You, Too, Can Spot Bogus Catastrophes

David Kreutzer / June 26, 2008

Here’s a quiz to see if you qualify to be a catastrophe-spotting climate economist:

Part I: The cheapest way for John Doe to get to work is to take the Metro. The commute costs him $6 per day. He works 20 days per month. John would be richer by $120 each month if he stopped going to work. True or False?

Part II: John Doe can buy a bond for $5,600 today that will pay interest of $130 per year for ever. However, the $130 interest payments don’t start for 200 years. This bad investment (net present value of 2 cents for the $5,600 investment) can be justified on grounds of fairness once we recognize that John has an annual income of $10,000 while the recipient of the interest payments has an income of $130,000? Yes or No?

If you answered “True” and “Yes,” you’re ready to spot catastrophes.

Faced with the embarrassing lack of cost-benefit analysis for proposed “cap and trade” laws, environmentalists did a bait-and-switch. Pointing to the various estimates of costs of legislation, they countered with The Natural Resources Defense Council’s “cost of doing nothing.”

To paraphrase Seinfeld, it’s a report about nothing. The argument goes like this: Given exaggerated estimates of warming and sea-level rise and given exaggerated estimates of damage from these rises, how much more could we have produced if the temperature didn’t go up when we produced all that stuff that caused the temperature to go up?

That is, it’s assumed all of the output created by all the energy used in the economy could be produced without using all the energy or, at least, without emitting the CO2 that 85 percent of our energy emits.

What the NRDC report does not say, is how much more would GDP be if we cut CO2 as recommended by any of the proposed legislation. They don’t try to say it, because GDP would go down. What does “cost” in “the cost of doing nothing” reflect? Nothing. It has no meaning whatsoever even on a theoretical basis. (more…)