From CNN’s Non Sequitur Department: “Most economic forecasts have a big blind spot”

By David Middleton – Re-Blogged From WUWT

Definition of non sequitur

1 : an inference that does not follow from the premises; specifically : a fallacy resulting from a simple conversion of a universal affirmative proposition or from the transposition of a condition and its consequent

Guest ridicule by David Middleton

Honestly… I’m not picking on Real Clear Energy… But today’s headlines were a gold mine!

Most economic forecasts have a big blind spot: Climate change

by Lydia DePillis @CNNMoney
August 17, 2018

Heat waves that ground airplanes. Rising seas that drown waterfronts. Wildfires that consume whole cities and blanket the West Coast in smoke. [Human sacrifice, dogs and cats living together… mass hysteria!]

Climate change is having a real impact, not just on the environment but on the economy too. And a growing body of research by economists and climate scientists shows that extreme weather will weigh on economic growth even more so in the future. But almost no mainstream economic forecasting model takes that into account, in an omission that some economists say could affect the accuracy of economic predictions going forward.

The most recent study to quantify the economic impact of the carbon emissions that spur climate change was featured last week in a brief by the Federal Reserve Bank of Richmond. By evaluating the performance of state economies in previous years, the report found that every one degree increase in average summer temperatures decreases annual state-level output growth by between 0.15 and 0.25 percentage points.

[…]

CNN Money [or lack thereof]

Non sequitur: It does not follow from RCP8.5 bad science fiction prognostications that economic models have a “blind spot” to Gorebal Warming.  Most economic models explicitly exclude science fiction, especially bad science fiction like: Heat waves that ground airplanes. Rising seas that drown waterfronts. Wildfires that consume whole cities and blanket the West Coast in smoke.  When was the last time a wildfire consumed “whole cities”?  Small towns in Chile don’t qualify as “whole cities.”  What waterfronts have recently been drowned by rising seas?  Or are in imminent peril thereof?

Non sequitur: It does not follow from a heat-related reduction in summer productivity that economic models have a “blind spot” to Gorebal Warming.

By evaluating the performance of state economies in previous years, the report found that every one degree increase in average summer temperatures decreases annual state-level output growth by between 0.15 and 0.25 percentage points.

How about winter?  Shouldn’t Gorebal Warming also affect winter? For that matter… Shouldn’t an enhanced greenhouse effect have more affect on winter temperatures than on summer temperatures?  Shouldn’t its effects be most noticeable in Earth’s coldest air masses?  Wouldn’t a one degree (F or C) lead to greater productivity in winter?

I worked in Dallas from 1981-2015.  Every building I worked in was air conditioned.  I don’t recall the office ever being closed due to warmer than usual weather.  On the other hand, I lost entire weeks of productivity due to ice and snow storms that occasionally paralyzed Dallas.  Since 2016, I’ve worked in Houston and I’ve lost a grand total of 1 week due to weather: Hurricane Harvey. I actually lost more productive time when we moved our office to the other side of Allen Center than I lost to Harvey.

This doesn’t even qualify as a non sequitur; it is just bat schist crazy:

The missed connection is frustrating to Susan Joy Hassol, director of a nonprofit called Climate Communication that seeks to further public awareness of global warming. She thinks it’s partially due to the fact that economists and scientists often operate in different academic silos, which kept climate change economics a niche field until recently.

But climate advocates have also historically focused on how climate change affects the natural world — think polar bears — rather than people’s pocketbooks. Instead, conservatives have dominated the economic argument by saying that drastic measures to curb warming, such as imposing a tax on carbon emissions, would be more expensive than dealing with any potential effects down the line.

And that, Hassol says, is just not true.

“Every analysis that’s been done of this shows that action is far cheaper than inaction, and there’s a global clean energy race that we are currently losing, and that’s bad for our economy,” Hassol says. “We’ve got to break this out of the environmental and science box, because I think it’s first and foremost an economic story.”

The Obama administration had made strides in connecting climate to the economy, issuing a number of reports and also refining a metric called the “social cost of carbon,” which was used in tallying the costs and benefits of proposed regulations. The Government Accountability Office, which answers to Congress, continues to warn about the risk climate change poses to federal revenues.

[…]

CNN Money [or lack thereof]

Unmitigated bull schist.  A properly discounted “social cost of carbon” is less than…

OMB’s Whitewash on the Social Cost of Carbon

JULY 9, 2015

The “social cost of carbon” (SCC) is a key feature in the debate over climate change as well as the principal justification for costly regulations by the federal government. We here at IER and other critics have raised serious objections to the procedure by which the Obama Administration has produced estimates of the SCC.

Last summer I did a post on the GAO’s whitewash of our criticism, and now—just before the Independence Day holiday weekend—the Office of Management and Budget (OMB) has released its own whitewash.

There are several key points on which the Administration is obfuscating, but in this post I’ll focus just on the choice of discount rates. This one variable alone is sufficient to completely neuter the case for regulating carbon dioxide emissions using the social cost of carbon, so it is crucial to understand the controversy.

[…]

Why Do We Discount Future Damages?

Present dollars are more important than future dollars. If you have to suffer damage worth (say) $10,000, you will be relieved to learn that it will hit you in 20 years, rather than tomorrow. This preference isn’t simply a psychological one of wanting to defer pain. No: Because market interest rates are positive, it is cheaper for you to deal with a $10,000 damage that won’t hit for 20 years. That’s because you can set aside a smaller sum today and invest it (perhaps in safe bonds), so that the value of your side fund will grow to $10,000 in 20 years’ time.

In this framework, it is easy to see how crucial the interest rate is, on those safe bonds. If your side fund grows at 7% per year, then you need to set aside about $2,584 today in order to have $10,000 in 20 years. But if the interest rate is only 3%, then you need to put aside $5,537 today in order to have $10,000 to pay for the damage in 20 years.

An equivalent way of stating these facts is to say that the present-discounted value of the looming $10,000 in damages (which won’t hit for 20 years) is $2,584 using a 7% discount rate, but $5,537 using a 3% discount rate. The underlying assumption about the size and timing of the damage is the same—the only thing we changed is the discount rate used in our assessment of it.

Discount Rates in Climate Policy

Generally speaking, the climate damages that occur in computer simulations don’t begin to significantly affect human welfare in the aggregate until the second half of the 21st century. In other words, the computer-simulated damages need to be discounted over the course of decades and even centuries. (The Obama Administration Working Group used three computer models to calculate damages through the year 2300.) Thus we can see why the choice of discount rate is so crucial.

In its latest revision, the Working Group estimated that for an additional ton of carbon dioxide emitted in the year 2015, the present-value of future net damages would be $11 using a 5% discount rate, $36 using a 3% rate, and $56 using a 2.5% rate (see table on page 3 here). Yet when the media refer to these numbers as “the social cost of carbon,” it obscures how arbitrary the figures are. They can range from $11/ton to $56/ton just by adjusting the discount rate in a narrow band from 5% to 2.5%.

Violating OMB’s Clear Guidance

Fortunately, OMB provides explicit guidance (in the form of “OMB Circulars”) to federal agencies on how to select discount rates. Specifically, as we carefully explain on pages 12-17 of IER’s formal Comment, OMB Circular A-4 (relying in turn on Circular A-94) states that “a real discount rate of 7 percent should be used as a base-case for regulatory analysis,” as this is the average before-tax rate of return to private capital investment.

Now it’s true, Circular A-4 goes on to acknowledges that in some cases, the displacement of consumption is more relevant to assess the impact of the policy under consideration, in which case a real discount rate of 3 percent should be used. Thus it states: “For regulatory analysis, you should provide estimates of net benefits using both 3 percent and 7 percent” (bold added).

[…]

IER

OMB guidance clearly states that “’a real discount rate of 7 percent should be used as a base-case for regulatory analysis,’ as this is the average before-tax rate of return to private capital investment.”

A 7% discount rate essentially makes the NPV of the Social Cost of Carbon $0 or negative.

A 7 percent discount rate, which has been used by the EPA for other regulatory analysis, could actually lead to a negative carbon cost, which would seem to imply that carbon emissions are beneficial.

Bloomberg

In 2014, the IEA put the global cost of deep decarbonization at $44 trillion.  According to the BP’s 2017 Statistical Review of World Energy, in 2016, the world’s primary energy consumption was 13,276.3 million tonnes of oil equivalent (MTOE).  US consumption was 2,272.7 MTOE, 17% of the total.  That would make our share of decarbonization $7.5 trillion.

If we accept that climate change is currently costing us $35 billion per year ($350 billion over past decade) and accept the GAO’s estimate of future costs:

A November 2016 assessment by the Office of Management and Budget (OMB) and the Council of Economic Advisers found that recurring costs that the federal government incurred as a result of climate change could increase by $12 billion to $35 billion per year by mid-century and by $34 billion to $112 billion per year by late-century, the equivalent of $9 billion to $28 billion per year in today’s economy.

GAO

The total cost of climate damages to the US by 2100 would be $161 trillion.  Would it make sense to spend $7.5 trillion now (or in the near future) if it averted $161 trillion worth of damages over the next 83 years?  No fracking way!

If we took $7.5 trillion today and put it in 30-yr Treasuries at 2.9% (assuming a constant interest rate), we’d have nearly $80 trillion in 2100.  If we employed that capital at a 7% return, we would have nearly $2.1 quadrillion by the turn of  22nd Century… enough to pay for the speculative cumulative climate damages 13 times over.

The fact the I  used  the GAO’s estimates of the costs of climate-related damages in my calculations, does not mean that I agree with them.  There is absolutely no basis to support the claim that the $350 billion spent over the past decade in response to extreme weather and fire events was even remotely related to climate change or greenhouse gas emissions.  Nor is there any evidence that decarbonization of our energy infrastructure will avert any future expenditures in response to extreme weather and fire events.  However, even if I accept the GAO numbers as valid and related to climate change, a 7% discount rate zeroes out all potential speculative benefits of carbon regulations.

The Obama administration had made strides in connecting climate to the economy, issuing a number of reports and also refining a metric called the “social cost of carbon,” which was used in tallying the costs and benefits of proposed regulations.

Note to Ms. DePillis: The Obama maladministration has been gone for 20 months… MAGA!

CONTINUE READING –>

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