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Getty Images Can the world’s fifth-largest economy be run by candlelight?
Here’s some news you may have missed, what with the fuss about the multifaceted Ukraine scandal, the U.S. bailing on the Kurds and the NBA-China censorship: About 1.5 million people in one of the most productive metros in the world have lost their electricity with almost no warning because of climate change.
We were told the economic impact of climate change would be gradual, manageable and predictable. That’s the view of Yale University professor William Nordhaus, who won a Nobel for saying so.
Most government policy makers have adopted Nordhaus’ rosy assumptions to justify their less-than-urgent efforts to reduce greenhouse-gas emissions that cause global warming.
Unexpected blackouts
Meanwhile, back in the real world, the utility company in Northern California — Pacific Gas & Electric Co. PCG, -29.05% — pulled the plug on hundreds of thousands of customers in an effort to prevent the sort of wildfires that swept through the state in the previous two years, causing billions of dollars in damage and leaving PG&E in bankruptcy court on account of its liability for sparking some of those fires.
The utility says the power could come back on in five days or so, but it made no guarantees. These sorts of blackouts could become commonplace if California doesn’t get some rain. Did I mention that global warming is making extreme events, such as droughts and wildfires, much more frequent and severe?
The latest blackouts in the Bay Area could cost as much as $2.5 billion in lost output, the Wall Street Journal reports. That’s hardly even a ripple in a state with annual gross domestic product (GDP) of $3.1 trillion, but that’s not the point.
Off-base estimates
The point is that economists could be badly underestimating the potential costs of letting the climate heat up by only a few degrees. Their mistake could be existential for humanity.
After demolishing Nordhaus’ claim that even a 6-degree increase would barely put a dent in the economy, Australian economist Steve Keen says Nordhaus and his followers have “put us into a ‘Dirty Harry’ movie gone bad.” And the climate is sneering at humanity: “Do you feel lucky, punk?”
Keen is not alone. Harvard University economist Martin Weitzman had argued powerfully for the urgency of reducing emissions for years before taking his life in August. But his ideas live on.
Read about “The deadly hidden risks” in this long-form article
Then there is this: “The biggest risks from climate change are associated with consequences that are unprecedented in human history and cannot simply be extrapolated from the recent past,” according to the authors of a major new paper challenging the conventional economic wisdom about climate change.
“These uncertainties mean that the impacts are difficult to represent in terms of costs and benefits and are therefore often ignored or omitted from economic models,” concluded the scholars from Columbia University, the London School of Economics, and the Potsdam Institute for Climate Impact Research.
Read more on Barron’s: Is the economic threat of climate change understated? A new paper says yes.
And if their warning doesn’t chill you, I don’t know what would: “Many of these impacts could exceed the capacity of human populations to adapt, and would significantly affect and disrupt the lives and livelihoods of hundreds of millions, if not billions, of people worldwide.”
Risk management
It’s true that these impacts are viewed as unlikely. But they are not impossible. And we ought to be humble about our ability to precisely predict what happens when you add massive quantities of heat to complex physical and economic systems.
A risk-management approach to climate change is in order. The Week’s Ryan Cooper compares the risk of climate change now with those the democratic West faced in the 1930s and 1940s: “A nation threatened with Nazi invasion does not fuss around with aggregate welfare functions. Instead it wrings the maximum possible amount of troops, tanks, airplanes, and so on out of itself.”
No one saw the blackouts coming. And it’s quite likely that no one will foresee many other very costly effects of putting the planet on simmer. And yet the mainstream models of climate change assume that we know with some certainty how high the temperature could get, what the impacts would be, how much they would cost, and how much it would cost to prevent them.
We pretend that we know for sure that we can easily accommodate a 2-degree rise in global temperatures, when actually we have no good idea if we can or not. The evidence is mounting that even a 1.5-degree increase would be devastating to many populations.
The uncertainty argues for doing more, not less. If Nordhaus proves to be right, we’ll have a lot of renewable energy and updated infrastructure a few decades before it was truly needed. But if Nordhaus is wrong, civilization as we know it could be at risk. Billions could die.
It’s been clear since at least the Greeks that humanity’s fatal flaw was its hubris. We think we are much smarter than we actually are. Most of the time, we can fake it. Most of the time, we have the luxury of learning from our mistakes.
But this time we can’t fake it. Muddling through may not do the trick. We don’t get a mulligan. We have only one planet. We must act as if everything depended upon it, because it just might.
Rex Nutting is a MarketWatch columnist.
