the form of efficiency retrofits, which would produce a net reduction in customer bills even after paying the tiny increase in unit power prices, reduce overall consumption thereby reducing demand for electricity (reducing its price) and reduce demand for allowances (thereby reducing their price). The end result should be that the overall cost of the cap-and-trade (or more appropriately, cap-and-reinvest) program is surprisingly low, making it just that much easier for politicians to move to the next stages of progressively lower caps. As the price for CO2 emissions rises to where it will need to be to really drive the production decisions we want ($50 or more per tonne), it will be applied to an ever smaller pool of CO2 “consumption”. That is an important specific dynamic that Krugman fails to address, though to be fair it’s probably more than he could have hoped to get into an op/ed column. One last comment – thank goodness we have a real economist weighing in on this topic rather than the admirable but flawed and therefore vulnerable amateurs who have been getting so many column-inches in the same editorial pages of late.

  26. Leland Palmer says:

    Hi David B. Benson –

    As Lovelock pointed out, and many others have become convinced, the Earth’s climate system is indeed self-regulating, given enough time, and if not pushed so hard and consistently in one direction.

    Nature sequesters carbon as calcium or magnesium carbonate, by weathering calcium and magnesium silicates:

    http://en.wikipedia.org/wiki/Carbon_sequestration

    Given enough time, methane would oxidize into CO2, and then be sequestered by mineral carbonation in carbonates.

    So, it’s not true that there are no negative feedbacks. Life itself would adapt to provide negative feedbacks, given enough time, if Lovelock’s Gaia hypothesis is correct, and it pretty much has to be, given the stability of the earth system far from thermodynamic equilibrium for so long.

    What does appear to be true is that the negative feedbacks are slower than the positive feedbacks, and are outnumbered by them, at the present time.

    So, if we want to bring the system back into control, we have to apply our own negative feedback to the problem, and put carbon back underground, somehow.

    I favor doing it by Biocarbon/oxyfuel/CCS.

    Only by supplying our own negative feedback on a massive scale can we bring the climate system back into control, I think.

  27. David B. Benson says:

    Leland Palmer — Nicely stated, but the Lovelock/Margulis Gaia hypothesis is just a hypothesis.

    You are right in viewing, in the current circumstances, carbon dioxidee to carbonate as a negative feedback. In the very long run this removes CO2 at a rate which is either faster or slower than the increase in TSI; in niether case is it then a negative feedback in establishing a habitable planet.

  28. James Newberry says:

    Coal, if defined as an energy resource, is an energy carrier from geologic times via global photosynthetic efficiency of about 0.3%. Sustainable efficiency of coal is therefore 30% approx. combustion x 0.3% photosynthesis, or 0.09%.

    Of course, after our ecological bankruptcy, we may realize that coal is a solid and therefore matter, i.e. a material resource. If we don’t understand the difference between matter and energy then our civilization is scientifically illiterate and economically impoverished conceptually.

    Similarly, atomic fission (nuclear power) is a Ponzi scheme that would fall apart in the US if one piece of paper (a law of corporate indemnification) were removed as standing economic law by that august “stinking cesspool of graft and corruption” body otherwise known as the US Senate.

    Cheers, and “prepare for impact”

  29. Leland Palmer says:

    Hi David B. Benson-

    If the rate at which CO2 is sequestered as a carbonate by mineral carbonation increases as CO2 increases, then this is a negative feedback, of the geochemical sort.

    If the rate at which shell forming species make shells increases as CO2 increases, this is a negative feedback, provided by life.

    The CO2 fertilization effect is a real effect, too, by which plants grow faster when exposed to higher concentrations of CO2. Most climate scientists think that the CO2 fertilization effect could be overpowered by carbon coming out of the forests, oceans, and permafrost because of the current huge rate of change (our current rate of CO2 addition to the atmosphere, for example, is thousands of times the rate of change of natural processes).

    But the CO2 fertilization effect does seem to be a genuine negative feedback, just likely quantitatively insufficient to bring the system back into control, and likely to be overpowered and defeated by a bunch of vicious cycle positive feedbacks.

    We’re just going too fast, IMO. The Earth’s climate system is strong, robust, and has reserves of stability, otherwise it would not have been successful in maintaining the system in a local minimum far from the state of thermodynamic equilibrium for at least a billion years, with only a couple of near mass extinctions apparently due to runaway climate change.

    The system just cannot deal with rates of change of greenhouse gases thousands of times greater than those it generally compensates for, IMO.

  30. Nice info, Useful for my job…this has made my life (my projects) goes a lot easier. Keep up the good work, thanks very much… :)

  31. Hi David B. Benson-

    If the rate at which CO2 is sequestered as a carbonate by mineral carbonation increases as CO2 increases, then this is a negative feedback, of the geochemical sort.

    If the rate at which shell forming species make shells increases as CO2 increases, this is a negative feedback, provided by life.