Economics of Climate Change

Economics has something to say on the topic of climate change. It asks, what are the costs of taking action, and what are the costs of not doing so?   If we can reduce costs by more than we have to spend, then surely we should take more actions now.  On the other hand, no sense in spending more than we’ll eventually save, properly discounted back to the present.

Simple to say, but complicated to apply.  How much do we really know about future costs of climate change?  At what rate should we discount the future into the present?  And how much can we lower the costs of action if we invest in technological improvement today?   Economic analysis can frame an optimal path forward once answers to these questions are forthcoming, but facts on the ground are constantly changing so the answer today might be different from that tomorrow. 

Still, economists agree on one fundamental principle.  If carbon dioxide and other greenhouse gases are a cause of adverse climate change, then these gases should be priced at their estimated costs to society.  Such pricing presumably will cause people to economize their use and encourage entrepreneurs to offer substitutes.  That’s why many economists (including me) advocate a carbon tax.  Cap and trade is another mechanism for pricing carbon, though for a number of reasons it’s a less desirable approach.  Still, if it’s the only way to price carbon, it’s probably better than nothing at all.

For the sake of argument, let’s agree that pricing carbon is the way to go.  But what price should be set, and how should it change over time?  A Dutch economist, S. J. Tol, has performed meta-analyses of estimated damages from climate change.  He finds that a price of about $20 per metric ton of carbon represents economists’ modal estimate.  But that translates to only about 20 cents per gallon of gasoline, a number many people find too low.  How much would 20 cents added to a gallon motivate people to change their driving and vehicle purchase habits? 

Some advocates of carbon pricing are willing to start with a low number but want it to rise steadily over time.  This would give people time to adjust but assure that carbon will become ever more expensive and hence achieve significant behavioral change.  There’s something to be said for this approach, but it ignores an important principle, namely that information changes over time, and we may later regret the pricing path we chose.  Suppose for example, that we eventually discover that climate change is less threatening than we once thought.  If so, we’d want a lower price for carbon, not a higher one.  Better to adjust carbon prices to the best available information as it is received than to move them according to a pre-set path. 

Of course, all this ignores political behavior, which generally doesn’t welcome new taxes and often seems to reflect a wish that the problem would evaporate.  Economists are off the hook for that; maybe political scientists should shoulder the blame.  But economists are on the hook for providing their best advice as the situation evolves, and right now that advice is to start pricing carbon as soon as possible and take it from there.       

Thoughts from the National Sustainable Design Expo

A few days ago, I braved the blustery April weather to check out the U.S. EPA’s National Sustainable Design Expo on the National Mall in Washington, D.C. It was exciting to see so many different groups pulling together for sustainable, innovative solutions to a wide array of problems—some of which can have serious impacts for mitigation and adaptation efforts for a changing climate.

One of the projects that caught my eye while I strolled around the Mall was a project by the University of Connecticut’s Engineers Without Borders chapter, which today wound up being declared one of this year’s winners. This group of students and their faculty supporters has been investigating ways to use local industrial byproducts such as steal slag and lime kilm dust to control erosion and to stabilize roads in Nicaragua.

According to the abstract the team submitted,

“The project will rely on the involvement of the local community with a design that can be implemented by them at very low cost compared to traditional erosion control practices. The construction of the road will significantly impact the local people, who rely on it for access to education, jobs and other infrastructure, but cannot afford to pave it.”

[Update: The team's faculty advisor, Dr. Maria Chrysochoou, passed alone a link to more info on the project, along with the above video. Our thanks to her for the information!]

It’s a reminder of how interconnected the various functional areas impacted by a changing climate are—something we fully recognize at LMI and discuss in the book. Think about it: this isn’t just about roads (infrastructure), or erosion (land use). There are implications that impact your supply chain and your ability to manage a fleet of vehicles—two critical elements of economic activity. There are public health considerations of paved areas as well. These structures can contribute to an urban heat island effect that must be addressed.

But the other lesson is in embracing and discovering advances that can be cost-effective and innovative while helping achieve an end in a fiscally responsible manner. You need your partners and suppliers to seek innovation, and be on board with your organizational philosophy as well.

In the book, we discuss how organizations can incentivize their suppliers to mitigate (and along the same lines, adapt) through their procurement guidelines. Greening your procurement guidelines means looking at the life-cycle of the infrastructure in question, considering its programming, design, build, and operation.

The paving of roads and highways is largely a state and local issue—fortunately there are partners out there preparing for such developments, like the Asphalt Pavement Alliance.

The bottom line is that if you’re the client, the people working for you will take their lead from where the business is coming from. That puts significant clout in the hands of those who seek out suppliers to do business with.

So congratulations to the UConn team, and all of this year’s winners, and to the EPA for a successful event!

A Book Published... And The Author's Dilemma

Horray! LMI’s new book on climate change is finally, officially released!

Last night, we introduced some of our LMI colleagues to what we’ve done with the book, and each author was able to hold court and offer some insights into their work on this book. It was a nice internal rollout, and the discussions that took place reminded me of a key element to such a work—even after the writing is finished, the story continues.

Francis Reilly discusses his chapter on land use at the launch party for Climate Change: What You Can Do Now

Consider an author’s dilemma: there is great satisfaction that comes from finishing that last page, sending it off to the printer, and getting ready to share it with the world.

And then the very next day there’s the new stuff that pops up that you wish you could have included.

For example, just a few days ago, new details were revealed with regard to Apple, Inc.’s, newest data center in Prineville, Ore.—a choice location for tech giants (Facebook chose the same location for a data center last year). Apple’s new data center is confirmed as an intended green project—very worthy of discussion in our book’s “Information” chapter, which focuses on IT and communications.

The point, of course, is that when it comes to climate change, there’s plenty to talk about that a book couldn’t possible incorporate.

My fellow authors will be contributing regularly to this blog and use it as an opportunity to bring their expert analysis to the day’s events as they relate to the climate change issue.

The authors of this blog are experienced, they’re experts in their fields, and they’ve a passion for tackling the nation’s most vexing challenges. We’re all employees of LMI, and for 50 years this organization has used its not-for-profit mission to help the public sector with its management needs.

Our authors are

Rachael Jonassen, one of the world’s preeminent climate change scientists;

Dr. Michael Canes, noted economist and expert on energy markets and regulation;

John Yasalonis (public health)

Francis Reilly (land use)

Rich Skulte (infrastructure)

Julian Bentley (vehicles and fleets)

Taylor Wilkerson (supply chain)

Jeremey Alcorn (national security).

(The IT/communications chapter, in case you’re wondering, was a team effort, as Dr. Canes and I worked from a framework that a former LMIer, Greg Wilson, set forth for us. Greg’s role is greatly appreciated!)

You’ve already heard from John Selman, who introduced the book’s concept and goals, and Rachael Jonassen, who is our resident scientist. Soon you’ll get to hear from the rest.

As we move forward, we’ll continue to discuss the many issues related to the climate change that the book touches on—and offer new depth and new points of discussion for this complicated issue. This blog will also be a great way to keep track of when and where our experts are speaking at conferences and forums and what topics are driving their individual discussions at the moment.

So stay tuned! We’ve got a nice slate of things for you to think about and to discuss with us.

Helping Non-Scientists Use Climate Science

Let’s say you're an expert in Chinese and your boss comes to you one day and asks you to teach a doctor and a lawyer Chinese so they can write a book about the legal aspects of medicine in China. And by the way, they want you to help them understand how the medical and legal fields are different in China!

Imagine yourself in my shoes. You’re the only person in your company with professional background in climate change and you’re asked to help seven senior folks, each a specialist in their own field, each with little background in yours. You need to make sure they grasp the key issues and use them correctly. The success of the project depends on it. You have just a few months to succeed.

Suddenly you need to bring your colleagues up to speed, give the project a clear focus, help structure the result, and provide ideas for each. In some cases you must convince them it’s even possible.

What do you do?

These are hard-nosed professionals who really know their fields through long, distinguished careers. And they all really care about what they are doing. They have their own ideas about how this should be done.

By the way, this effort is on top of their regular duties and takes them away from their comfort zones.

And, this effort is intended to create something that helps all professionals like these. The results will be broadly published and freely available to similar experts who have not had the chance to think about how climate change affects their work.

What do you do?

To make it more complicated, imagine that you’re in a field where the consensus of about 99% of experts is that the problem is so big that everyone, in all these specialties, must change the way they operate and must do so soon.

To give you a better idea of what a challenge this is, think of it this way. What are some other big crises that we've faced that folks knew were global game changers: WWII, nuclear war, and racial discrimination?

What do you do?

In my case I had a little to go on. I’d already helped create a book on climate change which also involved working with many authors with limited background in the subject. It also helped that all the authors really wanted to do this, believed in the importance of the work, knew it would be a big step, and were willing to work together to get it right.

So here’s what I thought would be needed: (1) a clear idea of the audience, (2) a well-defined structure, (3) a common approach to each chapter, (4) agreement on the key climate challenges to discuss, (5) balanced coverage of how to prevent (mitigate) climate change and how to deal with it (adapt) as it happens, (6) reliance on the best available information, (7) an iterative approach to writing, and (8) outside review by highly knowledgeable people.

Next time I’ll talk a little about these seven goals. It wasn't easy!

Welcome to LMI’s blog for Climate Change: What You Can Do Now. This is our way of bridging the gap between our last day of working on the book, and today.

We’re enormously proud of the book, and expect this blog to be a great medium for continuing the conversations we’ve started—a platform for all those things that will become part of the climate change discussion in the coming months, and for issues that benefit from added depth and perspective.

But first, let me tell you about the book.

LMI has previously written a book about climate change: A Federal Leader’s Guide to Climate Change. We believe that book still stands as the definitive guide to climate change for the federal sector. It’s unbiased, nonpartisan, and easy to use. It’s a great reference piece for federal leaders.

This new book offers a different take on the climate change issue—one that steps beyond our first book’s discussion of federal government and the science involved in the issues. We wrote this book with managers in mind, not only in the public sector, but in the private sector as well. That’s because the functional areas that we focus on in this book are relevant to almost every organization and every level of government—public health, IT and communications, land use, infrastructure, vehicles and fleets, supply chain, and national security.

Each of these areas can be a starting point for action, whether it’s mitigation or adaptation to a changing climate. And each of these areas can be where the strategies are developed and implemented and eventually touch the other functional areas we discuss. In many cases, these strategies can spur an entire organizational effort on the climate change issue.

One thing we’re acutely aware of is that action on climate change remains a tough sell—especially when the bottom line remains a key consideration. With this in mind, we also found that the tools most managers already have at their disposal—the use of risk and cost-benefit analysis, for example—are well-suited for application to the climate change issue.

As this blog evolves, you’ll get to hear from the authors of the book and engage them in the conversation you’d like to have about the climate change issue. Each of these individuals is an expert in what they do. They have very unique perspectives and are highly qualified to speak in their area of interest. I have no doubt that you’ll be able to gain insight into how they view the climate change issue.

So welcome to our blog! If you’ve not yet read the book, I hope this website and the discussions here pique your interest. And if you have read our book—thank you. I hope we can use this blog to continue a meaningful discussion on how we can all work collaboratively to address the pressing issue of climate change.