WEBVTT 00:00:00.000 --> 00:00:02.925 align:middle line:90% [SQUEAKING] 00:00:02.925 --> 00:00:03.880 align:middle line:90% [RUSTLING] 00:00:03.880 --> 00:00:04.380 align:middle line:90% 00:00:04.380 --> 00:00:05.350 align:middle line:90% [CLICKING] 00:00:05.350 --> 00:00:10.500 align:middle line:90% 00:00:10.500 --> 00:00:12.200 align:middle line:84% R. SCOTT KEMP: OK, so today we're 00:00:12.200 --> 00:00:15.760 align:middle line:84% going to start down the path of economics 00:00:15.760 --> 00:00:22.320 align:middle line:84% and trying to understand the justification for nuclear energy 00:00:22.320 --> 00:00:25.520 align:middle line:84% in the context of climate change. 00:00:25.520 --> 00:00:27.420 align:middle line:84% In a sense, I could put up this plot 00:00:27.420 --> 00:00:30.920 align:middle line:84% and then you can all go home for the rest of the class, 00:00:30.920 --> 00:00:33.880 align:middle line:84% because this basically embodies all the information you 00:00:33.880 --> 00:00:37.960 align:middle line:84% need to know by the end of the class. 00:00:37.960 --> 00:00:40.120 align:middle line:84% OK, maybe I'm overstating it, but it'll draw you 00:00:40.120 --> 00:00:43.000 align:middle line:90% to the exact same conclusion. 00:00:43.000 --> 00:00:49.000 align:middle line:84% So this is a slide showing the levelized cost of energy. 00:00:49.000 --> 00:00:50.120 align:middle line:90% What is levelized cost? 00:00:50.120 --> 00:00:52.720 align:middle line:84% It's just one way of several ways 00:00:52.720 --> 00:00:55.600 align:middle line:90% to measure the cost of energy. 00:00:55.600 --> 00:00:57.660 align:middle line:90% We'll get into what LCOE is. 00:00:57.660 --> 00:01:01.010 align:middle line:84% It's also called LCOE, Levelized Cost Of Energy. 00:01:01.010 --> 00:01:04.849 align:middle line:84% It's not the only way to do it, but it's a very useful metric. 00:01:04.849 --> 00:01:10.090 align:middle line:84% And here it's plotted against, on the x-axis, 00:01:10.090 --> 00:01:14.390 align:middle line:84% various costs of capital and costs of equity. 00:01:14.390 --> 00:01:17.210 align:middle line:84% These are basically what the investor demands back 00:01:17.210 --> 00:01:20.610 align:middle line:84% when they make an investment in some kind of energy technology. 00:01:20.610 --> 00:01:23.250 align:middle line:84% And that has an effect on the total cost 00:01:23.250 --> 00:01:26.390 align:middle line:90% of electricity coming out. 00:01:26.390 --> 00:01:29.450 align:middle line:84% So this is cost per unit megawatt hour. 00:01:29.450 --> 00:01:32.570 align:middle line:84% Megawatt times hours is power times 00:01:32.570 --> 00:01:34.650 align:middle line:90% time is the unit of energy. 00:01:34.650 --> 00:01:37.970 align:middle line:90% So this is per unit of energy. 00:01:37.970 --> 00:01:43.090 align:middle line:84% And the key takeaway is to look at the ordering 00:01:43.090 --> 00:01:44.150 align:middle line:90% of these technologies. 00:01:44.150 --> 00:01:46.850 align:middle line:84% So here, we have the cheapest, solar PV, 00:01:46.850 --> 00:01:52.090 align:middle line:84% then onshore wind, then gas combined cycle. 00:01:52.090 --> 00:01:54.490 align:middle line:84% Will I tell you what combined cycle is in this class? 00:01:54.490 --> 00:01:57.220 align:middle line:90% Probably at some point. 00:01:57.220 --> 00:02:00.240 align:middle line:84% Geothermal, wind offshore, coal, gas peaking-- 00:02:00.240 --> 00:02:01.587 align:middle line:90% which you can basically ignore. 00:02:01.587 --> 00:02:03.420 align:middle line:84% Peaker plants only come on during the middle 00:02:03.420 --> 00:02:05.020 align:middle line:90% of Super Bowl Sunday. 00:02:05.020 --> 00:02:08.199 align:middle line:84% They come on very little, so they're very expensive. 00:02:08.199 --> 00:02:09.220 align:middle line:90% But that's OK. 00:02:09.220 --> 00:02:14.460 align:middle line:90% And then US nuclear at the top. 00:02:14.460 --> 00:02:18.500 align:middle line:90% So this is in the United States. 00:02:18.500 --> 00:02:20.920 align:middle line:84% And these orderings are different in other countries. 00:02:20.920 --> 00:02:22.200 align:middle line:84% That's an important thing to remember. 00:02:22.200 --> 00:02:23.617 align:middle line:84% In everything we do in this class, 00:02:23.617 --> 00:02:25.680 align:middle line:84% we're going to look at the US case, 00:02:25.680 --> 00:02:28.220 align:middle line:84% and then I will try to tell you a little bit about how 00:02:28.220 --> 00:02:29.420 align:middle line:90% other countries look. 00:02:29.420 --> 00:02:31.560 align:middle line:84% One of the issues if you're in Japan, 00:02:31.560 --> 00:02:35.980 align:middle line:84% for example, solar is not so great 00:02:35.980 --> 00:02:38.100 align:middle line:84% because you don't have a lot of land area. 00:02:38.100 --> 00:02:40.060 align:middle line:84% And you tend to be at higher latitudes 00:02:40.060 --> 00:02:43.540 align:middle line:84% and it's not as effective, so solar bumps up and so on. 00:02:43.540 --> 00:02:46.700 align:middle line:84% But this is in the United States. 00:02:46.700 --> 00:02:52.440 align:middle line:84% And the key takeaway here is that nuclear is very expensive. 00:02:52.440 --> 00:02:54.980 align:middle line:90% 00:02:54.980 --> 00:03:00.340 align:middle line:84% So why should we do nuclear if it's so expensive? 00:03:00.340 --> 00:03:02.580 align:middle line:84% Well, obviously you need some kind 00:03:02.580 --> 00:03:05.780 align:middle line:84% of motivation other than just the cost. 00:03:05.780 --> 00:03:09.620 align:middle line:84% And that motivation has traditionally come from a desire 00:03:09.620 --> 00:03:12.420 align:middle line:90% to deal with CO2 emissions. 00:03:12.420 --> 00:03:15.140 align:middle line:84% Now, one of the problems is that obviously 00:03:15.140 --> 00:03:16.540 align:middle line:84% a lot of these other things also, 00:03:16.540 --> 00:03:18.400 align:middle line:84% to some extent, deal with CO2 emissions. 00:03:18.400 --> 00:03:20.580 align:middle line:90% And so we'll talk about that. 00:03:20.580 --> 00:03:24.380 align:middle line:84% But the central point I want to make here 00:03:24.380 --> 00:03:26.700 align:middle line:84% is just simply you don't do nuclear unless you 00:03:26.700 --> 00:03:28.340 align:middle line:90% have a climate change problem. 00:03:28.340 --> 00:03:30.860 align:middle line:84% That's basically the bottom line. 00:03:30.860 --> 00:03:34.980 align:middle line:84% So we have a climate change problem. 00:03:34.980 --> 00:03:40.280 align:middle line:84% So let me just ask the class, how much CO2 should we emit? 00:03:40.280 --> 00:03:47.900 align:middle line:90% 00:03:47.900 --> 00:03:49.060 align:middle line:90% Yes. 00:03:49.060 --> 00:03:50.540 align:middle line:90% AUDIENCE: Zero, ideally. 00:03:50.540 --> 00:03:52.060 align:middle line:90% R. SCOTT KEMP: Zero, ideally. 00:03:52.060 --> 00:03:55.750 align:middle line:84% Who agrees that ideally, zero is the right number? 00:03:55.750 --> 00:04:01.177 align:middle line:90% 00:04:01.177 --> 00:04:02.010 align:middle line:90% OK, what's going on? 00:04:02.010 --> 00:04:04.150 align:middle line:84% OK, so some people agree with this. 00:04:04.150 --> 00:04:05.250 align:middle line:90% Why do you agree? 00:04:05.250 --> 00:04:07.870 align:middle line:90% Why do you feel that way? 00:04:07.870 --> 00:04:08.750 align:middle line:90% Yeah. 00:04:08.750 --> 00:04:11.830 align:middle line:84% AUDIENCE: If I'm saying ideal, as in waving my magic wand 00:04:11.830 --> 00:04:13.490 align:middle line:84% and I could just have that happen, 00:04:13.490 --> 00:04:15.390 align:middle line:84% I've been told many times that CO2 00:04:15.390 --> 00:04:18.510 align:middle line:84% is the main contributor to climate change and greenhouse 00:04:18.510 --> 00:04:19.010 align:middle line:90% gases. 00:04:19.010 --> 00:04:22.350 align:middle line:84% So if I could reduce the acceleration of climate change, 00:04:22.350 --> 00:04:24.390 align:middle line:84% then yeah, that would be great, if I was only 00:04:24.390 --> 00:04:26.110 align:middle line:90% waving a magic wand. 00:04:26.110 --> 00:04:29.070 align:middle line:84% R. SCOTT KEMP: Well, I mean, what does it 00:04:29.070 --> 00:04:30.090 align:middle line:90% mean to wave the wand? 00:04:30.090 --> 00:04:31.970 align:middle line:84% Does it mean that you could just affect it? 00:04:31.970 --> 00:04:34.583 align:middle line:84% Or does it mean that it has zero cost to fix the problem? 00:04:34.583 --> 00:04:36.750 align:middle line:84% AUDIENCE: Yeah, zero cost, wouldn't have any impacts 00:04:36.750 --> 00:04:38.770 align:middle line:84% elsewhere that I don't have to do the trade-off. 00:04:38.770 --> 00:04:40.353 align:middle line:84% R. SCOTT KEMP: So that's not the case. 00:04:40.353 --> 00:04:42.550 align:middle line:84% So now do we still feel zero-- even though there's 00:04:42.550 --> 00:04:45.830 align:middle line:84% some cost, who feels that we should still do zero, 00:04:45.830 --> 00:04:51.630 align:middle line:84% even though there's some cost of abating carbon? 00:04:51.630 --> 00:04:53.680 align:middle line:90% Some people. 00:04:53.680 --> 00:04:54.820 align:middle line:90% Fewer people. 00:04:54.820 --> 00:04:55.420 align:middle line:90% All right. 00:04:55.420 --> 00:04:55.920 align:middle line:90% Yeah. 00:04:55.920 --> 00:04:58.320 align:middle line:84% I mean, so that's kind of the right intuition. 00:04:58.320 --> 00:05:01.160 align:middle line:84% Here's a simple way to look at it. 00:05:01.160 --> 00:05:04.220 align:middle line:84% This is the fraction of CO2 emissions avoided. 00:05:04.220 --> 00:05:06.420 align:middle line:90% Somewhere over here is 1. 00:05:06.420 --> 00:05:08.120 align:middle line:84% And this is the value of doing something 00:05:08.120 --> 00:05:09.900 align:middle line:90% with the next unit of something. 00:05:09.900 --> 00:05:13.540 align:middle line:84% So here, we have the marginal benefit. 00:05:13.540 --> 00:05:19.140 align:middle line:84% So we remove one and we get some benefit in terms of climate. 00:05:19.140 --> 00:05:21.840 align:middle line:84% And it basically is maybe more or less linear. 00:05:21.840 --> 00:05:25.020 align:middle line:84% It may taper off down here at some point. 00:05:25.020 --> 00:05:30.500 align:middle line:84% And then this is the cost of abatement. 00:05:30.500 --> 00:05:32.640 align:middle line:84% And in the beginning, it's relatively cheap 00:05:32.640 --> 00:05:34.760 align:middle line:90% to abate one unit. 00:05:34.760 --> 00:05:37.040 align:middle line:84% But as you do more and more-- in fact, 00:05:37.040 --> 00:05:41.680 align:middle line:84% if I had plotted this correctly, this line would start below 00:05:41.680 --> 00:05:46.360 align:middle line:84% the axis, because the cost to abate the first unit of carbon 00:05:46.360 --> 00:05:52.510 align:middle line:84% is actually negative, because this energy savings-- 00:05:52.510 --> 00:05:58.050 align:middle line:84% turns out changing your incandescent bulbs to LED bulbs 00:05:58.050 --> 00:06:00.870 align:middle line:84% on a life cycle basis turns out to save you money, 00:06:00.870 --> 00:06:02.850 align:middle line:84% despite the fact that the LED bulb costs 00:06:02.850 --> 00:06:07.490 align:middle line:84% $10 and the incandescent bulb cost $1. 00:06:07.490 --> 00:06:09.890 align:middle line:84% But in the end, you save way more money on electricity 00:06:09.890 --> 00:06:12.110 align:middle line:84% and abate carbon emissions at the same time. 00:06:12.110 --> 00:06:15.170 align:middle line:84% So in the beginning, you're actually starting negative. 00:06:15.170 --> 00:06:16.510 align:middle line:90% And then it becomes positive. 00:06:16.510 --> 00:06:18.810 align:middle line:84% But at some point, when you want to abate 00:06:18.810 --> 00:06:21.210 align:middle line:84% that last unit of carbon, you're going 00:06:21.210 --> 00:06:24.090 align:middle line:84% to have to put like some vacuum collector bags 00:06:24.090 --> 00:06:27.210 align:middle line:84% on the back of cattle to collect their farts or something. 00:06:27.210 --> 00:06:29.130 align:middle line:84% And do we have to walk around with masks 00:06:29.130 --> 00:06:32.090 align:middle line:84% to stop exhaling into the environment? 00:06:32.090 --> 00:06:33.510 align:middle line:90% Just as reductio ad absurdum. 00:06:33.510 --> 00:06:37.027 align:middle line:84% But it gets obnoxiously expensive, 00:06:37.027 --> 00:06:38.110 align:middle line:90% if you want to go to zero. 00:06:38.110 --> 00:06:40.330 align:middle line:84% So the point is that there's some point where 00:06:40.330 --> 00:06:45.170 align:middle line:84% the marginal benefit intersects the marginal cost. 00:06:45.170 --> 00:06:47.290 align:middle line:84% And that is the optimal amount of carbon. 00:06:47.290 --> 00:06:49.660 align:middle line:84% And if you start from the mindset 00:06:49.660 --> 00:06:52.460 align:middle line:84% that we should have zero carbon, you've 00:06:52.460 --> 00:06:54.420 align:middle line:90% already made a huge mistake. 00:06:54.420 --> 00:06:57.520 align:middle line:84% That's what I really want you to take away, 00:06:57.520 --> 00:07:01.100 align:middle line:84% because a lot of people read studies 00:07:01.100 --> 00:07:05.220 align:middle line:84% about full decarbonization of the grid, et cetera, et cetera. 00:07:05.220 --> 00:07:07.140 align:middle line:90% They want a zero-carbon society. 00:07:07.140 --> 00:07:12.740 align:middle line:84% And they then make technology choices predicated on zero. 00:07:12.740 --> 00:07:15.060 align:middle line:84% And it's just at that point, you've 00:07:15.060 --> 00:07:18.020 align:middle line:84% already pushed us off a suboptimal position. 00:07:18.020 --> 00:07:21.140 align:middle line:84% And any analysis you do predicated 00:07:21.140 --> 00:07:24.940 align:middle line:84% on a zero-carbon world is the wrong analysis. 00:07:24.940 --> 00:07:27.780 align:middle line:84% It may be very close to zero or it might not 00:07:27.780 --> 00:07:29.180 align:middle line:90% be that close to zero. 00:07:29.180 --> 00:07:32.140 align:middle line:84% We don't really know, but it is definitely not zero. 00:07:32.140 --> 00:07:34.700 align:middle line:84% And that's what I want everyone to bear 00:07:34.700 --> 00:07:38.940 align:middle line:84% in mind when you start looking at things that people are doing. 00:07:38.940 --> 00:07:41.380 align:middle line:84% Tons of academics, myself included, 00:07:41.380 --> 00:07:46.220 align:middle line:84% have published papers on a fully carbon-free renewables grid 00:07:46.220 --> 00:07:48.280 align:middle line:90% and what that means. 00:07:48.280 --> 00:07:52.460 align:middle line:90% And that's an extreme case. 00:07:52.460 --> 00:07:54.320 align:middle line:84% That's not really where we want to wind up. 00:07:54.320 --> 00:07:55.020 align:middle line:90% Yeah. 00:07:55.020 --> 00:07:58.480 align:middle line:84% AUDIENCE: So a lot of what I think people end up, 00:07:58.480 --> 00:08:04.220 align:middle line:84% I guess, wanting from this is a carbon production 00:08:04.220 --> 00:08:09.780 align:middle line:84% rate that's lower than the carbon reduction rate. 00:08:09.780 --> 00:08:12.480 align:middle line:84% As in the carbon rate's going down over time. 00:08:12.480 --> 00:08:16.700 align:middle line:84% So do we have a number for what the maximum carbon absorption 00:08:16.700 --> 00:08:19.080 align:middle line:90% of the Earth actually is? 00:08:19.080 --> 00:08:20.080 align:middle line:90% R. SCOTT KEMP: Oh, yeah. 00:08:20.080 --> 00:08:25.840 align:middle line:84% I mean, so there is a lifetime of carbon in the environment-- 00:08:25.840 --> 00:08:27.000 align:middle line:90% a half life, if you will. 00:08:27.000 --> 00:08:29.987 align:middle line:84% I think it's over 1,000 years roughly. 00:08:29.987 --> 00:08:31.820 align:middle line:84% And that's what geoengineering is all about, 00:08:31.820 --> 00:08:33.600 align:middle line:90% somehow accelerating that. 00:08:33.600 --> 00:08:37.900 align:middle line:90% 00:08:37.900 --> 00:08:42.900 align:middle line:84% Yeah, you basically can reach an equilibrium condition, 00:08:42.900 --> 00:08:45.370 align:middle line:84% if you have no more emissions, then it will go down. 00:08:45.370 --> 00:08:49.230 align:middle line:84% So yeah, there is a number in the very, very long time horizon 00:08:49.230 --> 00:08:50.750 align:middle line:90% that would tell you that. 00:08:50.750 --> 00:08:55.350 align:middle line:90% But that a bit misses the point. 00:08:55.350 --> 00:08:59.110 align:middle line:84% That is engaging with something called the naturalistic fallacy, 00:08:59.110 --> 00:09:06.550 align:middle line:84% which is the idea that humans should not change anything. 00:09:06.550 --> 00:09:11.550 align:middle line:84% And it's problematic because it's just not how 00:09:11.550 --> 00:09:14.172 align:middle line:90% any species exist on the Earth. 00:09:14.172 --> 00:09:15.630 align:middle line:84% And it's problematic because if you 00:09:15.630 --> 00:09:19.190 align:middle line:84% look at the timescales involved, you'll see from historical data 00:09:19.190 --> 00:09:22.710 align:middle line:84% that CO2 in fact fluctuates quite a lot. 00:09:22.710 --> 00:09:30.030 align:middle line:84% And so it would be hard to defend that position in reality. 00:09:30.030 --> 00:09:35.192 align:middle line:84% This more near-term perspective is usually where you wind up. 00:09:35.192 --> 00:09:37.650 align:middle line:84% I don't have anything prepared on the naturalistic fallacy, 00:09:37.650 --> 00:09:41.325 align:middle line:84% but I can, if we want to talk about that more. 00:09:41.325 --> 00:09:42.450 align:middle line:90% It is an interesting thing. 00:09:42.450 --> 00:09:47.360 align:middle line:84% You can also look it up on your spare time. 00:09:47.360 --> 00:09:47.940 align:middle line:90% All right. 00:09:47.940 --> 00:09:52.420 align:middle line:84% So the key point here is there's some amount, but it's not zero. 00:09:52.420 --> 00:09:55.560 align:middle line:90% We don't know what it is. 00:09:55.560 --> 00:10:01.040 align:middle line:84% So we want to set energy policy to get some amount of carbon 00:10:01.040 --> 00:10:03.560 align:middle line:90% reduction, TBD amount. 00:10:03.560 --> 00:10:06.000 align:middle line:84% How should we go about doing this? 00:10:06.000 --> 00:10:09.960 align:middle line:90% And so who read Jasper? 00:10:09.960 --> 00:10:13.960 align:middle line:90% Yay, excellent. 00:10:13.960 --> 00:10:16.802 align:middle line:84% Some thoughts on the different models of how energy policy-- 00:10:16.802 --> 00:10:18.760 align:middle line:84% I mean, Jasper is particularly around nuclear-- 00:10:18.760 --> 00:10:21.160 align:middle line:84% but how energy policy has happened? 00:10:21.160 --> 00:10:23.360 align:middle line:84% Just throw out some words about some things 00:10:23.360 --> 00:10:27.760 align:middle line:90% that Jasper talks about. 00:10:27.760 --> 00:10:28.440 align:middle line:90% Yep. 00:10:28.440 --> 00:10:30.065 align:middle line:84% AUDIENCE: He talks a lot about the idea 00:10:30.065 --> 00:10:31.968 align:middle line:90% of the social cost of carbon. 00:10:31.968 --> 00:10:34.260 align:middle line:84% R. SCOTT KEMP: Oh, are you are you talking about Jasper 00:10:34.260 --> 00:10:36.080 align:middle line:84% or are you talking about Pindyck? 00:10:36.080 --> 00:10:37.320 align:middle line:90% You're talking about Pindyck. 00:10:37.320 --> 00:10:42.490 align:middle line:84% Yeah, Jasper was on last week's reading assignment. 00:10:42.490 --> 00:10:46.890 align:middle line:84% It was the one that talked about elites and discretion. 00:10:46.890 --> 00:10:54.010 align:middle line:84% So Jasper talks about this idea that France had-- 00:10:54.010 --> 00:10:56.590 align:middle line:84% it was not driven by concerns around climate. 00:10:56.590 --> 00:11:00.450 align:middle line:84% It was actually driven around concerns around oil, 00:11:00.450 --> 00:11:02.930 align:middle line:90% because of the oil crisis. 00:11:02.930 --> 00:11:07.690 align:middle line:84% But they realized there was unacceptable dependency 00:11:07.690 --> 00:11:10.110 align:middle line:84% on foreign oil and they wanted to do something about it. 00:11:10.110 --> 00:11:11.912 align:middle line:84% So they wanted energy independence. 00:11:11.912 --> 00:11:12.870 align:middle line:90% It wasn't clean energy. 00:11:12.870 --> 00:11:15.130 align:middle line:84% It was a different thing they were maximizing for. 00:11:15.130 --> 00:11:17.490 align:middle line:90% But they decided to go nuclear. 00:11:17.490 --> 00:11:20.650 align:middle line:84% And they went nuclear in a big way. 00:11:20.650 --> 00:11:23.210 align:middle line:84% Whereas other countries-- and the paper 00:11:23.210 --> 00:11:26.290 align:middle line:84% talks about Sweden and talks about the United States. 00:11:26.290 --> 00:11:30.747 align:middle line:84% They instead said, well, let's look at the cost of nuclear. 00:11:30.747 --> 00:11:32.330 align:middle line:84% Let's look at the benefits of nuclear. 00:11:32.330 --> 00:11:36.730 align:middle line:84% And the decision was to wait and not do a lot of nuclear right 00:11:36.730 --> 00:11:37.230 align:middle line:90% away. 00:11:37.230 --> 00:11:39.940 align:middle line:84% Now, in the United States, we did actually have a ramp 00:11:39.940 --> 00:11:41.560 align:middle line:90% up in nuclear around that time. 00:11:41.560 --> 00:11:44.740 align:middle line:84% It was actually the most nuclear that we've ever built. 00:11:44.740 --> 00:11:47.760 align:middle line:84% In Sweden, they built a lot less. 00:11:47.760 --> 00:11:51.280 align:middle line:84% But the article attributes that lower growth rate 00:11:51.280 --> 00:11:55.280 align:middle line:84% not particularly to a rational cost-benefit answer, 00:11:55.280 --> 00:11:59.420 align:middle line:84% but in fact to the politics of the social democrats who, 00:11:59.420 --> 00:12:02.300 align:middle line:84% absent consensus, just decide to do nothing. 00:12:02.300 --> 00:12:04.540 align:middle line:90% And so nothing was done. 00:12:04.540 --> 00:12:08.380 align:middle line:84% But it talks about how there are different kind of philosophies 00:12:08.380 --> 00:12:10.940 align:middle line:84% of choosing which technology you want to pursue 00:12:10.940 --> 00:12:13.100 align:middle line:84% and how aggressively you pursue it. 00:12:13.100 --> 00:12:20.780 align:middle line:84% And so we can ask, what is the right way to do this? 00:12:20.780 --> 00:12:22.980 align:middle line:90% Should we just choose a winner? 00:12:22.980 --> 00:12:25.220 align:middle line:84% Should we say nuclear is fantastic? 00:12:25.220 --> 00:12:26.740 align:middle line:90% Let's do nuclear. 00:12:26.740 --> 00:12:29.320 align:middle line:84% Or should we try to do this cost-benefit thing? 00:12:29.320 --> 00:12:31.820 align:middle line:84% But cost-benefit has historically not produced 00:12:31.820 --> 00:12:35.300 align:middle line:90% a lot of benefit for nuclear. 00:12:35.300 --> 00:12:37.040 align:middle line:90% Does anyone have a view on that? 00:12:37.040 --> 00:12:42.560 align:middle line:90% 00:12:42.560 --> 00:12:43.260 align:middle line:90% Yeah. 00:12:43.260 --> 00:12:48.010 align:middle line:84% AUDIENCE: I mean, this is a lukewarm answer, I suppose, 00:12:48.010 --> 00:12:48.760 align:middle line:90% if you can get it. 00:12:48.760 --> 00:12:50.620 align:middle line:84% But it should probably be evaluated 00:12:50.620 --> 00:12:52.240 align:middle line:90% in a lot of different frames. 00:12:52.240 --> 00:12:55.387 align:middle line:84% But the economic has to be one of them. 00:12:55.387 --> 00:12:56.220 align:middle line:90% R. SCOTT KEMP: Yeah. 00:12:56.220 --> 00:12:57.287 align:middle line:90% Yeah. 00:12:57.287 --> 00:12:59.120 align:middle line:84% AUDIENCE: I think it's a political decision, 00:12:59.120 --> 00:13:00.540 align:middle line:90% at the end of the day. 00:13:00.540 --> 00:13:03.820 align:middle line:84% We have the Paris Agreement and the 2050, 00:13:03.820 --> 00:13:06.940 align:middle line:90% let's say, net zero targets. 00:13:06.940 --> 00:13:09.440 align:middle line:84% So I guess it would be very political. 00:13:09.440 --> 00:13:11.540 align:middle line:84% I mean, the decision will be influenced by-- 00:13:11.540 --> 00:13:12.957 align:middle line:84% R. SCOTT KEMP: Yeah, you're right. 00:13:12.957 --> 00:13:15.180 align:middle line:84% No matter what, it will be a political decision. 00:13:15.180 --> 00:13:17.140 align:middle line:84% And it's a political decision rather 00:13:17.140 --> 00:13:21.480 align:middle line:84% to do what the French did, which incidentally, is also-- 00:13:21.480 --> 00:13:23.660 align:middle line:84% I think I mentioned in the first lecture, 00:13:23.660 --> 00:13:28.060 align:middle line:84% the French and high speed rail also have this very successful 00:13:28.060 --> 00:13:30.740 align:middle line:84% early obsession in the '60s and '70s and '80s with high speed 00:13:30.740 --> 00:13:31.660 align:middle line:90% rail. 00:13:31.660 --> 00:13:37.270 align:middle line:84% But these are political decisions and people also 00:13:37.270 --> 00:13:40.750 align:middle line:84% can make political decisions to do cost-benefit. 00:13:40.750 --> 00:13:41.630 align:middle line:90% AUDIENCE: Yeah. 00:13:41.630 --> 00:13:44.390 align:middle line:84% Politicians sometimes don't care about the economic benefit 00:13:44.390 --> 00:13:45.210 align:middle line:90% that much. 00:13:45.210 --> 00:13:48.753 align:middle line:84% It's different forces driving these decisions. 00:13:48.753 --> 00:13:50.170 align:middle line:84% R. SCOTT KEMP: Yeah, that's right. 00:13:50.170 --> 00:13:51.130 align:middle line:84% AUDIENCE: That's what I'm trying to say. 00:13:51.130 --> 00:13:52.463 align:middle line:90% R. SCOTT KEMP: Yeah, yeah, yeah. 00:13:52.463 --> 00:13:55.190 align:middle line:84% So they may be, will I get votes if I 00:13:55.190 --> 00:13:59.630 align:middle line:90% don't support decarbonization? 00:13:59.630 --> 00:14:02.670 align:middle line:84% Will we look like we're a responsible country on the world 00:14:02.670 --> 00:14:04.630 align:middle line:84% stage if we go to the Paris negotiations 00:14:04.630 --> 00:14:06.370 align:middle line:84% and we don't come up with targets? 00:14:06.370 --> 00:14:08.703 align:middle line:84% Even though we know we're not going to make our targets, 00:14:08.703 --> 00:14:10.230 align:middle line:84% we're still going to put up targets. 00:14:10.230 --> 00:14:12.770 align:middle line:84% Yeah, this is all definitely true. 00:14:12.770 --> 00:14:15.290 align:middle line:90% 00:14:15.290 --> 00:14:16.510 align:middle line:90% Yeah, one more. 00:14:16.510 --> 00:14:18.670 align:middle line:84% AUDIENCE: This may not be the time. 00:14:18.670 --> 00:14:19.890 align:middle line:90% I can ask after. 00:14:19.890 --> 00:14:22.410 align:middle line:84% But are there decisions that aren't political decisions? 00:14:22.410 --> 00:14:23.010 align:middle line:90% R. SCOTT KEMP: Not really. 00:14:23.010 --> 00:14:23.552 align:middle line:90% AUDIENCE: OK. 00:14:23.552 --> 00:14:24.510 align:middle line:90% R. SCOTT KEMP: Yeah. 00:14:24.510 --> 00:14:25.150 align:middle line:90% Yeah. 00:14:25.150 --> 00:14:28.710 align:middle line:84% AUDIENCE: I'm also thinking of, for example, switching 00:14:28.710 --> 00:14:31.870 align:middle line:84% to high speed rail, whether it's a decision that 00:14:31.870 --> 00:14:34.360 align:middle line:84% could be made long term, but it can also 00:14:34.360 --> 00:14:35.620 align:middle line:90% be thought of economically. 00:14:35.620 --> 00:14:39.982 align:middle line:84% But I know there's challenges with deciding the scale you're 00:14:39.982 --> 00:14:41.440 align:middle line:84% thinking about, like the time scale 00:14:41.440 --> 00:14:42.898 align:middle line:84% you're thinking about economically, 00:14:42.898 --> 00:14:46.560 align:middle line:84% and discount rates, which are debatable. 00:14:46.560 --> 00:14:48.360 align:middle line:84% So if switching to nuclear policy 00:14:48.360 --> 00:14:51.680 align:middle line:84% is great for a really extended amount of time, 00:14:51.680 --> 00:14:54.080 align:middle line:84% but that time is so long that the discount rate 00:14:54.080 --> 00:14:55.767 align:middle line:90% makes the benefits negligible. 00:14:55.767 --> 00:14:57.600 align:middle line:84% R. SCOTT KEMP: That would be true, actually, 00:14:57.600 --> 00:15:01.160 align:middle line:84% for carbon abatement in general, nuclear notwithstanding. 00:15:01.160 --> 00:15:05.680 align:middle line:84% And so Pindyck talks about the problem of the discount rate. 00:15:05.680 --> 00:15:09.720 align:middle line:84% Basically, if it's above 2%, he says in his paper 00:15:09.720 --> 00:15:12.633 align:middle line:84% that it's almost not worth doing anything. 00:15:12.633 --> 00:15:14.800 align:middle line:84% And then the question is, what is the discount rate? 00:15:14.800 --> 00:15:16.560 align:middle line:84% I actually was going to put together 00:15:16.560 --> 00:15:19.073 align:middle line:84% a whole slide on the construction of the Ramsey rate. 00:15:19.073 --> 00:15:21.740 align:middle line:84% And I didn't do that, but maybe I'll do that for the next class. 00:15:21.740 --> 00:15:24.200 align:middle line:84% Ramsey is the traditional approach 00:15:24.200 --> 00:15:26.120 align:middle line:84% to how you understand social discounting 00:15:26.120 --> 00:15:28.640 align:middle line:84% for dealing with these types of issues 00:15:28.640 --> 00:15:30.380 align:middle line:90% on an intergenerational basis. 00:15:30.380 --> 00:15:32.750 align:middle line:84% So I'll do that for a future slide. 00:15:32.750 --> 00:15:35.970 align:middle line:84% We can have a better discussion of that. 00:15:35.970 --> 00:15:41.770 align:middle line:84% The basic point is that there really isn't a right approach. 00:15:41.770 --> 00:15:44.730 align:middle line:84% There are many problems with cost-benefit. 00:15:44.730 --> 00:15:46.730 align:middle line:90% We'll get into that in a second. 00:15:46.730 --> 00:15:52.070 align:middle line:84% But there are problems with command and control approaches. 00:15:52.070 --> 00:15:53.950 align:middle line:84% There are problems with market approaches. 00:15:53.950 --> 00:15:56.690 align:middle line:84% There are all kinds of problems with all kinds of approaches. 00:15:56.690 --> 00:15:59.270 align:middle line:84% But I'm going to advocate for one approach, 00:15:59.270 --> 00:16:01.910 align:middle line:84% and that is a modified cost-benefit approach. 00:16:01.910 --> 00:16:06.010 align:middle line:84% And let me just talk a little bit about why. 00:16:06.010 --> 00:16:12.810 align:middle line:84% So people who might know Doug DeMuro this is Concorde. 00:16:12.810 --> 00:16:15.010 align:middle line:84% Probably a couple of you got that joke. 00:16:15.010 --> 00:16:18.050 align:middle line:84% So this is a supersonic passenger aircraft 00:16:18.050 --> 00:16:20.930 align:middle line:90% that operated for 28 years. 00:16:20.930 --> 00:16:24.530 align:middle line:84% It flew from Texas and the East Coast of the United States 00:16:24.530 --> 00:16:26.450 align:middle line:90% to Paris and London. 00:16:26.450 --> 00:16:29.530 align:middle line:84% I think it went from New York to London 00:16:29.530 --> 00:16:32.540 align:middle line:84% in three hours instead of six hours. 00:16:32.540 --> 00:16:35.860 align:middle line:84% The idea of flying people faster than the speed of sound 00:16:35.860 --> 00:16:39.740 align:middle line:84% was, of course, a fantasy held by aeronautical engineers 00:16:39.740 --> 00:16:40.740 align:middle line:90% for a long time. 00:16:40.740 --> 00:16:43.260 align:middle line:84% And it has a certain technical sweetness. 00:16:43.260 --> 00:16:45.460 align:middle line:84% Not that different from the technical sweetness 00:16:45.460 --> 00:16:47.460 align:middle line:84% of extracting enormous amounts of energy 00:16:47.460 --> 00:16:51.940 align:middle line:90% from little bits of rock. 00:16:51.940 --> 00:16:53.280 align:middle line:90% But it has issues. 00:16:53.280 --> 00:16:57.940 align:middle line:84% So Concorde uses four times more jet fuel per passenger 00:16:57.940 --> 00:17:00.060 align:middle line:90% than a normal airplane. 00:17:00.060 --> 00:17:05.579 align:middle line:84% This plane releases the amount of CO2 that a person like you 00:17:05.579 --> 00:17:10.579 align:middle line:84% would emit in a 30-year lifetime, in a single flight. 00:17:10.579 --> 00:17:18.540 align:middle line:84% This is very inefficient in terms of petroleum, 00:17:18.540 --> 00:17:20.180 align:middle line:84% and all of this so that 100 people 00:17:20.180 --> 00:17:24.060 align:middle line:84% can save three hours on their trip to London. 00:17:24.060 --> 00:17:26.260 align:middle line:84% It's, of course, extremely expensive to operate. 00:17:26.260 --> 00:17:30.180 align:middle line:84% A round-trip ticket on this plane in today's dollars is 00:17:30.180 --> 00:17:33.140 align:middle line:90% about $10,000. 00:17:33.140 --> 00:17:35.300 align:middle line:84% And the cabin was only 9 feet wide 00:17:35.300 --> 00:17:37.880 align:middle line:84% because it had to be for supersonic reasons, 00:17:37.880 --> 00:17:39.780 align:middle line:90% so it was very cramped. 00:17:39.780 --> 00:17:42.780 align:middle line:84% You set two by two instead of three by three. 00:17:42.780 --> 00:17:46.740 align:middle line:84% Really a benefit only for the super wealthy. 00:17:46.740 --> 00:17:50.680 align:middle line:84% But it had a lot of externalities, 00:17:50.680 --> 00:17:51.880 align:middle line:90% consequences for others. 00:17:51.880 --> 00:17:56.300 align:middle line:84% So one of the problems was that it produced sonic booms. 00:17:56.300 --> 00:17:59.820 align:middle line:84% So you can imagine several times a day 00:17:59.820 --> 00:18:03.060 align:middle line:84% when this thing was flying, if you lived in its flight path, 00:18:03.060 --> 00:18:04.920 align:middle line:84% you were going about your business. 00:18:04.920 --> 00:18:06.860 align:middle line:90% And then you hear boom. 00:18:06.860 --> 00:18:09.660 align:middle line:84% And all the windows would shake, and so on. 00:18:09.660 --> 00:18:12.300 align:middle line:84% And you can imagine if supersonic transport had 00:18:12.300 --> 00:18:14.465 align:middle line:84% become mainstream, we'd be hearing these 00:18:14.465 --> 00:18:15.340 align:middle line:90% all over the country. 00:18:15.340 --> 00:18:19.460 align:middle line:84% Every five minutes, it would just be extremely, extremely 00:18:19.460 --> 00:18:20.160 align:middle line:90% problematic. 00:18:20.160 --> 00:18:24.040 align:middle line:84% It imposes really heavy externalities, 00:18:24.040 --> 00:18:25.900 align:middle line:84% not just like to the quality of life 00:18:25.900 --> 00:18:28.310 align:middle line:84% and our ability to focus and do our homework, which 00:18:28.310 --> 00:18:33.230 align:middle line:84% is super important, but actually like rattling 00:18:33.230 --> 00:18:36.870 align:middle line:84% buildings to the point where they disintegrate faster. 00:18:36.870 --> 00:18:46.090 align:middle line:84% All kinds of-- disturbing animal life in farming operations, 00:18:46.090 --> 00:18:47.750 align:middle line:84% so they're constantly stressed and then 00:18:47.750 --> 00:18:50.350 align:middle line:84% they have problems with farming and so on. 00:18:50.350 --> 00:18:53.390 align:middle line:90% So was this a good idea? 00:18:53.390 --> 00:18:55.330 align:middle line:84% I mean, it was technologically achievable. 00:18:55.330 --> 00:18:56.690 align:middle line:90% It is technically sweet. 00:18:56.690 --> 00:18:59.630 align:middle line:84% But it probably was not a good idea. 00:18:59.630 --> 00:19:03.010 align:middle line:84% The cost to society far outweighed the benefit, 00:19:03.010 --> 00:19:05.390 align:middle line:90% I would argue. 00:19:05.390 --> 00:19:11.010 align:middle line:84% But you can see probably why it happened, 00:19:11.010 --> 00:19:19.030 align:middle line:84% because in a culture that is kind of obsessed with pursuing 00:19:19.030 --> 00:19:22.150 align:middle line:84% a technology without doing the cost-benefit analysis, 00:19:22.150 --> 00:19:24.330 align:middle line:84% these are the kinds of things that can happen. 00:19:24.330 --> 00:19:26.960 align:middle line:84% And so this is kind of the start to the argument 00:19:26.960 --> 00:19:28.100 align:middle line:90% for cost-benefit. 00:19:28.100 --> 00:19:28.640 align:middle line:90% Yeah. 00:19:28.640 --> 00:19:30.020 align:middle line:84% AUDIENCE: I have to double check my dates on this, 00:19:30.020 --> 00:19:32.600 align:middle line:84% but wasn't that sonic booms over land almost immediately 00:19:32.600 --> 00:19:35.440 align:middle line:84% regulated by the FAA, because NASA had done tests on it 00:19:35.440 --> 00:19:37.040 align:middle line:90% in the '60s? 00:19:37.040 --> 00:19:40.900 align:middle line:84% R. SCOTT KEMP: I remember there was a huge-- 00:19:40.900 --> 00:19:42.800 align:middle line:84% so there was a huge policy assessment 00:19:42.800 --> 00:19:47.880 align:middle line:84% going on to try to estimate the damage caused by sonic booms. 00:19:47.880 --> 00:19:50.820 align:middle line:84% I do not know if at some point during the course of events 00:19:50.820 --> 00:19:52.520 align:middle line:84% they decided to fly at subsonically 00:19:52.520 --> 00:19:54.380 align:middle line:84% over the little bits of land from New York. 00:19:54.380 --> 00:19:55.963 align:middle line:84% I'm not sure what they did from Texas. 00:19:55.963 --> 00:19:59.040 align:middle line:84% AUDIENCE: I know as of now, it is illegal, 00:19:59.040 --> 00:20:01.058 align:middle line:84% and you need special permitting by the FAA. 00:20:01.058 --> 00:20:02.600 align:middle line:84% Because there's a couple of companies 00:20:02.600 --> 00:20:05.298 align:middle line:84% that are trying to bring supersonic jets back. 00:20:05.298 --> 00:20:06.340 align:middle line:90% See if they get anywhere. 00:20:06.340 --> 00:20:10.200 align:middle line:84% R. SCOTT KEMP: Anyway, it's just kind 00:20:10.200 --> 00:20:15.160 align:middle line:84% of a poster child for what can go wrong if you advocate 00:20:15.160 --> 00:20:19.320 align:middle line:84% for technological enthusiasm as a way to deal with the energy 00:20:19.320 --> 00:20:20.320 align:middle line:90% problem. 00:20:20.320 --> 00:20:22.680 align:middle line:84% And the reason I raised that is because there's usually 00:20:22.680 --> 00:20:26.650 align:middle line:84% a number of students who, when they write their first essay, 00:20:26.650 --> 00:20:30.210 align:middle line:90% say, we just need to do nuclear. 00:20:30.210 --> 00:20:33.850 align:middle line:84% And that's a technological enthusiast perspective, 00:20:33.850 --> 00:20:39.450 align:middle line:84% as opposed to a more quantitative cost-benefit 00:20:39.450 --> 00:20:40.650 align:middle line:90% solution. 00:20:40.650 --> 00:20:46.290 align:middle line:84% But cost-benefit is also problematic. 00:20:46.290 --> 00:20:48.570 align:middle line:84% One of the major problems is that it's really hard 00:20:48.570 --> 00:20:52.530 align:middle line:84% to know where to draw the boundary of your analysis 00:20:52.530 --> 00:20:54.330 align:middle line:84% when you're trying to do your cost-benefit. 00:20:54.330 --> 00:20:58.835 align:middle line:84% So for example, in Massachusetts, if you own a car, 00:20:58.835 --> 00:21:00.210 align:middle line:84% it has been decided that you need 00:21:00.210 --> 00:21:05.210 align:middle line:84% to have your car inspected on an annual basis in order 00:21:05.210 --> 00:21:07.377 align:middle line:90% to drive it for safety reasons. 00:21:07.377 --> 00:21:09.210 align:middle line:84% They want to make sure that your brakes work 00:21:09.210 --> 00:21:12.050 align:middle line:84% and that your windshield wipers work and your headlights work. 00:21:12.050 --> 00:21:15.690 align:middle line:84% And that sounds like a great thing. 00:21:15.690 --> 00:21:18.410 align:middle line:84% But when they made that policy, did they take into account 00:21:18.410 --> 00:21:22.930 align:middle line:84% every Massachusetts car owner having to take three or four 00:21:22.930 --> 00:21:25.930 align:middle line:84% hours off of work to go get their car inspected and the cost 00:21:25.930 --> 00:21:29.970 align:middle line:84% to the economy to do that versus the cost of the lives saved? 00:21:29.970 --> 00:21:34.450 align:middle line:84% And so that kind of, oh, incidental cost 00:21:34.450 --> 00:21:37.450 align:middle line:84% might have not have been added when they 00:21:37.450 --> 00:21:39.730 align:middle line:90% did the cost-benefit analysis. 00:21:39.730 --> 00:21:42.570 align:middle line:84% So oh, the cost is just $35 to have 00:21:42.570 --> 00:21:44.070 align:middle line:90% someone inspect the vehicle. 00:21:44.070 --> 00:21:46.410 align:middle line:84% Well, actually, the cost is a lot higher 00:21:46.410 --> 00:21:47.870 align:middle line:90% than you expect it to be. 00:21:47.870 --> 00:21:49.570 align:middle line:84% It's very easy to overlook things 00:21:49.570 --> 00:21:51.330 align:middle line:90% that you don't think about. 00:21:51.330 --> 00:21:55.370 align:middle line:84% And so these analyses can be incomplete. 00:21:55.370 --> 00:21:59.170 align:middle line:84% On top of that, not everything can be easily quantified. 00:21:59.170 --> 00:22:05.010 align:middle line:84% So a lot of times, we're worried about saving human lives. 00:22:05.010 --> 00:22:09.050 align:middle line:90% And how much are you worth? 00:22:09.050 --> 00:22:10.550 align:middle line:90% How do we do that calculation? 00:22:10.550 --> 00:22:12.550 align:middle line:84% We'll actually talk about that in a later class. 00:22:12.550 --> 00:22:15.450 align:middle line:84% I think the government has decided 00:22:15.450 --> 00:22:18.350 align:middle line:84% you're worth somewhere between $2 million and $15 million, 00:22:18.350 --> 00:22:22.420 align:middle line:84% depending on what the problem is. 00:22:22.420 --> 00:22:27.860 align:middle line:84% But it's pretty clear that different approaches 00:22:27.860 --> 00:22:31.100 align:middle line:84% produce wildly different values for human lives. 00:22:31.100 --> 00:22:35.100 align:middle line:84% And not all people value their lives equally. 00:22:35.100 --> 00:22:37.960 align:middle line:84% Some people are willing to drive cars. 00:22:37.960 --> 00:22:40.720 align:middle line:84% Some people are willing to drive above the speed limit. 00:22:40.720 --> 00:22:42.320 align:middle line:90% Some people go bungee jumping. 00:22:42.320 --> 00:22:46.060 align:middle line:90% 00:22:46.060 --> 00:22:49.460 align:middle line:84% Other people who are incredibly conservative with things. 00:22:49.460 --> 00:22:52.500 align:middle line:84% So these are not simple questions. 00:22:52.500 --> 00:22:54.500 align:middle line:84% And then you have all these normative values 00:22:54.500 --> 00:22:55.920 align:middle line:90% that are also hard to quantify. 00:22:55.920 --> 00:22:58.860 align:middle line:84% Things like human rights, ethics, 00:22:58.860 --> 00:23:01.980 align:middle line:90% your emotional well-being. 00:23:01.980 --> 00:23:03.780 align:middle line:84% These are things that you can attempt 00:23:03.780 --> 00:23:05.743 align:middle line:84% to impose on a cost-benefit model, 00:23:05.743 --> 00:23:07.160 align:middle line:84% maybe through boundary conditions. 00:23:07.160 --> 00:23:10.540 align:middle line:84% You can say, we will not accept solutions 00:23:10.540 --> 00:23:17.300 align:middle line:84% where the cost are imposed disproportionately on people 00:23:17.300 --> 00:23:19.370 align:middle line:90% on the low income communities. 00:23:19.370 --> 00:23:22.230 align:middle line:84% Like, we could have that as a policy overlay, 00:23:22.230 --> 00:23:25.470 align:middle line:84% but it is really tricky to figure out 00:23:25.470 --> 00:23:30.950 align:middle line:84% how to wrap that into a quantitative analysis. 00:23:30.950 --> 00:23:36.990 align:middle line:84% Finally, you can't optimize for more than one thing. 00:23:36.990 --> 00:23:39.210 align:middle line:84% And if you have a cost-benefit equation, 00:23:39.210 --> 00:23:42.990 align:middle line:84% it's a fundamental axiom of mathematics, I guess. 00:23:42.990 --> 00:23:48.590 align:middle line:84% And this produces a problem, because you want simultaneously 00:23:48.590 --> 00:23:52.670 align:middle line:84% to minimize the carbon emissions of the system, 00:23:52.670 --> 00:23:55.410 align:middle line:84% but you also want to minimize the cost of the system. 00:23:55.410 --> 00:23:56.910 align:middle line:90% You can't do both. 00:23:56.910 --> 00:24:00.350 align:middle line:84% You can minimize the cost subject to some allowed amount 00:24:00.350 --> 00:24:00.970 align:middle line:90% of emissions. 00:24:00.970 --> 00:24:02.750 align:middle line:84% That's probably the best you can do. 00:24:02.750 --> 00:24:05.430 align:middle line:84% But you can't also then go out and minimize 00:24:05.430 --> 00:24:07.990 align:middle line:84% the social inequality and minimize all these other things 00:24:07.990 --> 00:24:11.430 align:middle line:90% that you might also care about. 00:24:11.430 --> 00:24:19.080 align:middle line:84% So yeah, I mean, I guess I can give you an example of that. 00:24:19.080 --> 00:24:22.380 align:middle line:84% These can be really difficult, these optimization issues. 00:24:22.380 --> 00:24:25.480 align:middle line:84% So we might ask the question like, how should I spend 00:24:25.480 --> 00:24:28.600 align:middle line:90% federal dollars on education? 00:24:28.600 --> 00:24:35.440 align:middle line:84% Should we give every child on a budgetary basis 00:24:35.440 --> 00:24:38.280 align:middle line:90% the same amount of money? 00:24:38.280 --> 00:24:41.720 align:middle line:84% And some people will say, yes, that's the most fair way. 00:24:41.720 --> 00:24:45.920 align:middle line:84% Every child gets $10,000 a year of educational support through 00:24:45.920 --> 00:24:47.520 align:middle line:90% teachers and schools. 00:24:47.520 --> 00:24:49.920 align:middle line:84% When you say, well, there are different communities 00:24:49.920 --> 00:24:53.340 align:middle line:84% that have different educational needs. 00:24:53.340 --> 00:24:58.520 align:middle line:84% We could say inner city schools in Washington, DC, which 00:24:58.520 --> 00:25:00.680 align:middle line:84% incidentally have truancy rates that would blow 00:25:00.680 --> 00:25:04.240 align:middle line:90% your mind, like 40% or higher. 00:25:04.240 --> 00:25:04.760 align:middle line:90% Yeah. 00:25:04.760 --> 00:25:05.780 align:middle line:90% AUDIENCE: Define truancy. 00:25:05.780 --> 00:25:07.460 align:middle line:84% R. SCOTT KEMP: Oh, people who don't show up to class. 00:25:07.460 --> 00:25:08.293 align:middle line:90% AUDIENCE: Thank you. 00:25:08.293 --> 00:25:09.760 align:middle line:90% R. SCOTT KEMP: Yeah. 00:25:09.760 --> 00:25:13.720 align:middle line:84% They really need a lot help, so we should give them more money. 00:25:13.720 --> 00:25:15.880 align:middle line:84% But then you have the problem that, OK, 00:25:15.880 --> 00:25:18.130 align:middle line:84% you can give them more money, but the marginal benefit 00:25:18.130 --> 00:25:21.710 align:middle line:84% of giving those schools more money is actually quite small. 00:25:21.710 --> 00:25:24.390 align:middle line:84% And the marginal damages to other schools, 00:25:24.390 --> 00:25:26.870 align:middle line:84% because their slope is steep, is actually quite high. 00:25:26.870 --> 00:25:29.170 align:middle line:84% So you do a lot of damage to other students 00:25:29.170 --> 00:25:31.970 align:middle line:84% to try to reallocate resources to the students who 00:25:31.970 --> 00:25:32.970 align:middle line:90% need it more. 00:25:32.970 --> 00:25:35.210 align:middle line:84% So how do you make this optimization? 00:25:35.210 --> 00:25:39.410 align:middle line:84% And it's an incredibly difficult type of problem. 00:25:39.410 --> 00:25:44.170 align:middle line:84% Anyway, so there are many problems. 00:25:44.170 --> 00:25:46.810 align:middle line:84% It's basically just as subjective 00:25:46.810 --> 00:25:50.730 align:middle line:84% as the technological enthusiasm approaches. 00:25:50.730 --> 00:25:53.570 align:middle line:90% Both of them are subjective. 00:25:53.570 --> 00:25:56.730 align:middle line:84% The difference between the cost-benefit approach 00:25:56.730 --> 00:25:59.290 align:middle line:84% and the technological enthusiasm approach 00:25:59.290 --> 00:26:05.730 align:middle line:84% is that with cost-benefit, you can at least have some semblance 00:26:05.730 --> 00:26:07.930 align:middle line:90% of quantification. 00:26:07.930 --> 00:26:13.210 align:middle line:84% So it's not just you have some way of comparing apples 00:26:13.210 --> 00:26:15.330 align:middle line:90% and oranges a little bit. 00:26:15.330 --> 00:26:17.270 align:middle line:84% Now, how that is done is imperfect, 00:26:17.270 --> 00:26:19.670 align:middle line:90% but you can talk about that. 00:26:19.670 --> 00:26:23.090 align:middle line:84% You can at least put it in terms that people can discuss. 00:26:23.090 --> 00:26:29.170 align:middle line:84% And two, every input is laid bare and is open for inspection. 00:26:29.170 --> 00:26:32.230 align:middle line:84% When you have elites making energy policy and just saying, 00:26:32.230 --> 00:26:37.410 align:middle line:84% well, we decide we want Concorde and we want nuclear reactors, 00:26:37.410 --> 00:26:39.610 align:middle line:90% then there isn't a debate. 00:26:39.610 --> 00:26:43.490 align:middle line:84% And that is a problem, because then you are basically 00:26:43.490 --> 00:26:46.050 align:middle line:84% putting all the power into a small group of people 00:26:46.050 --> 00:26:50.730 align:middle line:84% who don't necessarily have all the facts at their fingertips 00:26:50.730 --> 00:26:53.270 align:middle line:84% and can't make the perfect decision. 00:26:53.270 --> 00:26:56.770 align:middle line:84% So if you believe in democracy as a way of-- or at least 00:26:56.770 --> 00:26:59.770 align:middle line:84% social discourse or dialectic as a way of moving forward, 00:26:59.770 --> 00:27:02.010 align:middle line:84% the cost-benefit approach gives you a framework 00:27:02.010 --> 00:27:04.370 align:middle line:90% for trying to do that. 00:27:04.370 --> 00:27:08.670 align:middle line:84% So what is the measure of climate change? 00:27:08.670 --> 00:27:12.340 align:middle line:84% It's this factor called the social cost of carbon. 00:27:12.340 --> 00:27:14.740 align:middle line:84% This is what the Pindyck paper is about. 00:27:14.740 --> 00:27:18.460 align:middle line:84% It's an attempt to quantify numerically in terms of dollars 00:27:18.460 --> 00:27:24.120 align:middle line:84% the damages to society per unit of CO2 equivalent emitted. 00:27:24.120 --> 00:27:26.900 align:middle line:90% 00:27:26.900 --> 00:27:31.140 align:middle line:84% So in principle, we would like to know this 00:27:31.140 --> 00:27:33.400 align:middle line:84% if we're going to do a cost-benefit approach. 00:27:33.400 --> 00:27:36.820 align:middle line:84% But if you did your reading, you'll 00:27:36.820 --> 00:27:41.260 align:middle line:84% see that Pindyck eviscerated the process by which 00:27:41.260 --> 00:27:43.740 align:middle line:90% this number is generated. 00:27:43.740 --> 00:27:45.760 align:middle line:84% Which then leads us back to the problem. 00:27:45.760 --> 00:27:52.060 align:middle line:84% OK, wait, if this is basically not very useful, what do we do? 00:27:52.060 --> 00:27:54.500 align:middle line:84% So in case you didn't read Pindyck, 00:27:54.500 --> 00:27:58.100 align:middle line:84% let me talk a little bit more, just very briefly, 00:27:58.100 --> 00:28:01.580 align:middle line:84% about why this number is hard to obtain. 00:28:01.580 --> 00:28:04.580 align:middle line:90% So it's a two-step process. 00:28:04.580 --> 00:28:08.710 align:middle line:84% First, you need to estimate how much CO2 00:28:08.710 --> 00:28:13.870 align:middle line:84% produces what delta T in global mean surface temperature. 00:28:13.870 --> 00:28:16.430 align:middle line:84% And then two, you need to estimate 00:28:16.430 --> 00:28:19.110 align:middle line:84% how change in global mean surface temperature 00:28:19.110 --> 00:28:23.310 align:middle line:84% affects social welfare, which is usually measured 00:28:23.310 --> 00:28:28.190 align:middle line:90% as dollars of welfare lost. 00:28:28.190 --> 00:28:31.310 align:middle line:84% So let's look at these a bit more carefully. 00:28:31.310 --> 00:28:35.110 align:middle line:84% The parameter of relevance after all the climate models 00:28:35.110 --> 00:28:39.890 align:middle line:84% do their thing is called the climate sensitivity. 00:28:39.890 --> 00:28:44.710 align:middle line:84% This is the expected change in degrees C temperature 00:28:44.710 --> 00:28:47.670 align:middle line:90% arising from a doubling of CO2. 00:28:47.670 --> 00:28:51.550 align:middle line:84% And we began making these estimates in 1896. 00:28:51.550 --> 00:28:55.370 align:middle line:84% And as you can see, over the decades, 00:28:55.370 --> 00:28:57.550 align:middle line:84% there have been many estimates, including 00:28:57.550 --> 00:28:59.390 align:middle line:90% the emergence of the IPCC. 00:28:59.390 --> 00:29:02.590 align:middle line:84% This one, AR6, is the most recent IPCC assessment 00:29:02.590 --> 00:29:03.990 align:middle line:90% of climate sensitivity. 00:29:03.990 --> 00:29:10.560 align:middle line:90% The next one is due out in 2028. 00:29:10.560 --> 00:29:15.000 align:middle line:84% And the basic takeaway is there's 00:29:15.000 --> 00:29:18.200 align:middle line:84% been no reduction in the uncertainty on this number 00:29:18.200 --> 00:29:22.680 align:middle line:90% in over 125 years of research. 00:29:22.680 --> 00:29:25.060 align:middle line:90% That is remarkable. 00:29:25.060 --> 00:29:28.020 align:middle line:84% And this is not a small range, 1.8 to 5.6. 00:29:28.020 --> 00:29:30.160 align:middle line:84% When people talk about the maximum 00:29:30.160 --> 00:29:33.520 align:middle line:84% allowed temperature change should be 2 degrees 00:29:33.520 --> 00:29:40.040 align:middle line:84% and your uncertainty is this big, what do you do? 00:29:40.040 --> 00:29:42.960 align:middle line:84% So why is the uncertainty this big? 00:29:42.960 --> 00:29:47.560 align:middle line:84% Well, one of the problems is that it comes from feedback. 00:29:47.560 --> 00:29:49.760 align:middle line:84% The climate system has all these feedbacks. 00:29:49.760 --> 00:29:52.180 align:middle line:90% And it has this functional form. 00:29:52.180 --> 00:29:56.160 align:middle line:84% This is the Planck temperature change 00:29:56.160 --> 00:30:00.640 align:middle line:84% resulting from just straight up radiative forces 00:30:00.640 --> 00:30:02.977 align:middle line:84% without feedback from a doubling of CO2. 00:30:02.977 --> 00:30:04.560 align:middle line:84% Then you have this feedback parameter, 00:30:04.560 --> 00:30:08.150 align:middle line:84% which is here in the-- it's a solution to an infinite series. 00:30:08.150 --> 00:30:11.850 align:middle line:84% And then you have the effective change in temperature. 00:30:11.850 --> 00:30:13.890 align:middle line:90% So let's just see what happens. 00:30:13.890 --> 00:30:17.410 align:middle line:84% If your feedback parameter is negative-- so this feedback 00:30:17.410 --> 00:30:22.310 align:middle line:84% on the x-axis and this is the delta T over T0. 00:30:22.310 --> 00:30:24.690 align:middle line:84% So this is multiplier on the temperature. 00:30:24.690 --> 00:30:27.050 align:middle line:84% If the feedback is uncertain in this region, 00:30:27.050 --> 00:30:29.250 align:middle line:84% then the effect, of course, on the temperature 00:30:29.250 --> 00:30:31.410 align:middle line:90% is very, very tiny. 00:30:31.410 --> 00:30:33.890 align:middle line:90% It's really stable. 00:30:33.890 --> 00:30:36.450 align:middle line:90% But if the feedback is-- 00:30:36.450 --> 00:30:39.110 align:middle line:90% what? 00:30:39.110 --> 00:30:39.910 align:middle line:90% There it goes. 00:30:39.910 --> 00:30:43.530 align:middle line:84% If the feedback is in this region, 00:30:43.530 --> 00:30:46.450 align:middle line:84% then the uncertainty is huge because of this shape 00:30:46.450 --> 00:30:47.490 align:middle line:90% of this curve. 00:30:47.490 --> 00:30:50.010 align:middle line:84% And in fact, this is the range of uncertainty 00:30:50.010 --> 00:30:53.270 align:middle line:84% that the IPCC currently specifies for this parameter. 00:30:53.270 --> 00:30:57.050 align:middle line:84% They say somewhere between 0.5 and 0.7. 00:30:57.050 --> 00:31:00.050 align:middle line:84% And I will also speak to whether this is 00:31:00.050 --> 00:31:01.810 align:middle line:90% a credible number in a moment. 00:31:01.810 --> 00:31:04.290 align:middle line:84% But you can see here that this produces 00:31:04.290 --> 00:31:07.930 align:middle line:84% a large range in temperatures, which is why that uncertainty is 00:31:07.930 --> 00:31:11.650 align:middle line:84% really hard to pin down, because of the shape of this curve. 00:31:11.650 --> 00:31:15.010 align:middle line:84% So you have a lot of people running around saying things 00:31:15.010 --> 00:31:19.610 align:middle line:84% like, if we don't constrain total atmospheric CO2 00:31:19.610 --> 00:31:23.770 align:middle line:84% to 450 PPM, then all hell will break loose. 00:31:23.770 --> 00:31:26.450 align:middle line:90% And the answer is, well, maybe. 00:31:26.450 --> 00:31:27.650 align:middle line:90% Maybe it will be worse. 00:31:27.650 --> 00:31:29.050 align:middle line:90% Maybe it's too late. 00:31:29.050 --> 00:31:30.270 align:middle line:90% Maybe it won't be as bad. 00:31:30.270 --> 00:31:32.610 align:middle line:84% We don't know because this problem. 00:31:32.610 --> 00:31:35.930 align:middle line:84% We're sitting here on the curve as it's shooting up. 00:31:35.930 --> 00:31:39.050 align:middle line:84% And we really don't have a good measure. 00:31:39.050 --> 00:31:42.330 align:middle line:84% Let's look at a little bit about what the IPCC says in terms 00:31:42.330 --> 00:31:44.510 align:middle line:90% of climate sensitivity. 00:31:44.510 --> 00:31:46.730 align:middle line:84% So there are lots and lots of ways 00:31:46.730 --> 00:31:50.170 align:middle line:84% to try to estimate this parameter. 00:31:50.170 --> 00:31:52.633 align:middle line:84% This is what we call the instrumental period from last 40 00:31:52.633 --> 00:31:55.050 align:middle line:84% years, where we actually have thermometers floating around 00:31:55.050 --> 00:31:55.592 align:middle line:90% in the ocean. 00:31:55.592 --> 00:31:58.130 align:middle line:84% And we look at volcanoes and various things 00:31:58.130 --> 00:31:59.470 align:middle line:90% that perturbate the atmosphere. 00:31:59.470 --> 00:32:02.820 align:middle line:84% And we try to understand the climate sensitivity. 00:32:02.820 --> 00:32:07.340 align:middle line:84% And then you can look at ice cores 00:32:07.340 --> 00:32:10.645 align:middle line:84% and various other paleoclimate data. 00:32:10.645 --> 00:32:12.020 align:middle line:84% And one of the interesting things 00:32:12.020 --> 00:32:18.500 align:middle line:84% is that as you go to longer and longer time scales, 00:32:18.500 --> 00:32:22.220 align:middle line:84% the feedback factor appears to increase. 00:32:22.220 --> 00:32:25.500 align:middle line:84% So it's not actually a fixed number. 00:32:25.500 --> 00:32:31.820 align:middle line:84% It's a number that is only true at one particular climate state. 00:32:31.820 --> 00:32:34.980 align:middle line:84% But the climate is constantly changing. 00:32:34.980 --> 00:32:38.740 align:middle line:84% And so the feedback parameter is constantly changing. 00:32:38.740 --> 00:32:46.180 align:middle line:84% So this presents a challenge in how you decide what this is. 00:32:46.180 --> 00:32:48.100 align:middle line:84% And it's worth pointing out that this 00:32:48.100 --> 00:32:51.140 align:middle line:84% is a wonderful opportunity for bias 00:32:51.140 --> 00:32:53.520 align:middle line:90% to creep into your calculation. 00:32:53.520 --> 00:32:55.020 align:middle line:84% Because you can say, well, we should 00:32:55.020 --> 00:32:58.780 align:middle line:84% take into account all possible ways of measuring this 00:32:58.780 --> 00:33:00.710 align:middle line:90% and get a nice big f. 00:33:00.710 --> 00:33:03.950 align:middle line:84% And then you would say, and this shows that climate change 00:33:03.950 --> 00:33:06.583 align:middle line:90% is very imminent and dangerous. 00:33:06.583 --> 00:33:08.250 align:middle line:84% And because I care about climate change, 00:33:08.250 --> 00:33:10.430 align:middle line:84% I'm going to advocate for this approach 00:33:10.430 --> 00:33:12.670 align:middle line:90% and I'll call it conservative. 00:33:12.670 --> 00:33:14.550 align:middle line:84% And then other people will say, no, 00:33:14.550 --> 00:33:17.230 align:middle line:84% if we just look at this particular line 00:33:17.230 --> 00:33:19.230 align:middle line:84% here, which is the most recent, then we 00:33:19.230 --> 00:33:22.270 align:middle line:84% see the climate sensitivity is very small, 00:33:22.270 --> 00:33:25.210 align:middle line:84% and so you're blowing things out of proportion. 00:33:25.210 --> 00:33:26.730 align:middle line:90% So you can have these debates. 00:33:26.730 --> 00:33:29.190 align:middle line:90% IPCC has this debate. 00:33:29.190 --> 00:33:34.670 align:middle line:84% And it can lead to massive uncertainties in this number. 00:33:34.670 --> 00:33:38.390 align:middle line:84% So let's see what the IPCC says about its methods. 00:33:38.390 --> 00:33:40.630 align:middle line:84% It says, confidence in the validity of a finding 00:33:40.630 --> 00:33:43.470 align:middle line:84% is based on the type, amount, quality, and consistency 00:33:43.470 --> 00:33:48.510 align:middle line:84% of evidence, theory, data models, and expert judgment. 00:33:48.510 --> 00:33:51.477 align:middle line:84% They also say that quantified measures of uncertainty 00:33:51.477 --> 00:33:53.310 align:middle line:84% in a finding are expressed probabilistically 00:33:53.310 --> 00:33:58.120 align:middle line:84% based on statistical analysis models or expert judgment. 00:33:58.120 --> 00:34:01.200 align:middle line:90% And they go on. 00:34:01.200 --> 00:34:04.600 align:middle line:84% Estimates in this assessment are based on expert judgment. 00:34:04.600 --> 00:34:06.700 align:middle line:90% And then this is worth reading. 00:34:06.700 --> 00:34:10.239 align:middle line:84% In addition, examining expert judgment and decision making 00:34:10.239 --> 00:34:13.360 align:middle line:84% shows that people, including scientific experts, 00:34:13.360 --> 00:34:15.320 align:middle line:84% suffer from a range of heuristics and biases 00:34:15.320 --> 00:34:16.960 align:middle line:90% that affect their judgment. 00:34:16.960 --> 00:34:19.020 align:middle line:84% For example, in the case of expert judgment, 00:34:19.020 --> 00:34:21.360 align:middle line:84% there's a tendency towards overconfidence 00:34:21.360 --> 00:34:24.560 align:middle line:84% both at the individual level and at the group level, as people 00:34:24.560 --> 00:34:28.040 align:middle line:84% converge on a view and draw confidence in its reliability 00:34:28.040 --> 00:34:29.360 align:middle line:90% from each other. 00:34:29.360 --> 00:34:32.120 align:middle line:84% However, in an assessment of the state of scientific knowledge 00:34:32.120 --> 00:34:34.679 align:middle line:84% across a field such as climate change, characterized 00:34:34.679 --> 00:34:38.040 align:middle line:84% by complexity of processes and heterogeneity of data, 00:34:38.040 --> 00:34:41.000 align:middle line:84% some degree of expert judgment is inevitable. 00:34:41.000 --> 00:34:42.280 align:middle line:90% So what is this saying? 00:34:42.280 --> 00:34:45.840 align:middle line:84% Well, it turns out that these numbers that I showed you here, 00:34:45.840 --> 00:34:50.239 align:middle line:84% these are done by just surveying people in the field 00:34:50.239 --> 00:34:53.280 align:middle line:84% and asking them, what do you think the climate sensitivity 00:34:53.280 --> 00:34:54.600 align:middle line:90% is? 00:34:54.600 --> 00:34:57.730 align:middle line:84% That's ultimately how these numbers are generated. 00:34:57.730 --> 00:35:03.930 align:middle line:84% So if you are looking for that scientific, principled reason 00:35:03.930 --> 00:35:09.210 align:middle line:84% why you have to act now, and if you don't do xyz 00:35:09.210 --> 00:35:13.330 align:middle line:84% with respect to climate abatement, 00:35:13.330 --> 00:35:16.970 align:middle line:84% all hell's going to break loose-- it's not there. 00:35:16.970 --> 00:35:19.610 align:middle line:84% The statistics are highly uncertain 00:35:19.610 --> 00:35:22.890 align:middle line:84% or the measurements are highly uncertain. 00:35:22.890 --> 00:35:26.210 align:middle line:84% The effect is dominated by this weird, terrible function. 00:35:26.210 --> 00:35:28.810 align:middle line:84% And in the end of the day, everything the IPCC says on this 00:35:28.810 --> 00:35:30.890 align:middle line:90% is just someone's opinion. 00:35:30.890 --> 00:35:33.570 align:middle line:90% So why? 00:35:33.570 --> 00:35:36.010 align:middle line:84% Well, Marcia Baker, who was the principal co-author 00:35:36.010 --> 00:35:40.907 align:middle line:84% of the IPCC in 2007 and a great climate scientist, 00:35:40.907 --> 00:35:42.490 align:middle line:84% said the efforts to reduce uncertainty 00:35:42.490 --> 00:35:46.170 align:middle line:84% in climate projections are impeded by fundamental gaps 00:35:46.170 --> 00:35:47.990 align:middle line:84% in our understanding of the climate system, 00:35:47.990 --> 00:35:51.930 align:middle line:84% or by some features of the system's underlying nature. 00:35:51.930 --> 00:35:55.570 align:middle line:84% And this is basically the issue, that getting a real number out 00:35:55.570 --> 00:36:00.450 align:middle line:84% of these climate models on which to act is really hard. 00:36:00.450 --> 00:36:01.410 align:middle line:90% Yes. 00:36:01.410 --> 00:36:03.050 align:middle line:84% AUDIENCE: So a question about this. 00:36:03.050 --> 00:36:08.410 align:middle line:84% So if I understand correctly, the data on emissions 00:36:08.410 --> 00:36:11.910 align:middle line:84% are a little uncertain, or I guess very uncertain, 00:36:11.910 --> 00:36:14.210 align:middle line:90% like outrageous. 00:36:14.210 --> 00:36:16.050 align:middle line:84% Despite those uncertainties and ranges 00:36:16.050 --> 00:36:18.330 align:middle line:84% of when the consequences will happen, 00:36:18.330 --> 00:36:21.090 align:middle line:84% is it still possible to confidently say 00:36:21.090 --> 00:36:25.610 align:middle line:84% that all these greenhouse gas emissions and pollution that's 00:36:25.610 --> 00:36:28.090 align:middle line:84% being caused by a lot of technology, 00:36:28.090 --> 00:36:31.030 align:middle line:84% like fossil fuel technology, is inherently bad, 00:36:31.030 --> 00:36:32.738 align:middle line:84% even if we can't say exactly what? 00:36:32.738 --> 00:36:34.030 align:middle line:90% R. SCOTT KEMP: Yes, absolutely. 00:36:34.030 --> 00:36:34.530 align:middle line:90% Yeah. 00:36:34.530 --> 00:36:36.410 align:middle line:84% So his question was, can we still say 00:36:36.410 --> 00:36:39.490 align:middle line:84% emissions are inherently bad, even though we can't quantify 00:36:39.490 --> 00:36:40.970 align:middle line:90% how much temperature changed? 00:36:40.970 --> 00:36:44.190 align:middle line:84% Yeah, I think that much of the science is clear. 00:36:44.190 --> 00:36:46.970 align:middle line:84% Like, you put CO2 into the atmosphere. 00:36:46.970 --> 00:36:51.290 align:middle line:84% It traps infrared energy from leaving the atmosphere. 00:36:51.290 --> 00:36:56.420 align:middle line:84% It drives radiative forcing that produces a warming planet. 00:36:56.420 --> 00:37:00.820 align:middle line:84% But it kind of quickly doesn't take you anywhere. 00:37:00.820 --> 00:37:03.300 align:middle line:84% So for example, if you look at the amount of CO2 00:37:03.300 --> 00:37:05.740 align:middle line:84% that we've put into the atmosphere 00:37:05.740 --> 00:37:10.080 align:middle line:84% and you look at how much additional radiative forcing, 00:37:10.080 --> 00:37:11.902 align:middle line:84% which is about 0.7 watts per square meter 00:37:11.902 --> 00:37:13.860 align:middle line:84% on the surface of the Earth, that you would get 00:37:13.860 --> 00:37:16.740 align:middle line:84% from that CO2, and you integrate that 00:37:16.740 --> 00:37:19.180 align:middle line:84% over the surface of the Earth, and you integrate that 00:37:19.180 --> 00:37:22.700 align:middle line:84% over the time that we've had that extra CO2, 00:37:22.700 --> 00:37:25.980 align:middle line:84% you would get a value for energy-- total energy 00:37:25.980 --> 00:37:27.500 align:middle line:90% added to the system. 00:37:27.500 --> 00:37:30.380 align:middle line:84% If you take that energy and partition it strictly 00:37:30.380 --> 00:37:36.180 align:middle line:84% into the mass of the atmosphere, we died a long time ago, 00:37:36.180 --> 00:37:39.700 align:middle line:84% because the current average temperature would be like-- 00:37:39.700 --> 00:37:41.360 align:middle line:84% I don't remember the exact number. 00:37:41.360 --> 00:37:44.460 align:middle line:84% But it would be close to boiling on the surface of the Earth, 00:37:44.460 --> 00:37:46.500 align:middle line:90% something like this. 00:37:46.500 --> 00:37:48.020 align:middle line:90% But that's not the case. 00:37:48.020 --> 00:37:50.020 align:middle line:90% So where did the energy go? 00:37:50.020 --> 00:37:50.520 align:middle line:90% Yeah. 00:37:50.520 --> 00:37:52.450 align:middle line:84% AUDIENCE: I think in this case, actually, 00:37:52.450 --> 00:37:54.230 align:middle line:90% I've read the ocean acts-- 00:37:54.230 --> 00:37:56.593 align:middle line:84% the water is a carbon sink, basically. 00:37:56.593 --> 00:37:59.010 align:middle line:84% R. SCOTT KEMP: It's not that it's acting as a carbon sink. 00:37:59.010 --> 00:38:01.110 align:middle line:90% It's acting as a heat sink. 00:38:01.110 --> 00:38:05.870 align:middle line:84% So the ocean has 1,000 times the thermal capacity 00:38:05.870 --> 00:38:08.190 align:middle line:90% of the atmosphere. 00:38:08.190 --> 00:38:13.150 align:middle line:84% So it turns out 99 point something percent of the energy 00:38:13.150 --> 00:38:15.550 align:middle line:84% eventually is sunk into the ocean, which 00:38:15.550 --> 00:38:18.310 align:middle line:90% can absorb way more energy. 00:38:18.310 --> 00:38:21.950 align:middle line:90% And here's the issue. 00:38:21.950 --> 00:38:25.430 align:middle line:84% We cannot constrain the heat flux across 00:38:25.430 --> 00:38:30.930 align:middle line:84% the ocean-atmospheric boundary to better than plus or minus 20 00:38:30.930 --> 00:38:32.230 align:middle line:90% watts per square meter. 00:38:32.230 --> 00:38:36.270 align:middle line:84% Remember, the total radiative forcing from climate change 00:38:36.270 --> 00:38:40.110 align:middle line:84% is about 0.7 watts per square meter. 00:38:40.110 --> 00:38:45.270 align:middle line:84% So it's totally in the noise of our ability 00:38:45.270 --> 00:38:49.440 align:middle line:84% to constrain where the heat in the place where we live, 00:38:49.440 --> 00:38:52.180 align:middle line:90% in the air, is coming from. 00:38:52.180 --> 00:38:54.200 align:middle line:90% Is it coming from the ocean? 00:38:54.200 --> 00:38:56.200 align:middle line:84% I mean, there's certainly energy being 00:38:56.200 --> 00:38:59.320 align:middle line:84% added by the top of the atmosphere, unquestionably. 00:38:59.320 --> 00:39:02.280 align:middle line:84% But what is actually driving the temperature 00:39:02.280 --> 00:39:04.080 align:middle line:90% on the surface of the earth? 00:39:04.080 --> 00:39:06.120 align:middle line:90% It's the ocean that drives it. 00:39:06.120 --> 00:39:08.760 align:middle line:84% And until we actually understand that, we can't really 00:39:08.760 --> 00:39:11.880 align:middle line:84% make a statement about whether the energy being 00:39:11.880 --> 00:39:16.880 align:middle line:84% added by the CO2 is unacceptably large or not. 00:39:16.880 --> 00:39:18.360 align:middle line:90% That's the challenge. 00:39:18.360 --> 00:39:22.080 align:middle line:84% So the climate models attempt to model this 00:39:22.080 --> 00:39:25.000 align:middle line:84% by parameterizing a whole bunch of variables 00:39:25.000 --> 00:39:31.440 align:middle line:84% and making those models match historical data. 00:39:31.440 --> 00:39:35.320 align:middle line:84% But they tend to diverge wildly after the historical calibration 00:39:35.320 --> 00:39:36.600 align:middle line:90% region ends. 00:39:36.600 --> 00:39:38.980 align:middle line:84% And then they take the average of them. 00:39:38.980 --> 00:39:42.240 align:middle line:84% And average of a model is not actually the-- 00:39:42.240 --> 00:39:44.080 align:middle line:84% the average of a bunch of ensemble of models 00:39:44.080 --> 00:39:45.460 align:middle line:84% is not a measure of uncertainty-- 00:39:45.460 --> 00:39:47.320 align:middle line:84% or the range of an ensemble of models 00:39:47.320 --> 00:39:50.090 align:middle line:84% is not actually a measure of uncertainty in the system. 00:39:50.090 --> 00:39:53.130 align:middle line:84% So it turns out, once you start looking 00:39:53.130 --> 00:39:57.090 align:middle line:84% for a quantitative assessment, it gets really hard. 00:39:57.090 --> 00:39:59.430 align:middle line:84% And it basically boils down to, yes, 00:39:59.430 --> 00:40:01.410 align:middle line:90% CO2 does warm the atmosphere. 00:40:01.410 --> 00:40:04.650 align:middle line:84% We don't know how much damage it's going to do. 00:40:04.650 --> 00:40:08.010 align:middle line:84% People who work in this field are making a guess. 00:40:08.010 --> 00:40:11.050 align:middle line:84% And we as energy policymakers are asked 00:40:11.050 --> 00:40:12.930 align:middle line:90% to do something about this. 00:40:12.930 --> 00:40:16.170 align:middle line:84% And we are supposed to come up with an optimal solution. 00:40:16.170 --> 00:40:21.970 align:middle line:84% And if some people are laughing, that's the correct response. 00:40:21.970 --> 00:40:27.170 align:middle line:90% It's really hard to do this. 00:40:27.170 --> 00:40:32.430 align:middle line:84% Pindyck talks more about this part of the calculation. 00:40:32.430 --> 00:40:34.810 align:middle line:84% So that was just to talk about the delta T. 00:40:34.810 --> 00:40:37.890 align:middle line:84% Then you take the delta T And you plug that here 00:40:37.890 --> 00:40:41.090 align:middle line:84% into something that gives you the loss to society. 00:40:41.090 --> 00:40:44.930 align:middle line:84% And he talks about these models being offered by various people. 00:40:44.930 --> 00:40:46.890 align:middle line:84% And the models have been contrived 00:40:46.890 --> 00:40:51.890 align:middle line:84% so that they have this shape, so that if you 00:40:51.890 --> 00:40:54.830 align:middle line:84% go above a certain temperature, it's very dramatic here. 00:40:54.830 --> 00:41:03.570 align:middle line:84% According to this model, if you go above 1.9 degrees, then 100% 00:41:03.570 --> 00:41:08.010 align:middle line:90% of loss to society virtually. 00:41:08.010 --> 00:41:13.610 align:middle line:84% These are crazy, crazy parameters. 00:41:13.610 --> 00:41:19.290 align:middle line:84% The fit, beta, and pi, they say, are just arbitrarily chosen. 00:41:19.290 --> 00:41:21.450 align:middle line:84% They say the models are arbitrarily chosen. 00:41:21.450 --> 00:41:22.350 align:middle line:90% What is this? 00:41:22.350 --> 00:41:24.850 align:middle line:90% This is a noise amplifier. 00:41:24.850 --> 00:41:28.570 align:middle line:84% It takes a noisy kind of crummy measurement coming out of T 00:41:28.570 --> 00:41:32.650 align:middle line:90% and produces pure noise. 00:41:32.650 --> 00:41:37.322 align:middle line:84% So the social cost of carbon is basically not a number 00:41:37.322 --> 00:41:38.530 align:middle line:90% that we can really calculate. 00:41:38.530 --> 00:41:39.130 align:middle line:90% Yes. 00:41:39.130 --> 00:41:40.870 align:middle line:84% AUDIENCE: What are the actual units for loss? 00:41:40.870 --> 00:41:42.370 align:middle line:84% This is one of the things that was-- 00:41:42.370 --> 00:41:45.180 align:middle line:84% R. SCOTT KEMP: They often do it in terms of a fraction of GDP. 00:41:45.180 --> 00:41:47.140 align:middle line:90% AUDIENCE: OK. 00:41:47.140 --> 00:41:48.940 align:middle line:84% R. SCOTT KEMP: Economists like to use GDP. 00:41:48.940 --> 00:41:50.560 align:middle line:84% All kinds of ways you could do it. 00:41:50.560 --> 00:41:51.660 align:middle line:90% But yeah. 00:41:51.660 --> 00:41:53.760 align:middle line:84% So in this case, it's fraction of GDP. 00:41:53.760 --> 00:41:56.300 align:middle line:90% 00:41:56.300 --> 00:42:00.380 align:middle line:90% So how do we move forward? 00:42:00.380 --> 00:42:03.080 align:middle line:84% Like there's no basis to do anything. 00:42:03.080 --> 00:42:03.840 align:middle line:90% What do we do? 00:42:03.840 --> 00:42:11.140 align:middle line:90% 00:42:11.140 --> 00:42:12.140 align:middle line:90% Yeah. 00:42:12.140 --> 00:42:16.120 align:middle line:84% AUDIENCE: I mean, you can make non-CO2-- 00:42:16.120 --> 00:42:17.260 align:middle line:90% fuck, I cannot speak today. 00:42:17.260 --> 00:42:17.960 align:middle line:90% I'm sorry. 00:42:17.960 --> 00:42:22.120 align:middle line:84% Related arguments for other power sources, right? 00:42:22.120 --> 00:42:23.393 align:middle line:90% Nuclear's case-- 00:42:23.393 --> 00:42:25.060 align:middle line:84% R. SCOTT KEMP: You're putting the cart-- 00:42:25.060 --> 00:42:26.727 align:middle line:84% but don't put the cart before the horse. 00:42:26.727 --> 00:42:29.580 align:middle line:84% Don't like, oh, well, if I can't justify it with CO2, 00:42:29.580 --> 00:42:32.040 align:middle line:84% let me find something else to justify it with. 00:42:32.040 --> 00:42:33.680 align:middle line:84% The question is, we have a CO2 problem. 00:42:33.680 --> 00:42:35.097 align:middle line:84% What are you going to do about it? 00:42:35.097 --> 00:42:36.683 align:middle line:90% 00:42:36.683 --> 00:42:38.100 align:middle line:84% AUDIENCE: Well, I was going to say 00:42:38.100 --> 00:42:42.710 align:middle line:84% the main issue is it's not if it will happen, but when exactly, 00:42:42.710 --> 00:42:43.210 align:middle line:90% right? 00:42:43.210 --> 00:42:46.357 align:middle line:90% If I'm following correctly. 00:42:46.357 --> 00:42:47.690 align:middle line:90% R. SCOTT KEMP: That's also true. 00:42:47.690 --> 00:42:50.750 align:middle line:84% But it's not will it happen, it's to what extent 00:42:50.750 --> 00:42:52.250 align:middle line:90% will it happen, and so on. 00:42:52.250 --> 00:42:54.010 align:middle line:90% So there's a lot more to it. 00:42:54.010 --> 00:42:54.510 align:middle line:90% Yeah. 00:42:54.510 --> 00:42:55.650 align:middle line:84% AUDIENCE: As in long-term solution-- 00:42:55.650 --> 00:42:57.150 align:middle line:84% I mean, I know one of the main criticisms 00:42:57.150 --> 00:42:58.250 align:middle line:90% is, oh, this takes too long. 00:42:58.250 --> 00:42:59.090 align:middle line:90% We need to act now. 00:42:59.090 --> 00:43:02.750 align:middle line:84% And that opens up the door to longer-term solutions, I think. 00:43:02.750 --> 00:43:04.430 align:middle line:90% R. SCOTT KEMP: Maybe. 00:43:04.430 --> 00:43:07.930 align:middle line:84% I mean, you could argue that if we don't have to act now, 00:43:07.930 --> 00:43:09.450 align:middle line:90% then we could explore fusion. 00:43:09.450 --> 00:43:12.525 align:middle line:84% But if we have to act now, we better just use wind and solar. 00:43:12.525 --> 00:43:13.150 align:middle line:90% AUDIENCE: Yeah. 00:43:13.150 --> 00:43:16.877 align:middle line:90% And more fission projects. 00:43:16.877 --> 00:43:17.710 align:middle line:90% R. SCOTT KEMP: Yeah. 00:43:17.710 --> 00:43:20.770 align:middle line:84% Well, if you really care, fission takes 10 years to build. 00:43:20.770 --> 00:43:23.390 align:middle line:84% And the amount of wind and solar you can build in 10 years 00:43:23.390 --> 00:43:24.750 align:middle line:90% is insane. 00:43:24.750 --> 00:43:25.730 align:middle line:90% It's much, much bigger. 00:43:25.730 --> 00:43:26.670 align:middle line:84% AUDIENCE: Do they have an end-of-life plan 00:43:26.670 --> 00:43:28.003 align:middle line:90% for the wind and solar? 00:43:28.003 --> 00:43:30.336 align:middle line:84% R. SCOTT KEMP: I don't have an end-of-life plan for you. 00:43:30.336 --> 00:43:31.922 align:middle line:90% I don't know. 00:43:31.922 --> 00:43:33.630 align:middle line:84% AUDIENCE: A lot of the photovoltaic cells 00:43:33.630 --> 00:43:35.002 align:middle line:90% last about 20, 25 years. 00:43:35.002 --> 00:43:35.710 align:middle line:90% And nuclear can-- 00:43:35.710 --> 00:43:36.810 align:middle line:84% R. SCOTT KEMP: All of this can be talked about. 00:43:36.810 --> 00:43:38.930 align:middle line:84% Let me get into some other questions. 00:43:38.930 --> 00:43:39.880 align:middle line:90% Yeah. 00:43:39.880 --> 00:43:42.800 align:middle line:84% AUDIENCE: [INAUDIBLE] kind of sticking 00:43:42.800 --> 00:43:46.000 align:middle line:84% with the carbon issue, but also the slightly adjacent tangent. 00:43:46.000 --> 00:43:49.600 align:middle line:84% You could consider factors like other sources 00:43:49.600 --> 00:43:52.600 align:middle line:84% of renewable energy still have carbon emissions 00:43:52.600 --> 00:43:54.240 align:middle line:90% within the process. 00:43:54.240 --> 00:43:55.880 align:middle line:84% Some of the fossil fuels are projected 00:43:55.880 --> 00:43:59.960 align:middle line:84% to run out pretty soon, especially if the data center AI 00:43:59.960 --> 00:44:02.240 align:middle line:90% issue kind of goes out of hand. 00:44:02.240 --> 00:44:04.620 align:middle line:84% So that regardless of when this will happen, 00:44:04.620 --> 00:44:08.080 align:middle line:84% it's still beneficial to invest for a very long-term approach 00:44:08.080 --> 00:44:10.640 align:middle line:84% into nuclear, especially like fission. 00:44:10.640 --> 00:44:12.720 align:middle line:84% R. SCOTT KEMP: Yeah, so one of the challenges 00:44:12.720 --> 00:44:15.560 align:middle line:84% we're talking about investing in the development of technology 00:44:15.560 --> 00:44:19.180 align:middle line:84% is it's really hard to know what you'll get out of an investment. 00:44:19.180 --> 00:44:23.200 align:middle line:84% You need a crystal ball to see that. 00:44:23.200 --> 00:44:28.880 align:middle line:84% And so you can make kind of like hand-wavy arguments 00:44:28.880 --> 00:44:31.240 align:middle line:84% in that direction, but you can't really 00:44:31.240 --> 00:44:33.568 align:middle line:90% build an energy policy on that. 00:44:33.568 --> 00:44:35.360 align:middle line:84% You kind of build an energy policy on like, 00:44:35.360 --> 00:44:39.370 align:middle line:84% this is what we need to do to provide energy to our people. 00:44:39.370 --> 00:44:43.890 align:middle line:84% And then we also, as a matter of industrial policy, 00:44:43.890 --> 00:44:47.290 align:middle line:84% say we need to also innovate and explore 00:44:47.290 --> 00:44:49.490 align:middle line:90% a variety of new technologies. 00:44:49.490 --> 00:44:52.610 align:middle line:84% And if you ask me, how do we optimize 00:44:52.610 --> 00:44:55.250 align:middle line:84% the amount of dollars going into that, 00:44:55.250 --> 00:44:58.510 align:middle line:90% there's no good way to do that? 00:44:58.510 --> 00:45:02.690 align:middle line:84% That is, again, a very subjective thing. 00:45:02.690 --> 00:45:04.230 align:middle line:84% OK, so let me give you my answer. 00:45:04.230 --> 00:45:05.950 align:middle line:84% Here's what here's what I suggest we do. 00:45:05.950 --> 00:45:08.690 align:middle line:90% 00:45:08.690 --> 00:45:12.090 align:middle line:84% We'll treat the economic benefit of energy 00:45:12.090 --> 00:45:13.830 align:middle line:90% as a cost-benefit analysis. 00:45:13.830 --> 00:45:16.170 align:middle line:84% But we'll treat the economic benefit of energy 00:45:16.170 --> 00:45:21.210 align:middle line:84% as basically being independent of the source, 00:45:21.210 --> 00:45:24.730 align:middle line:84% subject to a constraint that the energy is available. 00:45:24.730 --> 00:45:30.210 align:middle line:84% So a kilowatt hour of electricity from nuclear 00:45:30.210 --> 00:45:33.290 align:middle line:84% is just as good as a kilowatt hour of electricity from solar 00:45:33.290 --> 00:45:35.890 align:middle line:84% if the solar is there when I need it. 00:45:35.890 --> 00:45:40.890 align:middle line:84% So I impose this constraint in the modeling. 00:45:40.890 --> 00:45:45.450 align:middle line:84% And then I say, we're going to balance that against the cost-- 00:45:45.450 --> 00:45:48.650 align:middle line:84% what we call the internal cost or the explicit cost 00:45:48.650 --> 00:45:51.290 align:middle line:90% of the electricity production-- 00:45:51.290 --> 00:45:54.210 align:middle line:84% and the estimated externalities, which 00:45:54.210 --> 00:45:59.530 align:middle line:84% include pollution and noise and all kinds of things. 00:45:59.530 --> 00:46:05.810 align:middle line:84% Coal, PM10, the use of land for windmills, 00:46:05.810 --> 00:46:08.630 align:middle line:90% killing birds, all these things. 00:46:08.630 --> 00:46:11.210 align:middle line:84% And then we will treat the social cost of carbon 00:46:11.210 --> 00:46:13.130 align:middle line:90% as a free parameter. 00:46:13.130 --> 00:46:17.010 align:middle line:84% And I will just let you decide what you 00:46:17.010 --> 00:46:20.130 align:middle line:90% believe is a real SCC number. 00:46:20.130 --> 00:46:25.570 align:middle line:84% But what we can do is we can move this around across a couple 00:46:25.570 --> 00:46:29.410 align:middle line:90% orders of magnitude even. 00:46:29.410 --> 00:46:30.730 align:middle line:90% Subject two. 00:46:30.730 --> 00:46:32.010 align:middle line:90% AUDIENCE: Oh, thank you. 00:46:32.010 --> 00:46:38.020 align:middle line:84% R. SCOTT KEMP: We can move the SCC around and basically explore 00:46:38.020 --> 00:46:39.540 align:middle line:90% the space. 00:46:39.540 --> 00:46:42.300 align:middle line:84% So that's what I propose to do in this class. 00:46:42.300 --> 00:46:45.640 align:middle line:84% So we won't pick a social cost of carbon. 00:46:45.640 --> 00:46:47.720 align:middle line:90% We're going to let it float. 00:46:47.720 --> 00:46:51.640 align:middle line:84% And we're going to explore what we can do with this. 00:46:51.640 --> 00:46:55.700 align:middle line:90% 00:46:55.700 --> 00:47:04.820 align:middle line:84% So just to remind you of a couple of things, 00:47:04.820 --> 00:47:07.820 align:middle line:84% a model is only as good as the data that you put in it. 00:47:07.820 --> 00:47:10.500 align:middle line:84% So a lot of time is going to be spent 00:47:10.500 --> 00:47:13.660 align:middle line:84% on trying to make sure these numbers are right. 00:47:13.660 --> 00:47:15.660 align:middle line:84% In fact, we're not even-- well, except for this, 00:47:15.660 --> 00:47:18.700 align:middle line:84% because we're going to assume these are all equal, basically. 00:47:18.700 --> 00:47:21.380 align:middle line:84% But we're going to spend a lot of time on this. 00:47:21.380 --> 00:47:24.822 align:middle line:84% And as it will turn out, for nuclear-- 00:47:24.822 --> 00:47:26.780 align:middle line:84% I'll talk to you in a minute-- this is actually 00:47:26.780 --> 00:47:29.220 align:middle line:84% going to be a really important factor. 00:47:29.220 --> 00:47:34.070 align:middle line:84% And two, I said this earlier, but all these cost inputs 00:47:34.070 --> 00:47:36.990 align:middle line:84% change depending on what country you're in. 00:47:36.990 --> 00:47:39.080 align:middle line:90% So we have to bear that in mind. 00:47:39.080 --> 00:47:41.330 align:middle line:84% AUDIENCE: If we're going to be agnostic to the source, 00:47:41.330 --> 00:47:44.950 align:middle line:84% how is it possible to estimate the externalities when 00:47:44.950 --> 00:47:47.810 align:middle line:84% they're dependent on the kind of sources you have? 00:47:47.810 --> 00:47:50.750 align:middle line:84% R. SCOTT KEMP: We will be agnostic to the source 00:47:50.750 --> 00:47:54.030 align:middle line:84% only with respect to the idea of benefit, 00:47:54.030 --> 00:47:56.110 align:middle line:90% not with respect to cost. 00:47:56.110 --> 00:47:57.117 align:middle line:90% Does that make sense? 00:47:57.117 --> 00:47:59.450 align:middle line:84% AUDIENCE: But you would need to know what kind of source 00:47:59.450 --> 00:48:02.832 align:middle line:84% you have to know what kind of externalities are applied. 00:48:02.832 --> 00:48:04.290 align:middle line:84% R. SCOTT KEMP: Yes, that's correct. 00:48:04.290 --> 00:48:06.310 align:middle line:84% But the externalities are all down here. 00:48:06.310 --> 00:48:08.710 align:middle line:84% And so we will take the source into account for this 00:48:08.710 --> 00:48:11.230 align:middle line:90% and for this and for this. 00:48:11.230 --> 00:48:14.710 align:middle line:84% We will use information about the source 00:48:14.710 --> 00:48:16.878 align:middle line:84% to talk about how much CO2 is emitted. 00:48:16.878 --> 00:48:18.670 align:middle line:84% We will use the information from the source 00:48:18.670 --> 00:48:21.190 align:middle line:84% to come up with a number for the externalities 00:48:21.190 --> 00:48:22.830 align:middle line:90% and for the cost of the source. 00:48:22.830 --> 00:48:26.950 align:middle line:84% But then we won't bother to say that electricity from wind 00:48:26.950 --> 00:48:29.650 align:middle line:84% is better than electricity from nuclear for some reason. 00:48:29.650 --> 00:48:32.740 align:middle line:84% Like, we'll only look at that on the cost side. 00:48:32.740 --> 00:48:36.280 align:middle line:90% 00:48:36.280 --> 00:48:41.920 align:middle line:84% Do people have any issue with this approach? 00:48:41.920 --> 00:48:42.960 align:middle line:90% Yeah. 00:48:42.960 --> 00:48:46.000 align:middle line:84% AUDIENCE: Don't we run into the same host of problems 00:48:46.000 --> 00:48:49.480 align:middle line:90% with estimating externalities? 00:48:49.480 --> 00:48:52.215 align:middle line:90% R. SCOTT KEMP: So we will-- 00:48:52.215 --> 00:48:53.840 align:middle line:84% so yes, there would be lots of problems 00:48:53.840 --> 00:48:55.760 align:middle line:90% with externality estimation. 00:48:55.760 --> 00:48:59.640 align:middle line:84% And what I'm going to do is I'm going to kind of show you 00:48:59.640 --> 00:49:05.280 align:middle line:90% two ways of trying to bound it. 00:49:05.280 --> 00:49:09.360 align:middle line:84% One is I will look at the most intensive study of externalities 00:49:09.360 --> 00:49:12.320 align:middle line:84% ever done and tell you what they said. 00:49:12.320 --> 00:49:14.680 align:middle line:84% And then we will look at a meta analysis 00:49:14.680 --> 00:49:17.440 align:middle line:84% that averages across all the externality studies 00:49:17.440 --> 00:49:21.440 align:middle line:84% done, and looks at the median values and see what that says. 00:49:21.440 --> 00:49:24.720 align:middle line:84% And as it turns out, the answers from both of those 00:49:24.720 --> 00:49:27.920 align:middle line:84% are very tiny compared to the variance in this. 00:49:27.920 --> 00:49:30.130 align:middle line:90% So it won't really matter. 00:49:30.130 --> 00:49:32.170 align:middle line:84% The only place that externality matters 00:49:32.170 --> 00:49:36.090 align:middle line:84% is going to be here in the social cost of carbon. 00:49:36.090 --> 00:49:39.490 align:middle line:84% But we're treating that as a free parameter. 00:49:39.490 --> 00:49:41.150 align:middle line:84% So if people are on board with this, 00:49:41.150 --> 00:49:44.410 align:middle line:84% that's what the first whole half of the course 00:49:44.410 --> 00:49:48.950 align:middle line:84% is going to be trying to do this in a way that is fair. 00:49:48.950 --> 00:49:57.890 align:middle line:90% 00:49:57.890 --> 00:49:58.430 align:middle line:90% All right. 00:49:58.430 --> 00:50:00.710 align:middle line:84% So I'm putting this slide back up, and why? 00:50:00.710 --> 00:50:04.770 align:middle line:90% 00:50:04.770 --> 00:50:07.490 align:middle line:90% I guess it's a preview. 00:50:07.490 --> 00:50:13.090 align:middle line:84% Solar PV, wind, geothermal, and nuclear are all basically 00:50:13.090 --> 00:50:16.010 align:middle line:90% zero-carbon technologies. 00:50:16.010 --> 00:50:24.170 align:middle line:84% That means with respect to this, they all 00:50:24.170 --> 00:50:28.290 align:middle line:84% have the same penalty, which is like no penalty. 00:50:28.290 --> 00:50:33.450 align:middle line:84% And so now you can see why this parameter actually becomes 00:50:33.450 --> 00:50:36.450 align:middle line:90% dominant in the equation. 00:50:36.450 --> 00:50:41.530 align:middle line:84% And so a lot of what we're going to talk about constantly 00:50:41.530 --> 00:50:43.030 align:middle line:84% is about the cost of electricity, 00:50:43.030 --> 00:50:45.030 align:middle line:84% the cost of nuclear, the cost of wind and solar, 00:50:45.030 --> 00:50:47.280 align:middle line:84% the learning rates that bring down the cost, the cost, 00:50:47.280 --> 00:50:48.130 align:middle line:90% the cost, the cost. 00:50:48.130 --> 00:50:50.690 align:middle line:84% And the reason I want to talk about that 00:50:50.690 --> 00:50:55.450 align:middle line:84% is because, in fact, that is the only parameter that really 00:50:55.450 --> 00:50:59.290 align:middle line:90% matters at the end of the day. 00:50:59.290 --> 00:51:02.090 align:middle line:84% So this is just a preview of why that is. 00:51:02.090 --> 00:51:05.570 align:middle line:90% But we'll get back to this. 00:51:05.570 --> 00:51:06.150 align:middle line:90% All right. 00:51:06.150 --> 00:51:08.970 align:middle line:90% 00:51:08.970 --> 00:51:12.530 align:middle line:90% So let's see. 00:51:12.530 --> 00:51:15.530 align:middle line:84% We'll focus on the United States. 00:51:15.530 --> 00:51:20.650 align:middle line:84% I guess the other thing to mention is that the models are-- 00:51:20.650 --> 00:51:25.210 align:middle line:84% the numbers for these models are kind of frozen in time. 00:51:25.210 --> 00:51:28.820 align:middle line:84% They are numbers that exist for a certain level 00:51:28.820 --> 00:51:31.120 align:middle line:90% of technological development. 00:51:31.120 --> 00:51:33.340 align:middle line:84% So what we'll do is we'll baseline our results 00:51:33.340 --> 00:51:35.940 align:middle line:84% to the technology that is available now, 00:51:35.940 --> 00:51:39.080 align:middle line:84% the costs that are available now to come up with answers. 00:51:39.080 --> 00:51:41.860 align:middle line:84% But we will attempt to look at-- we 00:51:41.860 --> 00:51:45.540 align:middle line:84% will have some discussion about learning potential 00:51:45.540 --> 00:51:49.180 align:middle line:84% to evaluate our ability to bring down these numbers 00:51:49.180 --> 00:51:52.200 align:middle line:84% and to see, OK, this may be the situation today, 00:51:52.200 --> 00:51:55.420 align:middle line:84% but if we build a lot of nuclear, 00:51:55.420 --> 00:51:59.100 align:middle line:84% how much can we bring the cost down and therefore affect 00:51:59.100 --> 00:52:00.120 align:middle line:90% this parameter? 00:52:00.120 --> 00:52:02.940 align:middle line:84% So we'll do one and then we'll look at the learning 00:52:02.940 --> 00:52:04.080 align:middle line:90% as a second factor. 00:52:04.080 --> 00:52:04.960 align:middle line:90% Yep. 00:52:04.960 --> 00:52:07.060 align:middle line:84% AUDIENCE: When we're looking at this equation, 00:52:07.060 --> 00:52:09.100 align:middle line:84% is this under the assumption that you're 00:52:09.100 --> 00:52:13.060 align:middle line:84% trying to produce all of your energy within whatever country 00:52:13.060 --> 00:52:14.280 align:middle line:90% that you're looking at? 00:52:14.280 --> 00:52:18.040 align:middle line:84% Or is it also looking at purchasing from other countries? 00:52:18.040 --> 00:52:20.980 align:middle line:84% Is that lumped into the externalities? 00:52:20.980 --> 00:52:22.423 align:middle line:84% R. SCOTT KEMP: We will only do it 00:52:22.423 --> 00:52:24.590 align:middle line:84% for the United States, which doesn't really purchase 00:52:24.590 --> 00:52:26.390 align:middle line:90% electricity from others. 00:52:26.390 --> 00:52:31.710 align:middle line:84% But a fair analysis is to basically do 00:52:31.710 --> 00:52:35.350 align:middle line:84% this for any country on the basis of what it does. 00:52:35.350 --> 00:52:38.350 align:middle line:84% So if they do buy a lot of electricity from others-- 00:52:38.350 --> 00:52:40.290 align:middle line:84% I guess you could say-- let me take that back. 00:52:40.290 --> 00:52:44.550 align:middle line:84% I guess you could say we buy a lot of solar panels from China. 00:52:44.550 --> 00:52:46.830 align:middle line:84% And so the externalities associated 00:52:46.830 --> 00:52:49.070 align:middle line:84% with solar panel production in China 00:52:49.070 --> 00:52:52.230 align:middle line:84% are much higher than they are associated with solar panel 00:52:52.230 --> 00:52:57.310 align:middle line:84% production in the United States, because they pollute more. 00:52:57.310 --> 00:53:00.470 align:middle line:84% And they also use much more carbon-intensive electricity 00:53:00.470 --> 00:53:02.170 align:middle line:90% to fabricate the solar panels. 00:53:02.170 --> 00:53:04.390 align:middle line:84% So they incorporate more carbon costs 00:53:04.390 --> 00:53:05.890 align:middle line:90% in their life cycle assessment. 00:53:05.890 --> 00:53:07.950 align:middle line:84% But it turns out that that still turns out 00:53:07.950 --> 00:53:10.890 align:middle line:90% to be a very small parameter. 00:53:10.890 --> 00:53:14.305 align:middle line:84% So yes, you should, in a sense, incorporate those other factors. 00:53:14.305 --> 00:53:15.722 align:middle line:84% But in the end we're kind of going 00:53:15.722 --> 00:53:17.930 align:middle line:84% to gloss them, ignore them, because it just turns out 00:53:17.930 --> 00:53:20.210 align:middle line:90% they're not that big of a deal. 00:53:20.210 --> 00:53:20.710 align:middle line:90% Yeah. 00:53:20.710 --> 00:53:22.560 align:middle line:84% AUDIENCE: Yeah, my question is going 00:53:22.560 --> 00:53:28.840 align:middle line:84% to be if and how exactly we're going to deal with, 00:53:28.840 --> 00:53:31.540 align:middle line:84% I suppose, that whole aspect of generating energy 00:53:31.540 --> 00:53:32.880 align:middle line:90% and when it's available. 00:53:32.880 --> 00:53:36.680 align:middle line:84% Kind of tied to that, the value of energy, time value, 00:53:36.680 --> 00:53:38.940 align:middle line:84% as you see for high solar penetration, 00:53:38.940 --> 00:53:42.040 align:middle line:84% that the price or just the value at that time 00:53:42.040 --> 00:53:44.237 align:middle line:84% is low or even negative, if that's 00:53:44.237 --> 00:53:45.320 align:middle line:90% going to be accounted for. 00:53:45.320 --> 00:53:48.780 align:middle line:84% Because the LCOE obviously accounted for that. 00:53:48.780 --> 00:53:51.000 align:middle line:84% And then tied to that as well, system costs 00:53:51.000 --> 00:53:52.680 align:middle line:84% for extra transmission, I suppose 00:53:52.680 --> 00:53:56.280 align:middle line:84% it could go in externalities or in cost itself. 00:53:56.280 --> 00:53:59.240 align:middle line:84% And then actually something I only 00:53:59.240 --> 00:54:02.540 align:middle line:84% thought of based on the previous question, 00:54:02.540 --> 00:54:06.640 align:middle line:84% but in terms of value to who, the GDP multipliers 00:54:06.640 --> 00:54:09.337 align:middle line:84% are very different for the different investments 00:54:09.337 --> 00:54:10.420 align:middle line:90% in different technologies. 00:54:10.420 --> 00:54:12.760 align:middle line:84% Like you mentioned, we're buying solar panels 00:54:12.760 --> 00:54:16.620 align:middle line:84% for from China versus investing in workers, 00:54:16.620 --> 00:54:21.030 align:middle line:84% building a hydroelectric facility or a nuclear plant. 00:54:21.030 --> 00:54:24.090 align:middle line:84% So kind of like, I suppose the bigger question is, 00:54:24.090 --> 00:54:27.110 align:middle line:84% are we going to take into account value in this picture? 00:54:27.110 --> 00:54:30.330 align:middle line:84% Because if we say economic benefit is assumed to be equal, 00:54:30.330 --> 00:54:34.850 align:middle line:84% then that does not seem to really match up with reality. 00:54:34.850 --> 00:54:37.350 align:middle line:84% R. SCOTT KEMP: OK, you raised a lot of super good points. 00:54:37.350 --> 00:54:42.370 align:middle line:84% So on the issue of how do we do the subject two part, 00:54:42.370 --> 00:54:44.808 align:middle line:84% the availability, we'll talk about that. 00:54:44.808 --> 00:54:46.850 align:middle line:84% You'll see if you go through the syllabus there's 00:54:46.850 --> 00:54:48.017 align:middle line:90% a whole section on the grid. 00:54:48.017 --> 00:54:49.290 align:middle line:90% There's a whole section. 00:54:49.290 --> 00:54:52.510 align:middle line:84% And the reason is because that's all subject to the availability. 00:54:52.510 --> 00:54:53.770 align:middle line:90% We'll talk about that. 00:54:53.770 --> 00:54:56.130 align:middle line:84% So yeah, we will talk about using things like GenX 00:54:56.130 --> 00:54:59.970 align:middle line:84% to model greenfield estimation, so that we properly 00:54:59.970 --> 00:55:04.650 align:middle line:84% account for the variability in wind 00:55:04.650 --> 00:55:07.170 align:middle line:84% and solar and its time sensitivity, 00:55:07.170 --> 00:55:08.850 align:middle line:84% that it's not just that it's variable, 00:55:08.850 --> 00:55:12.250 align:middle line:84% but variable at certain times of day. 00:55:12.250 --> 00:55:16.150 align:middle line:84% And to your final point about GDP multipliers, 00:55:16.150 --> 00:55:18.630 align:middle line:84% we're just not going to talk about GDP multipliers. 00:55:18.630 --> 00:55:21.530 align:middle line:90% 00:55:21.530 --> 00:55:27.890 align:middle line:84% I'm not sure how defensible that stuff is. 00:55:27.890 --> 00:55:30.303 align:middle line:84% It's, again, where do you draw the box? 00:55:30.303 --> 00:55:32.470 align:middle line:84% Like, you say, well, here's my expensive technology, 00:55:32.470 --> 00:55:34.053 align:middle line:84% but I've identified this effective way 00:55:34.053 --> 00:55:36.190 align:middle line:84% to have a GDP multiplier because it does this. 00:55:36.190 --> 00:55:37.250 align:middle line:84% And I'm like, yeah, but if I don't 00:55:37.250 --> 00:55:38.833 align:middle line:84% have to spend all that money on energy 00:55:38.833 --> 00:55:41.530 align:middle line:84% and I just put it into the economy and it does other things 00:55:41.530 --> 00:55:47.010 align:middle line:84% and it invents GPUs instead, and then we get AI-- like, 00:55:47.010 --> 00:55:49.590 align:middle line:84% it's impossible to really do the GDP multiplier, 00:55:49.590 --> 00:55:51.330 align:middle line:90% I think, in a defensible way. 00:55:51.330 --> 00:55:53.590 align:middle line:84% So we're just not going to go there. 00:55:53.590 --> 00:55:56.650 align:middle line:90% 00:55:56.650 --> 00:55:57.690 align:middle line:90% Yep. 00:55:57.690 --> 00:56:01.330 align:middle line:84% AUDIENCE: Will the estimated externalities 00:56:01.330 --> 00:56:04.810 align:middle line:84% be for normal operation or will it build in some kind of risk 00:56:04.810 --> 00:56:06.465 align:middle line:90% of accidents? 00:56:06.465 --> 00:56:08.090 align:middle line:84% R. SCOTT KEMP: We'll start with normal. 00:56:08.090 --> 00:56:11.090 align:middle line:84% And we will then have a whole section on accidents. 00:56:11.090 --> 00:56:14.585 align:middle line:84% And we'll calculate the expectation value. 00:56:14.585 --> 00:56:16.210 align:middle line:84% It turns out the accidents is basically 00:56:16.210 --> 00:56:19.100 align:middle line:84% not a big deal for anything except for nuclear. 00:56:19.100 --> 00:56:23.420 align:middle line:84% And we'll calculate the expected cost. 00:56:23.420 --> 00:56:26.540 align:middle line:84% And we will recalculate the deaths per terawatt hour plot 00:56:26.540 --> 00:56:28.900 align:middle line:84% that you see floating around on the internet, which 00:56:28.900 --> 00:56:30.980 align:middle line:90% has no defensible source. 00:56:30.980 --> 00:56:34.340 align:middle line:84% I really encourage you to go look at the sourcing for that 00:56:34.340 --> 00:56:38.020 align:middle line:84% and try to figure out where they get those numbers. 00:56:38.020 --> 00:56:41.660 align:middle line:84% You will do a calculation in this class that you can believe. 00:56:41.660 --> 00:56:46.620 align:middle line:90% That plot is crazy. 00:56:46.620 --> 00:56:47.200 align:middle line:90% All right. 00:56:47.200 --> 00:56:53.740 align:middle line:90% So we have 30 minutes. 00:56:53.740 --> 00:56:57.620 align:middle line:84% We have agreed to some kind of economic assessment. 00:56:57.620 --> 00:57:03.180 align:middle line:84% And I am not going to teach you microeconomics in 30 minutes. 00:57:03.180 --> 00:57:06.060 align:middle line:84% But what I'm going to do is I'm going 00:57:06.060 --> 00:57:12.740 align:middle line:84% to just do a little bit of microecon philosophy for 30 00:57:12.740 --> 00:57:13.240 align:middle line:90% minutes. 00:57:13.240 --> 00:57:15.100 align:middle line:84% And then in the next class, we'll 00:57:15.100 --> 00:57:17.470 align:middle line:84% do a little bit of microeconomics, supply 00:57:17.470 --> 00:57:19.710 align:middle line:84% and demand and externality, because there's 00:57:19.710 --> 00:57:25.430 align:middle line:84% one more factor that comes into play that explains why these two 00:57:25.430 --> 00:57:28.930 align:middle line:84% parameters turn out to be not that sensitive, 00:57:28.930 --> 00:57:32.030 align:middle line:84% related to the elasticity of demand. 00:57:32.030 --> 00:57:32.950 align:middle line:90% Yes. 00:57:32.950 --> 00:57:34.710 align:middle line:90% AUDIENCE: Just a clarification. 00:57:34.710 --> 00:57:39.710 align:middle line:84% Is the cost of nuclear waste disposal 00:57:39.710 --> 00:57:42.642 align:middle line:84% included in the analysis or will it be included in the analysis? 00:57:42.642 --> 00:57:44.850 align:middle line:84% R. SCOTT KEMP: We'll talk about it as a policy issue. 00:57:44.850 --> 00:57:49.270 align:middle line:84% But basically, the cost is believed to be tiny. 00:57:49.270 --> 00:57:50.750 align:middle line:90% Yeah. 00:57:50.750 --> 00:57:53.830 align:middle line:84% So we'll have a class about the policy 00:57:53.830 --> 00:57:57.310 align:middle line:84% problem of dealing with waste and why 00:57:57.310 --> 00:57:58.750 align:middle line:90% waste is still a problem. 00:57:58.750 --> 00:58:00.230 align:middle line:90% Why haven't we dealt with it? 00:58:00.230 --> 00:58:02.710 align:middle line:84% In the United States, in particular, the history of Yucca 00:58:02.710 --> 00:58:06.030 align:middle line:90% Mountain and so on. 00:58:06.030 --> 00:58:10.790 align:middle line:84% OK, so if we're all good with this economic approach, 00:58:10.790 --> 00:58:14.160 align:middle line:84% let's just do a little bit of econ refresher 00:58:14.160 --> 00:58:18.540 align:middle line:84% to get us thinking in quantitative terms 00:58:18.540 --> 00:58:20.720 align:middle line:84% so that we have a shared vocabulary 00:58:20.720 --> 00:58:22.720 align:middle line:84% and that we can think about these things 00:58:22.720 --> 00:58:26.840 align:middle line:90% in an equitable way. 00:58:26.840 --> 00:58:29.760 align:middle line:84% All right, so let's talk about what 00:58:29.760 --> 00:58:33.530 align:middle line:84% is the value of water versus the value of diamonds? 00:58:33.530 --> 00:58:35.280 align:middle line:84% Incidentally, I just learned that diamonds 00:58:35.280 --> 00:58:39.340 align:middle line:84% are very prevalent in the solar system, 00:58:39.340 --> 00:58:41.960 align:middle line:90% just not prevalent on Earth. 00:58:41.960 --> 00:58:44.780 align:middle line:84% They tend to be in all kinds of meteorites and stuff. 00:58:44.780 --> 00:58:48.820 align:middle line:90% They're all over the place. 00:58:48.820 --> 00:58:49.320 align:middle line:90% Yeah. 00:58:49.320 --> 00:58:51.640 align:middle line:90% So what is the value of water? 00:58:51.640 --> 00:58:52.800 align:middle line:90% Which one is worth more? 00:58:52.800 --> 00:58:59.120 align:middle line:90% 00:58:59.120 --> 00:59:00.402 align:middle line:90% AUDIENCE: Depends who you are. 00:59:00.402 --> 00:59:01.860 align:middle line:84% R. SCOTT KEMP: Depends who you are. 00:59:01.860 --> 00:59:03.680 align:middle line:90% Depends what you have. 00:59:03.680 --> 00:59:04.840 align:middle line:90% AUDIENCE: What do you need? 00:59:04.840 --> 00:59:06.440 align:middle line:90% R. SCOTT KEMP: Yeah, right? 00:59:06.440 --> 00:59:08.320 align:middle line:90% OK, here's the problem. 00:59:08.320 --> 00:59:10.120 align:middle line:84% The word value is just like, what 00:59:10.120 --> 00:59:13.790 align:middle line:84% is-- we need a better word than this. 00:59:13.790 --> 00:59:14.290 align:middle line:90% Yeah. 00:59:14.290 --> 00:59:16.390 align:middle line:84% So obviously you need water to live. 00:59:16.390 --> 00:59:19.070 align:middle line:84% It is arguably of infinite value to you. 00:59:19.070 --> 00:59:21.650 align:middle line:84% And yet you can get it at the drinking fountain 00:59:21.650 --> 00:59:23.530 align:middle line:90% or on the corner for free. 00:59:23.530 --> 00:59:26.210 align:middle line:90% So is it zero or is it infinity? 00:59:26.210 --> 00:59:29.050 align:middle line:84% And diamonds are pretty useless unless you're 00:59:29.050 --> 00:59:31.450 align:middle line:84% trying to, in my opinion, grind something. 00:59:31.450 --> 00:59:33.330 align:middle line:90% Then I like diamonds. 00:59:33.330 --> 00:59:36.650 align:middle line:84% But otherwise I don't have any need for diamonds. 00:59:36.650 --> 00:59:38.170 align:middle line:84% Yet they're exceedingly expensive. 00:59:38.170 --> 00:59:41.890 align:middle line:84% So actually, this was a question that went all the way back 00:59:41.890 --> 00:59:44.570 align:middle line:90% to the time of Aristotle. 00:59:44.570 --> 00:59:48.370 align:middle line:84% And for centuries, people did not 00:59:48.370 --> 00:59:51.690 align:middle line:84% have an answer to this seeming paradox. 00:59:51.690 --> 00:59:54.210 align:middle line:84% It was only essentially at the end of the 19th century, 00:59:54.210 --> 00:59:58.170 align:middle line:84% starting around 1890, that economics formalized 00:59:58.170 --> 01:00:00.390 align:middle line:84% to the point where they could deal with this paradox. 01:00:00.390 --> 01:00:03.250 align:middle line:84% It's amazing it took them that long. 01:00:03.250 --> 01:00:06.730 align:middle line:84% So the key thing is to understand that all valuations 01:00:06.730 --> 01:00:09.130 align:middle line:90% presume some kind of context. 01:00:09.130 --> 01:00:12.690 align:middle line:84% And the value in use and by whom is not 01:00:12.690 --> 01:00:14.530 align:middle line:84% the same thing as the value of the inputs 01:00:14.530 --> 01:00:16.030 align:middle line:90% needed to make the product. 01:00:16.030 --> 01:00:20.750 align:middle line:84% It's not the same thing as value in trade when you exchange it. 01:00:20.750 --> 01:00:22.590 align:middle line:84% When you look at the price of something-- 01:00:22.590 --> 01:00:26.210 align:middle line:90% that is the price in trade-- 01:00:26.210 --> 01:00:27.780 align:middle line:84% which is not what it cost to make. 01:00:27.780 --> 01:00:29.530 align:middle line:84% And if you're complaining about this price 01:00:29.530 --> 01:00:31.250 align:middle line:90% not equaling that price-- 01:00:31.250 --> 01:00:33.770 align:middle line:84% it cost them nothing to make this. 01:00:33.770 --> 01:00:39.490 align:middle line:84% Pick your favorite overpriced shoe 01:00:39.490 --> 01:00:43.610 align:middle line:84% or New Balance shoe with nice colorway 01:00:43.610 --> 01:00:45.510 align:middle line:90% or whatever you're into. 01:00:45.510 --> 01:00:47.550 align:middle line:90% Obviously, that's not true. 01:00:47.550 --> 01:00:50.010 align:middle line:84% And then the value in use is obviously 01:00:50.010 --> 01:00:51.310 align:middle line:90% very different than that. 01:00:51.310 --> 01:00:53.770 align:middle line:90% So we call this utility. 01:00:53.770 --> 01:00:55.430 align:middle line:90% We call this one cost. 01:00:55.430 --> 01:00:58.210 align:middle line:90% We call this one price. 01:00:58.210 --> 01:01:00.510 align:middle line:84% So we need to be careful of that. 01:01:00.510 --> 01:01:03.730 align:middle line:84% Occasionally, we will use the word value 01:01:03.730 --> 01:01:07.370 align:middle line:84% when we're not talking about any of these things or it's obvious. 01:01:07.370 --> 01:01:14.660 align:middle line:84% But I mean, we should be careful to use good language on this. 01:01:14.660 --> 01:01:17.940 align:middle line:84% It's also worth noting that calculating 01:01:17.940 --> 01:01:21.260 align:middle line:84% this, the value in use, someone's utility, 01:01:21.260 --> 01:01:23.260 align:middle line:84% is not something that you can really 01:01:23.260 --> 01:01:25.620 align:middle line:90% do in a commeasurable way. 01:01:25.620 --> 01:01:28.320 align:middle line:84% The utility of a good-- this was actually just said earlier. 01:01:28.320 --> 01:01:34.620 align:middle line:84% The utility of a good to you depends on all the other goods 01:01:34.620 --> 01:01:37.940 align:middle line:84% and services that you A, have, and B, desire. 01:01:37.940 --> 01:01:46.540 align:middle line:84% So if I offer you a banana, that depends on 01:01:46.540 --> 01:01:48.040 align:middle line:84% whether you're hungry or not hungry. 01:01:48.040 --> 01:01:50.332 align:middle line:84% It depends on whether you're going to the Banana Lounge 01:01:50.332 --> 01:01:52.400 align:middle line:84% next or not going to the Banana Lounge next. 01:01:52.400 --> 01:01:55.400 align:middle line:84% And so it doesn't exist in a vacuum. 01:01:55.400 --> 01:02:00.460 align:middle line:84% These things can't be computed for individual people. 01:02:00.460 --> 01:02:03.620 align:middle line:84% It's very high dimensional function. 01:02:03.620 --> 01:02:05.240 align:middle line:90% It's also the case that-- 01:02:05.240 --> 01:02:11.047 align:middle line:90% 01:02:11.047 --> 01:02:13.130 align:middle line:84% I think, actually, I have a second slide for this. 01:02:13.130 --> 01:02:13.630 align:middle line:90% All right. 01:02:13.630 --> 01:02:18.910 align:middle line:84% So because of these trade-offs, we 01:02:18.910 --> 01:02:23.570 align:middle line:84% can imagine a trade-off between some quantity of item A 01:02:23.570 --> 01:02:25.950 align:middle line:90% and some quantity of item B. 01:02:25.950 --> 01:02:30.150 align:middle line:84% You can think of this as like a slice, a topographical map 01:02:30.150 --> 01:02:35.310 align:middle line:84% slice in a high n-dimensional surface. 01:02:35.310 --> 01:02:37.610 align:middle line:84% And these are, if you will, indifference curves. 01:02:37.610 --> 01:02:43.470 align:middle line:84% So any solution on this curve gives you utility units 1. 01:02:43.470 --> 01:02:47.630 align:middle line:84% Any solution on this curve 2 and 3 and so on. 01:02:47.630 --> 01:02:49.610 align:middle line:90% And A and B can be anything. 01:02:49.610 --> 01:02:53.350 align:middle line:84% Goods A and B can be cookies and milk, pens and paper. 01:02:53.350 --> 01:02:56.110 align:middle line:84% It doesn't really matter what it is. 01:02:56.110 --> 01:03:00.550 align:middle line:84% A key feature of these curves is that they are convex. 01:03:00.550 --> 01:03:03.110 align:middle line:90% They have this shape to them. 01:03:03.110 --> 01:03:09.280 align:middle line:84% And that means as you take away a little bit of item A, 01:03:09.280 --> 01:03:12.760 align:middle line:84% you need a disproportionately greater amount of item B 01:03:12.760 --> 01:03:14.080 align:middle line:90% to offset. 01:03:14.080 --> 01:03:18.840 align:middle line:84% So if I'm a dunker and I like to have milk to dunk my Oreos in 01:03:18.840 --> 01:03:21.240 align:middle line:84% and you take away my milk, then I 01:03:21.240 --> 01:03:24.800 align:middle line:84% might need a whole packet of Oreos to compensate for the fact 01:03:24.800 --> 01:03:27.380 align:middle line:84% that I don't have milk to dunk my cookies. 01:03:27.380 --> 01:03:27.920 align:middle line:90% Yes. 01:03:27.920 --> 01:03:29.462 align:middle line:84% AUDIENCE: Is this assuming items that 01:03:29.462 --> 01:03:34.120 align:middle line:84% have value intrinsically tied, or is it just any two items? 01:03:34.120 --> 01:03:36.240 align:middle line:84% R. SCOTT KEMP: Everything is intrinsically 01:03:36.240 --> 01:03:38.120 align:middle line:90% tied at some level. 01:03:38.120 --> 01:03:41.700 align:middle line:84% It's like, what is the value of, let's say-- 01:03:41.700 --> 01:03:46.040 align:middle line:90% 01:03:46.040 --> 01:03:48.300 align:middle line:84% it's hard to come up with things that are not tied. 01:03:48.300 --> 01:03:50.560 align:middle line:84% What is the value of your backpack versus the value 01:03:50.560 --> 01:03:51.960 align:middle line:90% of your mattress? 01:03:51.960 --> 01:03:54.480 align:middle line:84% Well, at some point, if I take away your mattress 01:03:54.480 --> 01:03:57.618 align:middle line:84% and you can't sleep, then you're not functioning. 01:03:57.618 --> 01:03:59.660 align:middle line:84% And going to school doesn't really matter anymore 01:03:59.660 --> 01:04:01.160 align:middle line:84% and the backpack becomes useless. 01:04:01.160 --> 01:04:03.240 align:middle line:84% They all become tied at some point 01:04:03.240 --> 01:04:06.560 align:middle line:84% in life, because you ultimately need all of these things 01:04:06.560 --> 01:04:09.840 align:middle line:84% to function, even if they're not obviously immediately tied 01:04:09.840 --> 01:04:10.940 align:middle line:90% like cookies and milk. 01:04:10.940 --> 01:04:11.523 align:middle line:90% AUDIENCE: Yes. 01:04:11.523 --> 01:04:13.200 align:middle line:90% But for this graph-- 01:04:13.200 --> 01:04:16.060 align:middle line:84% R. SCOTT KEMP: You can put anything. 01:04:16.060 --> 01:04:20.020 align:middle line:84% They all tend to have this convexity. 01:04:20.020 --> 01:04:22.760 align:middle line:90% 01:04:22.760 --> 01:04:26.880 align:middle line:84% So because they are convex, then there 01:04:26.880 --> 01:04:32.120 align:middle line:84% is typically an optimal condition given any budget. 01:04:32.120 --> 01:04:35.040 align:middle line:84% So here, we have this is a line of constant budget 01:04:35.040 --> 01:04:35.960 align:middle line:90% to buy these things. 01:04:35.960 --> 01:04:39.480 align:middle line:84% Given some price P1 for item A and given some price 01:04:39.480 --> 01:04:42.977 align:middle line:84% P2 for item B, you take your budget divided by P2, 01:04:42.977 --> 01:04:45.060 align:middle line:84% and that shows you how much of item B you can buy. 01:04:45.060 --> 01:04:47.800 align:middle line:84% And then you can buy anything along this line. 01:04:47.800 --> 01:04:49.760 align:middle line:84% That's what your budget allows you to buy. 01:04:49.760 --> 01:04:52.160 align:middle line:84% And you can see that there is a point 01:04:52.160 --> 01:04:57.760 align:middle line:84% that the budget touches the highest possible utility curve. 01:04:57.760 --> 01:05:00.360 align:middle line:84% And then that would be the optimal amount of A and B 01:05:00.360 --> 01:05:06.370 align:middle line:84% for you to by, given your budget, assuming everything else 01:05:06.370 --> 01:05:07.450 align:middle line:90% is held equal. 01:05:07.450 --> 01:05:10.290 align:middle line:84% And so in economics, that assumption 01:05:10.290 --> 01:05:11.810 align:middle line:90% is called ceteris paribus. 01:05:11.810 --> 01:05:15.570 align:middle line:84% It applies to basically everything we say in economics. 01:05:15.570 --> 01:05:19.990 align:middle line:84% So because most people exist on a budget line, 01:05:19.990 --> 01:05:22.930 align:middle line:84% they have a certain amount of wealth associated with them 01:05:22.930 --> 01:05:28.330 align:middle line:90% to do stuff, they can often-- 01:05:28.330 --> 01:05:30.870 align:middle line:84% but if I give them some arbitrary number of A and B, 01:05:30.870 --> 01:05:36.070 align:middle line:84% they can often improve their situation, 01:05:36.070 --> 01:05:40.910 align:middle line:84% move up the utility frontier, if I allow them to trade. 01:05:40.910 --> 01:05:43.170 align:middle line:84% Then they can reoptimize the amount of A and B 01:05:43.170 --> 01:05:45.250 align:middle line:84% by trading with people who have too much-- 01:05:45.250 --> 01:05:46.450 align:middle line:90% trading my A for-- 01:05:46.450 --> 01:05:49.290 align:middle line:84% I have too much A. I can trade with someone who has too much B, 01:05:49.290 --> 01:05:51.930 align:middle line:90% and we can all improve our lot. 01:05:51.930 --> 01:05:54.550 align:middle line:84% And that is the idea behind the market. 01:05:54.550 --> 01:05:58.410 align:middle line:84% And if we do that vigorously, we will reach a condition 01:05:58.410 --> 01:06:01.020 align:middle line:84% that economists call Pareto optimality. 01:06:01.020 --> 01:06:02.960 align:middle line:84% Do I have a little box for Pareto optimality? 01:06:02.960 --> 01:06:03.900 align:middle line:90% I might have a box. 01:06:03.900 --> 01:06:04.700 align:middle line:90% There it is. 01:06:04.700 --> 01:06:06.300 align:middle line:84% So Pareto optimality is a condition 01:06:06.300 --> 01:06:08.633 align:middle line:84% in which no further improvements to society's well-being 01:06:08.633 --> 01:06:12.180 align:middle line:84% can be made through the reallocation of resources that 01:06:12.180 --> 01:06:15.100 align:middle line:84% makes at least one person better off without making someone 01:06:15.100 --> 01:06:16.820 align:middle line:90% else worse off. 01:06:16.820 --> 01:06:20.860 align:middle line:84% So of course, I can move myself up this curve 01:06:20.860 --> 01:06:24.820 align:middle line:84% if I take away someone's cookies. 01:06:24.820 --> 01:06:27.380 align:middle line:90% But I have made them worse off. 01:06:27.380 --> 01:06:31.540 align:middle line:84% So that is the condition of Pareto optimality. 01:06:31.540 --> 01:06:34.540 align:middle line:84% And this will come back a little bit 01:06:34.540 --> 01:06:40.140 align:middle line:84% when we talk about the problem of externalities. 01:06:40.140 --> 01:06:45.980 align:middle line:84% So this basic virtue of the market, here's a question. 01:06:45.980 --> 01:06:52.820 align:middle line:84% Does this market, this exchange of goods, need rules? 01:06:52.820 --> 01:06:56.040 align:middle line:84% Or do we just let it happen, laissez faire, right? 01:06:56.040 --> 01:07:05.030 align:middle line:90% 01:07:05.030 --> 01:07:05.550 align:middle line:90% Yeah. 01:07:05.550 --> 01:07:08.250 align:middle line:84% AUDIENCE: What do you mean by rules in this case? 01:07:08.250 --> 01:07:16.630 align:middle line:84% R. SCOTT KEMP: Should I say that you have to-- 01:07:16.630 --> 01:07:17.450 align:middle line:90% I don't know. 01:07:17.450 --> 01:07:21.630 align:middle line:90% 01:07:21.630 --> 01:07:26.050 align:middle line:84% You can't have anticompetitive practices. 01:07:26.050 --> 01:07:29.510 align:middle line:84% Everyone has to get the same price. 01:07:29.510 --> 01:07:32.230 align:middle line:90% You can't stifle competition. 01:07:32.230 --> 01:07:39.270 align:middle line:84% You have to-- these are kinds of rules that you 01:07:39.270 --> 01:07:40.530 align:middle line:90% can impose on a market. 01:07:40.530 --> 01:07:43.950 align:middle line:90% 01:07:43.950 --> 01:07:48.510 align:middle line:84% AUDIENCE: Wouldn't it depend on your belief on human behavior 01:07:48.510 --> 01:07:49.302 align:middle line:90% and what you value? 01:07:49.302 --> 01:07:51.177 align:middle line:84% R. SCOTT KEMP: It depends on a lot of things. 01:07:51.177 --> 01:07:51.910 align:middle line:90% Yeah. 01:07:51.910 --> 01:07:52.550 align:middle line:90% Yeah. 01:07:52.550 --> 01:07:53.950 align:middle line:90% So this is a huge debate. 01:07:53.950 --> 01:07:56.645 align:middle line:84% So right now, there are 10-- typically, 01:07:56.645 --> 01:07:59.020 align:middle line:84% there are people who are free market people who are like, 01:07:59.020 --> 01:07:59.980 align:middle line:90% we don't need rules. 01:07:59.980 --> 01:08:01.820 align:middle line:84% The market will find the optimality. 01:08:01.820 --> 01:08:03.980 align:middle line:84% And other people are like, oh, no, we need rules. 01:08:03.980 --> 01:08:07.200 align:middle line:84% We need to have regulations on pollution. 01:08:07.200 --> 01:08:10.520 align:middle line:84% We need to have rules about equitable allocation 01:08:10.520 --> 01:08:11.740 align:middle line:90% of resources. 01:08:11.740 --> 01:08:15.800 align:middle line:84% We need to have all kinds of rules to prevent problems. 01:08:15.800 --> 01:08:19.660 align:middle line:84% An example du jour might be algorithmic pricing. 01:08:19.660 --> 01:08:21.660 align:middle line:84% Has anyone heard of algorithmic pricing? 01:08:21.660 --> 01:08:22.660 align:middle line:90% Yes, everyone has heard. 01:08:22.660 --> 01:08:24.720 align:middle line:84% So algorithmic pricing is something 01:08:24.720 --> 01:08:27.000 align:middle line:84% that hasn't existed traditionally because people 01:08:27.000 --> 01:08:30.359 align:middle line:90% were typically price takers. 01:08:30.359 --> 01:08:33.005 align:middle line:84% You put the price out and you would buy 01:08:33.005 --> 01:08:34.880 align:middle line:84% and you would adjust your price, but everyone 01:08:34.880 --> 01:08:36.080 align:middle line:90% gets the same price. 01:08:36.080 --> 01:08:39.120 align:middle line:84% But now people are like, oh, I can actually 01:08:39.120 --> 01:08:41.899 align:middle line:84% charge you a different price than I charge that other person. 01:08:41.899 --> 01:08:47.260 align:middle line:84% And so now this is a way to extract more from people. 01:08:47.260 --> 01:08:50.960 align:middle line:84% Does that have an effect on total social welfare 01:08:50.960 --> 01:08:52.540 align:middle line:84% or does it have an effect on equity? 01:08:52.540 --> 01:08:53.040 align:middle line:90% Yeah. 01:08:53.040 --> 01:08:58.700 align:middle line:84% So this is an important question and we will talk about it 01:08:58.700 --> 01:09:02.399 align:middle line:84% probably not in this class, but in the next class. 01:09:02.399 --> 01:09:07.740 align:middle line:84% So these two curves can be anything, as I said. 01:09:07.740 --> 01:09:09.140 align:middle line:90% And they can be energy. 01:09:09.140 --> 01:09:12.560 align:middle line:84% And they can be CO2 emissions avoided. 01:09:12.560 --> 01:09:16.160 align:middle line:84% So now we're trying to concretize this 01:09:16.160 --> 01:09:18.399 align:middle line:90% into the climate change debate. 01:09:18.399 --> 01:09:21.479 align:middle line:84% So maybe most people's indifference curves 01:09:21.479 --> 01:09:24.359 align:middle line:90% look somewhat like this. 01:09:24.359 --> 01:09:27.479 align:middle line:84% And if you're a person that has this budget, 01:09:27.479 --> 01:09:30.444 align:middle line:84% you can find yourself on this indifference curve 01:09:30.444 --> 01:09:32.319 align:middle line:84% and you say, OK, this is the amount of energy 01:09:32.319 --> 01:09:34.800 align:middle line:84% I want to consume, and this is the amount of CO2 avoidance 01:09:34.800 --> 01:09:36.200 align:middle line:90% I'm willing to pay. 01:09:36.200 --> 01:09:40.920 align:middle line:84% And that basically is kind of the micro level 01:09:40.920 --> 01:09:42.760 align:middle line:90% equivalent of this plot. 01:09:42.760 --> 01:09:46.660 align:middle line:84% It's finding the optimal, but for yourself. 01:09:46.660 --> 01:09:49.279 align:middle line:90% It's not for society. 01:09:49.279 --> 01:09:52.890 align:middle line:84% But if we let them happen in the market, 01:09:52.890 --> 01:09:57.210 align:middle line:84% then theoretically, the market does this for society, 01:09:57.210 --> 01:09:59.890 align:middle line:90% translates into this plot. 01:09:59.890 --> 01:10:00.670 align:middle line:90% Where am I? 01:10:00.670 --> 01:10:05.290 align:middle line:90% 01:10:05.290 --> 01:10:10.730 align:middle line:84% OK, but what if I'm a very poor person? 01:10:10.730 --> 01:10:15.610 align:middle line:84% So maybe my budget curve is a lot smaller. 01:10:15.610 --> 01:10:17.350 align:middle line:90% So now, here I am. 01:10:17.350 --> 01:10:19.210 align:middle line:90% I'm like, I need some energy. 01:10:19.210 --> 01:10:25.810 align:middle line:84% And there's really no utility curve 01:10:25.810 --> 01:10:38.150 align:middle line:84% that gives me value to the emissions reduction. 01:10:38.150 --> 01:10:42.570 align:middle line:84% I could buy it, but it doesn't give me utility. 01:10:42.570 --> 01:10:47.330 align:middle line:84% So you could argue that carbon abatement is, in a way, 01:10:47.330 --> 01:10:50.100 align:middle line:90% a luxury for the rich. 01:10:50.100 --> 01:10:54.620 align:middle line:84% Poor countries that are struggling to develop, 01:10:54.620 --> 01:10:59.100 align:middle line:84% get ahead, will tend to build polluting coal plants 01:10:59.100 --> 01:11:02.380 align:middle line:84% because they're cheap and they don't really care 01:11:02.380 --> 01:11:04.620 align:middle line:90% too much about climate change. 01:11:04.620 --> 01:11:07.140 align:middle line:84% For them, this is a luxury problem. 01:11:07.140 --> 01:11:09.302 align:middle line:84% The temperature goes up a few degrees 01:11:09.302 --> 01:11:11.260 align:middle line:84% while they're trying to lift millions of people 01:11:11.260 --> 01:11:15.380 align:middle line:90% out of poverty, so be it. 01:11:15.380 --> 01:11:19.340 align:middle line:84% So you, being young and educated about the issues of climate 01:11:19.340 --> 01:11:23.860 align:middle line:84% change, might ask, well, isn't this just a problem 01:11:23.860 --> 01:11:26.500 align:middle line:90% of information? 01:11:26.500 --> 01:11:29.780 align:middle line:84% Don't they just not-- if they understood 01:11:29.780 --> 01:11:31.980 align:middle line:84% that climate change is going to lead 01:11:31.980 --> 01:11:34.340 align:middle line:84% to these catastrophic consequences for the planet, 01:11:34.340 --> 01:11:36.700 align:middle line:90% wouldn't they too care? 01:11:36.700 --> 01:11:40.240 align:middle line:90% And the answer is no. 01:11:40.240 --> 01:11:40.740 align:middle line:90% Yeah. 01:11:40.740 --> 01:11:42.157 align:middle line:84% AUDIENCE: Well, just going to say, 01:11:42.157 --> 01:11:46.280 align:middle line:84% isn't the common, not unreasonable, thought of well, 01:11:46.280 --> 01:11:48.455 align:middle line:84% you got rich because you used all this carbon. 01:11:48.455 --> 01:11:50.830 align:middle line:84% Now you're saying I have to follow your rules that you're 01:11:50.830 --> 01:11:52.930 align:middle line:84% making and living with your problems? 01:11:52.930 --> 01:11:53.870 align:middle line:90% R. SCOTT KEMP: Yeah. 01:11:53.870 --> 01:11:54.370 align:middle line:90% Yeah. 01:11:54.370 --> 01:11:57.670 align:middle line:84% AUDIENCE: Just to add on this, the Western civilization 01:11:57.670 --> 01:12:01.950 align:middle line:84% extracted a lot of value from, let's say, the third world, 01:12:01.950 --> 01:12:03.870 align:middle line:90% African countries, et cetera. 01:12:03.870 --> 01:12:06.390 align:middle line:84% So it's not fair for them, actually, 01:12:06.390 --> 01:12:11.070 align:middle line:84% to comply with the new rules imposed by the West. 01:12:11.070 --> 01:12:12.067 align:middle line:90% And they are behind. 01:12:12.067 --> 01:12:13.150 align:middle line:90% R. SCOTT KEMP: Absolutely. 01:12:13.150 --> 01:12:14.775 align:middle line:84% AUDIENCE: I was going to say recently I 01:12:14.775 --> 01:12:16.800 align:middle line:84% saw a discussion about someone-- don't 01:12:16.800 --> 01:12:18.050 align:middle line:90% remember what the bodies were. 01:12:18.050 --> 01:12:21.875 align:middle line:84% I just saw this in passing, about gas stoves or coal stoves, 01:12:21.875 --> 01:12:23.750 align:middle line:84% that someone was like oh, we should ban these 01:12:23.750 --> 01:12:25.770 align:middle line:84% in developing countries because it's not good. 01:12:25.770 --> 01:12:28.630 align:middle line:84% And they're like, but people want to cook their food. 01:12:28.630 --> 01:12:30.130 align:middle line:84% I'll have to find that information. 01:12:30.130 --> 01:12:31.672 align:middle line:84% That was a recent discussion of like, 01:12:31.672 --> 01:12:33.230 align:middle line:90% you can't just tell people no. 01:12:33.230 --> 01:12:34.897 align:middle line:84% R. SCOTT KEMP: You can't tell people no. 01:12:34.897 --> 01:12:39.230 align:middle line:84% And the thing is, it applies not only to people in Namibia. 01:12:39.230 --> 01:12:44.710 align:middle line:84% It also applies to people in rural Arkansas. 01:12:44.710 --> 01:12:47.960 align:middle line:84% And that's kind of the problem with trying 01:12:47.960 --> 01:12:53.920 align:middle line:84% to make national policy, is that people have different curves. 01:12:53.920 --> 01:12:56.780 align:middle line:84% And even though you may care a lot about climate change, 01:12:56.780 --> 01:12:58.960 align:middle line:84% and you're willing to spend a lot of money on it 01:12:58.960 --> 01:13:01.120 align:middle line:84% and choose expensive technologies, 01:13:01.120 --> 01:13:04.040 align:middle line:90% other people are not. 01:13:04.040 --> 01:13:08.480 align:middle line:84% And if you impose, via technological enthusiasm 01:13:08.480 --> 01:13:10.600 align:middle line:84% or command and control economy your preferences 01:13:10.600 --> 01:13:12.480 align:middle line:84% over their preferences, you are forcing 01:13:12.480 --> 01:13:15.280 align:middle line:84% them to live in a suboptimal condition. 01:13:15.280 --> 01:13:18.800 align:middle line:84% So given the diversity, how do we 01:13:18.800 --> 01:13:23.760 align:middle line:84% make a policy approach that is fair to everyone? 01:13:23.760 --> 01:13:28.360 align:middle line:84% And there is no obviously correct answer. 01:13:28.360 --> 01:13:30.440 align:middle line:84% Many decades ago, welfare economists 01:13:30.440 --> 01:13:34.560 align:middle line:84% talked about the idea of trying to maximize utility 01:13:34.560 --> 01:13:35.940 align:middle line:90% across the whole population. 01:13:35.940 --> 01:13:38.403 align:middle line:84% But it's obviously not possible to even measure. 01:13:38.403 --> 01:13:40.820 align:middle line:84% I mean, I don't even know what my own utility function is, 01:13:40.820 --> 01:13:44.560 align:middle line:84% never mind finding some way to measure everyone else's utility 01:13:44.560 --> 01:13:46.800 align:middle line:90% functions. 01:13:46.800 --> 01:13:52.560 align:middle line:84% Hard enough for me to decide what to eat next. 01:13:52.560 --> 01:13:56.040 align:middle line:84% So this is basically why the communist command and control 01:13:56.040 --> 01:13:58.000 align:middle line:84% economies of Russia and China really 01:13:58.000 --> 01:14:02.320 align:middle line:84% have not succeeded, because they really 01:14:02.320 --> 01:14:05.400 align:middle line:84% can't make these optimizations across a huge number 01:14:05.400 --> 01:14:08.080 align:middle line:84% of individuals who have wildly difficult and 01:14:08.080 --> 01:14:10.880 align:middle line:84% difficult-to-perceive utility functions. 01:14:10.880 --> 01:14:17.440 align:middle line:84% So the idea that most modern economists advocate for 01:14:17.440 --> 01:14:20.440 align:middle line:84% is that the market-based economy, where 01:14:20.440 --> 01:14:23.480 align:middle line:84% you have individual actors making choices for themselves, 01:14:23.480 --> 01:14:26.800 align:middle line:84% choosing their own-- whether they want green power 01:14:26.800 --> 01:14:29.800 align:middle line:84% or they want polluting power, and giving them the choice, 01:14:29.800 --> 01:14:33.880 align:middle line:84% is a way that leads to a Pareto optimal 01:14:33.880 --> 01:14:37.840 align:middle line:90% outcome for all of society. 01:14:37.840 --> 01:14:41.800 align:middle line:90% That is the argument. 01:14:41.800 --> 01:14:45.108 align:middle line:84% And then the reason for money is that if I'm 01:14:45.108 --> 01:14:46.650 align:middle line:84% a person who makes donuts, but I have 01:14:46.650 --> 01:14:48.670 align:middle line:84% to trade my donuts for things, it's tricky. 01:14:48.670 --> 01:14:51.650 align:middle line:84% But if I can engage in the market with money, 01:14:51.650 --> 01:14:55.770 align:middle line:84% then I have this nice, fungible unit 01:14:55.770 --> 01:14:59.850 align:middle line:84% that allows me to go in and do this optimization easily. 01:14:59.850 --> 01:15:02.130 align:middle line:84% And if we do this vigorously and there are 01:15:02.130 --> 01:15:04.970 align:middle line:84% no distortions in the market and all the externalities are 01:15:04.970 --> 01:15:06.530 align:middle line:84% somehow internalized in the price, 01:15:06.530 --> 01:15:11.050 align:middle line:84% caveat, caveat, then we should be able to reach 01:15:11.050 --> 01:15:14.850 align:middle line:90% the optimal social outcome. 01:15:14.850 --> 01:15:18.610 align:middle line:90% So that is at least the theory. 01:15:18.610 --> 01:15:19.190 align:middle line:90% Let's see. 01:15:19.190 --> 01:15:23.410 align:middle line:90% So I had a little example. 01:15:23.410 --> 01:15:25.770 align:middle line:90% I don't remember. 01:15:25.770 --> 01:15:26.730 align:middle line:90% All right. 01:15:26.730 --> 01:15:29.530 align:middle line:84% So a moment ago, I mentioned money 01:15:29.530 --> 01:15:34.110 align:middle line:84% as being this vehicle by which we're engaging in the market. 01:15:34.110 --> 01:15:36.850 align:middle line:84% And I want to point out that we ought 01:15:36.850 --> 01:15:40.130 align:middle line:84% to be very careful with how we think about money. 01:15:40.130 --> 01:15:43.720 align:middle line:84% It is a way to engage in the market, 01:15:43.720 --> 01:15:47.580 align:middle line:84% but it is not a measure of utility. 01:15:47.580 --> 01:15:53.100 align:middle line:84% In these curves, we're talking about optimizing your utility. 01:15:53.100 --> 01:16:00.580 align:middle line:84% But that is not measured by money. 01:16:00.580 --> 01:16:07.660 align:middle line:84% So rule number one was that there 01:16:07.660 --> 01:16:09.660 align:middle line:84% are all these different types of valuations 01:16:09.660 --> 01:16:12.100 align:middle line:84% and that utility can't be measured. 01:16:12.100 --> 01:16:14.120 align:middle line:84% Rule number two is kind of an extension. 01:16:14.120 --> 01:16:16.500 align:middle line:84% It's that money is not a universal measure 01:16:16.500 --> 01:16:18.080 align:middle line:90% of utility between people. 01:16:18.080 --> 01:16:24.820 align:middle line:84% So $10,000 to you does not mean the same thing as $10,000 01:16:24.820 --> 01:16:27.380 align:middle line:90% to Elon Musk. 01:16:27.380 --> 01:16:30.780 align:middle line:84% And that presents us with a problem, 01:16:30.780 --> 01:16:38.100 align:middle line:84% because we could say, OK, what if I want to pollute? 01:16:38.100 --> 01:16:40.710 align:middle line:84% Can I to compensate the people on whom 01:16:40.710 --> 01:16:45.670 align:middle line:84% I dumped my pollution by paying them to offset their damages? 01:16:45.670 --> 01:16:50.270 align:middle line:84% And the answer is not easily, because the amount 01:16:50.270 --> 01:16:52.750 align:middle line:84% of money you'd have to pay a person 01:16:52.750 --> 01:16:54.890 align:middle line:90% is different for every person. 01:16:54.890 --> 01:16:58.430 align:middle line:84% And indeed, you have to pay Elon Musk a whole lot of money 01:16:58.430 --> 01:17:01.150 align:middle line:84% if you happen to pollute Elon Musk's backyard. 01:17:01.150 --> 01:17:05.910 align:middle line:84% So this creates a problem with trying 01:17:05.910 --> 01:17:11.170 align:middle line:84% to compensate for externalities outside of the market system. 01:17:11.170 --> 01:17:12.970 align:middle line:90% It's really not easy to do. 01:17:12.970 --> 01:17:15.830 align:middle line:90% 01:17:15.830 --> 01:17:19.670 align:middle line:84% It also points out that essentially, markets don't 01:17:19.670 --> 01:17:22.430 align:middle line:90% guarantee equality at all. 01:17:22.430 --> 01:17:25.847 align:middle line:84% All they're doing is finding a Pareto optimal solution. 01:17:25.847 --> 01:17:27.430 align:middle line:84% But they don't guarantee-- which means 01:17:27.430 --> 01:17:29.950 align:middle line:84% you can't improve the lot of an individual 01:17:29.950 --> 01:17:31.770 align:middle line:84% without harming the lot of someone else. 01:17:31.770 --> 01:17:34.690 align:middle line:84% But it doesn't say that everyone has to have the same utility. 01:17:34.690 --> 01:17:37.800 align:middle line:84% It does nothing to deal with that part of the problem. 01:17:37.800 --> 01:17:41.080 align:middle line:84% So even though we prefer the market solution 01:17:41.080 --> 01:17:46.200 align:middle line:84% because we can't do the utility optimization task, 01:17:46.200 --> 01:17:48.680 align:middle line:84% we should just understand that the markets are not 01:17:48.680 --> 01:17:52.600 align:middle line:84% buying us the ideal world that we would really like. 01:17:52.600 --> 01:17:55.800 align:middle line:90% 01:17:55.800 --> 01:18:00.400 align:middle line:84% Ways we typically deal with this, we talk about equity 01:18:00.400 --> 01:18:02.220 align:middle line:84% or now more recently the term justice. 01:18:02.220 --> 01:18:03.840 align:middle line:84% And we apply these policy overlays 01:18:03.840 --> 01:18:07.080 align:middle line:84% where people can decide that in our society, 01:18:07.080 --> 01:18:09.900 align:middle line:90% we prefer xyz to occur. 01:18:09.900 --> 01:18:12.880 align:middle line:84% Like, we prefer not to dump pollution 01:18:12.880 --> 01:18:13.980 align:middle line:90% onto poorer communities. 01:18:13.980 --> 01:18:16.457 align:middle line:84% Therefore, we will have an overlay. 01:18:16.457 --> 01:18:18.040 align:middle line:84% But it's not something that the market 01:18:18.040 --> 01:18:19.620 align:middle line:90% is going to do automatically. 01:18:19.620 --> 01:18:25.420 align:middle line:84% The market will just maximize wealth generation, in a sense. 01:18:25.420 --> 01:18:31.080 align:middle line:90% 01:18:31.080 --> 01:18:31.620 align:middle line:90% All right. 01:18:31.620 --> 01:18:32.880 align:middle line:84% Problem number three, not everything 01:18:32.880 --> 01:18:34.060 align:middle line:90% is traded in the market. 01:18:34.060 --> 01:18:36.660 align:middle line:84% So this we've actually talked about a lot. 01:18:36.660 --> 01:18:37.820 align:middle line:90% These are externalities. 01:18:37.820 --> 01:18:39.820 align:middle line:84% Pollution is the classic example of this. 01:18:39.820 --> 01:18:48.440 align:middle line:90% 01:18:48.440 --> 01:18:53.320 align:middle line:84% Not only is it hard to capture these things in the market, 01:18:53.320 --> 01:18:57.440 align:middle line:84% there are features about these externalities that can sometimes 01:18:57.440 --> 01:18:59.440 align:middle line:90% be really problematic. 01:18:59.440 --> 01:19:06.040 align:middle line:84% So when we're talking about CO2, of course, 01:19:06.040 --> 01:19:08.913 align:middle line:84% one problem is that we can't calculate 01:19:08.913 --> 01:19:11.080 align:middle line:84% the social cost of carbon or the damages from carbon 01:19:11.080 --> 01:19:12.680 align:middle line:90% are not internalized. 01:19:12.680 --> 01:19:15.760 align:middle line:84% But the other problem is that climate 01:19:15.760 --> 01:19:19.080 align:middle line:90% is a non-excludable good. 01:19:19.080 --> 01:19:23.320 align:middle line:84% And that means that if I damage the climate because I don't 01:19:23.320 --> 01:19:28.200 align:middle line:84% care, but you care, my choices spill over onto you, 01:19:28.200 --> 01:19:31.400 align:middle line:84% and it makes it difficult for you to optimize your choices. 01:19:31.400 --> 01:19:34.590 align:middle line:84% Likewise, if I decide I care about the climate, 01:19:34.590 --> 01:19:38.130 align:middle line:84% so I'm willing to spend a lot of money, 01:19:38.130 --> 01:19:42.870 align:middle line:84% then someone who's maybe also cares about the climate, 01:19:42.870 --> 01:19:46.530 align:middle line:84% but is a little cheap, gets the free ride, 01:19:46.530 --> 01:19:47.630 align:middle line:90% and they get to benefit. 01:19:47.630 --> 01:19:50.450 align:middle line:84% In fact, if everyone is being strategic about it, 01:19:50.450 --> 01:19:53.590 align:middle line:84% they would all wait for someone else to pay for it. 01:19:53.590 --> 01:19:57.570 align:middle line:84% And so this is called the free rider problem. 01:19:57.570 --> 01:20:02.610 align:middle line:84% So this is a particular problem associated with externalities 01:20:02.610 --> 01:20:04.250 align:middle line:90% of things like climate change. 01:20:04.250 --> 01:20:06.450 align:middle line:90% And with that, we'll stop here. 01:20:06.450 --> 01:20:11.210 align:middle line:84% And then there was a wrap-up slide that we didn't get to. 01:20:11.210 --> 01:20:15.610 align:middle line:84% But we'll talk a little bit about the problem of elasticity. 01:20:15.610 --> 01:20:17.610 align:middle line:84% And then we will move on to calculating 01:20:17.610 --> 01:20:20.040 align:middle line:90% costs of nuclear power. 01:20:20.040 --> 01:20:33.000 align:middle line:90%