Coyote Blog

This is the second part of a two part post. Part 1, with more general background on my libertarian point of view on the environment, is here.

Because hell is freezing over today, and because the Russions just ratified the Kyoto Treaty, apparently putting it over the top for it to get started, I wanted to talk more specifically about the Global Warming and the Kyoto Treaty.

First, recognize that, whatever one's views are of Global Warming, Kyoto is a flawed treating from the United State's perspective. Leaving out the validity of global warming or the cost-benefit issues (which we will discuss below) the Kyoto treaty is a thoroughly anti-American document, crafted by other countries to put the vast vast majority of the cost on the US.

Why? Well, first, and most obviously, the entire developing world, including China, SE Asia, and India, are exempt. These countries account for 80% of the world's population and the great majority of growth in CO2 emissions over the next few decades, and they are not even included. If you doubt this at all, just look at what the economic recovery in China over the past months has done to oil prices. China's growth in hydrocarbon consumption will skyrocket over the coming years.

The second major flaw is that European nations cleverly crafted the treaty so that among developed nations, it disproportionately affects the US. Rather than freezing emissions at current levels or limiting growth rates, it calls for emissions to be rolled back to 6-8% below 1990 levels. Why 1990? Well, a couple of important things have happened since 1990, including:

a. European (and Japanese) economic growth has stagnated since 1990, while the US economy has grown like crazy. By setting the target date back to 1990, rather than just starting from today, the treaty is effectively trying to roll back the economic growth in the US that other major world economies did not enjoy. This difference in economic growth is a real sore spot for continental Europeans.
b. In 1990, Germany was reunified, and Germany inherited a whole country full of polluting inefficient factories from the old Soviet days. Most of the factories have been closed in the last decade, giving Germany an instant one-time leg up in meeting the treaty targets, but only if the date was set back to 1990, rather than starting today.
c. Since 1990, the British have had a similar effect from the closing of a number of old dirty Midlands coal mines and switching fuels from very dirty coal burned inefficiently to more modern gas and oil furnaces.
d. Since 1990, the Russians have an even greater such effect, given low economic growth and the closure of thousands of atrociously inefficient communist-era industries.

A third flaw is that Kyoto refused to accept increases in CO2 absorption as an offset to CO2 emissions. For example, increasing the amount of forest cover in a country can have the same effect as reducing emissions, since the forests lock up atmospheric carbon. The only logical reason for disallowing this in Kyoto is that it is an area where North America has a real advantage. Contrary to what most people might guess given all the doom and gloom environmental talk about sprawl and deforestation, the acres of forested land in the US has been steadily increasing since the 1920s.

It is flabbergasting that US negotiators could allow us to get so thoroughly hosed in these negotiations. Does anyone really want to roll back the economic gains of the nineties, while giving the rest of the world a free pass? Anyway, as a result of these flaws, and again having little to do with the global warming argument itself, the Senate voted 95-0 in 1997 not to sign or ratify the treaty unless these flaws (which still exist in the treaty) were fixed Note that this vote included now-candidate John Kerry and previous enviro-candidate Al Gore.

These gross and obvious flaws in Kyoto could let us off the hook from arguing the main point, which is, does global warming justify some sort of international action like Kyoto. So lets assume that Kyoto was all nice and fair and some reasonable basis was arrived at for letting countries share the pain. Should we be doing something?

To see if a treaty like a modified-to-be-fair-Kyoto makes sense to sign and adhere to, one must evaluate at least five questions:

1. Has the world been warming, and is this due to man's activities and specifically CO2(rather than natural cycles)
2. Do increasing CO2 levels lead to global warming in the future
3. Are man-made actions substantially increasing CO2 levels, and what kind of temperature increase might this translate into
4. How harmful will the projected temperature increases be
5. How much harm will CO2 limitations create and how do these stack up against the harms of global warming.

1. Has the world been warming, and is this due to man's activities and specifically CO2 (rather than natural cycles)

The earth has definitely warmed about a degree over the last century. Though there are a few hardcores that want to argue about satellite data vs. ground data show there is no warming, I think that we can all at least agree that we have had some warming. However, it is much less obvious that this is due to man-made CO2, because of something we have known all along and two findings that are more recent.

What we have known all along is that a half or more of the warming took place before WWII, before the tremendous post-war growth and fossil fuel economy really began pumping any significant amounts of CO2 into the air, at least as compared to natural sources. Most scientists will agree that the temperature run-up in the first half of the century was probably mostly natural. In all the talk of man-made effects on climate, we forget that natural temperatures drift up and down in cycles we don't understand. For example, Hans Christian Anderson wrote many stories of Dutchman skating on the Amsterdam canals, which was common in his lifetime. However, the centuries before and after saw few years when the canals froze. Today we call this the little ice age.

This, of course, creates a problem. If the early 20th century warming was natural, then for the second half temperature growth to be man-made you would have to argue that the natural heating influence suddenly stopped, at the exact time that the man-made effect took over. Hmmm.

Recently, scientists have begun to fill in an important blank, potentially explaining the natural warming trend. Scientists have begun to demonstrate that the sun has actually become brighter in the last 100 years, peaking at its brightest level today in more than 1000 years. This would imply that some, but probably not all, the warming in the second half of the 20th century was due to natural solar effects, with the rest likely due to man-made CO2.

As scientists have discussed these issues, they have increasingly relied on an analysis by Michael Mann that shows global temperatures shooting up in a hockey stick fashion over the last 20 years. In their graphs, this hockey stick clearly looks like an anomalous and unnatural increase over both the past 100 and 1000 years. This hockey stick is usually cited as the key evidence that yes, the 20th century did have natural warming, but there is a point at which man-made effects begin to dominate and break out from the natural effects.

Very recently, though, two Canadian scientists have criticized the Mann work for being statistically flawed, and that when their raw data is processed in a statistically more meaningful way, the hockey stick almost disappears - ie the hockey stick is an artifact of their calculations, not necessarily reality. The before and after are shown here. They find that there is still an increase, but it is not as historically unprecedented as in the Mann work. Who is right? I don't have the background to judge, but I will say that the Canadians have survived their peer reviews pretty well, and, perhaps most telling of all, Mann has taken his raw data down off the public web site so no one else can test his analysis. Hmmmm.

2. Do increasing CO2 levels lead to global warming in the future

Short answer, yes. There is too much theory to back it up, and much of how we think the earth evolved over time depends on greenhouse global warming.

OK, here are the "buts". First, there are a lot of things that can effect climate. H2O in the atmosphere plays a role, as does cloud cover, the earth's albedo, the brightness of the sun, etc. etc. Second, most climate models that predict x amount of warming from y amount of CO2 are completely ineffective at explaining history. In particular, they all predict much more global warming historically than we have experienced. And, if you accept that not all the warming in the last 50-100 years is man-made, they really really overestimate temperature increase. Which, of course, leads you to believe they may be overestimating for the future.

By the way, folks will argue that this problem of not predicting the past well has been fixed. This answer is, uh, sortof. What scientists have done is add in a series of fudge factors that bring the models in alignment with history. I won't go any deeper into this except to tell a story. A year or so after I graduated Harvard Business School, I hit that strange point in life where I thought I was maybe smarter than everyone else in the world. I set out to develop a model for the stock market (ignoring the fact that about a million PHD's had already tried). When I finished the model, I tested it against history, and found that it did not really fit. So I started adding "factors" and tweaking variables until I got a lovely fit. This fudging turned out to do nothing for the future predictive ability of the model, so I was left with a model that reproduced history beautifully but ended up telling me nothing useful about the future. The market was just too chaotic and complex. And climate is different, how?

3. Are man-made actions substantially increasing CO2 levels, and what kind of temperature increase might this translate into

Yes CO2 is increasing and yes some is due to man. Too much data, in form of ice cores and all kinds of other stuff to deny. One can debate how much is man-made, and climatologists seem all to willing to underestimate the natural piece, but man is increasing the world's CO2 level.

Global warming models are all based on stacked assumptions that multiply together. A simplistic model for CO2 production might be population today times population growth times GDP per capita today times GDP growth times energy usage (efficiency) per unit of GDP times energy efficiency improvement times fuel mix factor (fuel mix factor meaning a BTU from coal produces more CO2 than a BTU from natural gas).

Note that from above, much of the climate model depends on an underlying economic model, and climatologists have not proven themselves very good at this. Much of the criticism for their models lies in their flawed economic models. These flaws can be summarized in two ways:

1. Scientists trying to prove global warming always seem to take the number, from any range, that would yield the most CO2. For example, if growth might be 3-5%, they use the 5%. If efficiency growth might be 3-5%, they take the 3%. This compounding of the most aggressive assumptions yields wildly overstated CO2 production 50 and 100 years from now. I am pretty sure that no economists have been on the peer-review panels for this work, and most economists who have reviewed it since have strong criticisms of the work

2. Scientists assume above average growth rates to continue for decades, and make mistakes about fundamental economic principles. This is one of the key tricks (or mistakes, depending on your assessment of motives) used to inflate out-year CO2 forecasts. Many of the climate change models most often cited, including the UN models, assume that:

a. Developing countries grow much faster than the rest of the world, and this growth continues for decades

b. Developing countries remain highly inefficient in their use of energy

As a result of a), there are many small countries, like South Africa, that in the model actually pass the US in the size of their economy over the next century. From Environmental News:

Because of this economic error, the IPCC scenarios of the future also suggest that relatively poor developing countries such as Algeria, Argentina, Libya, Turkey, and North Korea will all surpass the United States

Algeria and Libya with economies larger than the US. LOL. And this is not a red flag to anyone runnig these models? Anyway, if these small countries are assumed to remain inefficient, their crazy growth drives a lot of CO2 production in the model. Clearly this would never happen in reality. Eventually, as seen in the Asian Tigers for example, growth slows down as the economies catch up to the developed world. And, as the economies get larger, they begin closing the gap with countries like the US in terms of energy efficiency. By the way, if you are paying attention, you will note the irony that much of the CO2 growth in the models comes from developing nations, but they are all excluded from Kyoto.

Where does that leave us? Well, I know enough economics (and have criticized enough analyses from other managers who have stacked the deck to try to sell me on something) to say that the CO2 forecasts are grossly overblown. They assume more population growth than most demographers are assuming for the world, they overstate economic growth in the least efficient nations and understate efficiency improvements. We also know that the models tend to overestimate warming when they are run historically, leading to suspicions they may overestimate in the future. A number of critics have pointed out that the models inadequately handle potentially countervailing trends, such as cloud cover.

My personal conclusion is that there will be warming, but it will be far less than the 3-4 degrees C scare numbers that come out of the media.

4. How harmful will the projected temperature increases be

This is an area where some of the absolutely weakest discussion occurs. We get a lot of "Day After Tomorrow" science, with activists painting media-friendly dramatic pictures of oceans rising and breadbaskets turned into deserts and whatever.

Here is what makes me very suspicious of the people pushing global warming: No one will ever, ever admit that there might be some positive effects of warming that offset some of the negative. Never. I am not talking about saying that warming is net positive - I am just talking about admitting that there might be some people helped, while others hurt.

Anyone who thinks for even a moment on this can come up with potential positives. The most obvious is that a warmer earth would increase the growing season in certain areas, actually increasing food production.

However, even within the climate models that are used to support Kyoto and global warming legislation, there is evidence that the effects may not be so bad. For example, the Cato Institute reported:

The weather can, of course, be too warm, but that is unlikely to become a major problem if the globe warms. Even though it is far from certain that the temperature will rise, the Intergovernmental Panel on Climate Change (the U.N. body that has been studying this possibility for more than a decade) has forecast that, by the end of the next century, the world's climate will be about 3.6° Fahrenheit warmer than today and that precipitation worldwide will increase by about 7 percent. The scientists who make up this body also predict that most of the warming will occur at night and during the winter. In fact, records show that, over this century, summer highs have actually declined while winter lows have gone up. In addition, temperatures are expected to increase the most towards the poles. Thus Minneapolis should enjoy more warming than Dallas; but even the Twin Cities should find that most of their temperature increase will occur during their coldest season, making their climate more livable.

Note that this is very different than the picture the media always paints of global warming effects. They want to point to 105 degree summer days in NYC, when in fact the effect is more likely to be warmer winter nights in Siberia. The findings do show the warming to occur disproportionately at the poles, thus leading to a lot of concerned debate about sea levels.

What is the net effect? The answer, I believe, is we don't know. There is just not enough good science on this point. The politicization of global warming science has meant that it is increasingly difficult to find anyone who is doing good science on any topic that might somehow dilute the sky is falling story. In particular, anti-growth, anti-capitalism, and anti-technology crusaders have grabbed onto the global warming issue as their prime weapon not in achieving environmental goals but in achieving their politico-social goals. These people in particular fight against anyone trying to portray global warming as less scary. Given the agenda of the people here, my gut feel is that the ill effects are probably overblown.

5. How much harm will CO2 limitations create and how do these stack up against the harms of global warming.

Most everyone agrees that any large-scale actions to reduce CO2 emissions will reduce economic growth, and even small changes in economic growth, over time, can lead to large changes in economic well being. Over 100 years, a 4% economic growth rate yields two and a half times the income (not income increase, but total income) as a 3% growth rate. This makes a tremendous difference in poverty, literacy, etc. Two and a half times is roughly the difference today in GDP per capita between Germany and South Africa. Or between Potugal and Namibia. One must never forget that over the 100 year time frames discussed in the climate models, the ill-effects of global warming must be balanced against increased poverty, disease, etc that comes from lower economic growth.

So what is the trade-off? Well, that, of course, depends on how you approach the CO2 reduction, but this paper from Cato trades off the various models. One of the things you observe quickly is that the Kyoto treaty takes perhaps the highest possible cost approach to reducing CO2. Here's why.

Any manager who has spent his time trying to figure out how to improve productivity or efficiency understands the concept of low hanging fruit and diminishing returns. Getting the next 1% of efficiency improvement out of your most efficient operations is much harder than getting it out of the ones you have not paid much attention to.

The US is the largest energy user in the world, but it is also about the most efficient energy user in the world. That means that improvements in the US will cost much more than improvements in other places. Said another way, an investment in China today to reduce CO2 emissions would have a much greater long term effect on reducing CO2 than the same sized investment in the US. Kyoto has therefore put most of the burden for CO2 improvement on the one area where it is also the most costly.

From time to time, you may see studies that say the cost for the US is not that high. The Clinton Administration's council of economic advisors issued one such study that is often cited. However, note that this and almost every other study that yields a low compliance cost assumes that emissions trading will be allowed. In these studies, it is NOT assumed that the US actually reduces its emissions. It is assumed that the US buys emissions credits from other countries, which can get the reduction cheaper. I am all for this approach, and if we implement a global warming treaty it should definitely include this kind of emissions trading. However, it is not at all clear that emissions trading will be allowed under Kyoto.

Many people have studied the cost of compliance with Kyoto. Some studies are here and here and here .

However, the interesting part is, even the supporters of the Kyoto treaty admit that it will have only a small impact on global warming, something like 0.1-0.2 degrees in fifty years. Huh? Then why are we even talking about it. If one of my managers had brought me this as an investment plan for the company I would have thrown him out of the conference room. Lets take the billions we would have spent on getting this 0.1 degree and go solve AIDS in Africa or something.

For other reading, probably the first place to look is the Skeptical Environmentalist by Bjorn Lomborg. Lomborg in this book has probably the best counter-case to the enviro-disaster stories filling the media. He has become an object of absolute hatred among the anti-growth anti globalization fanatics who have latched onto climate change as the key to advancing their anti-technology and anti-capitalist political agenda. The attacks on him have become nearly as edifying about what drives the environmental movement as his book itself. The Economist has a nice article about his book and about the wild-eyed furious reaction of environmental activists to it. The Economist also editorializes here, and you can follow all the criticism and response here on Lomborg's site.

Other sources: This paper is a good roundup of all the issues I have addressed. Cato has a lot of other material here as does the Heartland Institute and at The Commons.

In the future, I will add one more post to this topic, which will address the one obvious solution no environmentalist is discussing.