Global Warming Insurance

Tyler Cowen over at Marginal Revolutions has a good series of thoughts and questions about the proper course of policy on global warming — you should read it.  Below are a couple of points that I want to look a little more into:

3. I can imagine Manhattan and other major cities taking protective action against rising water levels, much as the Dutch do today.  I recall reading that the Dutch spend about as a high a percentage of their gdp defending themselves from water as the U.S. does on national defense.  That is quite a burden, but it is better than forsaking economic growth.

4. Like Arnold Kling, I do not much trust climate models.  Perhaps I have spent too much time doing macro, and the experience carries over.  Nonetheless uncertainty about final effects gives us more to worry about, not less.  It is the worst-case scenarios for global warming which worry me, not the middling scenarios.  Variance is our enemy in this matter.

8. If we could relocate all the losers-to-be into freer and richer countries, should we consider this a satisfactory solution?  Or are we still massive and unjustified aggressors if they are crying to us: "Don’t let it happen, don’t let it happen!"?

I have a couple of problems with #3 for I think that Tyler is neglecting the opportunity cost of building dikes, canals and levees — every dollar spent on these projects is a dollar that can not be spent on other adaptations, mitigation, or remediation efforts concerning global warming.  The relevant question is where does the trade-off point lie?  Looking at the Foreign Policy Passport blog, US carbon neutrality would cost the US roughly 1.6% GDP for this year — now is this cheaper than building and maintaining massive water defenses and does it give us a better value?  Or is the policy alternative of a bit of reduction and remediation with a bit of urban hardening the better policy alternative — I don’t know.  I also would imagine that an increase in zero net carbon output if encouraged through tradeable permits, and other market mechanisms would encourage one hell of a build out in energy so innovation and a new economic sector of high value added work should be created…
On Pt. 4, I totally agree, it is the low probability, VERY, VERY high cost outcomes that should be dominating our thinking here.  Buying insurance in the guise of carbon neutrality is relatively cheap — using PPP data ( via CIA factbook) this would be roughly 1.1% global GDP, and using exchange rates this cost would be 1.66% global GDP.  On a side note, this cost proportion is similiar to what we pay for our homeowner’s insurance….. and that is, in my opinion, a very good investment for the piece of mind if nothing else.
On Pt.8 — does paying relocation subsidies to the inhabitants of Bangeldesh, Tonga et al, qualify as a just solution — on first thought, I really don’t think so because there is a great deal of non-monetized ties to a place and a culture.  However, I can see where Tyler is going with this — create Pareto improvements by compensating the losers, and this is very consistent with his argument for much looser immigration restrictions into the OECD as a whole, and the G-7 in particular… I have to think about this some more. 

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