Somewhere inside Paul Krugman I imagine there remains an honest economist. However, he has an audience for which he must perform, so he is obliged to pen silliness such as this:
Salvation Gets Cheap
The Intergovernmental Panel on Climate Change, which pools the efforts of scientists around the globe, has begun releasing draft chapters from its latest assessment, and, for the most part, the reading is as grim as you might expect. We are still on the road to catastrophe without major policy changes.
But there is one piece of the assessment that is surprisingly, if conditionally, upbeat: Its take on the economics of mitigation. Even as the report calls for drastic action to limit emissions of greenhouse gases, it asserts that the economic impact of such drastic action would be surprisingly small. In fact, even under the most ambitious goals the assessment considers, the estimated reduction in economic growth would basically amount to a rounding error, around 0.06 percent per year.
Ahh, the old "reduction in growth" metric. We learned about this game lo these many years ago from Paul himself. For perspective, on a world economy of $70 trillion, a reduction in the real growth rate from 2% to 1.94% per annum knocks down global GDP by roughly $20 trillion in the year 2100 (from $393 trillion to $372 trillion); the sum of all lost output from 2014 to 2100 is roughly $530 trillion (seriously), or about seven years of GDP at current levels. Of course, the first year cost is a mere $42 billion, but the power of compunding takes over and the numbers in later years become ginormous. This is noted in passing by the IPCC report (p. 17/33):
Under these assumptions, mitigation scenarios... entail losses in global consumption—not including benefits of reduced climate change as well as co‐benefits and adverse side‐effects of mitigation—of 1% to 4% (median: 1.7%) in 2030, 2% to 6% (median: 3.4%) in 2050, and 3% to 11% (median: 4.8%) in 2100 relative to consumption in baseline scenarios that grows anywhere from 300% to more than 900% over the century. These numbers correspond to an annualized reduction of consumption growth by 0.04 to 0.14 (median: 0.06) percentage points over the century relative to annualized consumption growth in the baseline that is between 1.6% and 3% per year.
I picked 2% growth versus 1.94% growth and calculated a 5% GDP reduction in 2100, which is pretty close to their 4.8% median.
Well - maybe $42 billion in year one isn't much but neither $20 trillion nor $530 trillion strike me as "rounding errors".
But let's bring those numbers closer to home: on a $16 trillion US economy, growth at 1.94% versus 2% represents a cumulative GDP loss of roughly $600 billion in the first ten years and another $2 trillion over years 11-20. For comparison, that $600 billion rounding error would fund most of the Medicaid/CHIP expansion under ObamaCare or more than half of the ObamaCare exchange subsidies, or most of the Department of Education budget. The two trillion over the second decade would fund, well, a lot more.
The weirdness cintinues with a comically tilted attempt at even-handedness:
On the left, you sometimes find environmentalists asserting that to save the planet we must give up on the idea of an ever-growing economy; on the right, you often find assertions that any attempt to limit pollution will have devastating impacts on growth. But there’s no reason we can’t become richer while reducing our impact on the environment.
Sometimes there is kookery on the left but the economics on the right is "often" exaggerated? I happen to think the growth reductions Krugman is talking up are kind of scary, but that just might be me. By way of comparison, the EPA in 2008 (the dark Bush years) apparently (p. 61) estimated the growth reduction in the US to be about 0.11% per year, double the rate Krugman is touting.
As another example of this type of fun with numbers, here is the Washington Times noting that a Brookings Institute study models cap-and-trade as reducing US GDP by 2.5% in 2050; Think Progress dismisses this as negligible. By my math (with a 2% baseline real growth rate) they are arguing about a reduction in growth of 0.065% per annum, or nearly the current IPCC figure. But since it is the right-wing times, that must be what Krugman considers a "devastating" impact on growth.
Krugman ignores an ongoing market failure here:
The sensible position on the economics of climate change has always been that it’s like the economics of everything else — that if we give corporations and individuals an incentive to reduce greenhouse gas emissions, they will respond.
Hmm - per McKinsey, among others, the US has underinvested in cost-effective conservation measures for decades. Improved home weatherization to reduce heating and cooling bills springs to mind. Yet the same individuals who have been ignoring their heating and air conditioning bills for years will respond to a new carbon tax? It would take a Nobel Laureate to explain that, but Krugman doesn't try.
Krugman then turns his non-attention to a market success:
What form would that response take? Until a few years ago, the best guess was that it would proceed on many fronts, involving everything from better insulation and more fuel-efficient cars to increased use of nuclear power.
One front many people didn’t take too seriously, however, was renewable energy.
No mention here or ever, about fracking. No mention of the fact that US carbon emissions have fallen due to the displacement of coal by natural gas. Progressives don't want to read it so Krugman isn't going to write it. Instead, we get his tacit admission ("One front many people didn’t take too seriously") was that he slept through or ignored the energy segment of all of Obama's State of the Union speeches as well as the whole Solyndra controversy.
So on to renewables!
The climate change panel, in its usual deadpan prose, notes that “many RE [renewable energy] technologies have demonstrated substantial performance improvements and cost reductions” since it released its last assessment, back in 2007. The Department of Energy is willing to display a bit more open enthusiasm; it titled a report on clean energy released last year “Revolution Now.” That sounds like hyperbole, but you realize that it isn’t when you learn that the price of solar panels has fallen more than 75 percent just since 2008.
Without even looking I will bet that the 75 percent cost reduction is for the solar panels themselves and ignores land and installations costs. And it does; the DOE mentions those figures as well - apparently it adds $3.34 per watt in the US, so that installed prices in the US seem to have fallen from about $8/watt to $4/watt in the US. The DOE also mentions that excess production capacity has led to a price plunge for PV cells, and that may not be an ongoing source of savings.