An interesting post. Canada's been very active on climate policy in the last few years, and economists have played a major role. We seem to have settled on a carbon tax as the backbone of climate policy, despite the high political cost. There's complementary measures, like phasing out coal-fired power by 2030, and some provinces have put a zero-emissions-vehicle mandate in place, but the national carbon price floor - currently C$40/t, rising to $170/t by 2030 - is the centerpiece of the plan. (It's a "price floor" because each province can either set up carbon pricing itself, in which case none of the money leaves the province, or the federal government will do it for them via a federal carbon tax backstop, with the revenue divided up and returned directly to households in the province as a dividend.)
In the Canadian context, a big challenge is that Alberta and Saskatchewan are responsible for a very large share of emissions. One of the advantages of the national carbon price floor is that it lets us coordinate action across provinces, without having to sit down and work out a distribution of Canada's total carbon budget. (That would be a recipe for endless bitter wrangling, since it's zero-sum.) https://twitter.com/andrew_leach/status/1381823072181776385?s=20
I expect that the Biden and Trudeau governments will be working together on climate policy, likely on a sector-by-sector basis - power, transport, etc. Maybe some kind of carbon tariff (given tensions with China, and China's relatively new fleet of coal-burning power plants). I'm curious to see how this will play out.
Breaking news - Canada's Conservative opposition appears to have been listening to Mark Jaccard. They've dropped their opposition to a carbon tax, but they'd like to track individual payments and return them as a green rebate, cap the tax at $50/t, and add flexible regulations to hit Canada's 2030 target. https://twitter.com/andrew_leach/status/1382719686987554819
Yeah. I think they're basically attacking the messenger. As climate change worsens, the Canadian oil sands are going to face more and more external pressure - they're just too big to hide from the spotlight. (Canada has the world's third largest oil reserves, after Venezuela and Saudi Arabia.) We can either deal with it by cutting emissions ourselves - and economists tell us that carbon pricing is the most cost-effective way to do so - or we can pretend it's not happening and end up facing crude measures from the rest of the world, like Keystone XL getting blocked (costing Alberta $1.5 billion in cash). https://twitter.com/russilwvong/status/1358811443169095680?s=20
By the way, the Alberta NDP's climate plan was carefully designed to prevent carbon leakage, using OBAs rather than a carbon tariff. (It's similar to the way the federal carbon tax divides up revenue equally and returns it to households.) The federal climate plan basically picked up that part of the Alberta policy as is. https://www.policyschool.ca/wp-content/uploads/2017/06/Effective-OBAs-Dobson-Fellows-Tombe-Winter.pdf
I really liked Notley as well. (I'm in Vancouver - I'm a federal Liberal.) I'm glad she's still leading the Alberta NDP, and I hope she gets another shot in 2023.
Personally I'm inclined to put the blame on Horgan. When BC's obstructionism caused Kinder Morgan to get cold feet, Trudeau brought down the biggest hammer he had by buying the project outright. The August 2018 FCA decision halting the project was a big setback, but Ottawa redid the consultations, re-approved the project, and the approval stood up in court. Construction has been underway for more than a year now. https://www.reddit.com/r/canada/comments/aep2uy/what_are_some_of_your_thoughts_on_the/edrl893/
Hilarious that politicians don't trust economists, as if they listened to us before. Deregulate housing, occupational licensing, and listen to Alex Tabarrok on Covid and THEN come talk about how economic advice don't work. Don't confuse your inability to act with economists' inability to offer advice.
You're stomping in my playground. And I pretty much agree with you on all points, and why have change my focus of research to renewable energy integration. From what I can tell so far, it's very doable at very low cost, with obstacles mainly being things that climate economists don't study.
Thank you for again writing such an excellent piece.
Looking forward to your input on what should be the economists proposal on what to do (yes I read the previous ones, I would love an update looking at what has being picked up by the current administration and what has not been :-) ).
Nordhaus was (unsurprisingly) aware of tail risks, so I am not sure why his academic work did not make more of them. His book for the general reader was "The Climate Casino" and here is what Sachs said in blurb on back: "Nordhaus repeatedly and rightly reminds the reader of the risks of catastrophic tipping points and the huge unknowns concerning the ability of societies and ecosystems to adapt to the changes ahead".
I'd really like to see Nordhaus respond to the point that DICE ignores solar power etc.
W. Nordhaus and M. Weitzman had a dialectic (or debate) about the fat tailed risks and what to do about these risks. My view is that this issue is a distraction because the deeper question is whether costs and risks represent two independent objectives, or whether they are interchangeable. Virtually all well-known economists (and certainly all of the economists in the Pigou Club) assume or believe that costs and risks are interchangeable, because they presume that carbon taxes can be used to manage both. If costs and risks are biophysically and fundamentally different, then the standard model for carbon pricing fails. Why? Because of the Tinbergen rule. Some economists tend to view this rule as optional. Tinbergen was trained in physics, which says something quite deep and important about the Tinbergen rule: it is a natural law and not a social construct.
Hi, thanks for this post. I'm currently entering the grad research life and it helped me to rethink on the variety of good puzzles that is still there to rethink.
Noah, think you should really look at this edition of the European Economic Review. I think you, Cameron, Stern, and Stiglitz are all operating on the same wavelength.
Hepburn, Cameron, Nicholas Stern, and Joseph E. Stiglitz. 2020. “‘Carbon Pricing’ special issue in the European economic review.” European Economic Review. Vol. 127.
You make a compelling argument. I continue to believe though that the elephant in the room is alternative voting methods that can make climate change politically tractable. Approval voting is probably the most practical.
I'm skeptical that electoral reform would help. Australia scrapped its carbon tax after changing governments, and Australia has mandatory voting and instant-runoff voting.
I know that it's always fun to dunk on economists, but doesn't the silo-ing criticism apply equally the other way around (i.e. that climate scientist have also failed to reach out to economists to better understand the broader impacts of climate change)?
I love the parts of this post that nail climate economists for not publishing enough research, putting out simplistic models of climate change damages, and ignoring tail risks. I don’t love the part that takes climate economists to task for “their carbon tax fetish.”
Smith argues that voters grasp (but economists have ignored) that “the people who pay the costs of a carbon tax don’t reap the benefits.” That’s because “carbon taxes are enacted locally, but climate change is a global phenomenon.”
Well, sure. But Smith himself appears to ignore that the costs of carbon taxes are themselves benefits. They’re revenues! Governments can use those revenues to mitigate or even offset the costs of the higher energy prices from the carbon tax. His account of why WA state voters rejected a carbon tax in 2016 and 2018 fetishizes that point but overlooks the accompanying sales tax cut that, in the 2016 referendum, would have offset the costs. He also underplays the electoral damage from social justice forces’ opposition to the referendum. (I wrote about that opposition here: https://www.carbontax.org/u-s-states/washingtons-2016-carbon-tax-defeat/.)
Still, I highly recommend this post. It’s informed, thoughtful, graceful, and lively. But Noah, please, next time, mention the revenue!
Hear hear. And also, just because carbon tax needs to be practically global to be effective doesn't mean it's hopeless. We're working toward a global corporate tax agreement after all, which I would say is of far less urgency.
Why are economists the way they are? Much more status-driven than comparable scientists in other fields, extremely confident that they have all the tools anyone could need, and not interested in learning from other disciplines. This is of course an overgeneralization but it's one with some truth in it.
My best guess is that as a field, economists have to deal with opinionated cranks harassing them a lot more than most fields, and this drives them to defensively close off to outsiders and overvalue symbols of authority.
But I don't know for sure, it would be nice to get an insider perspective on this.
I'm not an insider, but still want to reply! As I understand it, economists/econometricians tend to be among the most methodologically advanced social scientists. The tools that they use answer a broader range of questions and work with more varied types of data than the tools used by people working in most other fields. This is especially the case for people working in fields that deal with lots of observational data.
This doesn't explain why they're more status driven than comparable scientists, but it does address both of the other critiques. They're confident that they have all the tools anyone could need because they *are* among the scientists most likely to have the right tool to answer a given question. They're not particularly good at remembering the fact that statistical techniques become useless if you aren't familiar with the data that you're working with. There are probably a number of reasons that this is the case, but I'm pretty sure that the placement of Econ departments in business schools instead of arts & sciences colleges plays at least some role. Academic economists should view psychologists and ecologists and epidemiologists as their colleagues, not accountants and marketing professors.
"As I understand it, economists/econometricians tend to be among the most methodologically advanced social scientists"
Not my experience, I ventured into complex variable studies and went through Multi-factor Analysis early on, so was able to see tools developed by Inferential Statistics quite more developed and applicable to study varying relations of those variables in creative ways. Nowadays those fields have taken form of Machine Learning and AI.
Whereas Econometrics (and Finance) have mostly remained fine tuning their measuring models.
I would risk saying that Economists have better tools now to know comparatively "smaller" fields of study than other social sciences.
I have a theory that there's a type of economist stupid that is a pretty common failure mode for economists. It's like asking a physicist to fix a car. The physicist will be able to tell what the most thermodynamically efficient engine, but if you want to get your car fixed to take it to a mechanic, and if you want to build a better car you find an engineer, not Brian Cox.
Many of the problems mentioned here don't seem specific to climate, but also present whenever there's economists trying to analyse relatively complex phenomena. While there's been way more work done on, for instance, trade or fin svcs, there too the streetlight effect and oddly parametrised (both too much and too little) models abound. Are there other areas where despite these limitations we've come to a point of better common understanding?
Very good article. I myself provide a small and insignificant data point here. I was a member of the Economics Department at University of California, Santa Cruz from 1976 to 1999. My written work was mainly in economic history and development, particularly focusing on the Middle East. Like most others, I taught many other subjects to undergraduates. As time passed, I became increasingly discontented with the many pathologies Noah Smith enumerates, along with a number of other, deeper philosophical problems (the concept of fixed "preferences," and the rigid methodological individualism of the discipline, to name only a few.) So finally I transferred to the Environmental Studies Department, an organization which included other social scientists and biologists and other natural scientists. I taught there until my retirement in 2010. It was simply not possible to talk about what seemed increasingly urgent--ecological threats, of all types--while being in an economics department. It was hard even to have conversations about it; even the very best of people seemed somehow to have a "professionally-induced incomprehension" of the dangers of global heating and biodiversity loss. An example: once, when Amartya Sen was giving a visiting lecture, I brought up Partha Dasgupta's work showing that, once the depletion of "natural capital" (a dubious concept, but still) was accounted for, most countries in the Global South showed negative growth. It was clear that Sen, a deservedly lauded, highly ethical, brilliant man, simply did not get it, or, if he did, wished to evade the implications of Dasgupta's findings. If even someone of Sen's towering stature was frankly clueless, well, you can imagine how well the rest of the profession is doing. As I say, this is merely a personal anecdote from an obscure retired "recovering economist." The article is spot-on.
An interesting post. Canada's been very active on climate policy in the last few years, and economists have played a major role. We seem to have settled on a carbon tax as the backbone of climate policy, despite the high political cost. There's complementary measures, like phasing out coal-fired power by 2030, and some provinces have put a zero-emissions-vehicle mandate in place, but the national carbon price floor - currently C$40/t, rising to $170/t by 2030 - is the centerpiece of the plan. (It's a "price floor" because each province can either set up carbon pricing itself, in which case none of the money leaves the province, or the federal government will do it for them via a federal carbon tax backstop, with the revenue divided up and returned directly to households in the province as a dividend.)
Mark Jaccard, a veteran of the battles over BC's carbon tax, argues that flexible regulations aimed at the power and transport sectors would arouse far less political resistance, while still being reasonably cost-effective. Like you, he thinks that economists who say that a carbon tax is the optimal policy are ignoring political reality. https://www.cambridge.org/core/books/citizens-guide-to-climate-success/we-must-price-carbon-emissions/66AEBB8BE9A7F7760DC1BCE3A9C50748/core-reader
In the Canadian context, a big challenge is that Alberta and Saskatchewan are responsible for a very large share of emissions. One of the advantages of the national carbon price floor is that it lets us coordinate action across provinces, without having to sit down and work out a distribution of Canada's total carbon budget. (That would be a recipe for endless bitter wrangling, since it's zero-sum.) https://twitter.com/andrew_leach/status/1381823072181776385?s=20
I expect that the Biden and Trudeau governments will be working together on climate policy, likely on a sector-by-sector basis - power, transport, etc. Maybe some kind of carbon tariff (given tensions with China, and China's relatively new fleet of coal-burning power plants). I'm curious to see how this will play out.
Breaking news - Canada's Conservative opposition appears to have been listening to Mark Jaccard. They've dropped their opposition to a carbon tax, but they'd like to track individual payments and return them as a green rebate, cap the tax at $50/t, and add flexible regulations to hit Canada's 2030 target. https://twitter.com/andrew_leach/status/1382719686987554819
Yeah. I think they're basically attacking the messenger. As climate change worsens, the Canadian oil sands are going to face more and more external pressure - they're just too big to hide from the spotlight. (Canada has the world's third largest oil reserves, after Venezuela and Saudi Arabia.) We can either deal with it by cutting emissions ourselves - and economists tell us that carbon pricing is the most cost-effective way to do so - or we can pretend it's not happening and end up facing crude measures from the rest of the world, like Keystone XL getting blocked (costing Alberta $1.5 billion in cash). https://twitter.com/russilwvong/status/1358811443169095680?s=20
By the way, the Alberta NDP's climate plan was carefully designed to prevent carbon leakage, using OBAs rather than a carbon tariff. (It's similar to the way the federal carbon tax divides up revenue equally and returns it to households.) The federal climate plan basically picked up that part of the Alberta policy as is. https://www.policyschool.ca/wp-content/uploads/2017/06/Effective-OBAs-Dobson-Fellows-Tombe-Winter.pdf
I really liked Notley as well. (I'm in Vancouver - I'm a federal Liberal.) I'm glad she's still leading the Alberta NDP, and I hope she gets another shot in 2023.
Personally I'm inclined to put the blame on Horgan. When BC's obstructionism caused Kinder Morgan to get cold feet, Trudeau brought down the biggest hammer he had by buying the project outright. The August 2018 FCA decision halting the project was a big setback, but Ottawa redid the consultations, re-approved the project, and the approval stood up in court. Construction has been underway for more than a year now. https://www.reddit.com/r/canada/comments/aep2uy/what_are_some_of_your_thoughts_on_the/edrl893/
That said, I totally understand Albertans being frustrated with the cooperative approach and deciding to go for Kenney's "no more Mr. Nice Guy." But as Don Breakenridge observes, it hasn't really worked out. https://calgaryherald.com/opinion/columnists/breakenridge-all-this-fighting-and-alberta-has-nothing-to-show-for-it
It doesn't seem like there's enough shipper demand to support Energy East. It'd be expensive to send it all the way to the East Coast: Andrew Leach estimates $10/barrel with a long-term contract, $16/barrel without. http://andrewleach.ca/uncategorized/to-whom-is-jason-kenney-selling-a-bill-of-goods-on-energy-east/
Happy Birthday!!! Thanks for the consistently thought-provoking newsletter!
Thanks!!
Hilarious that politicians don't trust economists, as if they listened to us before. Deregulate housing, occupational licensing, and listen to Alex Tabarrok on Covid and THEN come talk about how economic advice don't work. Don't confuse your inability to act with economists' inability to offer advice.
You're stomping in my playground. And I pretty much agree with you on all points, and why have change my focus of research to renewable energy integration. From what I can tell so far, it's very doable at very low cost, with obstacles mainly being things that climate economists don't study.
Thank you for again writing such an excellent piece.
Looking forward to your input on what should be the economists proposal on what to do (yes I read the previous ones, I would love an update looking at what has being picked up by the current administration and what has not been :-) ).
Nordhaus was (unsurprisingly) aware of tail risks, so I am not sure why his academic work did not make more of them. His book for the general reader was "The Climate Casino" and here is what Sachs said in blurb on back: "Nordhaus repeatedly and rightly reminds the reader of the risks of catastrophic tipping points and the huge unknowns concerning the ability of societies and ecosystems to adapt to the changes ahead".
I'd really like to see Nordhaus respond to the point that DICE ignores solar power etc.
That point has been circulating for a few years now!
W. Nordhaus and M. Weitzman had a dialectic (or debate) about the fat tailed risks and what to do about these risks. My view is that this issue is a distraction because the deeper question is whether costs and risks represent two independent objectives, or whether they are interchangeable. Virtually all well-known economists (and certainly all of the economists in the Pigou Club) assume or believe that costs and risks are interchangeable, because they presume that carbon taxes can be used to manage both. If costs and risks are biophysically and fundamentally different, then the standard model for carbon pricing fails. Why? Because of the Tinbergen rule. Some economists tend to view this rule as optional. Tinbergen was trained in physics, which says something quite deep and important about the Tinbergen rule: it is a natural law and not a social construct.
Hi, thanks for this post. I'm currently entering the grad research life and it helped me to rethink on the variety of good puzzles that is still there to rethink.
Are there any economists still working who have been exceptionally good on climate? Other than Nordhaus, dubiously.
Yes. Many of the less famous people. It's the top folks who feel stuck in the past.
Noah, think you should really look at this edition of the European Economic Review. I think you, Cameron, Stern, and Stiglitz are all operating on the same wavelength.
Hepburn, Cameron, Nicholas Stern, and Joseph E. Stiglitz. 2020. “‘Carbon Pricing’ special issue in the European economic review.” European Economic Review. Vol. 127.
Can you name a few of the less famous economists doing good work on climate change?
This is a more extended version of your critique of Nordhaus and others https://www.tandfonline.com/doi/full/10.1080/14747731.2020.1807856
You make a compelling argument. I continue to believe though that the elephant in the room is alternative voting methods that can make climate change politically tractable. Approval voting is probably the most practical.
I'm skeptical that electoral reform would help. Australia scrapped its carbon tax after changing governments, and Australia has mandatory voting and instant-runoff voting.
And has no carbon tax as such. (It does have an emissions trading scheme, but that isn't quite the same thing. And the scheme covers only half of NZ's relevant emissions: see https://environment.govt.nz/what-government-is-doing/key-initiatives/ets/coverage-of-the-nz-ets/.)
I know that it's always fun to dunk on economists, but doesn't the silo-ing criticism apply equally the other way around (i.e. that climate scientist have also failed to reach out to economists to better understand the broader impacts of climate change)?
I don't know!
I love the parts of this post that nail climate economists for not publishing enough research, putting out simplistic models of climate change damages, and ignoring tail risks. I don’t love the part that takes climate economists to task for “their carbon tax fetish.”
Smith argues that voters grasp (but economists have ignored) that “the people who pay the costs of a carbon tax don’t reap the benefits.” That’s because “carbon taxes are enacted locally, but climate change is a global phenomenon.”
Well, sure. But Smith himself appears to ignore that the costs of carbon taxes are themselves benefits. They’re revenues! Governments can use those revenues to mitigate or even offset the costs of the higher energy prices from the carbon tax. His account of why WA state voters rejected a carbon tax in 2016 and 2018 fetishizes that point but overlooks the accompanying sales tax cut that, in the 2016 referendum, would have offset the costs. He also underplays the electoral damage from social justice forces’ opposition to the referendum. (I wrote about that opposition here: https://www.carbontax.org/u-s-states/washingtons-2016-carbon-tax-defeat/.)
Still, I highly recommend this post. It’s informed, thoughtful, graceful, and lively. But Noah, please, next time, mention the revenue!
Hear hear. And also, just because carbon tax needs to be practically global to be effective doesn't mean it's hopeless. We're working toward a global corporate tax agreement after all, which I would say is of far less urgency.
Why are economists the way they are? Much more status-driven than comparable scientists in other fields, extremely confident that they have all the tools anyone could need, and not interested in learning from other disciplines. This is of course an overgeneralization but it's one with some truth in it.
My best guess is that as a field, economists have to deal with opinionated cranks harassing them a lot more than most fields, and this drives them to defensively close off to outsiders and overvalue symbols of authority.
But I don't know for sure, it would be nice to get an insider perspective on this.
I'm not an insider, but still want to reply! As I understand it, economists/econometricians tend to be among the most methodologically advanced social scientists. The tools that they use answer a broader range of questions and work with more varied types of data than the tools used by people working in most other fields. This is especially the case for people working in fields that deal with lots of observational data.
This doesn't explain why they're more status driven than comparable scientists, but it does address both of the other critiques. They're confident that they have all the tools anyone could need because they *are* among the scientists most likely to have the right tool to answer a given question. They're not particularly good at remembering the fact that statistical techniques become useless if you aren't familiar with the data that you're working with. There are probably a number of reasons that this is the case, but I'm pretty sure that the placement of Econ departments in business schools instead of arts & sciences colleges plays at least some role. Academic economists should view psychologists and ecologists and epidemiologists as their colleagues, not accountants and marketing professors.
"As I understand it, economists/econometricians tend to be among the most methodologically advanced social scientists"
Not my experience, I ventured into complex variable studies and went through Multi-factor Analysis early on, so was able to see tools developed by Inferential Statistics quite more developed and applicable to study varying relations of those variables in creative ways. Nowadays those fields have taken form of Machine Learning and AI.
Whereas Econometrics (and Finance) have mostly remained fine tuning their measuring models.
I would risk saying that Economists have better tools now to know comparatively "smaller" fields of study than other social sciences.
I have a theory that there's a type of economist stupid that is a pretty common failure mode for economists. It's like asking a physicist to fix a car. The physicist will be able to tell what the most thermodynamically efficient engine, but if you want to get your car fixed to take it to a mechanic, and if you want to build a better car you find an engineer, not Brian Cox.
Many of the problems mentioned here don't seem specific to climate, but also present whenever there's economists trying to analyse relatively complex phenomena. While there's been way more work done on, for instance, trade or fin svcs, there too the streetlight effect and oddly parametrised (both too much and too little) models abound. Are there other areas where despite these limitations we've come to a point of better common understanding?
But...I like carbon taxes...
Carbon taxes are good, I just don't think they're the main policy that will beat climate change.
I do.
Very good article. I myself provide a small and insignificant data point here. I was a member of the Economics Department at University of California, Santa Cruz from 1976 to 1999. My written work was mainly in economic history and development, particularly focusing on the Middle East. Like most others, I taught many other subjects to undergraduates. As time passed, I became increasingly discontented with the many pathologies Noah Smith enumerates, along with a number of other, deeper philosophical problems (the concept of fixed "preferences," and the rigid methodological individualism of the discipline, to name only a few.) So finally I transferred to the Environmental Studies Department, an organization which included other social scientists and biologists and other natural scientists. I taught there until my retirement in 2010. It was simply not possible to talk about what seemed increasingly urgent--ecological threats, of all types--while being in an economics department. It was hard even to have conversations about it; even the very best of people seemed somehow to have a "professionally-induced incomprehension" of the dangers of global heating and biodiversity loss. An example: once, when Amartya Sen was giving a visiting lecture, I brought up Partha Dasgupta's work showing that, once the depletion of "natural capital" (a dubious concept, but still) was accounted for, most countries in the Global South showed negative growth. It was clear that Sen, a deservedly lauded, highly ethical, brilliant man, simply did not get it, or, if he did, wished to evade the implications of Dasgupta's findings. If even someone of Sen's towering stature was frankly clueless, well, you can imagine how well the rest of the profession is doing. As I say, this is merely a personal anecdote from an obscure retired "recovering economist." The article is spot-on.