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Journal of Political Ecology:
Case Studies in History and Society
VOLUME 2 (1995)
Managing the Global Commons. By William Nordhaus; Cambridge, MA: The MIT Press. 1994. 213 pp., one Appendix.
Reviewed by Jonathan A. Lesser, Green Mountain Power Company, South Burlington, VT 05402-0850.
It is hard to conceive of a more difficult policy issue to analyze than global climate change. The climatological dynamics are mind-numbingly complex, while the scope of the policy issues raised, encompassing economic, ethical, social, and even political aspects, seems limitless. Views on global climate change range from doom sayers who predict, and perhaps even look forward to, humanity's eventual demise; to nay sayers and Pollyannas, who either deny the existence of global climate change or even welcome it.
Any author willing to analyze the subject dispassionately and suggest concrete policy approaches invites wilting criticism. Yet it is crucially important to develop just such analyses, economic or otherwise, for without them decision makers will have nothing on which to base policies except thoughtless bilge.Managing the Global Commons does not pretend to be the definitive policy analysis of global climate change. Instead, its author, economist William Nordhaus of Yale University, develops a dynamically linked economic and environmental model that provides insights into economically efficient strategies to address global climate change. Thankfully, Nordhaus does not pretend, at least in this book, to be the moral philosopher of our time, endlessly debating the "fairness" of imposing climate change on future generations. For clarity of purpose and exposition, he is to be commended, as this allows the reader to distinguish the economic aspects of global climate change from the ethical ones.
In the book, Nordhaus develops and presents his DICE model (Dynamic Integrated model of Climate and the Economy.) This model incorporates an economic growth model that is linked dynamically to a model of greenhouse gas (GHG) emissions, atmospheric concentrations, and resulting environmental damages. In essence, the model can be "solved" for the trajectory over time that yields an optimal path of economic growth, defined as the path yielding the largest net present value of wealth. The optimal path must trade off the standard economic decisions of resource allocations that increase wealth with the changes in GHG emissions and their resulting environmental costs.
Using the model, Nordhaus also examines several policy alternatives, including stabilizing emissions at 1990 levels, reducing emissions 20 percent below 1990 levels, delaying actions by 10 years, and doing nothing. He then addresses the effects on these policies of uncertainties in the values of key parameters, including the rate of time preference, future population growth, relationship between increased GHG emissions and temperature change, and the climate change damage function. Nordhaus constructs numerous sensitivity analyses, as well as a decision model of information gathering and learning.
Nordhaus has several important conclusions. First, he shows that the value of additional information is large, suggesting a significant benefit from additional climate change research. Second, he suggests that the existing uncertainties warrant higher carbon taxes and greater GHG emission control rates. He also points out the critical importance to overall economic efficiency of how the revenues collected are used. Third, he finds that the level of the carbon tax changes little with the arrival of new information. Fourth, he correctly points out that, regardless of future mitigation efforts, past GHG emissions have already consigned us to future climate change and, thus, adaptation to a new climate is imperative.
Not surprisingly, the conclusions reached by Nordhaus have already been attacked. D. Chapman, V. Suri, and S. Hall (1995), for example, criticize Nordhaus' conclusions based on their use of different parameters in the DICE model. As a result, they argue for more stringent curbs on GHG emissions. But their arguments, like many others, confuse economic efficiency criteria with ethical frameworks and considerations of intergenerational equity.
Whereas Nordhaus does not delve into fairness issues, he does pay special attention to one of the most vociferous of these disagreements: the role of discounting future costs and benefits in the context of global climate change policies. The disagreements, which rage both between individual economists, as well as between economists and philosophers, encompass questions of what is an efficient discount rate and, more fundamentally, whether the use of any positive discount rate can be justified in light of the present generation's commitment to future generations (T.Brennan 1995; J.Lesser and R. Zerbe 1995). Nordhaus addresses these alternative views on discounting succinctly. Although he does not challenge the ethical arguments themselves, he does challenge successfully the misuse of such arguments in analyses that are, ostensibly, based on economic efficiency (W. Cline 1992).
What is the best way to address global climate change? Nordhaus does not say, except to note that humans must adapt to future climate change. No doubt, faced with an ever expanding set of facts and uncertainties concerning global climate change, we can all arrive at widely different answers, as there is no monopoly on ethical values or core philosophies. Nordhaus uses the DICE model to address one aspect of global climate change policies. And, although economic efficiency surely will not be the sole decision criterion for future policy decisions, it must be an integral one because, regardless of one's ethical viewpoint, resource scarcity cannot be disputed.