This is a great read. It does combine in one rather short article a discussion of what models purport to do and it discusses specifically the shortcomings/advantages associated with climate change models. Please note the last sentence:
"it is better to be roughly right than precisely wrong—or not to make any estimate at all".
That is precisely the situation facing those who model the economic impact of climate change, argue two new studies (see sources below). Nicholas Stern, the author of an influential 2007 review of the economics of climate change, says the models minimise environmental damage. Robert Pindyck of the MIT Sloan School of Management goes further, saying the inputs economists use are so arbitrary that their models say almost nothing useful.
Both think climate models play down or leave out “tipping-point” risks that may not affect the climate yet but could do one day. Examples of such risks include crop yields—which could decline gradually in response to global warming, and then lurch over a cliff—and the possibility that swathes of Siberia might warm, releasing huge stocks of methane that lie locked up in the permafrost. Since methane is a greenhouse gas, that could produce a vicious cycle of more warming and more gas emissions. A recent study in Nature reckoned that if the methane in the Arctic were ever to escape, it could (the authors guessed) do $60 trillion of damage—although there is no sign that this is happening.
Economic models—known as Integrated Assessment Models (IAMs)—borrow the limitations of climate models and add problems of their own. Lord Stern argues that they tend to underestimate environmental damage, and wrongly assume that long-term economic-growth rates will continue unaffected even if the climate changes profoundly (see article). Mr Pindyck objects that the basic assumptions economists make about things such as discount rates and the response of temperatures to rising carbon concentrations are so arbitrary that, as he puts it, “these models can be used to obtain almost any result.”
Economic models typically incorporate losses or damage (from recessions as well as from climate change) by lowering the value of a flow of output rather than reducing the value of the stock of capital, land or labour. Usually, this makes sense. But climate damage may be different. If, say, sea levels were to rise, which they did by almost 20cm in the last century, they could inundate coastal cities and destroy large amounts of productive capital and land (to say nothing of damage to life and limb). That would affect not only current but also future output.
The models also tend to underestimate damage from climate change because, as William Nordhaus of Yale University has noted, they are extraordinarily poor at extrapolating beyond a warming of more than 3°C. One of Mr Nordhaus’s own models assumes that a rise of 19°C would be associated with a loss of half of world output. Warming on that scale would more probably be associated with the extinction of human life on Earth. Many models imply the world would be better off despite higher concentrations of carbon dioxide of up to 650 parts per million (compared with 400ppm now). To most climate scientists, 650ppm looks like a Mad Max scenario. Mr Pindyck calls the models’ assumptions about climate damage “completely made up”.
Lord Stern argues that their treatment of growth is not much better. Most models assume there is an underlying “exogenous” growth rate (ie, one that keeps chugging along regardless of what else is going on in the model). Even when this rate is fairly low—growth of 1% a year, say—the magic of compounding means that after 100 years, output will have almost trebled (see chart, column 2). If the growth rate were 3%, output would rise almost 20-fold.
Now combine those results with the models’ tendency to underestimate climate damage. Even if the loss in economic output were reckoned at 50% (ie, the loss associated with a life-obliterating 19°C rise in temperatures), the models still say future generations would be better off (see chart, column 4). At a growth rate of 1% a year, for example, it would take an output loss of two-thirds to make people worse off in 2100. These results are incredible. The problem is not that climate change will certainly leave people worse off in future. Rather, it is that it could do so if things got bad enough. But the models almost rule that possibility out. As Lord Stern says, they “come close to assuming that the impacts and costs [of global warming] will be modest, and close to excluding the possibility of catastrophic outcomes.”
Not useless, just plain wrong
The question is whether it is nevertheless useful to have some guide
to the future cost of climate change, however inexact. Mr Pindyck’s
answer is radical: forget the models. He calls them “close to useless as
tools for policy analysis…their use suggests a level of knowledge and
precision that is simply illusory.”Lord Stern is a little more hopeful. He points out that scientists are producing a new generation of climate models and urges economists to do the same. But to work, he says they require sweeping changes to incorporate the idea that global warming can damage capital stock, productivity and growth. They would also, he says, need low or even negative discount rates, to reflect the possibility that future generations will be worse off than the current one. That is controversial: the use of a low discount rate in the “Stern review”, the 2007 study that used some of the models he now complains of, was heavily criticised. But as John Maynard Keynes is supposed to have said, it is better to be roughly right than precisely wrong—or not to make any estimate at all.
I also agree with John Maynard Keynes’s belief that it is better to be roughly right than precisely wrong or not to make any estimate at all. I think it is especially true in the case of modeling climate changes. Models have its advantages, but it is important to note that they are not meant to be definitive and exact; they simplify. Though it is unfortunate to hear that models tend to underestimate climate damage since they tend to exclude factors that would have a bias in the results. For example, even if the loss in economic output was at 50%, the models would still say future generations would be better off. This is a dangerous and incredible thing to say because it completely undermines the problem with climate change, making it seem as it isn’t a big concern for the world when it is in fact. At the same time, I do think models can be useful; they just have to be changed. I think it is going to far as to say the models are useless as Mr. Pindyck says, but I do agree with Lord Stern’s opinion. The models are useful to have a guide to the future cost of climate change. Since scientists are producing a new generation of climate models, I believe there is hope that in the future the idea that global warming can damage capital stock, productivity and growth will all be incorporated.
ReplyDeleteJane Han
I wouldn't necessarily agree with Robert Pindyck that the models are not useful to our economic prediction towards climate change. These models are simplified to give scientists as well as economists a less complex view of our environmental damages. However I do agree with Nicholas Stern regarding the models lack of accuracy. If scientists, economists and our overall society plans on understanding and developing both financial and environmental awareness, there must be an accurate model despite its complexity to determine the level of catastrophic outcomes. The capital stock, productivity and growth certainty must all be incorporated to our models in climate change. It is reasonable to compare the years throughout various climate changes however I do not think it is resourceful towards our future due to the fact that the level of resources such as methane, carbon etc that we may have dealt with in past years will not amount to the same level. Over the years our capacity in these resources have decreased. It seems to be impossible to measure or scale our lack of resource outcomes on graphs and mathematical equations. For such an accuracy, scientists and economists would have to literally count out and measure how much of every resource is still present in our planet. This research if ever possible may take more than a few years. Perhaps are way of understanding climate change should change to a more accurate study because as Maynard Keynes stated, "it is better to be roughly right than precisely wrong—or not to make any estimate at all."
ReplyDeleteThis article brings about multiple good viewpoints from top economists. Nicholas Stern, the author of an influential 2007 review of the economics of climate change, believes that models minimize environmental damage. Robert Pindyck a professor at the MIT Sloan School of Management also believes that the inputs economists use are illusory and the models say almost nothing useful. To some degree I think both of these economists are right. Lord Stern is correct in saying that environmental damage is left out of the models because it is one of the hardest variables it include in any calculation. Many of the models in the article explain that the future will have a better quality of life, than we are enjoying right now, which I believe is extremely false. The way we are using our resources, they will not last for the future generations and on top of that, we are producing CO2 that is already damaging the environment. In Siberia locked up in the permafrost is an abundance of Methane gas that has the potential to speed up and enhance global warming. I agree with Lord Stern on the fact that these formulas must change to incorporate a low or even negative discount rate to display that life in the future will not be as rosy as scientists believe it will be. We need to manipulate theses complex formulas to show that global warming can indeed damage capital stock, along with productivity and growth. If waters rise and we start to lose valuable land that allows us to produce food and products that will have effects for the current population, but extreme effects of the future. I truly believe that as a population we are smart enough to produce an accurate formula if we can all put our heads together and try to think simple and logically about what the future will experience if we continue to consume at the rate we are today. I do agree with John Maynard Keynes belief that “it is better to be roughly right than precisely wrong—or not to make any estimate at all.” We must make attempts at predicting what the future will be like to give people an insight on the damage we are doing to Earth and how these damages will affect the future generations. If we did not try to make attempts many people would be unaware and uneducated on this very important topic. We need to tell people about what will happen if we don’t try to change the way in which we live. This means taking a 7 minute shower instead of a 30 minute shower using solar cars and other renewable energy resources to heat and cool homes. We need to start thinking outside the box so that as a race we don’t become extinct in the future because of a catastrophic event such as an increase of temperature to 19 degrees Celsius.
ReplyDeleteNicholas Brodeur
Pace Pleasantville
This article was an interesting read. It takes the opinion of two economists; Nicholas Stern, an author of a review of economics on climate change, and a professor, Robert Pindyck. These two gentlemen have different views on the accuracy and usefulness of models. They both believe that models leave out “tipping-point” risks that currently do not affect the climate, but will someday. Integrated Assessment Models (IAM’s) are economic models that borrow limitations of climate models, simply to add problems to their own, according to the article. Stern suggests that such models underestimate environmental damage and wrongly assume that long term economic growth rates will continue to remain unaffected with climate change. Here I find myself agreeing with Stern. How can models persuade people to believe that economic growth rates will not change when environmental damage is being done? With climate change and irreversible environmental damage, I believe that economic growth will come to a halt, and rapidly descend thereafter. Not that I refer to economic models often, however if I needed to use them, I would expect them to be accurate and efficient, or else what would be the benefit in using such tools? Maybe that is why Pindyck is so against them. Maybe his reference to them in his line of work was useless to him, and therefore developed a negative opinion of them. Referring to them as, “close to useless as tools for policy analysis…their use suggests a level of knowledge and precision that is simply illusory.” Though models are not exact, I believe that they do have a purpose, and that IAM’S are extremely beneficial to economists. They estimate and are designed to help guide conclusions in the right direction.
ReplyDeleteAs economists we're inclined to base all of our findings/predictions on the economic models we develop, as social scientists we rely heavily on the information they present. This article shines light on a sticky subject as economists attempt to model climate change and its effects on economic growth. There is a misconception I believe among economists who believe they can properly model climate change. The article states "Economic models—known as Integrated Assessment Models (IAMs)—borrow the limitations of climate models and add problems of their own. " The problem with assuming issues, or attempting to add problems to these models is that not everything can be taken into account. And even so this would create a model so complex with much room, I believe, for complications and errors. It is a somewhat lofty task to assume that this can be accurately modeled, and even if it is better to be "slightly right... [rather than] completely wrong" slightly right is not right either.
ReplyDeleteThe rationale behind the creation of models is flawed. People, especially economists are notoriously poor at forecasting future events. Individuals are not deities with omnipotent knowledge of global events. We lack the capacity of predicting the future since our knowledge is limited to what we know, and that is a small fraction of the knowledge of the universe. The use of quantitative tools such as Integrated Assessment Models leads us to believe that we actually can predict what is going to happen. The quantitative analysis is important though if it is directed towards measuring performance of the policies we have implemented. Utilizing models as a performance measurement rather than a predictive tool is more logical and beneficial usage. We should take actions that will create positive change in the contemporary moment since the future eventually is the present.
ReplyDeleteI think it is a pretty bold thing to say economist are poor at forecasting future events. It is a big part of an economist to predict a lot of future events. This is almost like saying the people forecasting the weather are not always right so they won't be right tomorrow.
DeleteAlthough models of climate change have progress in the past several decades, more advanced technology is required to obtain better results. Climate change we are experiencing now is outside of historic norms, so we cannot expect a climate models to give us a great result. According to one study, “117 predictions, made in the 1990’s to the actual amount of warming, three were roughly accurate and 114 overestimated the amount of warming.” As with any data, more information we collect, more precise results we can expect. So over the next decade, the climate models will evolve substantially and will be able to deliver climate projections at the scale and level of details that we desire. But even though models of climate change are not great, I disagree with Mr Pindyck that they are “close to useless as tools for policy analysis”. We need some kind of model; even though it is not accurate right now (there is always a margin of error for any data models no matter how precise they are when we estimate future). I believe it is better to prepare for worse and hope for the best. Therefore I agree with statement “that it is better to be roughly right than precisely wrong—or not to make any estimate at all.”
ReplyDeletehttp://www.indiavision.com/news/article/scitech/448812/climate-models-over-predicted-global-warming/#ixzz2jMEc94Ht
It is not feasible to make no guess at all, then where would we be? With new technology that now gives us a better understand of how aerosols, clouds, and soot play a huge part in climate change, we can't just ignore all facts presented. We may question the accuracy of the models of climate change now, but with discoveries, new technology, and scientist and economists working together things can get better. I agree with Lord Stern, that moving forward we must combine the idea that global warming can damage capital stock, productivity and growth. How can with not take into account the effects of rising sea levels and how it impact the changes of population and the cost of damages.
ReplyDeleteAs part of a study abroad program with my last school, I took a course in the Science of Climate Change at Cambridge which actually focused on models related to climate change. What was emphasized in this course was that predictive models in regards to climate change cannot be accurate and they actually must make a great many assumptions.
ReplyDeleteI disagree with Mr. Pindyck and agree more with Lord Stern. I think to saying models are completely useless is throwing the baby out with the bathwater! I agree models forecasting environmental damage can be inaccurate, as choosing all the correct variables and weighting them accordingly is incredibly difficult and I'm sure not everything can be accurately quantified, but I do believe that using models have the potential be helpful in decision making. If one refers to many models rather than a few, created with a great many methods, one would be able to see commonalities among them and use them to aid in decision making. Ignoring all modeling in my opinion, without the availability of an alternative, would be a bit irrational.
The quote, " it is better to be roughly right than precisely wrong or not to make any estimate at all,: by Maynard Keynes is something that I agree on. I also agree with Lord Stern that even if models grossly overestimate future outputs they need to be reevaluated which include capital stock, productivity, and growth. I also believe that economists need to consider natural capital when thinking about the future. For example, the future will undoubtedly need clean air, clean water, and a working atmosphere. How can we put a price on natural capital because it will have to be done.Mr. Pindyck opinion is a very radical one that I can not see be easily considered by many people. Models allow peoplel to grasp qualitative and quantitate data in a simple educational form. If the majority of the public is to even understand the future of our global or national ecnomies models are needed to simplfy.
ReplyDeleteAs we go further we are getting a better understanding of how bad our global warming problem is. Unfortunately we are looking over all of the outcomes that will happen as the world temperature rises. Food was mentioned in the article and that is one big problem as our world population grows. How will we grow crops to feed livestock if these keeps going in this direction and how to we stop it. However we estimate the future we need to add a percent to that. This way we will add some urgency to cut back on emitting green house gasses and figure out ways to reverse these problems.
ReplyDeleteNicholas Stern and Robert Pindyck both have two different opinions when it comes to the use of models. The two can agree that models do not have tipping-point risks that will soon affect the climate even though it currently doesn’t. The article continues to talk about Integrated Assessment Models, which are models that take limitations of climate models, which adds additional problems to itself. Stern view on IAM’s are that these models underrate the environmental damage and how economic growth rates will remain unaffected from climate change. I think that this is true because it makes no sense saying that while environmental damage is still occurring, the economic growths will be untouched and not heavily affected in anyway. It would make sense that economic growth would stop and then decrease. Whether or not Integrated Assessment Models are useful or no is solely one’s opinion.
ReplyDeleteIt is very clear that there are people who care about climate change and thus have been modeling scenarios of the future. I think that rather than attacking these models, Stern and Pindyck should try to refine them. However honest the criticism may be, it goes without saying that the people who made the models did so in just reason. Dismissing the models altogether without providing an alternative plan to protect ourselves against climate change and its theoretical implications seems a brash outcry for attention. This attention may possibly lead to a better solution but it may not. Personally, I don't know if the models are in fact right or wrong but I do think that enough people care to asses the problem at hand; so much, in fact that a probable solution is not impossible.
ReplyDeleteNicholas Maier.