NewCo Shift Forum
The free market is perfectly suited to harnessing a solution, argues a former climate skeptic
Jerry Taylor, the founder of the Niskanen Institute, spent years of his career as a professional climate denier — his senior role at libertarian think tank Cato Institute demanded it, and he was unconvinced that the risks of taking action outweighed the destruction that action might have on the world’s economy.
But starting about seven or so years ago, Taylor began to question his own assumptions, and after studying the science — and in particular the academic economics — more carefully, he had a complete change of heart. Taylor is now an advocate for addressing climate change, and in this talk at the NewCo Shift Forum earlier this year, he explains why.
Jerry Taylor: Thank you for giving me a few minutes to talk to you a little bit about climate change. I used to be the number two person at the Cato Institute. When I was hired there in 1991, I was responsible for building our resistance to climate action.
To give you an idea of what the mindset is of somebody like me or somebody in that world, we believe that extraordinary claims require extraordinary evidence.
If you are going to tell me that business as usual and capitalism as we know it and our reliance upon fossil fuels, which help fuel the US and the global economy, is going to lead to some sort of Book of Revelations apocalyptic outcome unless we totally reengineer society, people like me who like capitalism and like fossil fuels and like the industrial age are going to ask for a lot of evidence.
It turns out that there’s simply a lot that’s unknown about climate science, or certainly that was the case when I started at the Cato Institute in 1991.
I was charged with pushing back against what I thought and a lot of my colleagues thought was one of yet another long series of wolf-crying exercises from the left that never liked capitalism in the first place, never liked fossil fuels at all, and had some weird [inaudible] yen to go back to a pastoral civilization where we didn’t have factories and pollution and industrial processes and whatnot.
That was my task. I was pretty good at my task, but I found that my position from 1991 to the present began to degrade completely. I’m here to tell you a little bit about how that happened and what I think you might want to conclude from that growth when it comes to climate change as an issue and broadly when it comes to all these issues where people feel relatively intensely about.
The first thing I found out was that I discovered that a lot of the scientific narratives I was offering were really dodgy. I’ll give you a little story about one of the things that helped change that. About five or six years into my time at the Cato institute, a colleague of mine who was a climate scientist of some renown in the skeptic community gave testimony in front of the United States Senate.
He said, “10 years ago, James Hansen at NASA gave testimony in front of the Senate and talked about how climate change was leading us into disaster, and it turns out, 10 years later, if you look at the business as usual scenario that he offered to the Senate, you will find that the warming he predicted has been only a quarter in reality of what he predicted in that Senate testimony.”
The narrative that my guy, my scientist, argued was that Hansen, like the rest of the scientific community, grossly overstates the impact of greenhouse gas emissions on the climate. His own evidence, his own 1998 testimony, indicts it. He argued there should have been four times more warming than we’ve actually seen in the course of that decade.
I went on TV, as the good gunslinger that I am, and was in one of these debates on CNN. The fellow I was debating with, I offered that narrative, and he said, “Go back and take a look at that Hansen testimony. You tell me if it really says that.”
I said, “I’ve seen that testimony.” He says, “Go back, unless you want to be a hack and I’m going to make fun of you all the time, but if you care about your job, go back and look at that testimony. Give it a close due diligence look, which I rather doubt you’ve ever given it, and then you tell me if that’s really what Hansen said.”
I like that kind of challenge. I go back to my office. I take a look at the study, and it turns out Hansen had offered three scenarios for the future — scenario A, B, C. A, he labeled business as usual, and yes, it turns out that business as usual was much warmer in his scenario than what we’ve actually seen, but the problem was, these scenarios were based on estimations of future emissions.
James Hansen may be a very good scientist, but he’s not necessarily the best economist. Scenario A had far more industrial emissions in that scenario than scenarios B and C. The scenario that was closest to the pattern of industrial emissions that we saw in the course of the subsequent decade was the scenario, scenario C, that actually matched the warming we saw nearly perfectly.
The conclusion, I looked at this, I said, “My gosh, it’s not that Hansen overestimates the impact of greenhouse gases, it’s that Hansen, 10 years ago, overestimated how much greenhouse gas emissions we’d have, but his scenario for what would happen with a certain degree of emissions was virtually spot on.”
I walked down the hallway to my colleague, who’s a climate scientist, and I said, “I was just on TV. I’ve just made this argument he made in front of the Senate. I was challenged to go back and give it a bit of scrutiny, and it turns out — what am I missing here, because it seems as if we’re trying to tell a story that doesn’t add up.”
After 20 minutes of frantic spinning, the scientist that I work with says, “Well, the hell with it. He called it business as usual. We’ve had business as usual. He said warming would be four times greater than what we’ve actually seen. Let him explain.” I was thrown back on my heels. This is not what I expected my scientist to tell me.
I figured I’d missed something. I’m not a scientist. But it turns out that one of the people that I trusted the most was in the business of consciously misrepresenting the debate. This really rattled me.
I found this, of course, induced me to do a little bit more due diligence on what I was arguing, and I found out once I started looking closely at a lot of the convenient, plausible talking points I was offering they began to fall apart in exactly that fashion.
Anyway, I didn’t immediately quit the Cato Institute, nor did I immediately change my mind. I thought, “All right, fine, there’s a lot we don’t know about climate science. I’m done arguing with science, because I can’t trust the scientists who are making these arguments, but I can talk about the costs and benefits of climate action.”
Clean energy, low-carbon energy, is more expensive than fossil fuels. That’s why we have to subsidize it to get it in the market, and the costs of trying to tear out fossil fuels from the economy is still very high. I moved to economic arguments. Those I’m on a lot more solid ground and I’m also a bit more confident in that arena.
Then a guy named Martin Weitzman came along. For those of you who don’t know, Marty Weitzman is a professor of economics at Harvard University, and in the mid-2000s he wrote a groundbreaking series of papers in which he said almost all the economic work we’re doing on climate change assume a bell curve of potential outcomes.
Small chances of very modest warming, a pretty reasonable chance of medium warming scenarios, and then very low chances of high end warming. He said the problem is that the distribution of possible outcomes from climate change is very fat-tailed.
At the extreme end of the scenarios, they almost run into infinity, and if we were to do cost benefit analyses acknowledging that failed fat-tailed distribution, which we do not, then virtually no cost benefit analysis would argue against acting, because there’s probably — once you account for these fat tails — about a 10 percent chance of truly cataclysmic runaway climate change somewhere down the road.
How quickly we hit equilibrium we don’t know, but it’s so much that this shuts down the debate. Of course, I’ve been trafficking in these cost benefit arguments. This was a really major indictment. I found that virtually every economist I knew in academia wrestled with Weitzman’s conclusions and then gave up the ghost, threw up the white flag, and said he’s right.
This is pretty hard. It’s a very difficult thing, if you were in my role, to find that you cannot trust any of the scientists that are being offered to resist climate action, and then the economists that you have been relying upon to put cautious remarks about cost benefit are now all walking away from the game.
We got to the point, rapidly after Weitzman, where you could not find an academic economist who studies climate change who argued against climate action — not one single one. Of course, this also puts me back on my heels, because there goes another argument.
Finally, about six, seven years ago, maybe not quite that long, while I was now very wobbly and decided I did not want to talk about climate change at the Cato Institute, I was now out of this game because I didn’t think the arguments against climate action were particularly firm, but I also realized that, at the Cato institute, to argue for acting against climate change is to argue for putting on a Mao T-shirt or something like that.
A fellow named Bob Litterman came into my office. Bob, at the time, had just left as a partner at Goldman Sachs. He’s a legend on Wall Street. He was the first quant there. He is probably one of the top risk management professionals in the finance community, and he came to see me. At the time he wasn’t a Cato donor, but I talked him into giving us a little bit.
Bob said, “Look, this entire debate that your people are engaged in is all wrong. You’re arguing about what the most likely outcome from climate change is. And yes, if you want to piece together a story that says climate change will be a modest event without great traumatic outcomes given the reams of uncertainty that we have in front of us, because we we have no real data points to go on, we’ve never seen these concentrations of greenhouse gases in the atmosphere in the entire existence of the human species, we can only go back to paleo climate data to find out what it means — and that’s one of the reasons, by the way, paleo climatologists are the ones who are most freaked out about climate change, because these elevated levels of greenhouse gases have had truly dramatic affects — But if you want to argue against action, you can piece together a story, but it’s the wrong discussion. We should not discuss the most likely outcome from climate change. We need to look at the full distribution of possible outcomes. This is a risk management exercise. If we were only interested in the most likely outcome from climate change and we took that…”
He says, “Look, at Goldman, I deal with these kinds of issues all the time. There’s a lot of uncertainty in financial markets and a lot of investments. We don’t know precisely what the chances are of this, that, or the outcome is, but we know there’s a wide range of it, but if at Goldman all we did was made the investments that were most likely to pay off, there wouldn’t be a Goldman.”
“You’d just take all your money, put it in equities, and walk away, and in any given year that’s most likely going to give you the best returns, but nobody does that. We hedge against risk.”
“If we look at this as a risk management exercise, it would be insane not to hedge against the risk given the fact that at the outer ends of the low probability, high-impact scenarios would be absolutely devastating to the economy.” He says, “In foreign policy we do this, too.”
The most likely outcome of Iran having a nuclear weapon is probably nothing follows from that, but there are other scenarios that we have to hedge against, and when Republicans and Conservatives look at risk in other parts of the policy arena, whether we’re talking about foreign policy or terrorism or Syrian refugees or whatnot, do they become precautionary principle advocates, don’t they?
They hedge tremendously against these extreme outcomes. He said, “But in climate change, why don’t we do the same thing?” That was a very powerful argument.
I began to make this case internally at the Cato Institute and found out there wasn’t a whole lot of space for it, and for various reasons I thought if this is my main arena, climate energy policy, and I’m to the point now where I can not only not make the Cato argument but I can’t necessarily make an argument that would be sound on the basis of any other understanding then there’s really no point in being here.
I left the Cato Institute and founded the Niskanen Center not entirely because of climate, but that’s a major part of what I do. What conclusions can we draw from this? First of all, there’s nothing weird about my story that libertarians are uniquely immune to facts and data or anything of the kind. We are all driven by motivating cognition. None of us wants to believe certain stories.
If you were to bring a bunch of left-of-center progressives and give them sodium pentothal and throw all the data in the world at them about how minimum wage doesn’t help working people, you would find as much fierce resistance to accepting that narrative as you will find from conservatives and libertarians who are being told that you have to get rid of fossil fuels and basically reengineer the energy economy to avoid climate change.
None of us are inclined to do particular due diligence to arguments we want to believe, and most of us embrace arguments because we think that they lead to positive outcomes. This is a matter of human nature, but how can we not drive that sort of thing and add that fuel?
One of the things we argued at the Niskanen Center is that how you feel about individual liberty and free market should have nothing to do with how you read atmospheric physics.
Believe it or not, libertarians and conservatives and Republicans were put on this earth with the perfect answer to climate change — harnessing markets and price signals via a carbon tax or a carbon tax-like mechanism to reduce greenhouse gas emission. We’re perfectly placed to do that.
This is something that we’ve tried arguing, saying, “The idea that you’re putting on a Mao T-shirt in my old world because you’re looking at atmosphere and physics in a certain way just seems absolutely bizarre to me and so on-its-face intellectually bankrupt that it’s amazing to me that when I sit down with potential donors or people on the right.
They tell me, “You must not believe in free markets if you believe in doing something about climate change,” it’s like, yeah, listen to yourself. Listen to yourself.
The thing is, what keeps Republicans from coming to the conclusion that climate change doesn’t just threaten polar bears in the Arctic, it threatens the global economy, it threatens capital flows, it threatens capitalism, because if Naomi Klein and people like that have their way and we do find ourselves in a climate emergency, capitalism is not going to come out to good in a panicky response.
It’s not the Republican base, let me tell you. It’s not the Trump voters and the Republican base that oppose climate action. There’s poll after poll, survey after survey, showing that most Republicans believe in doing something about climate. They believe in regulating greenhouse gas emissions, and they’re in favor of using market mechanisms to do that.
It’s not that the Republican base prevents Republican politicians from acting. What prevents Republican politicians from acting is that there are significant members in the Republican Party Coalition who are denialist demanders. They have outsized influenced the party.
Whether we’re talking about Charles Koch and some in the coal sector or whether we’re talking about the ideological gendarmes in the world I used to live in, the Heritage Foundations, the Cato Institutes, and places like that.
These are places where Republican politicians would like to affect better policy. They have every political reason to do it, and not just voters in general. Even their own voters want to see climate action, but the party coalition resists it.
The conclusion that we’ve come to, and I think this applies in so many different areas of public policy, is that if you want to change public policy, if you’re going to spend your time trying to change public opinion, that’s all well and good. It’s not going to change very much of anything. The people you need to talk to are the political decision makers. That’s where we focus our effort.
Remember, it’s not so hard to imagine Republicans might come to this position. In 2008, John McCain ran as president and received the Republican nomination talking about climate change in a way that Sheldon Whitehouse would talk about climate change. He talked about an aggressive need for a cap and trade program, and the Republican Party platform in 2008 could have been written by Hillary Clinton.
It called for a quick march away from fossil fuels to a low carbon energy future using government to get us there, using market mechanisms. Republicans have been in this place before. They’ve accepted these arguments before. They’ve even nominated candidates for president who’ve acknowledged these arguments, and not all that long ago, only nine years ago. But the reality is that the Tea Party took over the Republican Party in 2009.
If there’s only one good thing that comes from Donald Trump campaign this past year is that the Koch-controlled Tea Party movement that held the GOP by the throat got its teeth kicked in and was shown to be a paper tiger relative to other forces within the party.
What that means going forward I don’t know, but with coal on its way out because of fracking natural gas destroying it, that’s one major denier demander in the Republican Party that’s no longer in play, and with Koch political power now reduced — though how much is still unclear, we’re going to find out — that is something that works in our favor.
If the Republican Party looking forward wants to build off of its new populist clothing, embracing a policy like doing something about climate change as opposed to embracing some of the old, deader industries that, yes, Donald Trump did campaign on but he’s also hit in various different other circumstances might be a positive way forward.