Climatic Tipping Points and Optimal Fossil Fuel Use

by Emil Morhardt

Should we plan to decrease fossil fuel use as quickly as possible to decrease damage from global warming? Maybe not according to Gustav Engström and Johan Gars (2016), Swedish economists, who consider the possibility that planned reduction of fossil fuel use might cause suppliers of it to increase production now in advance of potential decreased value of it in the future.

Their focus is economically-important climatic tipping points—relatively sudden climatic changes triggered by gradual global warming—that could have drastic economic consequences; they are less concerned with environmental damage with low immediate economic consequences, and they argue that most economists have modelled the effects of climate change without taking climatic tipping points into consideration. These potential tipping points, however, might not exist, in which case, they argue, it would be best to proceed gradually with climate reforms, but develop a strategy to deal with any tipping points should they occur.

There are many such potential tipping points. The authors specifically mention two categories: a decrease in the rate that natural systems remove carbon dioxide from the atmosphere making additional fossil fuel use more economically destructive, and second, a greater sensitivity of physical and biological systems to specific levels of carbon dioxide and warming. An example of the first category is the possibility of ocean warming decreasing the viability of ocean plankton that remove much of the carbon dioxide. Examples of the second include massive polar ice loss events leading to rapid sea level rise and slowing of the thermohaline circulation (the Gulf Stream) that warms the northern hemisphere, disruption of the Indian monsoon, retreat of the northern boreal forests, transformation of the Amazon rainforest, and, possibly most frightening, sudden release of a large pulse of methane or carbon dioxide from melting permafrost, greatly compounding the problem. This list is by no means inclusive, but all of these events have occurred before human civilization arose, and many studies attribute them to increased atmospheric carbon dioxide and subsequent global warming. The difference here is that humans are responsible for the current carbon dioxide increases and could curtail them should they wish to.

The bottom line of this extensive mathematical modelling exercise is that a) it is not clear whether imposing a carbon tax now would decrease fossil fuel use because implementation of the tax would imply even more future regulation and hence lower future values of fossil fuel—suppliers might conclude it better to sell as much of it as they can now, and b) since a tipping point might never occur, aggressive restriction of fossil fuel use might unnecessarily damage the present economy without helping the future economy. The authors do argue that when there is a “threat” of a tipping point (a potential regime shift, in their words) there should be an increase in the optimal carbon tax, but, of course, since tipping points seem not to be predictable, and since, should one occur, the authors might then argue as they have here, that the tax increase might just cause an immediate increase in the use of fossil fuels, it is hard to see under their reasoning why there should ever be one.

All well and good, but what about small-scale local economic environmental issues such as the worldwide demise of coral reefs caused directly by the carbon dioxide? Or the many barely-if-at-all economic ones of mass extinctions? The authors are aware of these issues and cite a paper that has the same modelling approach to natural resources, but hey, they are economists.

Engström, G., Gars, J., 2016. Climatic Tipping Points and Optimal Fossil-Fuel Use. Environmental and Resource Economics 65, 541-571.

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