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Economists agree: economic models underestimate climate change

Economists, basically.
Economists, basically.

It's fairly well-established at this point that there's a robust scientific consensus about the threat of climate change. But analysts and journalists often say (or imply) that there's less of an economic consensus, that economists are leery of the actions recommended by scientists because of their cost.

Is it true? It turns out there have been very few systematic surveys of economists' opinions on the subject, and the few that have been done suffer from methodological shortcomings.

Last year, the New York–based Institute for Policy Integrity tried to remedy that situation with just such a large-scale survey of economists who have published work on climate change.

The conclusion? There is broad consensus on some questions, a wider spread on others, but in every case the median opinion of climate economists supports more vigorous action against climate change, sooner. Like scientists, economists agree that climate change is a serious threat and that immediate action is needed to address it.

A quick word on the survey

IPI tried to round up the names of every economist who has published a paper on climate change in a top economics journal, or a top journal of climate economics, since 1994. It found 1,103 economists (still working in the field and reachable) and sent them the survey; 365 responded, a fairly robust number for a survey like this.

I won't get bogged down in methodology, but there are some nerdily interesting questions here about the best way to get an accurate reading of a group's opinions. IPI went with a "wisdom of the crowd" approach, surveying a large collection of economists rather than asking a smaller group to deliberate and come to a consensus (which risks groupthink and "leveling down" of outlier positions).

There's always some risk, in a survey like this, of selection bias — economists who care the most may be more likely to respond. Then again, there are some economists (e.g., Richard Tol) who are invested in countering what they see as alarmism in the profession; they might be more motivated to respond, as well. The authors partly account for these unknowns with confidence intervals; you can read more on wonky methodological questions in the longer version of the paper.

Most economists believe climate change is a serious problem that calls for immediate action

Most economists believe unmitigated climate change will be a serious problem for the US:

is climate a serious problem? (Institute for Policy Integrity)

And most believe immediate action is warranted:

economists support action (Institute for Policy Integrity)

In both cases, these numbers are considerably higher than in most surveys of public opinion; the public is much more prone to seeing climate as a distant threat.

Economists believe climate change will harm the economy and reduce growth rates

When asked when climate change will begin having negative effects on the global economy, here's what economists said:

when will climate hurt the economy (Institute for Policy Integrity)

The median answer here is 2025, which is considerably earlier than many prominent economic models estimate. For instance, Tol's FUND model — one of the three big models used in the field — estimates that impacts will not be net negative until 2080. (More on those models later.)

Economists also agree that climate change will eventually dent economic growth rates:

climate and growth rates (Institute for Policy Integrity)

Economists think economic models are doing it wrong

The most interesting results of the survey, at least to climate nerds like yours truly, are about economic models and the values and assumptions that inform them. In short, most economists who work on climate believe that the climate-economic modeling community (a relatively small subset of economists) is systematically underestimating climate change — and thus giving policymakers bad advice.

A bit of background: Climate modeling is generally done using integrated assessment models (IAMs), the shortcomings of which I have written about before. IAMs produce climate-economic forecasts that are used to inform policymaking; the results they generate are largely based on the choice of input values entered on the front end.

For instance: One such value is the "social cost of carbon," an estimate of total economic damages represented by a single ton of carbon emissions. One question on the survey directly addressed this. It noted: "In 2013, a U.S. government Interagency Working Group adopted $37 (in 2007 USD) as its central estimate for the SCC." And it asked: Does that sound right? The results:

economists on the social cost of carbon (Institute for Policy Integrity)

"If we exclude individuals who did not answer this question," says the report, "three-quarters of respondents believed that the actual SCC is equal or greater than $37, as compared to the 9% that believe that $37 is too high."

If the US government's estimate of SCC is too low, it has enormous consequences for policy — a higher SCC justifies a more ambitious response.

Another key parameter in IAMs is "discount rates," which specify how much future damages (or benefits) are discounted relative to present damages. If you're interested in learning more about discount rates — and who isn't? — I wrote a long explainer on them a few years ago, complete with cute pictures of otters. For now the important point is that a higher discount rate leads to lower present-day ambition, while a lower discount rate (which puts a higher value on future damages) justifies more ambition.

Currently, the method used by the US government to calculate the future costs and benefits of policies (including climate policies) is a fixed discount rate, pegged to market interest rates. Typically this means three policy scenarios are run, using discount rates of 2.5, 3, and 5 percent respectively.

So what do economists think of this practice, as applied to climate policy? Not much:

economists on discount rates (Institute for Policy Integrity)

Only 8 percent of economists think the current discount-rate method is appropriate for climate policy. A large majority think either that the rate should decline over time, or that it should be determined using ethical rather than market criteria, or both. (Using ethical criteria generally means making it lower; some argue the "intergenerational" discount rate should be zero.)

Economists were also asked if the government were going to pick a constant discount rate, what should it be? The median answer was 2 percent — lower than the lowest figure the US government uses.

Again, the consequences for policy are clear: more ambition.

Implications for climate models and climate policy

The main takeaway from the survey is simply that economists, while their views do show a wider spread on various issues than the views of climate scientists, do widely agree that climate is a serious problem requiring immediate action. And some 80 percent of them think America could help induce others to take action by restricting its own emissions; 77 percent of them support the US acting unilaterally.

Like climate scientists, professional economists are more concerned about climate, and supportive of action, than the general public.

More intriguingly, the economic consensus seems to be stronger than the economic models policymakers look to for guidance. On the surface, this seems odd. Who is making those economic models, if not economists?

In fact, the economic modeling community is a relatively small subset of climate-focused economists, with its own tribal habits and customs. IAMs have long come in for criticism from other economists. One frequent critic is MIT economist Robert Pindyck. In a recent paper called "The Use and Misuse of Models for Climate Policy," he notes that IAMs purport to produce objective, fact-based forecasts and projections, but in fact those forecasts and projections depend almost entirely on the values of the inputs, which are decided by the modeler. In short, IAMs simply reflect the opinions of the modeler (about discount rates, etc.).

In that paper, Pindyck proposes a new method. Rather than key values (discount rate, chances of catastrophic outcomes, SCC) being rectally extracted by the modeler, they should be based on a broad sample of expert opinion.

The survey conducted by IPI is a good first step in establishing exactly what expert opinion is on these matters. Not only will it clarify where the profession stands, but it could help inform better, more representative modeling, improving the quality of the advice economists offer policymakers.