The Climate Casino: Risk, Uncertainty, and Economics for a Warming World

Overview


Climate change is profoundly altering our world in ways that pose major risks to human societies and natural systems. We have entered the Climate Casino and are rolling the global-warming dice, warns economist William Nordhaus. But there is still time to turn around and walk back out of the casino, and in this essential book the author explains how.
 
Bringing together all the important issues surrounding the climate debate, Nordhaus ...
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The Climate Casino: Risk, Uncertainty, and Economics for a Warming World

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Overview


Climate change is profoundly altering our world in ways that pose major risks to human societies and natural systems. We have entered the Climate Casino and are rolling the global-warming dice, warns economist William Nordhaus. But there is still time to turn around and walk back out of the casino, and in this essential book the author explains how.
 
Bringing together all the important issues surrounding the climate debate, Nordhaus describes the science, economics, and politics involved—and the steps necessary to reduce the perils of global warming. Using language accessible to any concerned citizen and taking care to present different points of view fairly, he discusses the problem from start to finish: from the beginning, where warming originates in our personal energy use, to the end, where societies employ regulations or taxes or subsidies to slow the emissions of gases responsible for climate change.
 
Nordhaus offers a new analysis of why earlier policies, such as the Kyoto Protocol, failed to slow carbon dioxide emissions, how new approaches can succeed, and which policy tools will most effectively reduce emissions. In short, he clarifies a defining problem of our times and lays out the next critical steps for slowing the trajectory of global warming.
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Editorial Reviews

The New York Times Book Review - Coral Davenport
…[Nordhaus] brings unassailable credibility to the central message of his new book: Climate change is an urgent economic issue with impacts that bear spiraling costs. Nordhaus has been making this point to economists for years, but with this book he aims to reach general readers…The Climate Casino reads like a highly engaging college textbook. Nordhaus's tone is conversational, and his analyses are packed with helpful metaphors…for readers willing to wade through some wonkery, there are rewards.
JM Northern Media - New England Book Festival

Won an Honorable Mention for the 2013 New England Book Festival given by the JM Northern Media Family of Festivals, in the General Non-Fiction Category.
New York Times Book Review - Coral Davenport

“Nordhaus is arguably the world’s leading thinker on the economics of global warming. . . His conclusion is clear: Acting to stop climate change costs money. Ignoring the problem costs more. . . Ultimately, this message, delivered by a number-crunching economist rather than a morally outraged environmentalist, may prove far more effective in making the case for action.”—Coral Davenport, The New York Times Book Review
New York Times - Nicholas Kristof

“When we have a disjunction between scientific consensus and popular perception—that should light a fire under those of us in the news media. An excellent basis for discussion is the new book The Climate Casino by William Nordhaus.”—Nicholas Kristof, New York Times
World Economic Forum - Sheridan Jobbins

“Provides a comprehensive stocktaking of the possibilities and consequences of global climate change, all of which can be summed up in one sentence: ‘Global warming is a trillion-dollar problem requiring a trillion-dollar solution.’”—Sheridan Jobbins, World Economic Forum
American Publishers Awards for Professional and Scholarly Excellence - PROSE Awards

Winner of the 2013 American Publishers Awards for Professional and Scholarly Excellence (PROSE), in the Economics category.
Choice
“An evenhanded volume [that] will educate undergraduate students and general readers about climate change economics. Essential.”—Choice
Choice

“An evenhanded volume [that] will educate undergraduate students and general readers about climate change economics. Essential.”—Choice
Thomas Lovejoy

The Climate Casino is one of the most important books ever written about global warming....it deals with the problem (climate change and its consequences including economic) and with the solution (primarily a suitable price for carbon). It does so with wonderful clarity.”—Thomas E. Lovejoy, George Mason University and The H. John Heinz Center for Science, Economics, and the Environment
Nancy Langston

"Have you ever wondered why environmental politics became so bitterly divided along partisan party lines? Why does the left believe that climate change will harm us, while the right is certain that technological innovation will prevail? Paul Sabin’s smart, compelling analysis in The Bet helps us understand these ideological divides. Beautifully written, non-partisan, and filled with surprising insights, The Bet is essential reading for anyone who wants to understand modern environmental politics."—Nancy Langston, author of Toxic Bodies: DES and the Lessons of History
Charles Kolstad

The Climate Casino is a tour de force and will make a real impact in the popular literature on climate change…it brings together all of the important strands of the debate…the book is without peer.”—Charles Kolstad, Stanford University
Lawrence H. Summers

"Nordhaus is the world’s clearest, best informed and most serious thinker on climate change policy. There is more insight and good sense advice in this volume than in many libraries. This book should be as central to climate policy debates as climate change is to humanity’s future."—Lawrence H. Summers, Charles W. Eliot University Professor and President Emeritus at Harvard University
Jeffrey D. Sachs

"Bill Nordhaus is one of the world’s pioneers in applying economic reasoning to the harrowing problem of climate change.  Before there was the UN climate treaty, the recent rounds of IPCC reports, and the Stern Review, there was Nordhaus’ path-breaking thinking, modeling, and research on the subject.  His new book, The Climate Casino, marks a long-awaited update and synthesis of this work for the public and students everywhere.  His core conclusion – that we must act and act now – is carefully explained with Nordhaus’ trademark vigor, clarity, and thoughtfulness."—Jeffrey D. Sachs, Director of The Earth Institute, Quetelet Professor of Sustainable Development, and Professor of Health Policy and Management at Columbia University
Nature - Gail Whiteman

“The power of intelligent economics permeates William Nordhaus’s The Climate Casino. …the book convincingly makes the economic case for changing governmental policy, and our production and consumption habits, by offering economic incentives for low-carbon choices.”—Gail Whiteman, Nature
The New York Times - Fred Andrews

“A one-stop source on global warming, seen through the prism of a brilliant economist.” —Fred Andrews, The New York Times
Financial Times

Selected as one of the best books of 2013 in the Financial Times
David Victor

“This is a book written by a master of the field after more than twenty years of research on the global warming topic.”—David Victor, Director of the Laboratory on International Law and Regulation, University of California at San Diego
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Product Details

  • ISBN-13: 9780300212648
  • Publisher: Yale University Press
  • Publication date: 2/24/2015
  • Pages: 392
  • Product dimensions: 6.13 (w) x 9.25 (h) x 1.06 (d)

Meet the Author


William Nordhaus, Sterling Professor of Economics at Yale University, has studied and written extensively about global warming for four decades. He lives in New Haven, CT.
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Read an Excerpt

The Climate Casino

Risk, Uncertainty, and Economics for a Warming World


By William Nordhaus

Yale UNIVERSITY PRESS

Copyright © 2013 William Nordhaus
All rights reserved.
ISBN: 978-0-300-18977-3



CHAPTER 1

FIRST ENCOUNTERS IN THE CLIMATE CASINO


If you read the newspaper, listen to the radio, or scan the daily blogs, you are virtually certain to encounter stories about global warming. Here is a sample from a variety of sources:

The last decade was the warmest on record.

The most inconvenient fact is the lack of global warming for well over 10 years now.

Polar bears could disappear within a century.

Global warming claims are a hoax.

The Greenland ice sheet has experienced record melting.


Clearly, global warming is getting a lot of attention today. And just as clearly, people disagree about whether it is real, whether it is important, and what it means for human societies. What should the interested citizen conclude from these conflicting stories? And if the answer is that global warming is real, how much does it matter? Where should our concerns about global warming rank among the other issues we face, such as per sis tent unemployment, a soaring public debt, low-intensity wars, and nuclear proliferation?

The short answer is that global warming is a major threat to humans and the natural world. I will use the metaphor that we are entering the Climate Casino. By this, I mean that economic growth is producing unintended but perilous changes in the climate and earth systems. These changes will lead to unforeseeable and probably dangerous consequences. We are rolling the climatic dice, the outcome will produce surprises, and some of them are likely to be perilous. But we have just entered the Climate Casino, and there is time to turn around and walk back out. This book describes the science, economics, and politics involved—and the steps necessary to undo what we are doing.


A ROAD MAP OF THE TERRAIN AHEAD

Global warming is one of the defining issues of our time. It ranks along with violent conflicts and economic depressions as a force that will shape the human and natural landscapes for the indefinite future. Global warming is also a complex subject. It spans disciplines from basic climate science, ecology, and engineering to economics, politics, and international relations, and the result is a book with many chapters. Before embarking on an extended journey, readers may find it useful to look at a map of what lies ahead. Here are the major themes discussed in the five parts that follow.

Part I surveys the science of global warming. Climate science is a dynamic field, but the essential elements have been developed by earth scientists over the last century and are well established.

The ultimate source of global warming is the burning of fossil (or carbon-based) fuels such as coal, oil, and natural gas, which leads to emissions of carbon dioxide (CO2). Gases such as CO2 are called greenhouse gases (GHGs). They accumulate in the atmosphere and stay there for a long time. Higher atmospheric concentrations of GHGs lead to surface warming of the land and oceans. The initial warming effects are amplified through feedback effects in the atmosphere, oceans, ice sheets, and biological systems. The resulting impacts include changes in temperatures as well as impacts on temperature extremes, precipitation patterns, storm location and frequency, snow packs, river runoff, water availability, and ice sheets. Each of these will have profound impacts on biological and human activities that are sensitive to the climate.

Past climates—varying from ice-free to snowball earth—were driven by natural sources. Current climate change is increasingly caused by human activities. The major driver of global warming is the emissions of CO2 from the burning of fossil fuels. CO2 concentrations in the atmosphere were 280 parts per million (ppm) in 1750 and have reached 390 ppm today. Models project that, unless forceful steps are taken to reduce fossil fuel use, they will reach 700–900 ppm by 2100. According to climate models, this will lead to a warming averaged over the globe in the range of 3–5°C by 2100, with significant further warming after that. So unless there is either a major slowdown in economic growth or strong steps to curb CO2 emissions sharply, we can expect continued accumulations of CO2 emissions in the atmosphere—and the resulting global warming with all its consequences.

Part II analyzes the impacts of climate change. The major concerns are not temperature per se but the effects on human and natural systems. A central concept in analyzing impacts is whether a system can be managed. The nonagricultural sectors of high-income countries are highly managed, and this feature will allow these sectors to adapt to climate change at relatively low cost for at least a few de cades.

However, many human and natural systems are unmanaged or unmanageable and are highly vulnerable to future climate change. While some sectors or countries may benefit from climate change, there are likely to be significant disruptions in areas that are closely tied to climate-sensitive physical systems. The potential damages are likely to be most heavily concentrated in low-income and tropical regions such as tropical Africa, Latin America, coastal states, and the Indian subcontinent. Vulnerable systems include rain-fed agriculture, seasonal snow packs, coastal communities, river runoffs, and natural ecosystems. There is potential for serious impacts in these areas.

Scientists are particularly concerned about "tipping points" in the earth's systems. These involve processes in which sudden or irreversible changes occur as systems cross thresholds. Many of them operate at such a large scale that they are effectively unmanageable by humans with existing technologies. Four important global tipping points are the rapid melting of large ice sheets (such as Greenland), large-scale changes in ocean circulation such as the Gulf Stream, feedback processes where warming produces more warming, and enhanced warming over the long run. These tipping points are particularly dangerous because they are not easily reversed once they are triggered.

Part III discusses the economic aspects of strategies to slow climate change. There are several potential strategies for slowing climate change, but the most promising is "mitigation," or reducing emissions of CO2 and other GHGs. Unfortunately, this approach is expensive. Studies indicate that it will cost in the range of 1–2 percent of world income ($600–1,200 billion annually at today's level) to attain international climate targets, even if this is undertaken in an efficient manner. While some miraculous technological breakthroughs might conceivably be discovered that can reduce the costs dramatically, experts do not see them arriving in the near future.

The economics of climate change is straightforward. When we burn fossil fuels, we inadvertently emit CO2 into the atmosphere, and this leads to many potentially harmful impacts. Such a process is an "externality," which occurs because those who produce the emissions do not pay for that privilege, and those who are harmed are not compensated. One major lesson from economics is that unregulated markets cannot efficiently deal with harmful externalities. Here, unregulated markets will produce too much CO2 because there is a zero price on the external damages of CO2 emissions. Global warming is a particularly thorny externality because it is global and extends for many de cades into the future.

Economics points to one inconvenient truth about climate-change policy: For any policy to be effective, it must raise the market price of CO2 and other GHG emissions. Putting a price on emissions corrects for the underpricing of the externality in the marketplace. Prices can be raised by putting a regulatory tradable limit on amount of allowable emissions ("cap and trade") or by levying a tax on carbon emissions (a "carbon tax"). A central lesson of economic history is the power of incentives. To slow climate change, the incentive must be for everyone—millions of firms and billions of people spending trillions of dollars—to increasingly replace their current fossil-fuel-driven consumption with low-carbon activities. The most effective incentive is a high price for carbon.

Raising the price on carbon will achieve four goals. First, it will provide signals to consumers about which goods and ser vices are carbon intensive and should therefore be used more sparingly. Second, it will provide signals to producers about which inputs are carbon intensive (such as coal and oil) and which use less or no carbon (such as natural gas or wind power), thereby inducing firms to move to low-carbon technologies. Third, it will give market incentives for inventors, innovators, and investment bankers to invent, fund, develop, and introduce new low-carbon products and processes. Finally, a carbon price will economize on the information that is required to undertake all these tasks.

Part IV examines the central questions of climate-change policy: How sharply should countries reduce CO2 and other GHG emissions? What should be the time profile of emissions reductions? How should the reductions be distributed across industries and countries? What policy tools—taxes, market-based emissions caps, regulations, or subsidies—are most effective?

It is tempting to set climate objectives as hard targets based on climate history or ecological principles. The simple target approach is unworkable because it ignores the costs of attaining the goals. Economists advocate an approach known as cost-benefit analysis, in which targets are chosen by balancing costs and benefits.

Because the mechanisms involved in climate change and impacts are so complex, economists and scientists rely on computerized integrated assessment models to project trends, assess policies, and calculate costs and benefits. One major finding of integrated assessment models is that policies to slow emissions should be introduced as soon as possible. The most effective policies are ones that equalize the incremental or marginal costs of reducing emissions in every sector and every country. Effective policies should have the highest possible "participation"; that is, the maximum number of countries and sectors should be on board as soon as possible. Free riding should be discouraged. Moreover, an effective policy is one that ramps up gradually over time—both to give people time to adapt to a high-carbon-price world and to tighten the screws increasingly on carbon emissions.

While all approaches agree on the three central principles—universal participation, equalizing marginal costs in all uses in a given year, and increasing stringency over time—there are big differences among analysts on the stringency of policies. Our analysis suggests that policy should aim for limiting temperature to a range between 2°C and 3°C above preindustrial levels (here taken to be the 1900 temperature) depending upon costs, participation rates, and discounting. The lower target is appropriate if costs are low, participation rates are high, and the discount rate on future economic impacts is low. A higher target would apply for high costs, low participation rates, and high discounting.

An effective policy must necessarily be global in scope. Earlier treaties (such as the Kyoto Protocol) were in effective because they provided no incentives to encourage participation. Countries have strong incentives to free ride on the efforts of others because emissions reductions are local and costly while the benefits are diffuse and distant over space and time. An effective global arrangement will need an effective mechanism to encourage participation and discourage free riding. The most promising approach is to impose import tariffs on the products and ser vices of nonparticipants. This will be sufficiently burdensome that it will encourage most countries to participate in an international climate regime.

As Part V discusses, a realistic appraisal must recognize the high hurdles on the road to effective policies to slow global warming. Even though climate scientists have made great strides in understanding the basic trends, it has proven difficult to implement policies to slow climate change.

One major reason for the slow progress is the nationalist dilemma, which leads to free riding. Countries that do not participate in a global agreement to reduce emissions get a free ride on the costly abatement undertaken by other countries. This incentive leads to a noncooperative free-riding equilibrium in which few countries undertake strong climate-change policies—a situation that closely resembles the current international policy environment. They speak loudly but carry no stick at all. A link whereby nonparticipants are penalized through international trade tariffs would help alleviate the free-riding syndrome.

Additionally, there is a tendency for the current generation to ride free by pushing the costs of dealing with climate change onto future generations. Generational free riding occurs because most of the benefits of emissions reductions today would accrue many de cades in the future.

The double free-riding difficulties are aggravated by interest groups that muddy the water by providing misleading analyses of climate science and economic costs. Contrarians highlight anomalies and unresolved scientific questions while ignoring the strong evidence supporting the underlying science and current projections of climate change. The need to introduce effective policies has been particularly difficult in the United States, where ideological opposition has hardened even as the scientific concerns have become increasingly grave.


THREE STEPS FOR TODAY

Concerned citizens naturally wonder what we should do right now to slow the trajectory of global warming. This is a complex process involving the public, the economy, and technology. I would emphasize three specific items to focus on.

• First, people around the world need to understand and accept the gravity of the impacts of global warming on the human and natural world. Scientists must continue intensive research on every aspect from science to ecology to economics to international relations. People should be alert to the trumped-up claims of contrarians who find a thousand reasons to wait for de cades to take the appropriate steps.

• Second, nations must establish policies that raise the price of CO2 and other greenhouse-gas emissions. While such steps meet resistance—like our aversion to taking foul-tasting medicine—they are essential elements for curbing emissions, promoting low-carbon technologies, and thereby inoculating our globe against the threat of unchecked warming. Moreover, we need to ensure that actions are global and not just national. While politics may be local, and the opposition to strong steps to slow warming comes from nationalistic attitudes, slowing climate change requires coordinated global action.

• Third, it is clear that rapid technological change in the energy sector is central to the transition to a low-carbon economy. Current low-carbon technologies cannot substitute for fossil fuels without a substantial economic penalty on carbon emissions. Developing economical low-carbon technologies will lower the cost of achieving our climate goals. Moreover, if other policies fail, low-carbon technologies are the last refuge for achieving our climate goals. Therefore, governments and the private sector must intensively pursue low-carbon, zero-carbon, and even negative-carbon technologies.


These three themes will run through this entire book: increased public awareness, pricing of carbon and other greenhouse-gas emissions, and accelerating research on technologies to decarbonize our economies.
(Continues...)


Excerpted from The Climate Casino by William Nordhaus. Copyright © 2013 William Nordhaus. Excerpted by permission of Yale UNIVERSITY PRESS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Contents

Acknowledgments....................     xi     

Note to Readers....................     xiii     

PART I THE GENESIS OF CLIMATE CHANGE....................          

1 First Encounters in the Climate Casino....................     3     

2 A Tale of Two Lakes....................     12     

3 The Economic Origins of Climate Change....................     17     

4 Future Climate Change....................     36     

5 Tipping Points in the Climate Casino....................     50     

PART II IMPACTS OF CLIMATE CHANGE ON HUMAN AND OTHER LIVING SYSTEMS........          

6 From Climate Change to Impacts....................     69     

7 The Fate of Farming....................     78     

8 The Impact on Human Health....................     91     

9 Perils for the Oceans....................     100     

10 Intensification of Hurricanes....................     116     

11 Wildlife and Species Loss....................     122     

12 Adding Up the Damages from Climate Change....................     135     

PART III SLOWING CLIMATE CHANGE: STRATEGIES AND COSTS....................          

13 Dealing with Climate Change: Adaptation and Geoengineering..............     149     

14 Slowing Climate Change by Reducing Emissions: Mitigation................     157     

15 The Costs of Slowing Climate Change....................     169     

16 Discounting and the Value of Time....................     182     

PART IV POLICIES AND INSTITUTIONS FOR SLOWING CLIMATE CHANGE...............          

17 Historical Perspectives on Climate Policy....................     197     

18 Climate Policy by Balancing Costs and Benefits....................     205     

19 The Central Role of Carbon Prices....................     220     

20 Climate-Change Policies at the National Level....................     233     

21 From National to Harmonized International Policies....................     244     

22 Second Best and Beyond....................     259     

23 New Technologies for a Low-Carbon Economy....................     274     

PART V CLIMATE POLITICS....................          

24 Climate Science and Its Critics....................     293     

25 Public Opinion on Climate Change....................     303     

26 Obstacles to Climate-Change Policies....................     316     

Notes....................     327     

Index....................     365     


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