Mother Nature does equilibrium analysis

Rumour has it that we are facing a long period of anthropogenic global warming. If the predictions prove correct, then Richmond BC and Halifax NS may be gone in 150 years due to rising sea levels.

We have always found the economic analysis of global warming to be suspect. The Stern Report spawned several rebuttals regarding assumptions and methodology. These models usually end up looking like Malthusian models. The world changes and no one reacts. Technology is exogenous. People don’t move away from coastal locations until tragedy strikes.

Judging from a Reuters article found in the Vancouver Province, however, there is another factor missing in the economic models. Apparently, Mother Nature took my Principles class. Demand curves are downward sloping and as supply increases, price falls and equilibrium quantity rises. The supply of CO₂ in the atmosphere has increased as a result of the burning of fossil fuels. As supply rises, it becomes easier for trees to capture and sequester the carbon. Quantity demanded is rising. Trees are using the CO₂ more intensively and becoming denser. It appears that Mother Nature’s demand for CO₂ is not perfectly inelastic.

What this all means is that we need to focus on the extensive margin, planting more trees (demand shifts right) as well as the intensive margin, denser trees (change in quantity demanded). There must be a research grant in there somewhere.

And yes, Mother Nature passed my course.