Climate Change, Carbon Taxes, and Geo-Engineering with Bob Murphy

Episode Summary

Executive Summary: Bob Murphy argues that economists add crucial value to climate debates by translating climate science into policy costs and tradeoffs. He is skeptical of aggressive government intervention, emphasizing how discount rates, model assumptions, and public-choice incentives can radically change the estimated social cost of carbon and policy conclusions. He favors innovation and adaptation over carbon taxes and sweeping regulation.

Main Topics: How Murphy entered climate economics (Priority: 4/5): Murphy explains that he moved into climate research through the Institute for Energy Research, where he was asked to study the economics behind climate policy using IPCC materials and Nordhaus’s DICE model. Why economists matter in climate policy (Priority: 5/5): He argues economists are needed once the discussion moves from climate physics to welfare analysis, taxation, and policy design, because climate science alone cannot determine the optimal response. Nordhaus, DICE, and integrated assessment models (Priority: 5/5): Murphy describes how Nordhaus’s integrated assessment model combines scientific damage estimates with economic analysis to compute an optimal carbon tax, illustrating the economist’s role in climate policy. Discount rates and the social cost of carbon (Priority: 5/5): A major theme is that small changes in discount rates dramatically alter the estimated social cost of carbon, making climate policy conclusions highly sensitive to value judgments about the future. Critique of carbon taxes and government incentives (Priority: 5/5): Murphy questions whether governments can be trusted to keep carbon taxes revenue-neutral and warns that tax interaction effects can reduce economic growth even under a revenue-neutral swap. Global coordination and limits of unilateral action (Priority: 4/5): He argues U.S. action alone has limited climate impact and that global agreements are unlikely to be durable enough to solve the problem, making unilateral carbon taxes inefficient. Technological alternatives to emission restrictions (Priority: 4/5): Murphy ends by emphasizing geoengineering, carbon capture, renewable innovation, and battery technology as more promising responses than coercive emission limits.

Key Arguments: Economists contribute by evaluating welfare effects, taxes, incentives, and tradeoffs that climate scientists are not trained to model. The climate policy debate is no longer mainly about whether greenhouse gases warm the planet; the real dispute is over harms, benefits, and the cost of policy responses. Integrated assessment models like Nordhaus’s DICE use natural-science inputs to estimate the economic damages of emissions and the optimal policy response. The social cost of carbon is highly sensitive to the discount rate, so estimates are not objective in the same way as physical measurements. A higher discount rate can make the social cost of carbon much lower, and in some models even negative for a period, implying net benefits from modest warming. Carbon taxes are politically vulnerable because governments may use them as permanent revenue sources rather than neutral corrective taxes. Even revenue-neutral carbon tax swaps can reduce economic growth because carbon taxes distort labor and capital decisions and interact with pre-existing taxes. U.S. unilateral emissions cuts have limited effect on global temperatures, so the country bears most of the cost while only a small share of the climate benefit accrues globally. Long-run climate solutions are more likely to come from innovation, carbon capture, geoengineering, and clean-tech development than from global tax coordination.

Data Points: Nordhaus 2007 model estimate of climate damages: $23 trillion - Present-value environmental damages under no government action in Nordhaus’s illustrative model calculations Damage avoided under optimal carbon tax: $5 trillion - Amount of damages Nordhaus estimated could be spared by an optimal carbon tax Economic output lost under optimal carbon tax: $2 trillion - Conventional output cost in Nordhaus’s illustrative comparison Net gain from optimal carbon tax: $3 trillion - Difference between avoided damages and output losses in Nordhaus’s model example Obama administration social cost of carbon (2050, 3% discount rate): $69 per metric ton of CO2 - Reported in the administration’s August 2016 update Obama administration social cost of carbon (2050, 5% discount rate): $26 per metric ton of CO2 - Same assumptions as above, but with a higher discount rate Obama administration social cost of carbon (2050, 2.5% discount rate): $95 per metric ton of CO2 - Same assumptions as above, but with a lower discount rate Discount rate used in general federal guidance: 3% and 7% - OMB guidance for federal cost-benefit analyses Climate benefit threshold in one model: Up to about 1.1°C warming - Toll’s fund model found modest warming could yield net benefits before turning harmful U.S. emissions effect on 2100 temperatures if zeroed out by 2050: About 0.1–0.2°C - Estimate cited to show unilateral U.S. action has limited global temperature impact Paris Agreement projected warming if pledges met: 3.2°C - Even full compliance with current Paris pledges would still exceed 1.5°C and 2°C targets Geoengineering estimate cited: $250 million - Approximate cost Murphy says some estimates give for offsetting human-caused warming via atmospheric sulfur injection Carbon-dioxide removal device cost discussed: Expensive today, cheaper later if tech improves - Direct air capture noted as currently costly but potentially scalable in the future

Pivotal Quotes: "the case for aggressive government action is not nearly as strong as you're being led to believe" — Bob Murphy: Murphy summarizes the goal of his climate-policy work at IER "I can give you just about any social cost of carbon you want just by twiddling the dial on the discount rate" — Bob Murphy: He explains why the social cost of carbon is highly sensitive to discount assumptions "the solution is not going to be trusting the governments of the world to clamp down on carbon dioxide emissions in time" — Bob Murphy: He argues that innovation and technological responses are more promising than global policy coordination

Implications: For listeners, the episode argues that climate policy hinges on economic assumptions, not just climate science. It suggests skepticism toward carbon taxes and confidence in innovation, adaptation, and carbon-removal technologies as more practical long-run responses.