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Ethical Economics

Ethical Economics The climate cost calculator Economics whiz kid Peter Larsen is predicting big costs for adapting to a warming climate.
By Erika Englehaupt, Environmental Science & Technology
Policy News – August 8, 2007

In the dark of Alaska's winter of 2006, resource economist Peter Larsen spent a little time cross-country skiing through the dimly lit snow. But most of the time he was in his office calling transportation officials to ask whether climate change had torn up any roads lately.

Thirty-one-year-old Larsen tallied the cost of wear and tear from climate change on every bridge and road in damage-prone Alaska.

"On more than one occasion, I got people who would laugh at me," Larsen says. Not one to be deterred, he kept calling. He called every Alaska agency he could find, looking for roads and bridges that were slumping as permafrost thawed beneath them and for facilities threatened by flooding and coastal erosion. Then, Larsen and his team mapped every scrap of public infrastructure in Alaska and estimated the cost that a changing climate will add to maintaining it all.

His estimated price tag: as much as $6.1 billion dollars between now and 2030 to repair or replace structures and up to $7.6 billion between now and 2080. That's on top of billions Alaska already spends keeping up with $40 billion worth of infrastructure in a harsh frozen environment, and it amounts to an extra 10–20% in those costs projected to 2030, according to a report Larsen and colleagues published through his institution, the University of Alaska's Institute of Social and Economic Research (ISER).

It's a small part of the toll that climate change will exact on Alaska, Larsen says. The nation's fastest-warming state is already grappling with big changes, and the rest of the world had better take notice, he adds.

Waking up to change
When Larsen began calling around and looking for economic analyses of climate change in Alaska, he learned that he was breaking new ground. "I was pretty baffled," he says. "Alaska is warming more quickly than anywhere else on the planet, and you'd think there'd be some economists looking at this."

But few have. Larsen's work heralds a new approach to studying climate change: tallying the dollars and cents of adapting to a warmer world, one with a confusing array of droughts, floods, wildfires, and disappearing shorelines—in short, a city planner's nightmare. Until now, "most work has focused on predicting who will lose out in climate change and what adaptations they may need," says Joel Smith, who is the vice president of Stratus Consulting and is a consultant on the Alaska report. Now, he says, it's time for engineers and economists to get down to the business of planning and paying.

Even longtime climate skeptic Sen. Ted Stevens (R-AK) seems resigned to dealing with the problem. "Regardless of whether these changes are caused solely by human activity, we must take steps to protect people in the Arctic," Stevens said upon introducing climate-change legislation in July.

But there's a reason few have tackled this kind of project. First, Larsen's team had to track down all 16,000 pieces of infrastructure in Alaska. "A single piece of infrastructure could be a road that's 20 feet long, or an entire airport," Larsen says. Harbors, schools, the power grid, and sewer systems—19 classes of infrastructure in all—were counted, too. Next, they put dollar signs on climate wear and tear by combining engineering estimates of how fast climate impacts might shorten the useful life of infrastructure in vulnerable locations with the latest climate projections assembled by the National Center for Atmospheric Research from research institutes all over the world.

Even before the report came out in June, both it and its lead author were attracting attention. Larsen has been traveling the state presenting his findings to policy makers, and the report made its way into the hands of Sen. Lisa Murkowski (R-AK). She has recently changed her formerly conservative stance on climate change. After reading this and other reports about risks to Alaska, Murkowski helped introduce a bill to the U.S. Congress in July that would set mandatory carbon limits, called the Low Carbon Economy Act of 2007.

The new kid
Residents are preparing to relocate the entire town of Newtok, Alaska, which is sinking and shifting as permafrost thaws beneath it and is erodingaway as protective sea ice melts.

Larsen has been blazing toward a position of influence since the beginning of his young career. In 2000, not long out of college, he landed a job at the prestigious environmental firm Stratus Consulting, where he dove into the economics of electricity market deregulation during the tumultuous days of the Enron energy scandal. "During the whole Enron crisis, I was the guy who flew to the East Coast and helped the New England power pool to program all their market surveillance software," Larsen says. When power plants placed bids to sell electricity, it was Larsen's statistical programs that tested the market for anticompetitive behavior. After California's market went haywire, he met with the state's central dispatcher to demonstrate his software and ended up offering some of it "to help those guys out because they were in a bad situation," he says.

Feeling pressure after a few years to return to school, Larsen entered a master's program at Cornell University, only to be recruited out of the program a year later as a key component in a new climate-change program at ISER. He finished writing his master's thesis, the first assessment of the entire U.S. economy's vulnerability to weather, as he started his new job.

Fran Ulmer recruited Larsen to Alaska. Ulmer is the university's chancellor and a 20-year veteran of the Alaska legislature, where she also served a stint as lieutenant governor. She took Larsen under her wing when she was director of ISER and says Larsen was the "perfect fit for what ISER needed to contribute to the public-policy conversation taking place right now." As she watched the fledgling economist step into the media spotlight with the recent report, she advised him not to oversell his results and to watch out for those who might try to use his age and short experience to discredit his work.

And with all that hard work, there's still one thing Larsen hasn't found the time for: finishing a Ph.D. He says he'll likely go back for one sooner or later (his colleagues say they hope it's not too soon), but for now he looks to role models like former Federal Reserve Chair Alan Greenspan, who received an honorary doctorate from New York University years after opting out of the academic route.

Larsen's credentials are "not an issue," says report coauthor Oliver Scott Goldsmith, ISER's current director. What's more important is that "he really gets inside questions and digs around," Goldsmith says, noting that when Larsen had questions about methods for modeling climate variability, he called renowned mathematician Benoit Mandelbrot for a chat. "He's not afraid to call up Mandelbrot," Goldsmith says. "He can see clearly where he wants to go."

Better sooner than later
But cost analysis isn't merely a matter of dollars and cents or an exercise in ladder-climbing to Larsen. Planning for adaptation is about real people, he says, and it's about making hard choices that could affect both ancient cultures and a modern way of life.

"There's probably more economic value in a few square blocks of Manhattan than in all of Alaska; however, there's an enormous amount of cultural value that we can't, as ethical economists, put a value on," he says.

He points to the tiny coastal village of Shishmaref, which has been occupied by the Inupiaq people for more than 4000 years. Permafrost below the town is thawing, and the shore-fast ice that had always provided protection from storm surge is melting away. The cost to move the village: about $180 million. But beyond that price, "We're talking about cultures fundamentally changing here, and we can't put a dollar value on that," Larsen says. "And I won't."

One surprise in Larsen's models: over the long haul, the total cost of adapting infrastructure to climate change could be smaller the faster things heat up. "When I saw it, I thought there was a bug in the model," he says. But no, the model just revealed a fundamental aspect of human nature: procrastination. Larsen had programmed the model to trigger an adaptation, such as rebuilding or replacing a bridge, at the point when that item has lost 20% of its original value—about what engineers and planners tend to do. In the warmest of the three climate scenarios he studied, that threshold is crossed quickly, and people are forced to act to fix the infrastructure sooner, while it still has a lot of useful life remaining. "It saves people money down the line," Larsen says.

The type of estimate that Larsen is attempting is "becoming more important as people realize what's coming," Smith says. Ultimately, he says, society has to weigh the costs and benefits of investing in climate-change adaptations like new bridges or seawalls. "You don't have to make an investment," Smith says, "but you should at least consider it. To not consider it is derelict." —ERIKA ENGELHAUPT

Copyright © 2007 American Chemical Society

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