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"A carbon tax is a powerful tool"

News: Sep 26, 2019

This interview was made in May 2019, to be published in the School's Magazine later this year. At the end of August, we were reached by the sad news that Martin Weitzman had passed away. We therefore begin this article with some words of memory by Professor Thomas Sterner:

Marty Weitzman has left us. Marty made so many brilliant contributions to environmental economics that it does not feel like any exaggeration to honor him as the most creative and interesting of all our peers. Marty spent a month here as visiting professor in Gothenburg in May. He gave the Tore Browaldh Lecture. He attended a research workshop I organized on climate economics and he talked to a number of graduate students and young researchers, sharing generously of his time and knowledge.

Personally I loved his style. There are other famous economists who breeze in to a lecture and say here is a difficult problem and Voila: here is my elegant solution. Marty would be much more humble: He would say that this problem is so hard, I have been thinking of various solutions but I don’t quite know how to solve it – and he would invite the audience to share his thoughts for an hour. It always felt like a privelige. It was great to have him here in Gothenburg for an extended visit and to share some private time on the coast.

Read also: ""Marty Weitzman, In Memoriam" by Gernot Wagner

Why is it so hard to put a price on carbon emissions? This is a subject that Martin Weitzman, Research Professor of Economics at Harvard University, has studied for decades. Some of the main hurdles are probabilities and politics.

At the age of 77, Martin Weitzman has had a long and successful career. Today he is a Research Professor of Economics at Harvard University, one of the leading authorities on the economics of the threatening climate disaster, and invited by Professor Thomas Sterner to hold this year's Tore Browaldh lecture at the School of Business, Economics and Law.

Hard to estimate the social cost

A main point put forward by Martin Weitzman is that the human mind is ill equipped to understand the process of climate change.

“One of the problems is the time scale involved. Climate change takes place over centuries and millennia, whilst even a decade is a very long time in daily life and politics. Another aspect relating to time is the power of compound discount for the social cost of carbon emissions. Over 200 years, the difference between 7 percent, which is the average real return of capital in the US, and 3 percent, which is what consumers face after taxes, is a factor of 3,000,” says Martin Weitzman.

He is convinced that the most powerful tool for reducing carbon emissions is imposing a carbon tax. But estimating a proper value for the social cost of carbon has precision problems. When the Obama administration strove to calculate the social cost of emitted carbon dioxide they arrived at an estimated cost of USD 45 per ton.

“But when the Trump administration did re-estimates, they arrived at a future cost of USD 1 per ton. The numbers are fuzzy and the chosen assumptions are entwined with politics,” says Martin Weitzman.

Probabilities complicate the picture

To complicate the picture even further, he says, people often have a poor grasp of probabilities.

“There is a tremendous amount of probability involved, and people don't like uncertainty – they want hard numbers. Thus, we economists are faced with either providing fuzzy numbers for the cost of emissions, or we say that we honestly don't know. But the latter unfortunately would, with all that we know about human behavior, be interpreted as zero.”

It's a complex issue, and further convoluted once you take in a myriad of other factors, like proposed geo-engineering solutions or the rapidly increasing risk of catastrophic climate change with rising temperatures. Martin Weitzman is not entirely confident that we will navigate these troubled waters safely.

“A part of me is skeptical. I think that the fear must rise before countries will join a global community to stop pollution. Without that, I'm pessimistic. The Paris Agreement is much better than nothing. But at the end of the day, it's completely voluntary, and very weak.”

As a thought experiment, Martin Weitzman has proposed a World Climate Assembly to address the issue; a global body where member countries would vote on a uniform binding price on carbon emissions.

“I'm not sure it will ever become a reality, but I think it is what the world needs,” says Martin Weitzman

Photos by Carina Gran.


Originally published on: www.handels.gu.se

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