Study Shows Why We Need A Carbon Tax, Not R&D, To Preserve Livable Climate For Our Children

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"Study Shows Why We Need A Carbon Tax, Not R&D, To Preserve Livable Climate For Our Children"

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So there’s this new study in Nature Climate Change, “Intra- and intergenerational discounting in the climate game.”

Sounds too wonky to get many eyeballs, no? That’s why editors at places like Time magazine have jazzed it up with this sort of headline: “Why We Don’t Care About Saving Our Grandchildren From Climate Change.”

Except that isn’t exactly what the study shows, as we’ll see. Indeed, the study design is such that it may not show anything at all relevant to climate change (and so all headlines about it, including mine, need an asterisk).

But if you accept the study,then you ought to accept the study’s own conclusions, which make clear how much more important a price on carbon is than, say, a massive new research and development program in carbon-free energy, if we are to avoid catastrophic global warming.

The study ran a “collective-risk group experiment.” Time has a detailed explanation of it:

Each subject in groups with six participants was given a $55 operating fund. The experiment went 10 rounds, and during each round, they were allowed to choose one of three options: invest $0, $2.75 or $5.50 into a climate account. The participants were told that the total amount contributed would go to fund an advertisement on climate change in a German newspaper. If at the end of the 10 rounds, the group reached a target of $165 — or about $27 per person — they were considered to have successfully averted climate change, and each participant was given an additional $60 dollars…. If the group failed to reach the $165 target, there was a 90% probability that they wouldn’t get the additional payout. As a group, members would be better off if they collectively invested enough to reach that $165 target — otherwise they wouldn’t get the payout — but individually, members could benefit by keeping their money to themselves while hoping the rest of the group would pay enough to reach the target.

The bold-faced sentence above is a buried bombshell, as we’ll see.

Here’s the twist, though: that $60 dollar endowment was paid out on three different time horizons. In one treatment, the cash was given to the groups the next day. In the second treatment, it was given seven weeks later. And in the third treatment, the cash was instead invested in planting oak trees that would sequester carbon — but since those trees wouldn’t be fully grown for years, all the benefit would accrue to future generations, not the current players in the experiment. The difference between that third treatment and the first and second is what’s known as “intergenerational discounting,” which happens when the benefits of an action in the present are highly diluted and mostly spread among many people in the future. Which, as it happens, is pretty much how climate policy would work.

Unsurprisingly, the more delayed the payout was, the less likely the experimental groups would put enough money away to meet the goal to stop climate change. Even among those who knew they’d get the payout the next day, only seven of 10 groups invested sufficient funds, while none of the 11 groups who knew their endowment would be invested in planting trees gave enough money to “stop” climate change.

Unsurprisingly, indeed. Nothing about this study is terribly surprising except the sweeping generalizations made about it. For instance, the news release asserts “A study published today in the journal Nature Climate Change reveals that groups cooperate less for climate change mitigation when the rewards of cooperation lay in the future, especially if they stretch into future generations.”

Except that the groups weren’t asked to invest in climate change mitigation! They were asked to invest in newspaper advertisements urging people to do stuff (details here). One doesn’t have to be very well-informed (or very cynical) to understand that newspaper advertisements are not a terribly good investment if you are genuinely concerned about climate change.

And you don’t have to be highly informed on climate change to realize that we aren’t going to solve the climate problem by planting trees — and this study was done with Germans, who tend to be better informed than most on climate matters.

Time magazine quotes the conclusion of the study itself:

Applying our results to international climate-change negotiations paints a sobering picture. Owing to intergenerational discounting, cooperation will be greatly undermined if, as in our setting, short-term gains can arise only from defection. This suggests the necessity of introducing powerful short-term incentives to cooperate, such as punishment, reward or reputation, in experimental research as well as in international endeavors to mitigate climate change.

In short, we need a price on carbon to have the long-term harm from carbon pollution reflected in the short-term (i.e. current) cost of fossil fuel-based energy. The obvious reward is to return the money collected from, say, a carbon tax back to individuals and businesses, thus rewarding those who reduce their carbon pollution.

Oddly, Time draws the exactly-backwards conclusion:

The Nature Climate Change study also underscores why “win-win” climate policies — like innovation investments that can lead directly to cheap clean energy, rather than policies that make dirty energy more expensive — are likely to be the most effective ones. Barring a species-wide personality change, few of us will be willing to endure present pain so that our grandchildren won’t have to endure an unlivable climate.

To the extent that “innovation investments” mean big, new investments in R&D, then the study suggests that is precisely what won’t work. After all, asking Americans to spend billions of their tax dollars on R&D is “present pain” but the benefits of R&D obviously accrue only to future generations (unless the R&D effort is used as an excuse to delay mitigation even longer, in which case it effectively harms future generation by undercutting urgent efforts to avoid crossing irreversible climate tipping points).

Time does make the case for aggressive deployment of clean energy:

Fortunately, short-term incentives for fighting climate change do exist. It takes decades to benefit from reductions in carbon-dioxide emissions, but phasing out fossil fuels like coal and oil can bring immediate improvements in air pollution. And air pollution has turned out to be even more dangerous than experts thought, with the World Health Organization last week declaring that bad air is a leading environmental cause of cancer, comparable to secondhand smoke.

Precisely. And if we add a revenue-neutral carbon price then we ensure short-term incentives match long-term interests.

We know human beings are capable of making tremendous sacrifices for their children’s well-being. Heck, we are willing to “endure present pain” — by working harder and/or saving money — to pay for higher education that won’t provide measurable benefits to our children for a long, long time.

BOTTOM LINE: It may well be that the study’s design is too narrow to support any definitive generalizations about climate change at all. But to the extent that we can draw larger conclusions, it’s that climate change mitigation efforts require “powerful short-term incentives to cooperate, such as punishment, reward or reputation.” And nothing meets that goal like a price on carbon.

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