Well, as you\’d expect from a Nobel Laureate his analysis of the basic economics is good. And as you\’d expect from an economist his understanding of the climate science is less so.
Personally (for whatever trivial value my opinion has) I\’d give the first half of that long piece an A*. And then I\’d argue with three points.
1) There is, as he says, an advantage to cap and trade in that it\’s already in place in the EU and partially so in the US. However, given the monkey\’s arse the politicians have made of placating interest groups a carbon tax would be better.
2) He\’s bought into the much more alarmist screams about climate sensitivity. He;s basing his arguments on a 9 oF rise by 2100. But the figures for climate sensitivity (how much will temperature rise with a doubling of atmospheric CO2-e?) have been falling to a centre value of about 3 oC, not rising to that higher figure. So while emissions themselves are at the higher end of previous estimates the effect of those emissions has been falling from previous higher estimates.
3) He\’s slightly misjudging the difference between the Nordhaus view (low tax now, higher taxes later) and the Stern view (high taxes now). Yes, there are differences in discount rates and so on which lead to these different views. But there\’s more to it than just that. That more being the time lag in the technological cycle.
It takes decades (at the least) to change the technological base of the society. Power plants for example last 20 years (solar installation, windmill, gas plant perhaps) to 50 years (coal and nuclear). Ripping down what we already have, what will happily continue working for a few more decades, and replacing it with some new low carbon technology is a very expensive way of doing things. We\’re destroying hundreds of billions of $ worth of capital investments by doing so. This of course makes us poorer.
Similarly, high tax on something we\’ve already got makes us poorer.
What we actually want is the lowest cost manner of making sure that when the current technological base wears out and is ready to be replaced then it is replaced with the low carbon alternative. Not to either accelerate the destruction of the current infrastructure nor to tax highly what we\’re still going to be using for decades. We just want to make sure that replacement is low carbon when the time comes.
All of which argues for low taxes now but credibly promising to raise them in the future. The Nordhaus view in short.
One further point here. The low carbon technologies aren\’t in fact ready for prime time yet. We can even take Jeremy Leggett\’s own arguments to heart here. Solar PV, just to take one example, currently costs 50 p or so per unit of electricity where coal costs perhaps 8p. If that relationship were always to hold then if the costs of climate change are greater than 42p then we should be changing now. However, that cost relationship isn\’t expected to hold. The basic technology of solar PV is improving like gangbusters. (As one example, First Solar\’s cadium telluride methods, as another the silicon based producers\’ reaction to it.) Leggett himself touts 20% cost reductions per year. Which means that we don\’t want to lock ourselves into this year\’s inefficient technology. We want to wait a few years until solar PV is cheaper than coal at the point of use. Generally thought to be less than a decade away (when we add in the carbon costs of coal that is).
Which again argues for not taxing highly now, but for taxing lightly now and taxing more heavily in the future. Why punish ourselves now unnecessarily?
(And as some of you know my day job involves other such technologies like fuel cells and yes, costs are coming down like gangbusters there as well but they\’re probably a decade to 15 years away from being truly competitive.)
So I end up agreeing with the basic analysis but then end up plumping for the Nordhaus view, not the Stern as Krugman himself does. In short, work with the technological and capital cycle, not attempt to tear down what we already have and replace it with inefficient technology when we know that the new technologies are getting better all the time.