Market Forces

Biking and Renewables

By Gernot Wagner / Bio / Published: October 6, 2015

Illustration by Kelsey King/Ensia

There’s nothing quite like biking down clogged city streets, weaving in and out of traffic. For short distances, it’s faster than driving. It’s liberating. It’s fun.

It also makes it painfully clear that most roads aren’t made for bikes. Make one mistake, and you might end up dead. If you do everything right and the 4,000-pounder next to you makes a mistake, you still might end up dead. Few regular urban cyclists remain entirely unharmed throughout the years: A broken bone (“cut off by a van”), a scraped shin (“car door”), or perhaps simply drenched on an otherwise dry road (“I avoided the mud puddle; the car didn’t”).

Blame it on my day job, but as I was cut off by yet another driver fixated on his phone while cycling to work, I got to thinking that this is how wind and solar electrons must feel as they try to navigate the electric grid. There, too, the infrastructure and rules were designed for the conventional, fossil fuel-based generators, not their smaller, greener counterparts.

We need to get off gasoline-powered vehicles, the same way we need to get off fossil-powered electricity. Biking alone, of course, can’t eliminate fossil fuel-based transportation. It’s a niche alternative that chiefly works in densely populated cities filled with environmentally concerned citizens. What works in Berkeley, Boulder, Brooklyn and Boston won’t work everywhere. Neither can trains, by the way, another favorite of environmentalists. Most U.S. cities have a lot of catching up to do with their European counterparts, but, if anything, it will be electric vehicles that will truly help us make this transition.

Similarly, wind and solar can’t singlehandedly eliminate fossil fuel-based electrical generation. They have great potential, much more so than biking ever will. But there, too, are limitations — chiefly the (eventual) need for storage to eliminate all fossil fuel-based generation: coal, petroleum and natural gas.

Meanwhile, there are great benefits to pushing both green technologies. Biking helps get previously sedentary drivers to move, which, in turn, extends their lives and decreases societal health care costs, assuming injuries can be avoided by appropriate bike infrastructure. Every dollar invested in that infrastructure can pay for itself many times over.

Something similar holds for subsidizing infrastructure for renewables (and, for that matter, some energy efficiency measures). The reduction in the large and risky global warming externality typically offsets the costs of subsidies and other sensible policy interventions. Many of the right policies are indeed being put in place.

Still, some traditional utilities continue to fight the integration of rooftop solar and other renewables, the way New York City did with bikes in 1987 when it tried to ban them altogether from midtown Manhattan. Today, New York is decidedly friendlier to cyclists, with Mayor Michael Bloomberg adding over 300 miles of bike lanes to city streets, and a popular, still-expanding bike share program. Renewables, for their part, are increasingly welcomed onto the grid, with increased open access and grid management tools aimed at integrating intermittent renewable energy sources. Much more needs to be done.

Getting the Job Done

There’s one more parallel that might well dwarf all else: Biking for biking’s sake is fun on a sunny Sunday afternoon. On a Monday morning, when it’s about getting to a meeting on time and looking professional, transport choice comes down to getting there reliably, quickly, cheaply and without sweat stains.

Electricity is no different. Solar panels may be an interesting, even fun, choice for some. The feeling of energy independence and doing good is a bonus. But many times, it doesn’t matter where electrons come from, just that they do — reliably, cheaply and cleanly.

The ideal policy solution for energy is as clear as it is seemingly difficult to implement: Pay the full, appropriate price for electricity at the right time and place, including currently unpriced environmental costs. Once every electron comes with the appropriate price tag, the solar panel on your roof — or the solar farm down the road — may well carry the day. Or it might not. That’s OK, too. Having the right energy mix matters more than any one technology. The energy system is a system, after all.

Biking, too, is but one form of getting around. Appropriate gas taxes, congestion charges and parking fees help incorporate the full costs of gasoline-powered engines and encourage more alternative modes of transport — from electric vehicles to public transport and bikes. Meanwhile, outright subsidizing those alternative modes is surely the right step. Pushing those alternatives at scale is as sensible as pushing renewables, especially when it also means moving closer to the ideal pricing policies in the first place.

But pushing biking or any one form of alternative transport is no end goal in itself. At the end of the day, it’s about getting from A to B. That means — as it does for energy — getting the entire system right.

Published on Ensia.com on October 1st, 2015.

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Statistics 101: Climate policy = risk management

By Gernot Wagner / Bio / Published: September 10, 2015

Bjørn Lomborg reviewed my book, Climate Shock (Princeton University Press, 2015), joint with Harvard’s Martin L. Weitzman, for Barron’s over the weekend. He started it by stating that “global warming is real.”

So far, so good.

But the book is not about whether the climate is changing. It is.

The book is about whether we are getting the order of magnitude of its effects right. Weitzman and I argue forcefully — in prose in the text, supported by a significant amount of research going into the 100-page end notes — that it’s what we don’t know that really puts the “shock” into Climate Shock. Lomborg asks how we can know that, if apparently we don’t.

The answer is simple, and it’s a statistical point that can’t possibly be lost on Lomborg, a former lecturer on statistics. The set of distributions that most directly represent climate uncertainty — the link between concentrations of carbon dioxide and eventual temperature outcomes — is inherently skewed. We know, and Lomborg agrees, that adding carbon dioxide increases temperatures. (Back to 19th century science.)

So we can very clearly cut off the distribution linking a doubling of pre-industrial concentrations to temperatures at zero. In fact, we can cut it off at least at around 1 degree Celsius (almost 2 degrees Fahrenheit). The world, after all, has already warmed by over 0.8 degrees Celsius (around 1.5 degrees Fahrenheit), and we haven’t yet increased pre-industrial concentrations by even 50 percent.

Reprinted from Climate Shock, with permission from Princeton University Press.

That skewedness of the underlying distribution is real. It’s important. The correct response, then, to those who are too sure about where the climate system will go isn’t to say, “cool it.” It’s to take the uncertainties seriously. Those, sadly, are skewed in one direction.

Climate risk is not our friend. It ought to prompt us to rethink not just how we talk about climate change. It should also inform our response. The burden of proof clearly rests on those who argue against these statistical facts.

First posted on Climate411.

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Climate Shock on FT McKinsey Business Book of the Year longlist

By Gernot Wagner / Bio / Published: August 12, 2015

“Business Book Award longlist: must-read titles of 2015” by Andrew Hill (Financial Times, 12 August 2015).

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What we know — and what we don’t — about global warming

By Gernot Wagner / Bio / Published: July 17, 2015

By Gernot Wagner and Martin L. Weitzman:

Two quick questions:

Do you think climate change is an urgent problem?

Do you think getting the world off fossil fuels is difficult?

This is how our book “Climate Shock” begins.

In fact, it’s not our quiz. Robert Socolow from Princeton has posed versions of these questions for a while. The result is usually the same: most people answer “Yes” to one or the other question, but not to both. You are either one or the other: an “environmentalist” or perhaps, a self-described “realist.”

Such answers are somewhat understandable, especially when looking at the polarized politics around global warming. They are also both wrong. Climate change is incredibly urgent and difficult to solve.

What we know is bad

Last time concentrations of carbon dioxide were as high as they are today — 400 parts per million — we had sea levels that were between 20 to at least 66 feet higher than today.

It doesn’t take much to imagine what another foot or two will do. And sea levels at least 20 feet above where they are today? That’s largely outside our imagination.

This won’t happen overnight. Sea levels will rise over decades, centuries and perhaps even millennia. That’s precisely what makes climate change such an immense challenge. It’s more long-term, more global, more irreversible and also more uncertain than most other problems facing us. The combination of all of these things make climate change uniquely problematic.

What we don’t know makes it potentially much worse

Climate change is beset with deep-seated uncertainties on top of deep-seated uncertainties on top of still more deep-seated uncertainties. And that’s just if you consider the links between carbon dioxide concentrations in the atmosphere, eventual temperature increases and economic damages.

Increasing concentrations of carbon dioxide are bound to lead to an increase in temperatures. That much is clear. The question is how much.

The parameter that gives us the answer to this all-important question is “climate sensitivity.” That describes what happens to eventual global average temperatures as concentrations of carbon dioxide in the atmosphere double. Nailing down that parameter has been an epic challenge.

Ever since the late 1970s, we’ve had estimates hovering at around 5.5 degrees Fahrenheit. In fact, the “likely” range is around 5.5 degrees plus-minus almost three degrees.

What’s worrisome here is that since the late 1970s that range hasn’t narrowed. In the past 35 years, we’ve seen dramatic improvements in many aspects of climate science, but the all-important link between concentrations and temperatures is still the same.

What’s more worrisome still is that we can’t be sure we won’t end up outside the range. The Intergovernmental Panel on Climate Change calls the range “likely.” So by definition, anything outside it is “unlikely.” But that doesn’t make it zero probability.

In fact, we have around a 10 percent chance that eventual global average temperature increases will exceed 11 degrees Fahrenheit, given where the world is heading in terms of carbon dioxide emissions. That’s huge, to put it mildly, both in probability and in temperature increases.

Climate Shock graph. There’s at least about a 10 percent chance of global average temperatures increasing 11 degrees Fahrenheit or more. Source: Climate Shock (Princeton 2015), reprinted with permission.

We take out car, fire and property insurances for much lower probabilities. Here we are talking about the whole planet, and we haven’t shown willingness to insure ourselves. Meanwhile, we can, in fact, look at 11 degrees Fahrenheit and liken it to the planet ‘burning’. Think of it as your body temperature: 98.6 degrees Fahrenheit is normal. Anything above 99.5 degrees Fahrenheit is a fever. Above 104 degrees Fahrenheit is life-threatening. Above 109.4 degrees Fahrenheit and you are dead or at least unconscious.

In planetary dimensions, warming of 3.6 degrees Fahrenheit is so bad as to have been enshrined as a political threshold not to be crossed. Going to 11 degrees Fahrenheit is so far outside the realm of anything imaginable, we can simply call it a planetary catastrophe. It would surely be a planet none of us would recognize. Go back to sea levels somewhere between 20 and at least 66 feet higher than today, at today’s concentrations of carbon dioxide. How much worse can it get?

Do we know for sure that we are facing a 1-in-10 chance unless the world changes its course? No, we don’t, and we can’t. One thing though is clear: because the extreme downside is so threatening, the burden of proof ought to be on those who argue that these extreme scenarios don’t matter and that any possible damages are low. So how then can we guide policy with all this talk about “not knowing”?

What’s your number?

We can begin to insure ourselves from climate change by pricing emissions. How? By charging at least $40 per ton of carbon dioxide pollution. That’s the U.S. government’s current value and central estimate of the costs caused by one ton of carbon dioxide pollution emitted today.

We know that $40 per ton is an imperfect number. We are pretty sure it’s an underestimate; we are confident it’s not an overestimate. But it’s also all we have. (And it’s a lot higher than the prevailing price in most places that do have a carbon price right now—from California to the European Union. The sole exception is Sweden, where the price is upward of $130. And even there, key sectors are exempt.)

How then do we decide on the proper climate policy? The answer is more complex than our rough cost-benefit analysis suggests. Pricing carbon at $40 a ton is a start, but it’s only that. Any cost-benefit analysis relies on a number of assumptions — perhaps too many — to come up with one single dollar estimate based on one representative model. And with something as large and uncertain as climate change, such assumptions are intrinsically flawed.

Since we know that the extreme possibilities can dominate the final outcome, the decision criterion ought to focus on avoiding these kinds of catastrophic damages in the first place. Some call this a “precautionary principle”— better to be safe than sorry. Others call it a variant of “Pascal’s Wager” — why should we risk it if the punishment is eternal damnation? We call it a “Dismal Dilemma.” While extremes can dominate the analysis, how can we know the relevant probabilities of rare extreme scenarios that we have not previously observed and whose dynamics we only crudely understand at best? The true numbers are largely unknown and may simply be unknowable.

Planetary risk management

In the end, this is all about risk management—existential risk management. Precaution is a prudent stance when uncertainties about catastrophic risks are as dominant as they are here. Cost-benefit analysis is important, but it alone may be inadequate, simply because of the fuzziness involved with analyzing high-temperature impacts.

Climate change belongs to a rare category of situations where it’s extraordinarily difficult to put meaningful boundaries on the extent of possible planetary damages. Focusing on getting precise estimates of the damages associated with eventual global average warming of 7, 9 or 11 degrees Fahrenheit misses the point.

The appropriate price on carbon dioxide is one that will make us comfortable that the world will never heat up another 11 degrees and that we won’t see its accompanying catastrophes. Never, of course, is a strong word, since even today’s atmospheric concentrations have a small chance of causing eventual extreme temperature rise.

One thing we know for sure is that a greater than 10 percent chance of the earth’s eventual warming of 11 degrees Fahrenheit or more — the end of the human adventure on this planet as we now know it — is too high. And that’s the path the planet is on at the moment. With the immense longevity of atmospheric carbon dioxide, continuing to “wait and see” would amount to nothing else than willful blindness.

First published by PBS NewsHour’s Making Sen$e with Paul Solman. The accompanying NewsHour report aired on July 16, 2015.

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PBS NewsHour: The economic options for combatting climate change

By Gernot Wagner / Bio / Published: July 17, 2015

As greenhouse gases accumulate and global temperatures slowly rise, what can we do to insure against the catastrophes of climate change? Economics correspondent Paul Solman talks to the authors of Climate Shock.

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When dealing with global warming, the size of the risk matters

By Gernot Wagner / Bio / Published: June 2, 2015

Shortly after September 11, 2001, Vice President Dick Cheney gave us what has since become known as the One Percent Doctrine: “If there’s a 1% chance that Pakistani scientists are helping al-Qaeda build or develop a nuclear weapon, we have to treat it as a certainty in terms of our response.”

It inspired at least one book, one war, and many a comparison to the “precautionary principle” familiar to most environmentalists. It’s also wrong.

One percent isn’t certainty. This doesn’t mean that we shouldn’t take the threat seriously, or that the precautionary principle is wrong, per se. We should, and it isn’t.

Probabilities matter.

Take strangelets as one extreme. They are particles with the potential to trigger a chain reaction that would reduce the Earth to a dense ball of strange matter before it explodes, all in fractions of a second.

That’s a high-impact event if there ever was one. It’s also low-probability. Really low probability.

At the upper bound, scientists put the chance of this occurring at somewhere between 0.002% and 0.0000000002% per year, and that’s a generous upper bound.

That’s not nothing, but it’s pretty close. Should we be spending more on avoiding their creation, or figuring out if they’re even theoretically possible in the first place? Sure. Should we weigh the potential costs against the social benefit that heavy-ion colliders at CERN and Brookhaven provide? Absolutely.

Should we “treat it as a certainty” that CERN or Brookhaven are going to cause planetary annihilation? Definitely not.

Move from strangelets to asteroids, and from a worst-case scenario with the highest imaginable impact, but a very low probability, to one with significantly higher probability, but arguably much lower impact.

Asteroids come in all shapes and sizes. There’s the 20-meter wide one that unexpectedly exploded above the Russian city of Chelyabinsk in 2013, injuring mored than 1,400 people. And then there are 10-kilometer, civilization-ending asteroids.

Size matters.

No one would ask for more 20-meter asteroids, but they’re not going to change life on Earth as we know it. We’d expect a 10-kilometer asteroid, of the type that likely killed the dinosaurs 65 million years ago, once every 50-100 million years. (And no, that does not mean we are ‘due’ for one. That’s an entirely different statistical fallacy.)

Luckily, asteroids are a surmountable problem. Given $2 to $3 billion and 10 years, a National Academy study estimates that we could test an actual asteroid-deflection technology. It’s not quite as exciting as Bruce Willis in Armageddon, but a nuclear standoff collision is indeed one of the options frequently discussed in this context.

That’s the cost side of the ledger. The benefits for a sufficiently large asteroid would include not destroying civilization. So yes, let’s invest the money. Period.

Somewhere between strangelets and asteroids rests another high-impact event. Unchecked climate change is bound to have enormous consequences for the planet and humans alike. That much we know.

What we don’t know — at least not with certainty — could make things even worse. The last time concentrations of carbon dioxide stood where they are today, sea levels were up to 20 meters higher than today. Camels lived in Canada. Meanwhile global average surface temperatures were only 1 to 2.5 degrees Celsius (1.8 to 4.5 degrees Fahrenheit) above today’s levels.

Now imagine what the world would like with temperature of 6 degrees Celsius (11 degrees Fahrenheit) higher. There’s no other way of putting it than to suggest this would be hell on Earth.

And based on a number of conservative assumptions, my co-author Martin L. Weitzman and I calculate in Climate Shock that there might well be a 10% chance of an eventual temperature increase of this magnitude happening without a major course correction.

That’s both high-impact and high-probability.

Mr. Cheney was wrong in equating 1% to certainty. But he would have been just as wrong if he had said: “One percent is basically zero. We should just cross our fingers and hope that luck is on our side.”

So what to do? In short, risk management.

We insure our homes against fires and floods, our families against loss of life, and we should insure our planet against the risk of global catastrophe. To do so, we need to act — rationally, deliberately, and soon. Our insurance premium: put a price on carbon.

Instead of pricing carbon, governments right now even pay businesses and individuals to pump more carbon dioxide into the atmosphere due to various energy subsidies, increasing the risk of a global catastrophe. This is crazy and shortsighted, and the opposite of good risk management.

All of that is based on pretty much the only law we have in economics, the Law of Demand: price goes up, demand goes down.

It works beautifully, because incentives matter.

Gernot Wagner serves as lead senior economist at the Environmental Defense Fund and is co-author, with Harvard’s Martin Weitzman, of Climate Shock (Princeton, March 2015). This op-ed first appeared on Mashable.com.

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