Friday, December 01, 2006


In the light of the predictions of economic doom emanating from the Stern report, I thought it might be worth re-running some excerpts from a large econometric paper on one major aspect of the subject. Abstract and conclusions below

The Economic Impacts of Climate Change: Evidence from Agricultural Profits and Random Fluctuations in Weather

By Olivier Deschenes and Michael Greenstone*

Executive Summary

This paper measures the economic impact of climate change on US agricultural land by estimating the effect of the presumably random year-to-year variation in temperature and precipitation on agricultural profits. Using long-run climate change predictions from the Hadley 2 Model, the preferred estimates indicate that climate change will lead to a $1.1 billion (2002$) or 3.4% increase in annual profits. The 95% confidence interval ranges from -$1.8 billion to $4.0 billion and the impact is robust to a wide variety of specification checks, so large negative or positive effects are unlikely. There is considerable heterogeneity in the effect across the country with California's predicted impact equal to -$2.4 billion (or nearly 50% of state agricultural profits). Further, the analysis indicates that the predicted increases in temperature and precipitation will have virtually no effect on yields among the most important crops. These crop yield findings suggest that the small effect on profits is not due to short-run price increases. The paper also implements the hedonic approach that is predominant in the previous literature. We conclude that this approach may be unreliable, because it produces estimates of the effect of climate change that are very sensitive to seemingly minor decisions about the appropriate control variables, sample and weighting. Overall, the findings contradict the popular view that climate change will have substantial negative welfare consequences for the US agricultural sector.



This study proposes and implements a new strategy to estimate the impact of climate change on the US agricultural sector. The strategy exploits the presumably random year-to-year variation in temperature and precipitation to estimate their effect on agricultural profits. Specifically, we use a county-level panel data file constructed from the Censuses of Agriculture to estimate the effect of weather on agricultural profits, conditional on county and state by year fixed effects.

Using long-run climate change predictions from the Hadley 2 Model, the preferred estimates indicate that climate change will lead to a $1.1 billion (2002$) or 3.4% increase in annual agricultural sector profits. The 95% confidence interval ranges from -$1.8 billion to $4.0 billion so large negative or positive effects are unlikely. The basic finding of an economically and statistically small effect is robust to a wide variety of specification checks including adjustment for the rich set of available controls, modeling temperature and precipitation flexibly, estimating separate regression equations for each state, and implementing a procedure that minimizes the influence of outliers. Additionally, the analysis indicates that the predicted increases in temperature and precipitation will have virtually no effect on yields among the most important crops (i.e., corn for grain, soybeans, and wheat for grain). These crop yield findings suggest that the small effect on profits is not due to short-run price increases.

Although the overall effect is small, there is considerable heterogeneity across the country. The most striking finding is that California will be substantially harmed by climate change. Its predicted loss in agricultural profits is $2.4 billion and this is nearly 50% of current annual profits in California. Colorado (-$610 million) and Oklahoma (-$580 million) are also predicted to have big losses, while the two biggest winners are Pennsylvania ($570 million) and South Dakota ($540 million). It is important to note that these state-level estimates are demanding of the data and therefore less precise than is optimal.

Finally, we re-examines the hedonic approach that is predominant in the previous literature. We find that the estimates of the effect of climate change on the value of agricultural land range from -$200 billion (1997$) to $320 billion (or -24% to 39%), which is an even wider range than has been noted in the previous literature. This variation in predicted impacts results from seemingly minor decisions about the appropriate control variables, sample, and weighting. Despite its theoretical appeal, we conclude that the hedonic method may be unreliable in this setting.

Our results indicate that there is room for much additional research in the valuation of climate change. For example, there is little research on the impact of climate change in nonagricultural regions and sectors. Future research should endeavor to produce estimates of the impact of climate change that have a sound theoretical basis and rely on credible identification assumptions.

Thorium reactors could safely solve any Global Energy Crisis

Accelerator driven nuclear reactors based on Thorium may present a solution to the global energy crisis and could help ease political tension globally. Norway could play a key role in this development. This is the opinion of Mr. Egil Lillestol, professor at the Institute of Physics and Technology, University of Bergen. The past year he has spent much of his effort and time convincing the Norwegian public and authorities that nuclear reactors based on Thorium could be the answer to the major energy challenges the world is facing. The professor from the University of Bergen believes that a Thorium power plant is much safer and more efficient than traditional nuclear power reactors:

* There is no danger of a melt-down like the Chernobyl reactor
* It produces minimal radioactive waste
* It can burn Plutonium waste from traditional nuclear reactors with additional energy output
* It is not suitable for the production of weapon grade materials
* The energy contained in one kilogram of Thorium equals that of four thousand tons coal
* The global Thorium reserves could cover the world's energy needs for thousands of years
* Norway has an estimated 180 000 tons of Thorium which based on the current price of oil is equivalent to 250 thousand billion US$, or 1000 times the Norwegian oil fund.

It was the Italian Nobel Laureate, Carlo Rubbia, who came up with the idea of this project which Professor Lillestol wants Norway to initiate. Estimates of energy gains and waste transmutation have been verified in several experiments, which in turn have been checked by the IAEA. What is now needed is the building of a prototype. This will take about 15 years to build and cost approximately 550 M_. It is expected that several countries and institutions will contribute with money as well as know-how if the prototype is realized as an international collaborative effort.

- The current energy crisis dictates us to save energy. Alternatives to the use of fossil fuels must be developed as soon as possible, with direct conversion of solar heat and nuclear power as the only viable options. As an energy nation with large Thorium reserves, Norway has a special responsibility to push the development of an accelerator driven reactor based on Thorium. Within an international project group, Norway should take the lead in the financing, projecting and building of the first prototype of such a reactor inside an international co-operation, says Professor Egil Lillestol



Global warming seems not to include Africa!

Vulnerability to nature is, unfortunately, characteristic of life for most Africans. Millions of people live in conditions of poverty, malnutrition and disease, and are vulnerable to natural disasters and weather-related events like floods and droughts.

At the UN's global warming conference in Nairobi, activists and government agencies are touting these problems as evidence that the continent is already experiencing the devastating effects of global warming. The Inter-governmental Panel on Climate Change predicts that water will be drastically affected by the earth's rising temperatures, especially through a decline in rainfall on the African sub-continent. This, it is alleged, will cause more droughts and damaging floods, resulting in threats to water supplies, harming agriculture, human health and the natural environment.

Yet current predictions of adverse effects of global warming on water supplies, floods and droughts on the African continent are completely unfounded, both in theory and measurement. Alarmists have been quick to uphold regional variations in rainfall as evidence of global warming - but no evidence supports this claim. More broadly, they have assumed that all climatic change is undesirable. In fact, an increase in the magnitude and frequency of heavy rains would be beneficial over most of Africa.

South Africa is the ideal sub-continental region to observe climatic signals related to global warming and water. The eastern part has high rainfall, while the west is an arid desert. The south receives rain in the winter, while the north receives it in summer. The average annual rainfall for the whole region is 500mm, compared to a world average of more than 850mm.

Studying the South African data, we find that the mean annual precipitation over almost the whole of South Africa has progressively increased by at least 9 per cent during the 78-year period of record with a high degree of assurance. The 19 districts that constitute the southern and Western Cape benefited from a 17 per cent (57mm) increase in rainfall from 1950 to 1992. Obviously, in a region like South Africa that suffers from water stress, such change is desirable.

Although the 1990s were reported to be the warmest decade of the past millennium, this was not reflected in an unusual increase in the numbers and magnitudes of exceptional hydrological events in South Africa. More recently, the 2005 global temperatures were proclaimed to be higher than any in the recent geological past. Yet again, no exceptional rainfall, river flows, floods or droughts occurred during the year.

Any additional global warming will further increase the annual rainfall over South Africa. The possibility that it will decrease the rainfall in the foreseeable future is remote and without scientific merit. Meanwhile, neither South African climatologists, nor their overseas counterparts, have produced evidence that links increased carbon dioxide emissions to South African rainfall patterns. The increases discussed above were already occurring early in early parts of the 20th Century - well before post-World War II increases in industrial activity and carbon dioxide emissions.

While the causal linkage between variations in solar activity and global climate can be debated, the parallel increases in sunspot numbers, surface air temperature, open water surface evaporation and rainfall during the last century are incontestable. Records show a significant 21-year periodicity in the South African annual rainfall and river flow records that is synchronous with solar activity.

It is water, not temperature, which determines the habitability of our planet. Furthermore, temperature is a measurement - not a property. It does not feature in hydrological analyses: their principal variables are rainfall, river flow and open water surface evaporation. Their relative values vary greatly from region to region in South Africa. Moreover, it is the consequences - such as changes in rainfall and river flow - that are important, not changes in the atmospheric and oceanic processes that produce them. Proof of global warming is not proof of the postulated undesirable consequences.

In recent years, high losses of life and damage to property in South Africa and elsewhere in the world were primarily the consequence of rising populations and not enough space, so people moved to flood-prone areas. The floods were worsened by socio-economic conditions - not increases in flood magnitude or frequency. This is similarly the case with droughts.

Recently, some scientists have repeated their predictions that global warming will degrade the natural environment, based on the assumption that future climate will be warmer and drier. This alarmist view suffers from two fundamental errors.

First, rainfall is increasing - not decreasing. Second, the predicted increases in temperature are no more than the temperature increase between dawn and midday, to which South Africa's vegetation is well adapted. It is thus unlikely that large swathes of natural vegetation will be destroyed.

Sadly, many claims about how global warming will affect Africa are not backed up by scientific evidence - and those who make them appear to be indifferent to the needs of much of humanity. Environmental doomsayers and alarmist scientists have effectively stifled the debate over climate change, with serious implications for other issues.

For instance, South Africa is rapidly approaching the limit of its available water resources. The only large-scale, viable alternative is energy-consuming seawater desalination. The most economical source of this energy is from coal-fired power stations near the site. If this is not possible because it will increase greenhouse gas emissions, the inevitable consequence will be that South Africa's future development will be increasingly constrained by lack of water supplies.

If the present alarmism continues, Africans will be the first casualties of the war on global warming.



Concerning the discount rate assumptions used in the Stern climate review, Partha Dasgupta [Professor of Economics at Cambridge University] writes:

suppose, following the Review, we set delta [the rate of subjective time preference] equal to 0.1% per year and eta [the elasticity of marginal utility with respect to consumption] equal to 1 [so utility is logarithmic] in a deterministic economy where the social rate of return on investment is, say, 4% a year. It is an easy calculation to show that the current generation in that model economy ought to save a full 97.5% of its GDP for the future!

Thanks to Greg Mankiw for the pointer. What Dasgupta is saying is that the approach Stern uses to evaluate intertemporal trade-offs would, if applied generally, suggest that our consumption should drop from over 80 percent of GDP to 2.5 percent, in order to leave the target legacy to our children. What Dasgupta's comment does is crystallize for me the magnitude of the intellectual swindle that Stern is attempting to pull off. Any time you assign a far-from-plausible interest rate to a long-term intertemporal problem, you get distorted results.

In the Social Security privatization debate, pro-privatization fanatics like Peter Ferrara were using far-from-market interest rates to make privatization sound like a free lunch.

Or consider the swindle of biweekly mortgages, which promise to save you "thousands of dollars of interest." In fact, those savings assumed a zero interest rate. Once you discount at the mortgage rate (or even at a lower short-term rate), and take into account the fees charged by those offering to do biweekly mortgage conversion, you actually come out behind Ed Lathrop's article concludes, "So you think my calling biweekly mortgage plans, "a scam", is being a little harsh? I don't think so, in fact, I think they are out and out robbery!." I used to have an even more biting article about the biweekly mortgage on, but it's no longer available. The closest thing I can find is a Google cache of a highly sanitized version that I was forced to put up when we got some threatening correspondence from one of the biweekly-conversion scam artists.

The Stern Review is arguably the policy equivalent of biweekly mortgage conversion. I hope that is not true for the anti-global-warming crusade as a whole.



Many people would like to be kind to others so Leftists exploit that with their nonsense about equality. Most people want a clean, green environment so Greenies exploit that by inventing all sorts of far-fetched threats to the environment. But for both, the real motive is to promote themselves as wiser and better than everyone else, truth regardless.

Global warming has taken the place of Communism as an absurdity that "liberals" will defend to the death regardless of the evidence showing its folly. Evidence never has mattered to real Leftists

Comments? Email me here. My Home Pages are here or here or here. For times when is playing up, there are mirrors of this site here and here.


No comments: