0:33 Intro. [Recording date: July 30, 2013.] Russ: Our topic today is climate change, a subject you've written on lately. I'm going to start with what you call the 'climate change dilemma.' What is the dilemma? Guest: I think the dilemma is that we'd like to get a sense of just how far to go in terms of responding to the threat of climate change, just how far to go in terms of abatement. Should we have a very stringent abatement policy, in terms of limiting how much carbon dioxide and other greenhouse gasses we produce? Or should we begin slowly and perhaps later increase the extent of abatement? And the problem is it's very difficult to come up with numbers that actually tell you what the right solution is, how far to go. We know that global warming, climate change, the problem; we know that we have to do something. But we don't know how quite how much we have to do at this point. And that's really the dilemma. Russ: I want to start with a little thought experiment that you do in one of your papers, which is to say: Let's suppose we know exactly what's going to happen to the temperature over the next hundred years, and we even know what the likely effects are on human wellbeing and in terms of financial or monetary loss. But we still have a challenge, which is: How do we deal with costs that come 100 years from now, or benefits that come 100 years from now, relative to today. And that gets into a somewhat esoteric concept that I want to dive into, which is the idea of the discount rate. Talk about what the discount rate is used for in these kinds of studies. Again, assuming we knew all kinds of things we don't know with certainty. But just why is there a problem with trying to assess the costs and benefits that are way into the future? Guest: Sure. So, let's just begin with the discount rate and what it means. So, if you were going to get $1000 and you had a choice between getting it today or being told you'll get it in a year, I would think that you'd prefer to have it today. And the reason is that if you get it today you can invest it, maybe in a bond or something, and get a return over the year. So $1000 a year from now, or 10 years from now, is worth less than $1000 today. And that's a very basic concept. The rate at which, or the extent to which, it's worth less is determined by what we call the 'discount rate'--in other words, to what extent do we discount money that we are going to receive a year from now relative to money that we would receive today? And one way to do that is to think about the alternative use to which we could put that money. We could invest it. And the interest rate that we could get would be a pretty good estimate of what the discount rate ought to be. If I know that I can get 2% interest, let's say, then $1000 a year from now should be discounted at a rate of about 2%, which means that it would be worth something on the order of $998 today. Russ: And of course if it's 10 years from now it's going to be worth even less than $998. The idea being--and for people who aren't familiar with this--the idea is just that if you put $998 in the bank it's going to grow to about--it's a little more than that, actually--but in a year it will grow to something very close to $1000. Guest: Right. Russ: And so that's why $998 today is something like $1000 tomorrow. But $1000 a hundred years from now is a lot less than $998. Guest: Right. Russ: It's worth very little. Because of the power of compound interest. Guest: Right. And that's the problem. So, we know that the impact of greenhouse gas emissions is going to happen very slowly. Most of the impact would happen after 50 years, maybe 100 years. And the problem is that if the discount rate is a large number--it's even 3 or 4%, then any benefit that we are going to get by reducing emissions today is just not going to be worth very much if that benefit happens 100 years from now. Russ: The costs are now. Which means that they are not discounted, or discounted very little if they are in the near future. Guest: Right. So the costs begin now. If the costs actually are ongoing you would have costs now and costs around the future. Just to be clear about what we mean by the costs: So, if we had an abatement policy. Let's say it was a tax on carbon. So that's the simplest way to think about this. What we did is we taxed carbon emissions. That's going to impose a cost on society, because it means that, perhaps, for example, you'll perhaps have to buy more fuel-efficient cars that might be more expensive; you might have to insulate your home better; you might have to buy a more efficient furnace to heat your home in the winter. You know, you'd have to take a number of steps that would reduce emissions. And that's costly. So, if we decide to reduce emissions now by taxing carbon, that's imposing a cost on society--this year, next year, every year. But the benefits that we are going to receive wouldn't occur for maybe 50 years or 100 years. That's the problem. Russ: And how sensitive are those benefits to the discount rate? So, for example, you said, 'if it were large,'--some might argue that 3 or 4% is not actually large; maybe you should choose a higher one; we'll talk about that in a minute. But others argue it should be 0%. We'll talk about why that is, too. But just to think about it in a purely arithmetic sense, an accounting sense: What kind of differences are there going to be if you choose a discount rate close to zero versus one close to 4 or 5%? Guest: Well, let me give you an example. Let's take $1000 and let's discount it at 5% over 100 years. So, if we do that, the way we would do that is just take .95 and raise it to the 100th power, and then multiply that by $1000. What we are going to get is $6, roughly. So, $1000 a hundred years from now, discounted at 5%, is worth only about $6 today. On the other hand, if we discounted it at only 1% over the 100 years, then that $1000 is going to be worth $366 today. Still quite a bit less. But very different from $6. So it makes a huge difference what the discount rate is. Russ: In that particular case, that's a 60-fold difference, and that's just one assumption going into the analysis. That adds an enormous amount of uncertainty about the value and net benefits of a climate-change policy. Guest: It's not so much uncertainty. It's disagreement. And the problem here is that economists disagree as to what the correct discount rate is. And there are some people who would argue that the correct discount rate ought to be something that we observe in financial markets, something related to the interest rates we actually see. There are other people who would argue that financial markets are fine for you and I making investment decisions but when we look at something like climate change and we are talking about 100 years, we are talking about 2 or 3 generations, 4 generations from now. And when we make intergenerational comparisons it no longer is meaningful to use a market interest rate and we have to think about something different: how do we feel about discounting the welfare of our great-grandchildren, for example? Should we discount their welfare? Even though for ourselves, we say, look, for me, if I'm going to make an investment that's going to have a payoff only 10 years from now, for me, what is the discount rate I'd use? I might want to do something very different when it comes down to a different generation--grandchildren, great grandchildren, and so on.

9:46 Russ: Now some people have made the argument--quite a few, actually; it's a legitimate position. I disagree with it, but I want to get it on the table first--but it says: We should discount it to 0. Because any positive discount rate is saying that the benefits to me--is one interpretation at least--the benefits to me of some climate change abatement, climate change improvement--those should be no different for four generations from now. There's no reason I should count those less than any changes that accrue to me. So that, in that argument, that argument goes, the discount rate should be zero. And that's an ethical argument, correct? Guest: Yeah, but let me clarify something here. There are actually two different discount rates. There's a discount rate on the actual monetary benefits of reducing emissions, the benefits that we'll receive in a thousand years. In other words, let's suppose that-- Russ: A hundred years. Guest: A hundred years. I'm sorry. Russ: Or maybe a thousand. Guest: A hundred years. Let's suppose that by reducing emissions today, there is going to be a benefit to the average person of $1000 of increased consumption in the future because Gross Domestic Product (GDP) and consumption won't be reduced from climate change. So let's suppose that's there's going to be this $1000 benefit. Now, there's a discount rate that we would apply to that benefit to put it in today's terms. There's a separate question and that is: What is the utility or the value of $1000, 100 years from now? And that's very different. Think about this. One hundred years from now, if we continue to have strong, reasonable economic growth--meaning the economy, per capita, of GDP is going to grow at maybe 2% a year--it means that on average people 100 years from now are going to be much, much better off on average than they are today. Well, what happens if you are much better off and you have a much higher income? It means that the value to you of an extra $1000 is lower. So, if you are a low-income person, you don't have much money, the value to you of $1000 is a lot greater than it is for somebody who has earns a million dollars a year and couldn't care a whole lot one way or another about an extra thousand dollars. So, the discount rate that we would apply to values--the discount rate we would apply to utility or the pure rate of time preference, simply says: Look: I have a preference for time, for getting something now as opposed to a year from now, quite separate from the actual monetary value. In other words, quite separate from the opportunity cost of being able to put the money in the bank or invest it in a bond. I simply have a preference for getting something right now rather than in the future. And that discount rate--that rate of time preference--is what people talk about when they say it should be 0 for ethical reasons. It doesn't mean the discount rate on the monetary benefits, on the $1000, should be 0. Because it shouldn't. It means that piece of the total discount rate should be zero. There's one last piece here, and I hate to introduce all this technical stuff, but the total discount rate on the monetary gain, the $1000 we are going to get in 100 years, is equal to the rate of time preference plus the product of the average rate of growth of the economy, per capita real growth rate, times something that we call the index of risk aversion, which basically tells us how rapidly our value of money declines as we get richer. A good number for that might be 2, the index of risk aversion; if we say that the growth rate of the economy, real growth rate per capita might by 2%. Then 2 times 2% is 4%. So that even if the rate of time preference were 0, we would still have a discount rate of 4% for the monetary benefit, the monetary gain. So we have to be a little careful here in terms of what discount rate we are talking about.

14:35 Russ: I was going to get back to the ethical argument. Why don't you go ahead? Guest: So the ethical argument only applies to the rate of time preference. In other words, everybody would agree that, look, to the extent that the economy is going to be growing, to the extent that people will be richer on average a hundred years from now, that's going to make the value of benefits received 100 years from now less, worth less today. It's going to create a discount rate or benefits received 100 years from now even if the rate of time preference is zero-- Russ: So, even if you say: My blood is no greater than theirs; theirs is no greater than mine; I have no moral claim on consumption relative to theirs--you are saying there would still be some reason to use a positive discount rate. Guest: Right. And it could be a significant discount rate. Depending on-- Russ: So, here's an issue that always bothered me about this. And by the way, that distinction, although it's a technical one, and I don't know if everyone out there followed it. Bob, you've written on it; people can look at it elsewhere, people have written on it; we'll try to find a link to lay that out a little more thoroughly. But what I find strange is that most people don't make that distinction. They just say: Well, the discount rate should be 0. Because we are no better or worse than future generations. It's immoral to pretend or suggest or assume that we have some right that they don't have. They are not here. We should stand up for them. And their benefits and costs should be taken as the same value as ours. The part I never understood about that--and this, I think feeds into your breaking down the discount rate into two parts--the part I've never understood is that: First of all, future generations are related to us. As you allude to in one of your recent papers. They are not just--they don't just show up. They are tied to us through family and birth and affections--sometimes dislike, we don't always get along--but most of us care about our children and grandchildren. And if we ask the thought question: Do my grandchildren, do my great-great-great-grandchildren want me to ignore the fact that a dollar today can grow over time--that is: If we incur costs today, if we make our economy smaller, and more importantly if we slow the rate of growth--that means they are going to have less. They want us to take that into account. It would be absurd for us to say, well: Costs and benefits are the same 5 generations from now as they are today because it's an ethical thing; we are all the same; but they very much want us to take into account the fact that incurring costs today imposes costs on them. Guest: Right. So, there are two things. First of all, let's be clear that if we do this correctly and we look at the discount rate in terms of the rate at which we discount monetary benefits, not the rate at which we discount utility, it's not the rate of time preference. It's a bigger number; and everybody would agree that it's not simply the rate of time preference. When you say that many people just say the discount rate should be 0 and it's not clear about what discount rate, I don't know people you are thinking of or referring to. Certainly economists who look at these climate change issues and climate change policy, they certainly understand what we're talking about in terms of the discount rate--that there's a rate of time preference. There we might argue about whether it should be 0 or 2% or whatever. But that's different from the discount rate that we apply to monetary benefits. And when you talk about economic growth and you say, look, if we tax carbon today maybe that would reduce growth, or maybe it wouldn't, it would certainly impose a cost today. Certainly we have to include the rate of economic growth in terms of getting the discount rate that we apply to monetary benefits. There's no question about that. We are doing that. So, it still means however that we are going to have some discount rate and we can still argue about what that discount rate is. The whole business about future generations and the ethical argument and all of that only applies to the rate of time preference, and the rate of time preference is just one piece of the discount rate that we apply to future monetary benefits. Russ: Okay. Great. Now, the bottom line then of this section--we're going to move on to a different topic, a related topic--the bottom line here is that we're not clear what the right discount rate is, and that assumption has to enter into this conversation, and as a result there's some uncertainty--there's a range of estimates of the net present value of these costs and benefits that are very difficult to narrow. Is that a good summary of what we just talked about? Guest: Yeah, I think it is. That's right. Yes.

19:27 Russ: Let's move into what are called 'Integrated Assessment Models', IAMs, that you talk about in your forthcoming paper in the Journal of Economic Literature and elsewhere. What is an Integrated Assessment Model? Guest: So, what economists have tried to do--economists and climate scientists have tried to do--is develop models that they could use to assess the effects of different kinds of policies. So, for example, let's suppose, let's begin with asking: Suppose we do nothing about climate change. We don't do anything to reduce emissions. We don't do anything to abate emissions. What might happen over the next 150 years? And then we might ask: Well, suppose instead that we have a carbon tax. Maybe a carbon tax of $30 or $40 per ton of carbon dioxide. Well, what would that do? And to what extent would we then have a different outcome in 100 or 150 years? So what these people have done is they've developed models. And this work began maybe 25 years ago, 20-25 years ago. And when it started it was extremely useful because what it did was it showed how emissions accumulate in the atmosphere; how that in turn leads to higher temperatures; how that in turn creates damages--harms the economy in the future--and how that harm could be reduced by reducing emissions today. So, the value of those models, back 20 years ago, was to lay out and show those interconnections and make them explicit, make them understandable. That was very useful. What's happened since then is people, many people, started developing more and more of these models; and making them more and more complicated, larger, more involved; and started to take them a little too seriously. So what these models do is the same thing that they used to do: they are models that say, look, if we don't do anything to reduce emissions, these are the kinds of emissions we are going to have over the next 50-80 years; this is what it's going to do to the atmospheric concentration of the carbon dioxide; this is what the increased concentration of carbon dioxide will do to the temperature. And by the way, when I use the word 'temperature' I mean not just temperature itself but other measures of climate change such as greater weather variability, greater frequency of hurricanes, and so on. I'll just use 'temperature' as a shorthand. So, what will this greater concentration of atmospheric carbon dioxide do to temperature, and what will higher temperatures in turn do to the economy and to welfare? You know, to what extent will it hurt us. So, they build these models and the models tend to have relationships. All models are sets of equations or relationships that say how x will affect y and how y will affect z and so on. And in fact we don't know a whole lot about these relationships. So the models give kind of a false perception of knowledge and precision. That's really the issue that I have with them. So, what the models try to do is to relate these different variables to each other, and try to predict what might happen over some period of time under different scenarios, for greenhouse gas emissions. Russ: So, this relates to an issue that comes up a lot on our program, which is what Hayek called 'scientism'--the use of what appear to be scientific techniques, language, in this case models--that give a false impression of scientific precision, as you point out. Why is it so uncertain? Where are the--in that sequence that you laid out, which is carbon, temperature, human effects, dollar value, etc.--where is the part that's misleadingly precise? Guest: Well, really the question is where are the parts where we don't know enough or we have limited knowledge. So let me back up and just make it clear what we do know, where there's really no argument and almost no doubt among people who look at this seriously. What we do know is this: What we do know is that under business as usual, emissions of greenhouse gases--and greenhouse gases include carbon dioxide but other gases as well such as methane, which is even worse than carbon dioxide in terms of its impact on climate. So, we do know that if we don't do anything that the rate of emissions will grow over the coming decades. We know that because the economy is growing. We do know--there's no question about this--that as these emissions accumulate--and they will accumulate--the total concentration of greenhouse gases in the atmosphere will grow. It's already grown to nearly double what it was before the Industrial Revolution. It will continue to grow. There's no doubt about that. The next thing there's no doubt about is that that will have an impact on the climate--on temperature, average temperatures, and on other measures of climate such as variability, possibly sea levels, and so on. There's no doubt about that. We know that increases--for example, we know that increases in the greenhouse gas concentration in the atmosphere will eventually have an impact on temperatures worldwide, and will raise average temperatures worldwide. There's no doubt about that. And lastly, there's no doubt about the fact that that's not a good thing. That that will have an adverse impact on human welfare. So, there's no doubt about those things. We all know that. Russ: Could I ask you just about a couple of those? Guest: Yeah, sure. Russ: Well, before I do--I'll let you finish. Say where the uncertainty is. Guest: So we know those things will happen. Now here's what we don't know. Let's suppose, what happens when the concentration of greenhouse gases in the atmosphere doubles? What will that do to the temperature? Will it push the temperature up by 2 degrees Celsius? by 3 degrees Celsius? by 5 degrees Celsius? That's what we don't know. We don't now how bad it will be. It could be that the impact will be quite limited, maybe 1 or 2 degrees Celsius, and it won't happen for 50 years. It could be that the impact would be much worse than what we expect. Maybe it's 5 degrees Celsius and could happen well within 50 years. That's what we don't know. The second thing we don't know is: Let's suppose the temperature goes up by 3 or 4 degrees Celsius. Which is substantial. What would that do to human welfare? What would that do to the economy of the United States, of Europe, of other countries, to the world economy, if temperatures go up by 3 or 4 degrees Celsius? Would we be able, for example, would we be able to adapt? We know that higher temperatures have an adverse affect on agriculture in many parts of the world. But might we be able to adapt to that by developing new types of grains, new strains, new types of things we could plant? Maybe do agriculture in other regions--maybe there would be more agriculture done in Canada and less in the southern part of the United States? Could we adapt? We don't know a lot about that. We think we could to some extent. We don't know how much. So, likewise, with health effects. We know that higher temperatures will imply greater transmission of disease, of communicable disease. Can we adapt to that? Can we find ways to respond to that, to reduce the impact? Perhaps. So, once again, we know that higher temperatures will have a bad effect. That's a bad thing. We don't know how bad. We don't know how much harm it will cause, 50, 100, or 150 years from now. The vast--the difficulty--we know it's bad. We don't know how bad.

28:10 Russ: And as you point out, 100 years, it's not tomorrow. There would be time for this adaptation to take place. We just don't know how easy or hard it would be. When we talk about adapting, we have some evidence, of course, on our ability to adapt. As you point out in one of your papers, people moved west in the United States, had to find different soil, different climate. They found ways to farm in those places. We don't know, as you point out though, whether a 5 degree or worse, conceivably, maybe it's 6 or 7, maybe it's 150 years from now--but we don't know how easy or hard that would be in particular. What about the sea level effects, which a lot of people have some very scary scenarios about? Is there potential for adapting to those, or is that genuinely scary? Guest: I think the answer is both. In some parts of the world, there is a potential for adaptation. The Netherlands, much of the Netherlands is below sea level. So there are potentials for adaptation. But it would be every expensive in many parts of the world, and maybe infeasible. I think a country like Bangladesh would be in terrible shape if the sea level was to rise by 10 meters or something. Five meters, even. Countries like Bangladesh would have a very, very difficult time. They could adapt, and probably what would happen would be at least an attempt at huge migrations of people out of Bangladesh into--where? Is India going to open its arms and say, you are all welcome here? So, that's a problem. Russ: And there's cultural effects. Even if they did go, there's cultural losses and changes, some for the better, some for the worse that would result from that kind of massive migration. It would take place over a long period of time. Possibly. You don't have to move to higher ground tomorrow. But you would find that increasingly parts of the country would not be habitable. Guest: It would affect the United States, parts of the United States would have issues. Even New York City (NYC), we saw during Hurricane Sandy flooding in New York City that we'd never seen before. We know that NYC would have issues. Now again, there are things that could be done. They are expensive, but there are things that could be done. Maybe not eliminate but at least reduce the impact of the higher sea levels in places like New York. Russ: Well, closing Yankee Stadium would be a net benefit, but that would only be one of the many effects. My listeners know I'm a Red Sox fan; you're at MIT, so I'm playing to that. Guest: I grew up in New York, so I still have fond memories of-- Russ: Well, I'll turn on my empathy and try to not let it affect my interview.

31:02 Russ: What about offsetting other types of climate change, cyclical, secular types of trends that aren't related to human effects? Changes in sun spots, changes in the sun, changes in other things that are not human? So, we assume that everything else the same--you use the phrase 'business as usual'--even if we did business as usual plus some reduction in carbon, is it clear that we know what the net effect on climate would be 100 years from now--not just from the fact that that relationship appears to be somewhat variable and uncertain right now, but that there may be longer term trends? We know there are such trends in the earth's climate. Is that an issue that anybody talks about? Guest: No. Because those other, natural trends are trends that happen over time horizons like 25,000 years. Not over 100 years or 200 years. So, first of all, there's variability. And, you know, the weather varies enormously. You are going to have extremely hot summers; you are going to have extremely cool summers. That happens. But these sort of long-run--another ice age or something like that, that's over many thousands of years. That's not really an issue here. The kinds of things we're talking about here, climate change that's induced, climate change that's caused by human activity, namely burning carbon--that is something that would happen over the course of 100 years or 200 years or something like that. So, it's something that would affect maybe 2, 3, 4 generations from us. Russ: So, getting back on track: The bottom line of what you are saying is: We know the sign of these relationships; we know whether it is positive or negative. We might have a pretty good idea. We just don't know the magnitudes. Now why is that so important? Because I think a lot of people would say: So, we don't know just how hot it will get. We don't know just how difficult it will be for human activity in the face of hotter climates. But it's all bad, so we just need to put some tax on carbon. Guest: So, of course the question is just how big a tax. We'd like to know how serious the problem is in terms of translating that into the size of the tax. Do we need a tax on carbon that's on the order of $20 or $30 a ton of carbon dioxide? Which would be the equivalent to maybe a tax on gasoline of say $.30/gallon. Not a very big tax. Or is it something like $200 or even more per ton, which would be a much larger tax and would be the equivalent to something like $3.00/gallon tax on gasoline? So we'd like to know how big that tax should be. The problem that we face--one could argue: let's just wait and see. Let's maybe not do anything right now, or maybe let's have a very small tax right now, and let's wait and in 10 years or in 20 years we'll see how things are developing and then if we see things are going the wrong way, you know, the warming is happening faster than we thought, we can increase the tax. Here's the problem. The problem is that when these greenhouse gases build up in the atmosphere, they stay there. The rate at which they dissipate is very, very slow. So, these greenhouse gases will accumulate in the atmosphere and if we then stopped burning any carbon--I mean, we literally stopped burning carbon, period-- Russ: Which would be quite challenging, potentially-- Guest: Which would be quite challenging. But let's suppose hypothetically we could still do it. We would still have this high concentration of greenhouse gases in the atmosphere that would continue to contribute to warming. We could continue to have warming for the following 40, 50 years. Even if we stopped completely. So that's the difficulty, is that if we wait 20 years, or 10 years, during those 10 or 20 years we continue to burn carbon, we continue to increase the atmospheric concentration of greenhouse gases--that stuff stays there. And then if in 20 years we say, oh my God, we should have done more to stop this because it's too late, it's already there in the atmosphere. So that's the problem. Russ: And is there any potential--I know there are people talking about it--any potential for scientific, technological solutions to that large concentration that just sits there even if we cut back to zero? And by the way, I always like to point out to people, they say, we'll go back to living in caves: Of course, when you are living in caves you have to generally stay warm at night on lots of the earth, so you can be burning wood; and wood has got a lot of carbon in it. So, this thought experiment is a very primitive one. But: is there any technological possibility that those concentrations could be reduced through some human intervention? Guest: Right. So, there's something called geo-engineering. And what geo-engineering means is we engineer the earth. We change--we make some changes to our earthly environment. And there are a number of things that have been proposed. The one that has received the most attention, that seems the most likely to actually work, although it has its own issues, is seeding the atmosphere with sulfur particles. And the way to think about this is to remember what happened when Mount Pinotubo erupted some 10 years ago, maybe it was more--I forgot the date. But when Mt. Pinotubo erupted it spewed huge amounts of sulfur into the atmosphere. That's what a volcano does. And the result of that is that temperatures, global temperatures, dropped, by a half to one degree Celsius for several months. Until finally the sulfur in the atmosphere dissipated. So the idea would be to do a Mount Pinotubo for the entire planet. What we would do is we would seed the entire atmosphere--even go up higher into the stratosphere--with sulfur particles. And those sulfur particles would reflect sunlight. And by reflecting sunlight we'd absorb less sunlight. It would have a cooling effect. It would counteract to some extent the effect of the greenhouse gas concentration. So this has been discussed as an alternative. The idea is, look: If we don't do anything else, if we are unable to have an international agreement where we tax carbon or otherwise limit greenhouse gas emissions, if we simply can't make it happen, and we find out in 40 or 50 years, good grief, the temperature is rising rapidly and we are in big trouble, what could we do? One possibility is to use this form of geo-engineering which is to seed the atmosphere with sulfur particles. This is not risk free. This has issues. But that's what has been talked about. That's the main type, the main idea behind geo-engineering as an alternative. It's not--it's an alternative in the sense that if everything else fails, this is what we might do. Russ: Any prognosis on that as a possibility? Guest: Well, there's two issues. The big issue is: Does it have any negative effects? And unfortunately, it does. The negative effect is that sulfur in the atmosphere eventually comes down in the form of sulfuric acid. So what it would do is eventually, gradually acidify the oceans. And also lakes and rivers and so on. Now, then the question is: How bad is that? How bad a thing would that be? I mean, the oceans have a lot of water in them. You could dump a lot of sulfuric acid before the level in the ocean becomes noticeable. But what would it do? And you'd have to keep seeding the atmosphere. It isn't just that you do it once and you are finished; everything's fine now. You'd have to keep doing it, because the sulfur particles will eventually come down. They'll fall down in the form of rain. So you have to keep doing this every year or every couple of years or every few years. You have to keep re-seeding the atmosphere with sulfur particles. And that means that there's going to be an ongoing, continuing rainfall into bodies of water that is acidic--that has sulfuric acid. Now, we don't know very much about what that would do. What would that do to fish? What would it do to the entire ecosystems that exist in the entire oceans? So, we don't know what would happen. And that's why everybody hasn't jumped up and said, hey, no problem with global warming; all we have to do is spray sulfur into the atmosphere. Russ: Detonate some volcanoes. Guest: Well, yeah. You can't detonate volcanoes. But this idea of spreading sulfur into the atmosphere. So, it's something that's out there. It's something we may end up having to try if things get bad. Who knows?

40:59 Russ: So, given what you've said, it seems--and I'm not quite as confident as you are about the level of certainty about all the steps, but what we do agree on is the uncertainty about the magnitude. Wouldn't the lesson then, the implication, be that: Well, there's a potential for catastrophe, a black swan of really awful possibility--10 degrees, huge impacts on human well-being, massive costs in the next 50-150 years. Isn't the prudent path then to put on that $3.00/gallon gas tax, which is not so horrifying--I think in the United States it would be less than the tax in some parts of Europe. What's the big deal? Shouldn't we be cautious, prudent, and follow a path like that? Let's worry about the worst case scenario and be prepared. Guest: Well, I think that's a good argument. And I think that's an argument a lot of people make. I'm somewhat sympathetic to it. Look, first of all, we are not talking about a black swan. A black swan happens once every 10,000 years. We are talking about something that could happen with maybe probability 5%. Well, that's a small probability. Russ: Not the same. Guest: But if you knew--no, it's not the same. It's significant. It's unlikely; it's still a very small chance. But it's large enough that you'd want to worry about it. I mean, I don't think you'd go up in an airplane if you thought there was a 1% chance that the plane might crash. So, that's why we spend a lot of money taking all kinds of precautions to make sure that air travel is safe. Very, very costly to make sure that air travel is safe. But we do it because we don't want to get into those kind of catastrophic situations where a plane crashes. So, I think there's a very good argument for that. And at this point we know there is this possibility of a catastrophic outcome. It's unlikely; it might be low probability. But if it happens, it's going to be pretty bad. And as you said: Look, you go anywhere in Europe and you pay the equivalent of $8 or $9 a gallon for gas. Here in the United States gas is very cheap relative to Europe. So it's not such a big deal. It's certainly something that people could live with. Russ: Part of the reason it's not such a big deal is that Europe's a smaller place. So it would change--it would have some potentially large effects on the United States.

43:50 Russ: So let's turn to that issue, which is the cost side. We've talked about the uncertainty about the benefits. What kind of assumptions are made when we are trying to assess the costs of a $3/gallon gas tax? Or a more serious tax on carbon across the board? How would it change economic life here? Guest: Well, I think one way to think about that is to remember what happened starting in the early 1970s, 1974, when there was a sharp increase in oil prices. So, the United States had always enjoyed very, very low energy prices, oil and other fuels as well, until about 1973 during the Yom Kippur War between Syria, Egypt, and Israel. And the Arab members of Organization of Petroleum Exporting Countries (OPEC) at that time tried to embargo the United States. Now they couldn't actually embargo the United States, but what they did do is reduce their production and their exports of oil. And the result is that the price of oil and the price of gasoline in the United States jumped. It jumped quite a bit; it more than tripled at the time. And it contributed to inflation. And it also damaged economic growth to a certain extent, maybe for a year or two it cut a half a percent off the growth rate. We had another oil shock back in 1980-1981. You might remember that that was the time of the Iranian revolution of 1979, is when the Iranian Revolution began. And then the Iran-Iraq War, which started around 1980. And what the Iran-Iraq War did is to greatly reduce oil production and exports from both Iran and Iraq. And the result was another sharp rise in oil prices. So, oil prices jumped--again tripled in the space of a couple of years. That had an impact on inflation. It was a contributor to the high inflation rates of the early 1980s and 1981 and 1982 we had a double-digit inflation in this country, 11-12% inflation. And it also had an adverse effect on economic growth. So you could ask, what would happen in the United States if today we doubled the price of oil, let's say, through a carbon tax. Now nobody's talking about a tax that big, that would double the price of oil. But you could still ask what would happen if we did. And there are a couple of big differences from 1982 or the 1970s that would make the impact much smaller. One big difference is that oil and energy for that matter is a much smaller part of our economy than it was back in the 1970s and early 1980s. This country, as well as other developed countries like Europe and Japan are much less dependent on energy than they used to be. We are much less, we say, 'energy intensive.' The energy intensity--the amount of energy we use per dollar of Gross Domestic Product (GDP) is much lower today than it was 20 or 30 years ago. And that means that a sharp increase in the price of oil or energy in general would not have as big an impact. And would not contribute much to inflation. In fact, in 2007, 2008, we did have a sharp increase in the price of oil. The price of oil jumped from about, oh, $60 a barrel in early 2007 to $140 a barrel by November of 2008. It was a huge increase, that had almost no impact whatsoever on the rate of inflation. We've had very low inflation in the United States and in Europe. It had almost no impact at all. And it had very little impact--some but very little--on economic growth. So I think the bottom line here is that: Look, it's a cost. If you are going to go out and buy gasoline you'd rather pay, I don't know, $4/gallon than you would $5/gallon or $7/gallon. Of course. But it's unlikely that something like that would have a major negative impact on growth or inflation. It's something that I think we would easily absorb. Especially if it happens slowly. No one is proposing suddenly imposing a $3 tax on gasoline. Nobody would do that. We would do it slowly so there would be more time for adaptation. People would have time to gradually, when they bought a new car it might be a smaller car, more fuel-efficient car, and so on.

48:55 Russ: So, I'm going to challenge this prudent argument about doing something rather than nothing in a minute, but I want to add one more factor to this measurement of costs and benefits. I'm not an expert in the area, but when I looked at your estimates, your discussion of the estimates of the costs and benefits, it seems to me that most of them are dealing with monetary effects. That is, the fact that it might be harder to farm, in some places easier to farm but other places harder. There might be losses in well-being because we have to spend more money to keep cooler, to be comfortable. Do any of these integrated assessment models, these attempts to do a full picture of the costs and benefits, do they look at loss of biodiversity, the esthetics or complicated effects of species loss, potentially, because of habitat destruction because of climate change? Nobody's looked at those, right? Guest: No. Those are additional losses that their models don't even include. Russ: I just wanted to get that on the table. Because I think that's a--it's obviously an enormous area of uncertainty. Environmental economists have tried to use various clever ways of assessing the value people place on biodiversity, your willingness to pay to keep the Grand Canyon preserved or pristine. There's many problems with these methodologies; we're not going to get into them. But obviously it's another area where there's presumably a cost, very hard to measure it with any precision. Guest: Right. And those costs aren't even included when people talk about the impact of climate change. You know, there are two kinds of costs that you could consider. That are considered. One is what we call 'direct economic costs.' So those are, for example, reductions in the production of lumber, impact on forestry. Agricultural impacts. Other types of production that could be impacted by higher temperatures. Those are direct monetary costs. Then there are what we call the 'indirect costs,' which are sometimes difficult to put in monetary terms, so we try to do that. So for example, there's the expectation that higher temperatures would lead to a greater frequency of communicable disease--more water-borne parasites, more disease of various kinds. Perhaps greater rates--we know that people die when temperatures go up; when you have a very hot summer, people die if they don't have air condition, if they don't have access to air conditioning. There's significant rates of death from that. So people can make projections about how many more deaths there might be on average as a result of higher temperatures. And then what people do is try to translate that into monetary terms. They try to come up with an equivalent measure of lost GDP so that they can think about this when doing cost-benefit analysis. They don't even get to the biodiversity. We don't know how to put a monetary value on that. We don't know how to deal with the loss of pristine wilderness, for example. But what people do is they try to look at the direct economic impacts and these other indirect impacts that occur through health, migration, things of that sort. Russ: Just an aside, before we get to this last issue. At one point you suggested that these economic effects, the measurable parts that you are talking about--you said they might not just be uncertain, but unknowable. Why is that and what do you mean? Guest: We don't have the economic theory and the data that we would need to actually estimate these with any kind of precision. And it is quite likely that we are not going to have that kind of data or that kind of theory, certainly the kind of data that we would need. It's unlikely we are going to have it in the next 10 or 20 or 50 years. So that's what I mean by 'unknowable.' It's just that we may not be able to come up with good estimates of what those costs, impacts will be. That's the problem.