Theo and Me

There I was sitting with friends at Starbucks, minding my own business, when Maria approaches brandishing the kind of attitude a nice Italian girl from Brooklyn learns from her pals at parochial school. So Bill,… Have you seen the global warming article on the front page of the New York Times? Before I have a chance to respond, Maria drops little Theo in my lap and heads off to pick up her triple-shot, no-foam latte.

“So Theo,” I asked the four year old, “what do you think of global warming,” figuring I’d get the typical Algore explanation. “Global warming, global warming, global warming… See my owwwie…” as he pulls up his pants leg. Notice that Theo could say it three times without chanting “the science is settled.” Smart kid!

So what’s this New York Times front pager all about?

QUZHOU, China — Foreign businesses have embraced an obscure United Nations-backed program as a favored approach to limiting global warming. But the early efforts have revealed some hidden problems.

Under the program, businesses in wealthier nations pay to reduce pollution in poorer ones as a way of staying within their government limits for emitting climate-changing gases like carbon dioxide.

Among their targets is a large rusting chemical factory here in China. Its emissions of just one waste gas contribute as much to global warming each year as the emissions from a million American cars, each driven 12,000 miles. Holy smokes!!

Cleaning up this factory will require an incinerator that costs $5 million, far less than the cost of cleaning up so many cars, or other sources of pollution in Europe and Japan.

Yet the foreign companies will pay roughly $500 million for the incinerator, 100 times what it cost. The high price is set in a European-based market in carbon dioxide emissions. Because the waste gas has a far more powerful effect on global warming than carbon dioxide emissions, the foreign businesses must pay a premium far beyond the cost of the actual cleanup.

The huge profits of $495 million will be divided by the chemical factory’s owners, a Chinese government energy fund, and the consultants and bankers who put together the deal from a mansion in London.

European and Japanese companies which are paying roughly $3 billion for credits this year, complain that it mostly enriches a few bankers, consultants and factory owners.

As word of deals like this has spread, everyone involved in the nascent business is searching for other such potential jackpots in developing countries.

The situation has set in motion a diplomatic struggle pitting China, the biggest beneficiary from payments, against advanced industrial nations, particularly in Europe. The United States was smart to avoid such encumbrances.

Here we see the unintended consequences of climate change economics that are overlooked in “The Stern Review,” a British government document. The summary in the Review was stark: “If we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever.”

Prime Minister Tony Blair painted a dark picture for the world: “It is not in doubt that if the science is right, the consequences for our planet are literally disastrous. Without radical International measures to reduce carbon emissions within the next 10 to 15 years there is compelling evidence to suggest we might lose the chance to
control temperature rises.”

There are only two things wrong with the Stern Review and Blair’s analysis, the math and the science. Yale professor William Norhaus addresses the math (PDF). “The radical revision of the economics of climate change proposed by the Review does not arise from any new economics, science, or modeling. Rather, it depends decisively on the assumption of a near-zero social discount rate. The Review’s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of discounting assumptions that are consistent with today’s market place. So the central questions about global-warming policy – how much, how fast, and how costly – remain open.”

I’ve handled the science at length in a series of blog posts. No way is it settled. Theo agrees with me on the science, but is unusually quiet on the math. Mama Maria, what do you think about it? Owwie!