Climate change denial is given a platform by the American Journal of Economics and Sociology

This editorial by the governing board of the American Journal of Economics and Sociology caught my attention, and was a real surprise. It says:

As part of a planned special section on climate change, an earlier AJES editor solicited an article by Andy May and Marcel Crok that was intended to counterbalance the scientific consensus that climate change is a serious problem caused largely by human activities. However, since the article was written more in a spirit of defiance or rebellion than as a contribution to a dialog, it has posed a number of problems for the journal.

So far, so problematic. But then it takes a turn for the worse:

The easiest decision would have been to simply pull the article and to publish the other articles in the issue. However, similar articles are ubiquitous on the Internet, and withholding publication will not restrict the flow of popular criticism of the climate consensus. Since the aim of AJES is to serve the public by discussing questions of social significance, we have chosen to make use of an awkward situation by confronting directly the abuse of research methods in this article. Rather than backtracking and refusing to publish an article that would normally be rejected, we prefer to publish the article in question in combination with (1) this explanation of why AJES has chosen to publish it, (2) a rebuttal by physicist Tinus Pulles, and (3) an examination by Clifford Cobb, a former AJES editor, of the social and political context of the climate debate. We hope that everyone might gain by opening climate-change denialism to scrutiny in this way.

I'm not a huge fan of de-platforming people. However, this is a case where the authors should have no expectation of being published. As the governing board says, the article would have normally been rejected. If you read the rest of the editorial, it is clear that the article fails to meet basic standards of scholarship, and for that reason alone it should not have been published. Because there should have been no expectation of being published, the authors aren't really being denied a platform that they otherwise should have had access to. The tricky thing is that the article was invited. But nevertheless, invited articles should still be subject to peer review and editorial discretion on their suitability for publication.

To make matters worse, the governing board's response is ineffective. While they have published a rebuttal and the editorial, most readers will access the May and Crok article directly from the web. Accessing the article directly here, there is no indication on that page that the rebuttal or the editorial even exist. A small amount of comfort is provided by the article not being open access, and therefore behind the Wiley paywall. Only readers with an institutional or other subscription will have access to it (although there are ungated versions available elsewhere). Fortunately, the rebuttal by retired environmental scientist Tinus Pulles is open access, and therefore available to everyone. But again, few who read the original article will know that the rebuttal exists, even though it is available open access.

Climate change is a serious issue, and requires serious scholarship. While it may be possible that the broad scientific consensus is wrong (it wouldn't be the first time), it would take some theoretically well-reasoned and empirically strong research to overturn it. This is not that research. And for that reason, it is incredibly disappointing that the governing board of American Journal of Economics and Sociology have given it an airing. We should expect better from the authorities that are tasked with protecting the quality and integrity of published research.

Climate change is coming for your morning caffeine fix

The Financial Times reported last week (paywalled):

The price of coffee is set to rise from its current record high as climate change, shipping disruptions and new EU regulations drive up costs for roasters, Italian coffee giant Lavazza has warned...

However, Giuseppe Lavazza, chair of Lavazza Group, which owns Lavazza coffee, said the price of coffee on UK supermarket shelves, which is already up by about 15 per cent this year, could rise close to another 10 per cent by next year...

Coffee roasters such as Lavazza have been forced to put up prices and reduce profit margins as the cost of the raw material has surged, said Lavazza, who is the fourth generation to head the Turin-based coffee group...

“Climate change has affected the production in the most important robusta countries around the world, mainly Vietnam and Indonesia, reducing quite a lot the quantity available of these kinds of varieties.”

Weather forecasts suggest the next Vietnamese harvest will fail to replenish waning supplies of robusta coffee beans, which are used in espresso and for instant coffee.

To see what is going on in the coffee market, we can use the simple model of supply and demand (which I'm covering in my ECONS102 class this week). Consider the coffee market, shown in the diagram below. Last year, the market was operating at equilibrium, where the demand curve D0 intersects the supply curve S0. The equilibrium price of coffee was P0, and Q0 coffee was traded. The poor coffee production due to climate impacts decreases the supply of coffee from S0 to S1. As a result, the equilibrium price of coffee increases to P1, and less coffee (Q1) is traded.

Some consumers may be tempted to switch from coffee to tea (coffee and tea are substitutes). However, there is little respite from the higher prices to be found in tea. Even putting aside the fact that there might be negative climate impacts on tea production, the higher price of coffee, and the switching of consumers from coffee to tea, will likely drive up the price of tea as well.

To see why, consider the market for tea, shown in the diagram below. Last year, the tea market was operating at equilibrium, where the demand curve DA intersects the supply curve SA. The equilibrium price of tea was PA, and QA tea was traded. Consumers switching from coffee to tea increases the demand for tea from DA to DB. This leads to an increase in the price of tea to PB, and an increase in the quantity of tea traded, to QB.

Climate change has a lot to answer for, and now it's coming for your morning caffeine fix. 

Taxing carbon emissions in agricultural markets with exports

In my previous post, I discussed the effect of an agricultural emissions tax. The effect of the tax would be to reduce New Zealand production of agricultural goods, and less production of agricultural goods in New Zealand means less agricultural emissions originating in New Zealand. However, as I noted in the footnotes to the post, the analysis left out the market effects of international trade. I argued that:

...the omission of trade doesn't affect the conclusions we draw from the model, that taxing agricultural emissions would increase the domestic price and decrease the quantity of dairy products traded.

Let's look at the market again in this post, but with international trade included. Before we get that far, it is worth revisiting the effect of international trade in an exporting country. This is shown in the diagram below. This is the market for an exporting country, which means that this country has a comparative advantage producing the agricultural good. That means that this country can produce the agricultural good at a lower opportunity cost than other countries, which is represented on the diagram by the domestic market equilibrium price of (PD) being below the price on the world market (PW). Because the domestic price is lower than the world price, if the country is open to trade there are opportunities for traders to buy the agricultural good in the domestic market (at the price PD), and sell it on the world market (at the price PW) and make a profit (or maybe the suppliers themselves sell directly to the world market for the price PW). In other words, there are incentives to export the agricultural good. The domestic consumers would end up having to pay the price PW for the agricultural good as well, since they would be competing with the world price (and who would sell at the lower price PD when they could sell on the world market for PW instead?). At this higher price, the domestic consumers choose to purchase Qd0 of the agricultural good, while the domestic suppliers sell Qs0 of the agricultural good (assuming that the world market could absorb any quantity of agricultural goods that was produced). The difference (Qs0 - Qd0) is the quantity of agricultural goods that is exported. Essentially the demand curve with exports follows the red line in the diagram.

Now consider what happens if the government decides to tax production of the agricultural good. For the moment, let's assume that the tax doesn't affect the world price (we'll come back to that later). Sellers who sell to the world market receive the world price PW, but then must pay a tax (T) to the government, which leaves them with (PW - T). There is less incentive to sell the agricultural good, so less will be produced. The quantity of the agricultural good supplied decreases to Qs1. The domestic consumers must still compete with the world market, so they still face the price of PW, so the quantity of the agricultural good demanded remains Qd0. So, as we saw in my previous post, the agricultural emissions tax would reduce domestic production of the agricultural good.

But what happens if the reduction in domestic production is large enough that it reduces global supply of the good? Then, we are back to the analysis in the previous post, where the price increases in the domestic market (because the world price increases and domestic consumers must also pay the world price), and production of the agricultural good decreases.

So, in markets where New Zealand is a large producer and has an appreciable effect on the world price, an agricultural emissions tax would reduce New Zealand production. And, in markets where New Zealand is a small producer and has no effect on the world price, an agricultural emissions tax would reduce New Zealand production and New Zealand emissions. Whether the tax would reduce global emissions, though, is a much more complicated question. It depends on all of the factors I highlighted in the previous post, and we don't have a complete answer to it yet (however, as I noted, it is likely that global emissions will be somewhat lower). I'll reiterate that there is more research needed in this area.

Read more:

• The question of carbon emissions 'leakage' is not as simple as some people would have you believe

The question of carbon emissions 'leakage' is not as simple as some people would have you believe

Agricultural emissions policy has been in the news recently (see here and here), with the National Party in favour of pricing agricultural emissions in such a way that there is "no leakage". What do they mean by leakage? As this RNZ article explains:

...Aotearoa is already one of the most efficient producers of meat and dairy products globally. If we reduce emissions here, will that not simply lead to other, less efficient countries picking up the lost production, while our farmers pay the price?

This idea is known as "carbon leakage" and is often used as an argument against any domestic policy that could result in reduced agricultural production. The issue is important as New Zealand depends heavily on agricultural exports. In 2022, of all merchandise trade, 65 percent were agricultural commodities.

How plausible is carbon emissions leakage as a result of reducing agricultural production in New Zealand? Let's focus on New Zealand production of dairy products [*]. We'll use a basic supply and demand model to explain what is happening. The diagram below shows the domestic market for dairy products [**]. If the market were left alone with no emissions price, it would operate at equilibrium with a price of P0, and Q0 dairy products would be traded. When the emissions price (effectively a type of excise tax on dairy products) is imposed, we represent that with the new curve S+tax. The price the consumer pays for dairy products increases to PC, but the effective price for the seller decreases to PP (which is the consumer's price PC, minus the amount of the emissions tax paid to the government). The quantity of dairy products traded decreases to QT. And, because less dairy products are traded, fewer cows are needed, and agriculture-related emissions are decreased.

Notice that there's no emissions leakage in this model. Nothing else is going on. That's because we're only looking at a model of partial equilibrium. We are looking at the domestic market for dairy products, in isolation. New Zealand is producing less dairy products, but the world still wants lot of dairy products. So, the argument goes, other producers will increase production to fill that demand.

However, that ignores the fact that New Zealand is a huge producer of dairy products for export. Higher prices of New Zealand dairy products (because of the agricultural emissions tax) will increase the global price of dairy products. When the global price goes up, dairy consumers will demand less dairy products. So, we can expect fewer dairy products to be produced globally.

Even that conclusion is incomplete though, because it ignores the dynamics. When the price of dairy products is high, profits are higher, and that might encourage more producers to enter the market, increasing supply. That would lower the global price of dairy products, and increase the quantity of dairy products demanded.

We're still not done though. Those new dairy products manufacturers will be higher-cost than New Zealand producers (if they weren't, then they would be producing dairy products already). So, the increase in global supply won't fully offset the reduction in New Zealand supply. And, an increase in global supply of dairy products must mean a decrease in the global supply of some other agricultural commodity that those new suppliers were previously producing. To understand emissions leakage, we need to get a handle on these general equilibrium and dynamic effects.

And finally, we get to the question of whether the new global dairy product suppliers have higher carbon emissions than New Zealand producers, as well as whether producing dairy products has higher emissions than whatever it was that they were previously producing.

So, you can see, the question of whether pricing agricultural emissions in New Zealand leads to emissions leakage doesn't have a straightforward answer. It requires a substantial understanding of global and local agricultural markets, agricultural supplier response to price changes, and the substitutability of agricultural land between different uses, and the carbon emissions of different land uses, both in New Zealand and overseas.

Some smart economists are working on understanding this though. As the same RNZ article notes:

It's difficult to know exactly what might happen in agriculture, as emissions pricing on agricultural products has not yet been used elsewhere. There is no historical evidence to draw on.

International modelling studies present a mixed picture of the likelihood of leakage: an OECD study estimated 34 percent of agricultural emissions would be leaked, mostly to developing countries.

Recent modelling for New Zealand examines a series of scenarios of domestic pricing on its own as well as international pricing. The results show that for the current proposal where only 5 percent of emissions are priced to begin with, with a 1 percent increase each year, New Zealand's production of meat and dairy products could decline by 2050...

This shows leakage may occur, with reductions in production of New Zealand dairy products. But global meat and dairy production by 2050 would be considerably lower than without the policy, which would have a positive overall impact on the climate.

Perhaps we can take away from the evidence so far that there is some emissions leakage, but it's not complete. Not all emissions reductions are leaked overseas. So, pricing agricultural emissions in New Zealand would likely lead to lower global emissions in total. Clearly, there is more research needed in this area, but based on what we know so far, I think it's ridiculous that we give one of the largest emitting sectors a free pass on contributing to climate change. If anyone tells you that all of our emissions would simply move overseas, you should probably examine their motivations for doing so.

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[*] The case is much simpler for the production of other agricultural products, where New Zealand production doesn't affect the global price. If a reduction in New Zealand production is so small that it doesn't affect the world price, then it doesn't create any incentive for other countries to produce more. So, there is unlikely to be any emissions leakage of note.

[**] For simplicity, I'm ignoring two things in this market diagram. First, the diagram doesn't show a negative externality, for example the impact of dairy emissions on the climate. So, the supply curve shouldn't be equal to marginal social cost (MSC), as MSC should also include the social cost of the emissions. However, correcting for that wouldn't change the general conclusion, that taxing agricultural emissions would increase the domestic price and decrease the quantity of dairy products traded. It would simply move the market closer to the socially-optimal quantity. Second, the diagram doesn't include international trade, which has important effects on the New Zealand domestic market for dairy products. However, including trade in a diagram of the dairy products market for New Zealand is not as simple as including the world price (as in this post, for example), because the world price of dairy products is directly affected by New Zealand production. One way of solving that problem is to assume that demand in the New Zealand market reflects global (rather than just domestic) demand, and then the diagram looks much as we have drawn it. Again, the omission of trade doesn't affect the conclusions we draw from the model, that taxing agricultural emissions would increase the domestic price and decrease the quantity of dairy products traded.

How not to analyse the relationship between climate and international migration

I've done research before on the relationship between climate and migration (see this post, and the paper published here, or ungated here). So, I was really interested to read this new article by Dennis Wesselbaum (University of Otago), published in the journal Letters in Spatial and Resource Sciences (open access). Wesselbaum uses data on migration flows from 198 countries to 16 OECD countries, along with temperature data from the Berkeley Earth database, and weather-related disasters data from the EM-DAT (international disasters) database. Controlling also for GDP, population, political freedom, life expectancy, and share of agricultural land, he finds that:

...temperature, but not weather-related disasters, have a significant direct effect on migration in our sample. Temperature has a smaller effect on migration towards OECD countries in Asia compared to Europe, Africa, and North America. For disasters, we only find a stronger effect on migration in Asia compared to Africa. Temperature matters in most regions while disasters do not.

However, as the Economics Discussion Group students and I discussed in our most recent session, there are two key statistical problems with Wesselbaum's analysis. The first is the way that migration flows equal to zero (of which there are likely to be many) are dealt with. Because the dependent variable is the log of migration, and the log of zero is undefined, Wesselbaum deals with this by "adding one to all flows". That creates a problem of bias, as I noted in this recent post. Most migration researchers have instead adopted the Poisson pseudo-maximum likelihood (PPML) approach (see this working paper, for example), as it not only copes with zero values, but also deals with over-dispersion.

The second issue is likely to be more problematic. The three key variables in the analysis (migration, temperature variation, and weather-related disasters) are all trended over time. When you run an analysis with a long time-series (or, as in this case, a long panel dataset), then time trends in the variables can lead to spurious correlations. That's the reason why per capita cheese consumption is highly correlated with the number of deaths by bedsheet entanglement:

Two variables that are both trended over time will tend to look like they are closely correlated, even when a change in one of the variables does not cause a change in the other. Even when you use more complicated statistical methods, this remains a problem. To see why that may be a problem here, consider Figures 1-3 from Wesselbaum's paper:

Notice how all three variables have an upward trend. Economists refer to these time series as being non-stationary (which essentially means that the mean value of the variable is not constant over time). That doesn't mean for certain that there are problems in Wesselbaum's analysis, but it does mean that he should have tested for non-stationarity in the variables. If time series variables are found to be non-stationary, a simple solution can be to take first-differences (so that each variable would then be the difference between its value at time t, and its value at time t-1). Since Wesselbaum doesn't report the tests for stationarity, we have no way of knowing how serious the problems are, and the risk is that the correlation he identifies is simply spurious, and driven entirely by the time trends in the data.

This is not the way to analyse these data. However, it does open an opportunity for a good Honours or Masters student to replicate the analysis with a better approach.

Read more:

• Climate change and migration in poor and middle-income countries

Fuel price controls vs. climate change

Sometimes, government policy just makes little sense. And sometimes, the economic model that you have in your head doesn't help. Take the example of fuel price controls, which Timothy Welch (University of Auckland) wrote about in this article in The Conversation last week:

The government announcement that the Commerce Commission will soon have the power to regulate wholesale petrol and diesel prices might be good news for cash-strapped motorists, but it’s arguably a retrograde step in the fight against climate change.

While there is some scepticism about whether the commission will ever act to enforce fuel price caps, any move to make carbon-emitting vehicles more affordable must come at the expense of efforts to encourage people out of cars and into more sustainable modes of transport...

Aside from being counter to other plans to mitigate climate change, there is plenty of evidence that price caps can often cause outcomes opposite to those intended. Sometimes, leaving it to the market can be the better option. 

Let's look at this. If the government puts a price control on a perfectly competitive market, we can illustrate its effect with the supply and demand model, as shown in the diagram below. The equilibrium price of petrol is equal to P0, and Q0 petrol is traded. The government thinks that price is too high, so (through the Commerce Commission) they implement a price ceiling (a legal maximum price) of PMAX, which is below P0. The consequence is that the quantity of petrol demanded increases to QD, but the quantity of petrol supplied decreases to QS. There is a shortage of petrol, and only QS petrol is traded.

So, with the price control, less petrol is traded than without the price control. That seems like a win-win for consumers and the climate, and would suggest that we should not be concerned. However, there are two problems here. First, many consumers would be missing out on petrol (there is a shortage at the price ceiling of PMAX). So, it doesn't make all consumers better off. However, the second problem is more fundamental. The market for petrol is not perfectly competitive. While I have argued before (for example, here) that the supply and demand model is usually robust to situations where the market is not perfectly competitive, government intervention in the market is an exception. The firms in the market for petrol have some market power, because they differentiate themselves (on the basis of branding, and the location of their outlets).

A more correct model is shown in the diagram below. The firm with market power operates at the profit maximising quantity, which is the quantity where marginal revenue is exactly equal to marginal cost. That is the quantity Q0, and in order to sell Q0, the firm charges a price of P0 (because with a price of P0, consumers will demand exactly Q0 units of petrol, which is the quantity that maximises profits). When the government implements its price control at PMAX in this market, the price falls, and the quantity of petrol traded increases to Q1. Unlike in the perfectly competitive market, a firm with market power is willing to satisfy the additional consumer demand at the lower price by selling more. So, if the market for petrol has some market power (which we know it does - it is an oligopoly), a binding price control would induce consumers to buy more, with greater impacts on the climate.

However, that isn't the end of the story. The government isn't proposing a price control on retail petrol, but instead on the wholesale price. The analysis above doesn't quite capture that. So, instead of a price control on a firm with market power, we should be showing what happens when a firm with market power has lower costs (because a lower wholesale price of petrol would lower the retail petrol outlet's costs). This is shown in the diagram below. Without the price control, the firm's costs are shown by the line MC0=AC0. The firm profit maximises with a price of P0, and sells Q0 petrol. After the price control is introduced, the firm's costs decrease to the line MC1=AC1. The new profit-maximising quantity is Q1, and the new profit-maximising price is P1. The firm with market power passes on some of the cost savings to consumers in the form of a lower price of petrol (which is what the government intends), and the consumers respond by buying more.

For a government that has stated that climate change is this generation's nuclear free moment, this seems like a very odd policy choice. However, understanding why relies on having the right economic model in mind. And that would be very important if Welch got his way and we had:

...some robust debate about whether the new Commerce Commission powers are necessary. That will involve asking whether making fossil fuels more affordable runs counter to our climate change goals, and whether we are trading planetary health for short-term economic relief.

More on climate risk, insurance, and moral hazard

Nearly two years ago, I posted about climate risk and disaster insurance, noting that insurance premiums for the homes most at risk as a result of climate change, including coastal properties, were likely to face increasing insurance premiums. The most surprising thing is that, nearly two years on, there hasn't yet been a major shift by the insurers. Until now, as the New Zealand Herald reported last month:

A major insurer is eyeing risk-based pricing for coastal erosion, in what's being described as another landmark step by the industry to confront climate threats.

Last year, Tower became New Zealand's first insurer to introduce a new pricing model based on individual homes' risk of flooding from rainfall and rivers – and to make such ratings public.

It meant about 100,000 customers received either a low, medium or high rating for their home, reflecting the potential risk of a flood and the estimated cost of replacing or repairing.

About one in 10 customers received a small hike in the flood risk portion of their premiums – while a few hundred that received a high or very high ratings saw increases of more than $500 a year.

In some cases, the company needed to find customers alternative insurance cover, chief executive Blair Turnbull told the Herald.

 That story came hot on the heels of this one the day before, also from the New Zealand Herald:

Properties worth $1 million on Wellington's Petone foreshore could cost $100,000 a year to insure in 20 years, a climate risk expert says.

The warning came as the Government grappled with whether to set up its own flood insurance scheme to cover people as private insurers become less willing to.

Climate change is driving increasingly common and damaging storms, and it, coupled with sea level rise, means thousands of homeowners in harm's way face spiralling premiums or having cover pulled altogether.

The scary thing about that story is the mere suggestion that the government might get involved in offering insurance to high-risk properties. That is exactly the problem I was concerned about in my post from two years ago. The government offering insurance to coastal properties, or properties on flood plains, or those at risk of severe erosion, or whatever, leads to a problem of moral hazard.

Moral hazard arises when one of the parties to an agreement has an incentive, after the agreement is made, to act differently than they would have acted without the agreement. In this case, the agreement is between the government, and homeowners (or potential homeowners) of high-risk properties. After the government creates an insurance scheme for high-risk properties (or agrees to subsidise insurance premiums in some way), that reduces the costs of owning an at-risk property. When the cost of something decreases, we tend to do more of it than we would otherwise. At the margin, people will be a little more likely to buy or live in at-risk properties, or to construct more at-risk properties. It likely makes the problem of the amount of assets (and people) at risk of sea level rise, coastal inundation, erosion, etc. even worse.

This is not just an issue that New Zealand is grappling with. As this July article in The Conversation, by Brian Cook and Tim Werner (both University of Melbourne) notes in relation to the Sydney floods that month:

In flood risk management, there’s a well-known idea called the “levee effect.” Floodplain expert Gilbert White popularised it in 1945 by demonstrating how building flood control measures in the Mississippi catchment contributed to increased flood damage. People felt more secure knowing a levee was nearby, and developers built further into the flood plains. When levees broke or were overtopped, much more development was exposed and the damages were magnified. “Dealing with floods in all their capricious and violent aspects is a problem in part of adjusting human occupance,” White wrote.

Cook and Werner note that:

To tackle flood risk, we have to respond to the social, political, economic, and environmental factors that drive development and occupation of floodplains.

Surprisingly, Cook and Werner don't note the additional problems that providing additional insurance to at-risk property owners would create. They are right that there are a range of inter-related factors that lead to development in at-risk and largely inappropriate locations. Their solution is to prohibit development in those areas. Prohibition is a very blunt instrument, but at the very least government shouldn't be considering policies that would incentivise more at-risk development. We need to ensure that homeowners and developers adequately take into account the actual climate risks that their properties face. There is evidence that coastal properties are not sufficiently risk-priced (see this post). Only then will we see a reduction in at-risk developments, as well as saving the taxpayer from covering the costs of coastal property owners' and developers' decisions.

*****

Read more:

• Climate change risk, disaster insurance, and moral hazard

The climate migrant is dead (and what we should do about it)

Samuel Huckstep , Reva Resstack and Helen Dempster at the CGD Blog ask, is there any point in defining a "climate migrant"? Their answer is that defining a climate migrant might not be worth the hassle. That's because it's difficult to determine whether it was climate that caused migration, or something else. They provide the example of:

Consider Joseph the farmer and his family. He could spend most of his money on irrigation, but instead chooses to send his daughter to school. When a drought decimates his crops, he decides to move to a city just across the border to generate income for his family and keep his daughter in school.

Is Joseph moving because of climate change, because of socioeconomic factors, or both?

It's a relevant question to ask. However, understanding the relationship between climate change and migration doesn't necessarily require us to discern the motives of migrants. Given data on climate, and data on migration flows, we can assess whether the two are related. That is essentially what I did in this 2017 article (ungated version here), which I discussed here.

Despite the definitional problems, lots of people (including policy makers and the media) talk about 'climate migrants' or 'climate refugees' (I've done it myself). That presents a problem. To see why, consider the argument in this 2019 article by Ingrid Boas (Wageningen University) and many (including some very high-profile) co-authors, published in the journal Nature Climate Change (ungated version here):

The UNFCCC explicitly specifies the need to avert, minimize and address climate displacement... while the UN Security Council warns of mass climate migration and the subsequent risk of aggravating conflicts... Although the potential for climate change to disrupt livelihoods and threaten lives is real, these policies reinforce a false narrative that predicts large numbers of ‘climate refugees’. This self-referencing narrative in scientific literature and policy reports has the consequence of entrenching climate migration as a looming security crisis without an empirical scientific basis...

Instead of being challenged, this emphasis on securitization (presenting climate change and migration as a security risk) is actively being perpetuated by public funding schemes for scientific research intended to inform national, regional or international policy development.

The willingness to accept a large estimate of 'climate refugees', without any critical thought whatsoever, was one thing I noticed about climate change researchers, media, and policy makers alike. This was particularly a surprise for me, since I expected the researchers to be a little more evidence-based (and the evidence base for a claim of up to one billion climate migrants by 2050 is pretty shaky, and was more so when I was working in this area [1]).

Boas et al. have a solution though. They recommend six research priorities, to help us to better understand the climate-migration relationship:

First, research and research funding must enable the assumption that climate change causes mass human migration to be interrogated, rather than simply reinforcing it. There is already considerable evidence that migration is not solely driven by climate change. It is instead influenced by a mix of climatic, socio-economic, cultural and political factors... Even when climate change does play a role, it remains difficult to determine the extent of its influence...

Second, the term migration does not capture the diverse ways in which people do or do not become mobile in response to a changing climate; the term should therefore be avoided. Some people may temporarily (or even seasonally) move, while others may permanently relocate to nearby urban centres... Regardless, mobility commonly involves relatively short distances, meaning that people typically move within their country or region...

Third, new research supported by scientific funding programmes should examine and address climate mobilities as the new normal, rather than the exception...

Fourth, it is crucial to fund and engage in research that goes beyond attempts to quantify and model new mobility resulting from climate change...

Fifth, research needs to better include affected populations in climate mobilities research...

Finally, research on climate mobilities needs to shift part of its focus from climate-sensitive sending areas to destination areas.

Some of those priorities (for example, #2 and #4), seem a bit self-serving (at least they didn't recommend radically increasing funding for migration research, or that would be a dead giveaway). However, the general point is clear. The way that research on climate and migration is being interpreted and used is not right, and needs to be addressed.

That suggests to me that there is a seventh priority that Boas et al. missed - that researchers should be funded (and expected) to better engage with media and policy makers on what any climate-migration relationship actually means in practice. Science communication is one thing that the climate researchers have learned to do really well, and which the rest of the research community could stand to do a bit better. It might not be worth it to define a 'climate migrant', but communicating why is definitely worth the hassle.

Read more:

• Climate change won't much affect internal migration in NZ
• Climate change and migration in poor and middle-income countries
• Why Tuvaluans aren't migrating due to climate change, yet
• Climate and internal migration in Kiribati, and what that might tell us about climate refugee flows

*****

[1] I haven't read in detail the methods underlying the World Bank's Groundswell Report, which projects 216 million 'climate migrants' by 2050. However, I would be very surprised if it held up to close scrutiny.

Confused (or cynical) policy on fuel taxes and public transport prices

I've been meaning to write about the government's announcement last week of changes in petrol excise tax and public transport fees. From the government's press release:

The Government will cut 25 cents a litre off fuel for three months as part of a cost of living package aimed at giving Kiwi families immediate relief through the current global energy crisis triggered by the war in Ukraine, Prime Minister Jacinda Ardern announced today. 

Fuel excise duties and road user chargers will be reduced by 25 cents each and the price of public transport will be halved as part of a package of measures to reduce transport cost pressures on middle and low income households.

“We cannot control the war in Ukraine nor the continued volatility of fuel prices but we can take steps to reduce the impact on New Zealand families,” Jacinda Ardern said.

That's fair enough. Around the same time as this announcement, the Prime Minister finally acknowledged that New Zealand is facing a cost of living crisis (which in itself is unnecessary hyperbole, since literally everything seems to be a crisis these days - the word crisis is starting to lose all meaning). Inflation is at the highest level in a generation. Pay rises are not keeping up, meaning that real wages are falling. But all of that was the case before Russia invaded Ukraine. And fuel prices are only part of the cost of living story. So why wait until now to address cost of living? Despite the war, cost of living didn't suddenly become an issue last week. Or did it? The cynical view, expressed for example by Jack Tame, is that:

...petrol taxes would never have been cut if Labour had been well ahead in last week's poll. They saw the poll numbers. They freaked out. They dropped almost $400m to try and win back some popularity.

A slightly less cynical take is that, for the reduction in public transport fees at least, the government may have planned to include the change in the Budget (to be announced in May), but felt the need to bring them forward (although, the reason why they would announce it early so gets us back to the recent negative political polls).

Anyway, there are two serious problems with this policy package of reducing excise taxes on fuel, and increasing public transport subsidies. First, it isn't well targeted. My wife and I really appreciated being able to fill our car with petrol for $30 less on our way back from Whanganui last week. But surely the purpose of the petrol excise reduction was not to assist in defraying the cost of inter-city travel for families in the top quintile of earnings? If the government really wants to help low-income families dealing with a higher cost of living, they should increase Working for Families, increase benefit rates, or pay a one-off payment through the benefit or tax system. Then the money goes to those who really need it. And if they don't need it for fuel, they can use it for something else. To be fair, the Prime Minister reminded us that they are doing some of that as well:

“In addition on April 1 a suite of permanent increases to household incomes will see 60 percent of families earning more from Working for Families, as well as increases to superannuation and benefits. On May 1, one million New Zealanders will also start receiving the Winter Energy Payment which will provide $30 a week extra to many.”

However, those are not new changes, having been announced much earlier (see here and here). The government could have made the benefit and WFF increases even larger if they wanted to mitigate further increases in the cost of living. Alternatively, given that the excise tax reduction is temporary, perhaps the government could have given a temporary increase in benefits and WFF (although, it would be much more difficult for those changes to be undone later, with potentially negative political consequences).

The second problem has been well laid out elsewhere (see these posts by Eric Crampton or Matt Nolan). If climate change really is this generation's nuclear-free moment, why on earth would the government undo some of the good work that the Emissions Trading Scheme is doing, by making carbon-emitting vehicles cheaper to run? Yes, the lower public transport fees may induce some commuters to switch to public transport, but lower fuel prices totally work counter to that, decreasing the incentives for commuters to switch to public transport.

All up, it's hard to see those policy changes as anything but a cynical vote grab. They aren't targeted at reducing costs or increasing incomes for those who truly need it. They're undoing an otherwise positive effect of high fuel prices on carbon emissions. And they're unlikely to have a positive effect (and may even be counter-productive) in terms of public transport patronage. Possibly, the government is hoping that the voting public has the same low level of economic literacy that they do. Things may not be that bad, yet. On the plus side, the government now seems to recognise that an excise is a tax.

Climate change and population control

I had my first ever article published in The Conversation this morning, on population control and climate change. I encourage you to read it.

The process of writing and getting the article published has been an interesting experience. It started as a request from the University's communications team to write something 'for the University website'. Once I had written a draft though, it became clear that I was being subjected to what I am sure was a pretty unsophisticated bait-and-switch, when the comms people recommended I pitch the article to The Conversation. The article appears to be doing what they intended though, and my email has been pinging constantly all day as the article attracts comments (129 comments so far, and counting - for context, that is more comments than all other articles by University of Waikato staff have attracted in the last month).

Anyway, there isn't much space to write in depth about the issues in the 800 words that The Conversation allows, and the original 1200 words I drafted got pared back substantially. The main issue I wanted to highlight is that, when some people argue that we should curb population growth to reduce carbon emissions (or climate damage more generally), there are a number of key issues that need to be considered. First, there is an ethical or moral issue, as Ross Douthat discussed in this article back in November. As I noted in my article:

If our concern about climate change arises because we want to ensure a liveable future world for our grandchildren, is it ethical to ensure that pathway is achieved by preventing some grandchildren from ever seeing that world because they are never born?

Second, it's not clear that government-enforced population control is even necessary, because:

All high-income countries currently already have below-replacement fertility, with fewer children being born than are necessary to maintain a constant population.

What does that mean? I took my starting point as the Kaya Identity, which breaks carbon emissions exactly into four components:

1. Population
2. GDP (or production) per capita;
3. Energy use per unit of GDP (or production); and
4. Carbon emissions per unit of energy use

To reduce emissions, we would need to reduce one or more of those components. Taking into account that the first two components are growing, if we can't easily reduce population and we are unwilling to reduce economic growth, then we need to reduce the energy intensity of the economy or the carbon intensity of energy production. And if we can't do either of those things (and, to be honest, we haven't done a good enough job so far), then we would have to undertake some challenging conversations about the first two.

Anyway, against my better judgement I have been following along the discussion in the comments, and a couple of very valid points have been raised. So, I thought I would make some comments about them here.

First, the moral or ethical issue that I raised has been challenged. Some people have missed the point that it is a philosophical question and so, while the answer might seem obvious on the surface, the reasoning is less so. However, aside from the philosophical question, the moral issue I raised does take a human-centred view of the world, whereas if you take a planet-centred view there is no such issue. That is, would we save the planet for our grandchildren at all, or would we save it for the planet itself? That is an excellent point.

Second, I raised China as being the only country to have undertaken a successful policy of population control. Some commenters raised family planning programmes, but I would argue that family planning doesn't have at its heart a goal of population control - it is about empowering parents (particularly women) in their choices about family size. It's still a good point though, and there is a huge unmet need for family planning (particularly in developing countries and in underserved communities in developed countries) that, if resources were applied, could reduce future population. Increasing female education also has the effect of lowering fertility rates but again, it's not a policy a government implements explicitly for its population control effects.

Climate and internal migration in Kiribati, and what that might tell us about climate refugee flows

I've posted a few times about the effect of climate change on migration, including on my own research about the effects of climate change on internal migration in New Zealand. I'm often asked about how climate change is going to affect international migration to New Zealand, and whether we will face a flood of 'climate refugees' in the near future. Especially, people tend to focus on the effect of sea level rise on island nations.

There are a number of important points to make in relation to climate refugee flows to New Zealand. First, New Zealand is a long way away from the most populous places that will be most affected by sea level rise, including Bangladesh, the Mekong Delta, and the Red River delta in South and South East Asia (there are many places more distant that may be even more affected). Travelling a long distance entails a high cost that is prohibitive to most people. Second, the places that are relatively close and affected by sea level rise, like the Pacific Islands, generally do not have large populations. The most populous islands tend to also be larger and have inland areas that will be less affected by sea level rise. Migrating inland is a much lower cost alternative than migrating internationally (albeit with its own challenges). Third, even if people choose to migrate internationally, New Zealand is just one of many alternative destinations they could choose, including Australia, the United States, or other Pacific islands. Finally, if New Zealand chose to admit a large number of climate refugees on humanitarian grounds and covered the cost of their travel and settlement, that still only covers the monetary cost. People have an attachment to place, and moving away entails a psychic cost (for example, see here). That explains why many people prefer to migrate short distances rather than long distances, even when they have the means to migrate further away.

It is on the basis of those points that I make the case that climate refugee flows to New Zealand are likely to be small. There is a theoretical model underlying most of those points, and that is related to the costs of migration.

A new article by Hugh Roland and Katherine Curtis (both University of Wisconsin-Madison), published in the journal Population and Environment (sorry, I don't see an ungated version online), demonstrates the importance of costs in the migration decision, in the context of environmental change. Roland and Curtis use five-year origin-destination migration data from the Kiribati Censuses of 2005 and 2015. They set out to compare two competing environment-migration theories:

According to the traditional, dominant framework known as the environmental scarcity thesis, poor environmental conditions may prompt out-migration in search of more hospitable natural environments and better livelihoods. In contrast, the environmental capital thesis asserts that resource scarcity and limited financial means associated with poor environmental conditions may actually restrict out-migration...

Notice that the environmental capital thesis exacerbates the points I made above, in relation to migration costs. Roland and Curtis test these theories by comparing how migration rates to the main island of Tarawa have changed over time between islands that are more isolated from Tarawa, and those that are less isolated. As they explain:

Isolation dampens the migration-promoting effect of declining natural resources asserted in the environmental scarcity thesis. However, isolation exacerbates the migration-prohibiting effect of declining natural resources outlined in the environmental capital thesis. With this theoretical distinction in mind, we anticipate that the migration-incentivizing role that environmental and economic challenges play in the environmental scarcity hypothesis only pertains to contexts in which migration costs are reasonable and, associated, distances to potential destinations are short. In remote settings, the environmental capital thesis is likely the more applicable framework.

Kiribati has been experiencing acute and increasing impacts of climate change over the period Roland and Curtis study. They expect to confirm that the environmental capital thesis dominates, and indeed, that is what they find based on cross-sectional comparisons:

Analysis of migration probabilities shows that out-migration to Tarawa is higher among the least geographically isolated islands as compared with the more isolated islands... Consistent with the environmental capital thesis, probabilities of Tarawa-bound migration from the more spatially proximate North and Central Gilbert Islands in 2000–2005 are generally larger than probabilities for the more distant South Gilbert Islands... While small numbers, the direction of the differences in out-migration is consistent with the environmental capital thesis and contrasts with the environmental scarcity thesis.

Then, looking at changes over time:

At first glance, the increase in out-migration among the North and Central Gilbert Islands appears consistent with the environmental scarcity thesis: as environmental, related economic, and other conditions decline, residents migrate to new places in search of better opportunities and livelihoods. For more geographically isolated islands, however, we generally find negative changes in migration probabilities. Such declines are consistent with the environmental capital thesis: isolation exacerbates the migration-prohibiting influence of environmental degradation. The positive change in outmigration probabilities for the North and Central Gilbert Islands contrasts with the negative changes in out-migration probabilities found for most of the more isolated islands...

The differences in the changes in out-migration probabilities between more and less geographically isolated islands support the environmental capital thesis. Migration is markedly lower from more isolated islands than from less isolated islands and generally decreases during a period in which environmental and economic conditions worsened.

Migration costs are an important constraint on migration. If climate change reduces access to the resources necessary to fund migration, people will not be able to migrate, even as the climate continues to worsen. The environmental capital thesis may be thought of as a type of climate-induced poverty trap. I think that this research is also instructive in terms of wider migration flows arising from climate change in the Pacific, because this dynamic is likely to apply (perhaps even more so) in the case of international migration.

It would be really interesting to conduct a similar study looking at how Pacific international migration flows are changing over time and how isolation, or a more proximate estimate of migration costs, affects those migration flows. I would expect to see something similar, justifying my contention that we are unlikely to face a flood of climate refugees from the Pacific in the near future.

Read more:

• Climate change won't much affect internal migration in NZ
• Climate change and migration in poor and middle-income countries
• Why Tuvaluans aren't migrating due to climate change, yet

Confirmation bias and climate change maths

Most academics would like to think (or hope?) that people form opinions on the basis of some form of evidence. We might disagree on what constitutes appropriate evidence, but we'd like to think that if people are presented with sufficient evidence that runs counter to their established opinions, they might change their opinion. Of course, this flies in the face of confirmation bias - the idea that people selectively interpret information, readily accepting and remembering information that confirms pre-existing beliefs and opinions, while dismissing and quickly forgetting information that challenges those beliefs and opinions.

Although it doesn't refer to confirmation bias (at all), this article in The Conversation by Will Grant (Australian National University) shows just how pervasive confirmation bias can be. The article refers to this article published in the journal Environmental Communication last year (sorry, I don't see an ungated version online), by Matthew Nurse (also Australian National University) and Will Grant.

Nurse and Grant asked people to solve a maths problem based on contingency tables, in order to answer a question about whether the data shows that something got better, or worse. There were two contexts: (1) a new skin cream, and its effect on a rash; and (2) the closure of coal fired power stations, and their effect on carbon dioxide emissions.

Solving a contingency table correctly is not easy. It requires a certain level of mathematical literacy. Here's the table that people were presented with (there were actually four versions, two each for skin creams and power stations, and two each where the correct answer was that things got worse, and where things got better):

In this table, for 223 patients who used the skin cream, the rash got worse, while for 75 patients who used the skin cream, the rash got better. So, of those who used the skin cream, the rash got better for 25.2% (75/[75+223]). For 107 patients who didn't use the skin cream, the rash got worse, while for 21 patients who didn't use the skin cream, the rash got better. So, of those who didn't use the skin cream, the rash got better for 16.4% (21/[21+107]). The table should provide evidence that the skin cream works.

Now, if the numbers were reversed, that should provide evidence that the skin cream does not work. Similarly, depending on which way the numbers are presented, there should be evidence either in favour of closing power stations reducing carbon dioxide emissions, or not.

Given that the numbers are identical in all four cases, and bearing in mind that solving this is reasonably challenging, you would expect that similar percentages get the correct answer no matter which version they are presented with. Unfortunately, that wasn't the case.

Nurse and Grant tested this on 504 Australians, half of whom were supporters of the Australian Greens (ideologically far left), and half who were supporters of the One Nation Party (ideologically far right). It turns out that political views affected the proportion who got the answer correct, but only for the climate change context. Here's Figure 2 from the paper:

In each panel, the two bars on the left show the proportion who got the answer correct, and the two bars on the right show the proportion who got the answer wrong. The green bars are supporters of the Australian Greens, and the yellow bars are supporters of the One Nation Party. The top two panels are the skin cream context, and you can see that (especially for the right panel) the proportion getting the answer correct doesn't appear to depend on political affiliation. The bottom two panels are the climate change context, and it shows that supporters of the Greens are much more likely to get the answer correct if the correct answer is that carbon dioxide emissions decrease when power plants are closed, while supporters of One Nation are much more likely to get the answer correct if the correct answer is that carbon dioxide emissions increase when power plants are closed.

That isn't the end of the story though. Nurse and Grant calculated the difference in the odds of getting the correct answer between the two ideologies, for different levels of numeracy. You might expect that more numerate people would be less likely to be swayed by their political ideology. However, controlling for numeracy, the opposite appeared to be the case. For instance, they report that:

...a One Nation supporter with a numeracy score of three in the identity threatening “CO2 does decrease” condition was 26 per cent as likely to respond with the correct answer (odds ratio 0.26, P < .01) compared to a Greens supporter in the same numeracy category. However, in this condition, a One Nation supporter with a numeracy score of seven was only 5 per cent as likely to provide the correct answer as a Greens supporter in the same numeracy category (odds ratio 0.05, P < .01).

Nurse and Grant argue that this represents 'motivated reasoning'. From The Conversation article:

These findings build on the theory that your desire to give an answer in line with your pre-existing beliefs on climate change can be stronger than your ability or desire to give the right answer.

In fact, more numerate people may be better at doing this because they are have more skills to rationalise their own beliefs in the face of contradictory evidence.

This paper provides some discouraging news for those of us who hope that we can convince people with evidence. However, it isn't usually the average voter that we are trying to convince; rather it is policy makers, business people, etc. It would be interesting to see whether this study would replicate among those groups.

Making individual actions to reduce climate change

My Waikato colleague Zack Dorner had an article in The Spinoff back in September:

Regardless of how doomed you think we are, you may still think individual actions are pointless. You’re one of seven billion people in the world; your decisions are a drop in the ocean that won’t make a difference. I agree that policy change is the most important tool when it comes to climate action. But where does that leave individual actions? Do they also make a difference?...

The bottom line: when you take individual actions on climate change you are contributing to a global public good, which benefits 7 billion people now and many more in the future. And done right, you are encouraging others to change too, by helping to shift social norms. So don’t let anyone tell you your individual actions on climate change are not making a difference.

Zack's argument rests on three points: (1) global public goods; (2) the social cost of carbon; and (3) establishing new social norms. However, I think there is a stronger case to be made for individual climate action, based on social preferences (such as altruism).

I wrote a related post back in 2016, about the Paris agreement on climate change. Traditional game theoretical approaches would suggest that action on climate change is an example of the prisoners' dilemma - while every decision-maker would be better off if everyone works together, each decision-maker individually is better off if they act in their own best interests (and not with everyone else). So, in the case of individual actions to reduce climate change, we would all be better off if we drove our cars a bit less, none of us individually has a strong enough incentive to do so. Unless, as I pointed out in relation to the Paris agreement:

...the prisoners' dilemma looks quite different if the players have social preferences. For example, if players care not only about their own payoff, but also about the payoff of the other player...

The game now changes substantially, and reducing emissions becomes a dominant strategy for both players!

These points don't just apply to countries deciding whether to reduce carbon emissions. They also apply to individuals deciding whether to take individual action on climate change. If we care about other people, whether that be people living right now or people living in the future, then it starts to make sense to take individual action on climate change right now. As I discussed in the earlier post, it doesn't take much in the way of altruistic preferences for taking climate action to become the dominant strategy (this is a point I used to make in my old ECON100 class, which was unfortunately cut out when we made the transition to ECONS101 and needed to include more macroeconomics content instead).

Read more:

• Reason to be surprised, or not, about the Paris Agreement on climate change coming into force

The future impact of climate change on inequality in the U.S.

I just finished reading this 2017 article published in the journal Science, by Solomon Hsiang (UC Berkeley) and co-authors, which investigates the economic impact of climate change in the U.S. The headline results are unsurprising:

The combined value of market and nonmarket damage across analyzed sectors—agriculture, crime, coastal storms, energy, human mortality, and labor—increases quadratically in global mean temperature, costing roughly 1.2% of gross domestic product per +1°C on average.

Interestingly, the biggest contributor to economic impact is mortality:

The greatest direct cost for GMST [Global Mean Surface Temperature] changes larger than 2.5°C is the burden of excess mortality, with sizable but smaller contributions from changes in labor supply, energy demand, and agricultural production...

However, what was more interesting was the spatial impacts and their distribution, summarised in the following map:

The counties that suffer the greatest impacts of climate change are those in the South and Midwest, where the mortality impacts are likely to be the greatest due to higher summer temperatures. In contrast, in the North and Northwest, this is offset by lower winter mortality due to milder winters. However, the areas projected to suffer the greatest impacts are also the areas that include most of the poorest counties in the U.S. This is likely to increase inequality over time. As Hsiang et al. explain:

In general (except for crime and some coastal damages), Southern and Midwestern populations suffer the largest losses, while Northern and Western populations have smaller or even negative damages, the latter amounting to net gains from projected climate changes. Combining impacts across sectors reveals that warming causes a net transfer of value from Southern, Central, and Mid-Atlantic regions toward the Pacific Northwest, the Great Lakes region, and New England... Because losses are largest in regions that are already poorer on average, climate change tends to increase preexisting inequality in the United States.

The last thing the U.S. needs is another contributor to income inequality, but it seems like climate change is set to make a bad situation worse.

It would be interesting to do a similar analysis for New Zealand, not necessarily in terms of inequality, but simply looking at the impacts of climate change on mortality. On that research question, we currently know very little. To what extent will increased summer mortality, predominantly in the north of the country, offset lower winter mortality in the south? Does a wetter west and a drier east of the country matter? These and related questions might make a good project for a motivated Masters or Honours student.

Sea level rise, coastal flooding, and house prices

In my ECONS102 class last week, one of the things we discussed was hedonic pricing - the idea that the price of some goods (such as houses or land) reflects the sum of the values of all of the characteristics of the good. In the case of property, if the property includes a dwelling, the price will reflect the quality and size of the dwelling, number of bedrooms, bathrooms, whether it has off-street parking, and so on. But the price also reflects the access of the property to local amenities, such as good schools, public transport, and so on (for example, see this post from 2017), as well as the property's risks of damage due to environmental disasters such as earthquakes or floods.

In the case of risk, properties that have a higher risk profile should have lower prices - a higher risk profile is a negative characteristic for a property. Two new research articles provide some relevant evidence.

First, this article by Allan Beltran, David Maddison, and Robert Elliott (all University of Birmingham) published in the Journal of Environmental Economics and Management (sorry I don't see an ungated version), looked at the impact of floods on property prices in the UK. They used data on over 12 million property transactions and nearly 5 million properties over the period from 1995 to 2014. Interestingly, their method looked at 'repeat sales'. That means that they essentially looked at property's prices before, and after, a flood event. Some properties were directly affected by flooding, while others weren't. They found that:

...in the immediate aftermath of inland flooding the average price of property in a postcode entirely inundated is 24.9% lower. For incidents of coastal flooding the corresponding figure is 21.1%. These results moreover emerge from a comparison of inundated and non-inundated properties all within the floodplain. Such discounts are however short-lived; property affected by inland flooding typically recovers after 5 years and in just 4 years for coastal properties. The time for price recovery differs markedly for properties in different price-quartiles. For properties affected by coastal flooding in the highest price-quartile, the property price discount disappears after only 1 year whereas for properties in the lowest price-quartile the discount remains statistically significant for up to 6-7 years.

So, floods reduced house prices, but the prices rebounded so that there was no net negative effect within several years. Interestingly, the effect was slightly lower for coastal flooding, and disappeared quicker. That is, people were quick to return to demanding coastal property soon after coastal flooding. That should be a bit of a worry to us, given that sea level rise is likely to be one of the enduring effects of future climate change.

Which brings me to the second article, by Asaf Bernstein (University of Colorado at Boulder), Matthew Gustafson (Pennsylvania State University), and Ryan Lewis (University of Colorado at Boulder), published in the Journal of Financial Economics (ungated earlier version here). This article provides more direct evidence on the effect of sea level rise on house prices, using data from over 460,000 property transactions of properties in the US that would "be inundated following a 1-6 foot increase in average global ocean level". Their analysis is not based on repeat sales, and neither is it based on actual sea level rise (it is projected future sea level rise). The latter point means that, if there are negative impacts on property prices, then buyers are factoring in future sea level rise in their decisions about buying. They find that:

...SLR exposed properties trade at a 6.6% discount relative to comparable unexposed properties. We further break this into exposure buckets, with properties that will be inundated after one foot of global average SLR trading at a 14.7% discount, properties inundated with 2-3 feet of SLR trading at a 13.8% discount, and properties inundated with 4-5 and six feet of SLR trading at 7.8% and 4.4% discounts, respectively.

Interestingly, it is non-owner-occupiers would are more likely to apply a discount to the property:

We find that the SLR exposure discount is concentrated in the non-owner occupied segment of the market. On average, exposed non-owner occupied properties trade at a 10% discount, relative to comparable non-exposed proper- ties, while exposed and unexposed owner occupied properties trade at similar prices.

In other words, owner-occupiers likely underestimate the negative impacts of sea level rise on their homes. They also found that owner-occupiers with stronger beliefs regarding climate change did apply a discount in buying coastal property.

These two papers, taken together at face value, should probably worry anyone who is concerned about the future impact of sea level rise and coastal flooding on people living near the coast. Coastal property is at risk in many (perhaps most) areas. Holding all other factors constant (such as the quality of housing, access to amenities and services, etc.), the value of these properties should be decreasing relative to less vulnerable property (or at least, not rising as quickly). It appears that is not the case, and in fact following flood events (which should make it abundantly clear to potential purchasers that these properties are vulnerable to coastal flooding and sea level rise), property prices are rebounding quickly to their previous levels. On top of that, it appears that it is owner-occupiers (and in particular climate-change-naive owner-occupiers) who will face the brunt of these future impacts.

I don't know that this leads to a strong case for regulation of coastal property in some way, but at least it suggests that coastal property owners (and potential buyers of coastal property) must become better informed about the risks. The specific vulnerability of coastal property to inundation and flood events probably needs to be communicated to potential buyers for every coastal property transaction.

Nobel Prizes for Paul Romer and William Nordhaus

The 2018 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (aka Nobel Prize in Economics) has been awarded to William Nordhaus of Yale "for integrating climate change into long-run macroeconomic analysis" and Paul Romer of NYU "for integrating technological innovations into long-run macroeconomic analysis."

Marginal Revolution has excellent coverage as always, on Nordhaus and on Romer. Romer's work on endogenous growth theory hasn't had much influence on my teaching as I don't teach macroeconomics or growth, but here is an excellent video from MRU that summarises many of the key contributions:

As you might expect, Nordhaus' work on the economics of climate change is picked up in my ECONS102 class in the topic on externalities and common resources. Here is my review of his book The Climate Casino - it's good that I finally read a laureate's most recent book before they received the award for once! Nordhaus has also contributed to our understanding of the economics of intellectual property rights, which Marginal Revolution didn't mention, but which I have talked about briefly here and here. His approach, in terms of the trade-off between having weaker (or shorter) intellectual property rights, which would lead to under-investment in intellectual property development, or having stronger (or longer) intellectual property rights, which would lead to under-consumption of intellectual property, is what I follow in teaching that topic in ECONS102.

This was a very well deserved (and overdue) prize for both men. However, I was a little surprised that they shared the prize together (in the Economics Discussion Group poll, both this year and last year, I picked Romer and Robert Barro to win). Nonetheless, an excellent choice.