Economist Offers Stark Climate Reality Check. Plus a Bit of Science-Based Hope.

In a new book, Alligators in the Arctic and How To Avoid Them, Peter Dorman shows how flawed academic models, faulty assumptions and unrealistic schemes grossly underestimate what’s needed to stop catastrophic warming. He argues for a straightforward carbon emission budget – plus the active citizenship required to fight big businesses that want to keep doing business as usual. Lynn Parramore explores his findings and talks to the economist about the path forward.

All aboard! We’re hopping a time capsule to travel 56 million years back in Earth’s history. You are entering the time when dinosaurs have gone and curly-tailed early primates share the world with humongous flightless birds. The air is sultry, the landscape lush with feathery ferns and swaying palms. Alligators bask on rocks in the sun. It’s getting pretty steamy; you’re wishing you’d packed a swimsuit.

Surprise! You’re in the Arctic Circle.

You have landed in a period called the Paleocene–Eocene thermal maximum (PETM), a time when temperatures spiked for reasons that aren’t entirely clear. Somehow, a lot of stored carbon got pumped into the atmosphere, maybe in part from volcanic eruptions. Whatever the cause, the planet got super-hot. Alligators loved it, but a lot of other creatures, like deep marine life, couldn’t take the heat and went extinct.

Peter Dorman, professor emeritus of political economy at Evergreen State College, takes PETM alligators as the mascot for his new book, Alligators in the Arctic and How to Avoid Them: Science, Economics, and the Challenge of Catastrophic Climate Change (Cambridge: July 2022). Bringing together science and economics – two fields that butt heads in the climate debate – he argues that current discussions are not only based on dodgy assumptions and bad math, they may be leading us into risks we can’t even anticipate. Like Arctic alligators.

Dorman’s message is stark and simple: If we’re serious about climate change, we have to keep coal, oil and gas in the ground. Roger that? KEEP. IT. UNDERGROUND.

That message is at odds with much of what we hear in the news, in policy debates, and even in economics classrooms. Dorman takes aim at a range of popular approaches that in his view can distract us from the main goal, from the “ecotopian” dreams of Green New Dealers to the spurious claims of economic de-growthers. He challenges the promises of renewable energy enthusiasts who claim their programs automatically lower emissions (ask Germany; it’s not so easy) and points out the folly of market-based approaches, deceptive offset schemes, and individualist illusions.

He insists that while many of these projects, like renewable energy, have laudable aims, they are no substitute for phasing out fossil fuels. They don’t “balance things out” or really even buy us time.

Dorman doesn’t mince words: We’ve got to decarbonize a hell of a lot faster than most of us realize. It’s going to be hard and it’s going to hurt, but the situation is so dire that there’s no time for wishful thinking. He warns that until we face reality, we can’t get a handle on how to approach the economic, political and social disruptions that such a massive transformation of the way we live surely entail. He argues that while climate deniers are obviously a problem, environmentalists who promise a nearly painless transition from our fossil fuel habit aren’t doing us any favors.

So, how do we keep from frying ourselves into oblivion? Dorman wants us to quit putting our faith in vague, unenforceable pledges to cut back to certain emissions levels at some future date. The way to keep alligators in their place, he maintains, is a transparent carbon emissions budget that would steadily wean us off of fossil fuels for the rest of the twenty-first century. We make the budget and then we stick to it. Simple.

Dorman, a political economist, doesn’t downplay the fact that politics is a lot harder than math. Like John Dewey, he knows that the political sphere is pretty much the shadow cast on society by big business. But there’s no way around it: big business the challenge because the owners– and not just owners of fossil fuel firms, he shows, but companies in a wide range of industries — know that pursuing a realistic climate agenda puts their wealth at risk. Since they have wrested control of our political system, they can easily block even the most urgent moves, like ending absurd fossil fuel subsidies. You can almost hear the alligator chuckling in the background every time a corporation touts its climate bona fides.

Hope lies in our ability to organize ourselves for the common good. Fortunately, we have a few things on our side that we didn’t have in other recent upheavals. With climate change, unlike the pandemic, for example, we can see a lot of what’s coming and plan accordingly. Dorman also reminds us that contrary to what most economists will tell you, economies can and do make a rapid shifts in production and consumption as the choices made by individuals and organizations react to one another. And some of the changes that a decarbonized world demands, like more leisure time and less work, along with better products that are crafted to last, may actually improve our lives.

But brace yourself. Dorman is clear that the most salient fact about the world’s response to climate is that it isn’t even out of the gate yet. In the following conversation, he discusses how economists have led us astray and how to get off the starting block so that we can keep alligators where they belong,

Lynn Parramore: You’re an economist. What motivated you to take a deep dive into climate change and climate policy?

Peter Dorman: As an undergraduate in the seventies, I had a professor who was an early scholar of climate change, so it was always on my radar. It became increasingly important to me around the beginning of the 2000s as it became clear that policy wasn’t moving the way it needed to. At the same time, as an economist, I thought I would have something to offer in the way of analyzing the options.

I got a consulting opportunity from an environmental group which resulted in my closely monitoring a regional climate change initiative. Listening in on meetings and webinars, it became obvious that this was a very sensitive issue in the political economy sense. I became interested in the mechanism of redistributing carbon revenues and that brought me in connection with Peter Barnes, an entrepreneur in that area. Through work I had done with him and others I met through him, I became interested in the various policy initiatives that were taking place. The final piece was teaching an interdisciplinary course at the graduate level on climate change with a climate scientist and a climate justice specialist. The course was structured not around academic disciplines but common questions about the nature of the problem and what we should do about it. I learned a lot about the global political context and also the science. That’s what all came together in the book.

LP: You’re critical in the book about the way economists have generally approached climate change and climate policy. You write that economics is “an indispensable tool for formulating and evaluating policies, yet also a primary source of misunderstanding.” Can you talk about where economics has gone wrong?

PD: The problem runs very, very deep. I think the source of it is in conventional welfare economics and the role it plays in the self-understanding economists have about their task and their position in the public sphere. Welfare economics evaluates economic outcomes in terms of some conception of social benefit. So economists feel that having analyzed economic data, they are in a position to pronounce on what is optimal for society.

Applied to climate change, that means that economists think they can decide what is the right level of climate mitigation and to override the judgments of natural scientists and others who have also studied this problem. The result, in my opinion, has been a dramatic misdirection of economic research effort. A huge amount of effort has gone into trying to estimate the potential damages of climate impacts in economic terms and estimating the social cost of carbon, which can then be compared to the costs of mitigation — all with the idea of having an optimal response as economists see it. The problem is that this kind of approach does not apply to climate change.

Unfortunately, this is entirely in line with how economists have traditionally approached all sorts of policy questions. It’s a much broader problem and shows up in other areas, but certainly in climate change it’s highly problematic, and not only does it mean there’s been a lot of pressure coming from many economists for a moderation of effort on the climate front, but also that economic expertise has focused on the wrong areas. There are very important problems that need work in climate policy that economists are not working on.

LP: You noted in your book that the 2018 Nobel Prize in economics went to Yale economist William Nordhaus, whose work is at odds with the findings of the majority of global natural scientists. That must send quite a signal to the discipline that it’s ok to override scientific opinion.

PD: I’ve heard that the silences of dolphins are as important as the noises that they make. Certainly the silence of the Nobel Committee in not awarding a prize to [Harvard’s] Marty Weitzman for his work on climate policy spoke much more forcefully than the prize they did award to Bill Nordhaus.

LP: So how can the tools of economics be used more effectively for climate change and climate policy?

PD: The book takes as given the central logic of the mitigation reports of the IPCC [Intergovernmental Panel on Climate Change, the United Nations body on climate change science]. They have proposed a maximum target of 2°C for global warming limit and an aspirational target of 1.5°C. I begin with the accounting mechanism that comes out of climate science, which is centered on a budget for remaining carbon emissions.

LP: Let’s talk about the carbon budget idea. You point out that this approach is much simpler, transparent, and effective than the kind of mishmash of different future greenhouse gas reduction targets we have seen countries taking about, for example, in the Paris Agreement.

PD: With a carbon budget, the idea is that there’s a certain amount of carbon we can emit from now going forward. We can allocate that amount as we will, but it’s a hard budget constraint. Economics comes in when we talk about the various aspects of how we do that, like how to minimize costs. Here I think economists have really not given consideration to the problems of wealth and wealth write-down that will have to happen. We sort of have the wrong capital stock in our economic systems. We’ve inherited a capital stock from centuries of economic evolution which is not appropriate for a decarbonized economy. So that transition from the capital stock we have to the one we need ought to be a fundamental concern of economic analysis, but it’s not. The literature on stranded assets gets at a small piece of that problem, but it’s a much larger problem, I think.

LP: Let’s talk about stranded assets – the stuff that loses value or becomes obsolete as we decarbonize. You view them as a bigger economic problem that is widely understood. Can you explain why?

PD: About a decade ago, the organization Carbon Tracker came out with a report saying the amount of fossil fuel in the ground that was considered reserves — and were tallied as assets by their owners — in fact greatly exceeded the amount that could be dug up and burned if we were serious about the climate. As result, a lot of those fossil fuel assets would have to be stranded.

Then, a second generation of researchers looked at the next level of stranded assets, considering the companies that make equipment that specialize in fossil fuel extraction and combustion. They looked at industries that are highly intensive in the use of fossil fuels that might have difficulty in switching energy sources. These examinations then escalated to concern for the overall system stability at a market level – in other words, the amount of capitalization of those firms.

But what I am trying to argue in the book is that considering the pace of decarbonization which is needed in order to reach the IPCC targets, it isn’t just a question of fuel substitution. There will have to be substitution in end use of products in order to pull this off. That brings into play a much larger set of investments which are profitable if people have access to cheap energy — but not if they don’t.

LP: Can you give an example of this end use problem? A product that won’t be profitable if energy isn’t cheap?

PD: Boeing and Airbus are not on anybody’s list of stranded assets because they’re not fossil fuel companies, they don’t make fossil fuel equipment and they’re not that energy intensive, actually, in their own operations (fuel is an important component, but so is labor, etc.) If fuel becomes very expensive, that impacts the demand side for airplanes. There won’t be re-orders. The companies that make airplanes will potentially have to write down a lot of value, particularly if they’re not able to easily repurpose the capital investments they’ve made.

Having toured the Boeing facilities, it’s hard for me to imagine a lot of non-airplane uses for that stuff! That’s a simple example and you can proceed from there. My guess is that a very substantial part of the capital stock that we have at the present time is potentially at risk. The origins of that insight came from the work I did as a consultant. When I was listening to what businesses were concerned about with potential carbon taxes and the effect that that would have on the demand for their product, it dawned on me that whether or not economists are looking at this, the businesses are. They have a very clear idea of what a rapid run-up in fossil fuel prices would mean for their particular products. The outcome of that is pressure from them on policy, which has been very effective and largely unopposed. To the extent that it’s possible I’ve tried to document the lobbying efforts of a variety of business sectors on carbon policy—not just the fossil fuel sector, not just the Koch brothers, but, in the case of Oregon where I live, for instance, the timber industry, the railroad industry, agriculture – it’s very widespread.

LP: Let’s look further into how corporations behave. A lot of firms — Microsoft is an example you mention in the book – make a big public display of devotion to mitigating climate change, becoming more energy efficient, etc. But you point out that given the kinds of politicians these firms support with donations, those energy efficient offices might not mean very much. What’s going on here?

PD: I try not to be cynical. I know a lot of the people who do this work for corporations are very good, well-meaning people. I think I can understand where they’re coming from. We’ve had year after year, decade after decade, of not getting the policies we need. Under those circumstances, it’s understandable for people to say, ok, let’s see what I can do on my personal level, on a company level. So you get the carbon audits and the carbon footprints and all these little things that people are trying to tweak for themselves, hoping that somehow it will all add up to viable policy.

There are two things wrong with that. First of all, it doesn’t add up. You can’t really even say what your carbon footprint is, because you can’t know the effect of your actions on other people and how they will affect their carbon footprint, and therefore the footprint of society as a whole. It doesn’t reduce down to the individual level like that. The other problem is that by focusing so much attention on tweaks, we lose sight of the fact that it really still does come down to policy at a much larger level. In the case of Microsoft, ok, they pay an energy company in central Washington to say that they supply green energy to the company and all that, but on the other hand, they give large sums of money to extreme right-wing politicians who campaign on and govern on the principle that climate change is a hoax. So if you put those two things together, one is important and the other is not important.

LP: On the individual level, a lot of people want to do their part, but as your book points out, even figuring out what kind of shopping bag is environmentally friendly is actually a very difficult calculation. What’s an ordinary person to do? Are we spending too much time thinking about which kind of lightbulb to use and not enough time exerting pressure on the political front?

PD: Once more, I don’t want to be cynical. I do appreciate the good will that people bring to this, and no doubt it does make a difference whether you are ecologically conscious in your personal life. However, for climate change, where everything comes down to how much fossil fuel we can leave in the ground, in the end, what we need to do is recover our citizenship. We have to be active, organized citizens – and that’s difficult because we’ve lost the habit. We don’t have the kinds of membership parties or organizations on a large scale that mobilize people and exert political pressure for causes like this. But we need a counterforce to business. It’s sort of like the old countervailing interest idea of [John Kenneth] Galbraith. We need some kind of force in the public sphere that can stand up to the power of business and make serious climate policy happen.

LP: Let’s talk about the Inflation Reduction Act (IRA). What does it say about our political system and how we’re currently approaching climate change?

PD: I think the IRA is a fascinating episode. As the political system became apparently blocked and unable to act directly to reduce carbon emissions, there was a sideways movement where a lot of environmental people said, well, if we can’t get that, let’s at least get investments in green energy. That’s been a long-standing debate among environmentalists.

The original proposal for scrapping the science-based approach and moving to an investment-based approach was put forward twenty years ago by the Breakthrough Institute. They were saying, let’s not hear anymore doom and gloom. Let’s not try to meet scientifically defined goals, let’s just offer people jobs and good feelings and that’s how we’re going to win. I understand the motive. It’s a response to political blockage. The problem occurred when they moved the goalposts. They stopped saying that this was a compromise and instead said that this is actually what we wanted all along. Clearly we need these investments – I’m the last person to argue against them, but the fundamental problem is keeping carbon in the ground. If you pull carbon out of the ground in order to make investments which may or may not have a certain future effect in reducing demand for fossil fuel, that is truly a devil’s bargain. Even so, you might make that bargain, but you ought to be clear that it’s the bargain you just made. You’re pumping more fossil fuels into the atmosphere in the hope that maybe later you can go on a diet.

LP: So the IRA is really a devil’s bargain because it doesn’t do much for this central goal of keeping carbon in the ground?

PD: For the carbon part, yes, in a nutshell.

LP: You emphasize the importance of feedback effects in climate change, and how we have failed to take them into account. How might they impact global warming?

PD: We’re guessing as best we can with the data and models we have for how we think the Earth system works. The mechanisms of feedback have to do with mobilizing carbon that’s currently locked up, either on land or in the sea, which might be released with higher temperatures. We’re discovering that there are other feedback mechanisms that might have played a role in that earlier period of the hothouse Earth, the PETM that brought the alligators to the Arctic. For instance, different types of cloud formations seem to eventuate as the Earth warms, and those, in turn, increase the warming effect. Another feedback mechanism involves how much radiation reflects back into space as ice melts and you move from ice to water, which is known as the Albedo effect. We’re also learning about changes in the distribution of forest biomes as a resulting of warming. It’s pretty likely we’re going to lose at least some of our tropical and temperate forests and that, too, releases carbon into the atmosphere. These are the kinds of effects that occur as the temperatures rises, and we don’t know how big those effects are going to be.

LP: Is there any good news?

PD: I think the best single piece of news is that in certain ways the fix is clear. With some kinds of problems, we’re beset by enormous uncertainties and we’re stumbling in the dark when it comes to trying to deal with them. We saw this and we’re still seeing this with Covid. It’s difficult to chart a path when there’s so much you don’t know.

But in this case, while there’s a lot we don’t know, there’s a lot we do know. We certainly know enough to establish a carbon budget for ourselves, quotas for how much carbon we can emit. We can generally understand the mechanisms for economic hardship and we can work at stabilizing the macroeconomy and at an individual and household level to help folks maintain their living standards and finance the kinds of changes in their consumption that they’ll need to make. These things we know. I’m optimistic in the sense that I feel that if we could communicate this to enough people, we could somehow get them to organize themselves and become an effective force so that we can get these policies in place. We could do it. That’s the cause for optimism. Everything else is the cause for pessimism. I have to say though, that I’m less optimistic today than I was when I finished the book, because of the difficulty we’ve had with the pandemic. People may be less willing to make sacrifices for the common good than I had hoped.

LP: What advice would you give a young person studying economics who is interested in climate change and climate policy?

PD: With climate change, as in other areas, working respectfully in interdisciplinary teams, truly valuing their perspective, is critical. Recognize that climate scientists have understanding of the stability of the Earth system that economists don’t possess, and recognize the complexities of international politics and work with people in international relations and international political economy.

LP: How might economists benefit from other disciplines in dealing with ethical questions?

PD: I think the standard economic approach to ethics has been one of the negative consequences of welfare economics. That’s because it was a neatly packaged system that took the place of ethics, so economists didn’t think it was necessary. Once you recognize that welfare economics is not what it’s cracked up to be, you realize there’s an ethical hole. The economist has to recognize that hole and work with other people who are qualified to help fill it, including humanists, sociologists, and philosophers – a range of people who understand, substantively, different aspects of well-being and what makes a course of action better and worse. In the end, good polices come from broad perspectives that take into account many kinds of expertise, not just one.

LP: Final question: the title of your book references the alligators that once roamed the Arctic during a period of extreme climate change. What can we learn from these alligators?

PD: I used the alligator story in the book to illustrate the drastic consequences of interfering so profoundly in earth systems. But at the end I also pointed to another aspect of this remarkable species, how it is almost like two creatures in one. On land it almost appears sluggish, moving slowly and deliberately as if considering each step. (It can also lunge!) But in the water it moves more fluently, submerging and surfacing with a rippling splash. Humans who want to forestall the worst climate scenarios need to work in two environments as well. They need to be careful and precise in policy analysis, not settling for superficial slogans and pseudo-solutions. And they need to be bold and disruptive, making it clear to those in power that failing to realistically respond to the climate crisis will have political consequences they don’t want to face. Deliberate and radical.

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