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WHY ‘ACT NOW’ IS THE RIGHT APPROACH TO GLOBAL WARMING
Repent, for the end of the world is nigh. That is a warning one would expect to come from an evangelical preacher or an environmental doomsayer, not from a sober economist. Yet that is, in essence, what Sir Nicholas Stern, author of the British government’s new report on climate change, is saying.* The tone may be sober, but the conclusion – act now before it is too late – is not.
Hitherto many economists, business-people and politicians, particularly in the US, have argued that, given both the uncertainties and the high costs of taking possibly unnecessary action, the best policy is to wait, see and, if necessary, adapt. The contribution of this report is to reverse that logic. It argues that, given these very same uncertainties and the relatively low costs of acting now, the best policy is action.
How and how convincingly does the review make this case? The answer, I suggest, is: “Sufficiently so.”
The starting point has to be with the consequences of “business as usual”. The underlying scientific argument on this is straightforward. Since the industrial revolution the stock of greenhouse gases in the atmosphere has risen from the equivalent of 280 parts per million (ppm) of carbon dioxide to 430ppm. If current emission trends continue, the stock of greenhouse gases in the atmosphere could more than treble by the end of this century.
Greenhouse gases trap heat, which is why there is abundant life on earth. It is also, argue the scientists, why the earth has warmed by about 0.7°C since 1900. Should current trends continue, temperatures might rise by between 3°C and 10°C by 2100 (see chart). By the middle of this century and, so, within the life-span of many now alive, warming could be between 2°C and 5°C. Since the earth is only 5°C warmer today than during the last ice age, a change of that magnitude would be enormous.
Should the temperature rise by 5°C, there may be adverse effects on crop yields; significant rises in sea levels that threaten developing countries, such as Bangladesh, but also coastal cities, such as London, Shanghai and New York; water shortages affecting more than a billion people; mass extinctions; increasingly intense storms; and, conceivably, huge shifts in the climate system, with local cooling and intense local warming.
All this sounds biblical.
If warming is so dreadful, would a proto-Stern of 12,000 years ago have warned his contemporaries of the dire results of the looming end of the ice age? The answer to this query is presumably no. Warming can be – and, in that case was – highly beneficial. But this does not mean rapid warming would now be so. We – and the rest of life – are well adapted to today’s world. While human beings cope superbly with change, the speed and scale of the potential disruption would test that ability to the limit.
Modelling work done for the review concluded the costs of climate change over the next two centuries could be equivalent to a reduction of 5 per cent in average consumption per head. This is itself equal only to the loss of two years of economic growth. But?the costs?of failure to act?might?be?as?much as 20 per cent of gross world product. The report compares such costs with those associated with “the great wars and the economic depression of the first half of the twentieth century”. Worse, in this case, “it will be difficult or impossible to reverse these changes”. Moreover, these costs would fall heavily on the poorest.
It seems simple common sense, therefore, to reduce the dangers, provided the costs of doing so are modest. Houses rarely catch fire, but few would question the wisdom of buying cheap smoke alarms.
The question is how expensive the recommended actions would be. On this the review is encouraging. The economic costs of mitigating the rise in greenhouse gas seem modest. The review estimates them at as little as
1 per cent of global gross product, though, here too, there is a range of uncertainty. One per cent is itself just a few months of economic growth.
The report argues for setting a target of 450-550ppm of carbon dioxide equivalent: anything higher, it argues, would be too risky; anything lower would be too costly. Given the trends, even achieving that target would require a massive shift (see chart). The longer change is postponed, however, the bigger the dangers and the higher the costs of forestalling them: “Delay in taking action would lead both to more climate change and, ultimately, higher mitigation costs.” Given the costs and benefits estimated in the report, early action seems sensible. But that conclusion depends in part on the discount rate used. The review argues, sensibly, that there is no reason why the welfare of our generations should be intrinsically more important than those of our grandchildren. The only other reason for a high discount rate is high economic growth. But if climate change slows economic growth significantly, as seems likely, a low discount rate makes sense. Under that assumption, the case for early action becomes even stronger.
What needs to be done? Adaptation is part of the answer, partly because further warming is certain, given the concentrations of greenhouse gases already in the atmosphere. But mitigation must also be central. Fortunately, many of the technologies needed to lower greenhouse gas emissions per unit of output are known already. What also emerges from the analysis is that there is no dominant solution. A mixture of technologies will be needed, instead (see chart). Among them are: increases in efficiency; carbon capture and storage; nuclear power; use of biofuels; and domestic combined heat and power. Also important, however, is forestation.
How are such shifts to be brought about? The broad answer is through a combination of pricing of greenhouse gas emissions, investment in new technologies and regulation of energy efficiency.
This raises the biggest question of all: how is humanity to deal with what is both the biggest “market failure” ever seen and an unprecedented challenge to its capacity for large-scale and enduring co-operation. Is it imaginable that the countries of the world, with their vastly different views and interests, will rise to the collective action challenge climate change poses?
Hitherto, the answer to that question has been a resounding “no”. The report may have made a case for early action. But it could easily end up as just another futile exhortation. Whether that has to be so is the question I plan to address next week.
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