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Stern report previewed

October 30th, 2006

With the major issues in the scientific debate over climate change having been resolved, attention has now turned to the economics of stabilising the climate and to the costs of doing nothing. Following the House of Lords economic committee inquiry last year, which spent most of its time promoting denialist attacks on climate science, and had little of value to say on the economic issues, the UK government commissioned Sir Nicholas Stern, former chief economist of the World Bank to look at the issue properly.

His report is about to be issued in the UK today, and previews have given the major conclusion – it’s much more costly to do nothing than to do something. According to the reports, the estimated cost of stabilising CO2 emissions is 1 per cent of GDP by 2050. This is at the low end of the range of estimates I’ve obtained from back-of-the-envelope exercises.

The striking feature of the reported findings relates to the potential costs of doing nothing, from 5 per cent to 20 per cent of GDP. I assume the latter estimate is based on worst-case scenarios, which have relatively low probability but are nonetheless important in working out an expected cost of doing nothing.

The credibility of the report has been enhanced by the first critical responses noted in the press. One is from Exxon shill Steven Milloy, who repeats the discredited attacks on climate science he’s been pushing for years, with a few new variations. He even drags out cosmic rays. The Guardian mentions his affiliation with the Cato Institute, apparently unaware that they dumped him a year ago over his unethical behavior.

Even more interesting is the reference to “a group of nine rightwing economists”, including the former chancellor Nigel Lawson, who criticised Stern’s discussion papers in January. What’s not noted here is that it was Lawson who launched the House of Lords exercise, rigged the process to ensure that most of the witnesses were denialists and drafted the carefully ambiguous discussion of the scientific issues which, on the one hand, correctly disclaimed any relevant expertise on the part of the committee, and on the other hand, dishonestly promoted the denialist view that the debate is still wide open. Now that this exercise has turned out to be a massive own goal for Lawson and his allies, they are naturally upset.

More tomorrow (or maybe later today) when the report is released. In the meantime, responses to Stern’s earlier discussion paper, including mine, are here

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  1. Mike Hart
    October 31st, 2006 at 18:10 | #1

    Well, well, the ABC has reported a Howard-Beazley stoush today about climate change and what to do about it, to my knowledge this is the first time that Howard has so blatently stated that he is going to listen to the minerals industry first and last:

    “”I’m not going to betray those associated with the resource industry.”

    You can only betray someone you have made a promise too or pact with, thank you Prime Minister. At least we know now what we are honestly dealing with.

  2. Hermit
    October 31st, 2006 at 21:07 | #2

    I disagree that Australia is a minor emitter; more like a overly flatulent terrier. With 0.3% of world population Australian sourced coal (including exports)produces over a gigatonne of world annual CO2 emissions from fossil fuels of around 23Gt.

    I think some essential elements of an international carbon trading scheme are a not-too-soft start, fiscal offsets such as revenue neutrality and sanctions against waverers. Kyoto as practised by the EU offers none of these. Alas I fear climate miseries will have to get much worse before co-ordinated action.

  3. October 31st, 2006 at 23:26 | #3

    Damien, isn’t that argument like saying “well, Telstra won’t go broke if I don’t pay my phone bill, so it’s OK not to?”

    And Hermit is right. Australia’s emissions are not insubstantial, and we make an extra contribution by exporting so much coal.

  4. November 1st, 2006 at 00:39 | #4

    Hermit and Robert,

    There is an important difference between the atmosphere and Telstra. If you don’t pay your phone bill, Telstra can cut you off from your phone service. If you don’t cut your emissions, you can still use the atmosphere.

    In terms of the impact on global warming, it is total emissions that matter, not per capita emissions. It is the impact on global warming that generates an incentive structure that is similar to a “prisoner’s dilemma”. Imagine any time path of emissions by the rest of the world. What is the difference in terms of global warming, given this time path, of Australia pursuing business as usual emissions versus Australia cutting all of its emissions? I don’t know the answer to this, but I seem to recall reading or hearing that there would not be a great deal of difference between these two scenarios. Maybe I am mistaken, however. Now, from an equity point of view, you might be interested in per capita emissions. As I indicated in my post, I am interested in arguments that might counteract this line of reasoning. Maybe you need an equity argument to do so.

    While you can allocate emissions in many ways, it seems more reasonable to allocate them to the source of the emission itself, rather than to the source of the input. Indeed, from a policy point of view, if it was simple to measure emissions at their source, then targetting the emissions directly would be better than targetting an input (such as the carbon content of fuels). The reason for this is that policies that directly target emissions provide an incentive to develop “emission capture” technologies and the like, whereas policies that target inputs do not. The reason you might target the inputs is because it is much easier to measure input use than it is to measure emissions themselves and the savings in administrative costs outweigh the expected losses from the reduced incentives to develop “emission capture” technologies and the like. Even if the focus is on inputs, it is probably still more efficient to target the emitters rather than the source of the inputs. The reason for this is that the emitters have more opportunities to alter the emitting technology. They can build more efficient coal fired power plants. They can use more fuel efficient vehicles. To come at this issue from another point of view, should a large portion of the emissions from fuel consumption by vehicles in the developed world be attributed to the oil exporting countries? This seems to be very unreasonable to me.

    Please note that I am not against taking action on global warming. Indeed, I would very much like to see us implement a carbon tax. I suspect that something like a carbon tax is likely to be part of any least cost method of reducing Australia’s greenhouse gas emissions. I believe that we should reduce our emissions, even if only for equity reasons. I am simply trying to explore, perhaps rather ineptly, the validity of potential counterarguments.

    Regards,

    Damien.

  5. November 1st, 2006 at 07:21 | #5

    Robert Merkel wrote:

    Damien, isn’t that argument like saying “well, Telstra won’t go broke if I don’t pay my phone bill, so it’s OK not to?�

    California also accounts for ~2 per cent of global emissions, does that mean California should not act as well?

    Despite some movement in recent weeks Howard and his ministers are still trotting out the same tired old lines:
    1. Kyoto is an inadequate small step to solving the global warming problem, ergo we should do nothing.
    2. “If Australia today closed all of its power stations, China in a year’s time would have more than replaced them, as would India”, ergo we should do nothing
    3. Australia is on target to meet its Kyoto targets, ergo we should do nothing.

    RE: Kyoto targets, some of the mainstream media has picked up that Australia negotiated an 8% increase in emissions, but very few have reported that whatever progress we have made is entirely due to changes in land clearing practises and forestry.

    Robert Merkel wrote:

    And Hermit is right. Australia’s emissions are not insubstantial, and we make an extra contribution by exporting so much coal.

    Actually, Australia’s total coal production (both domestic and exported) is around 400 megatonnes a year, which is just short of 10% of global coal production (4600 MT). All that coal gets burnt somewhere and it all goes into the same atmosphere.

  6. November 1st, 2006 at 09:26 | #6

    Damian, my argument is very pragmatic.

    The developing world won’t act to cut emissions unless a) the developed world builds the technologies to do so that still allow them to grow their economies, and b) the developed world, who created the problem in the first place, do their fair share.

    The idea that Australia will be permitted to go on polluting into the never-never while China and India struggle with enforcing carbon restrictions in their own societies (the Chinese national government will have all manner of fun and games bringing provincial officials to heel on this issue) is just ludicrous.

  7. Paul G. Brown
    November 1st, 2006 at 09:49 | #7

    Carbonsink –

    Your statistics are really, really depressing.

    Australia accounts for 10% of global coal production. If the Stern report’s findings are taken at face value, then global demand for coal is going to decline: either a) because of the economic consequences of global climate change (overall lower economic activity), or b) as demand for fossil fuels falls when we try to fix the problem.

    Either way – Short Coal Board!

  8. November 1st, 2006 at 10:09 | #8

    Paul G. Brown:
    No, what is REALLY depressing is that the EIA* forecasts a doubling of world coal consumption by 2030, with most of the increase coming from developing countries.

    Have a look at this chart:
    http://www.eia.doe.gov/oiaf/ieo/figure_48.html

    *EIA = The Energy Information Administration of the U.S. Government.

  9. wilful
    November 1st, 2006 at 12:31 | #9

    An excellent analogy for Howard’s excuse for not doing anything to reduce emissions unless the rest of the world does something is Australia’s presence in Iraq. Our troops there are trivial in the scale of the security problem, so why are they there? Political cover for the US? Hmm, this analogy has legs…

  10. Hermit
    November 1st, 2006 at 12:42 | #10

    Basslink is an indication of where coal fits in. Tas Hydro have praised the additional backup when dams are low due to climate change. Since the mainland grid is largely coal fired it means coal is probably replacing renewables. Ditto coal-to-liquids as a petroleum replacement but with double CO2. That’s why a carbon cap is essential to all but the blinkered.

  11. November 1st, 2006 at 16:09 | #11

    Hermit,

    As you note, the incentive structure that faces Australia with respect to GHG emissions and global warming probably applies to many other communities, whether these communities are groups of countries, individual countries, states, or even smaller communities. This prisoner’s dilemma incentive structure is typical of common propery resource problems. It is what makes solving the global warming problem so difficult. It is this incentive structure that makes it difficult to get countries to agree on a unified approach to the problem. This incentive structure will also make it difficult to get countries to agree on specific targets for themselves. Simply relying on everyone to do the right thing is unlikely to be an effective apoproach to solving this problem. A more effective approach might involve threatening countries that do agree to reduce their emnissions with international sanctions. These sanctions might include restrictions on international trade and restrictions on international travel. If such threats were credible, then they might alter each country’s payoffs sufficiently to avoid the prisoner’s dilemma incentive structure. In terms od specific proposals, I suspect that the best candidates will involve price incentives of some kind (carbon taxes, tradable permits or some hybrid of these, such as the McKibbon-Wilcoxen proposal). I also think that there needs to be some scheme that motivates developed countries to transfer clean technologies to developing countries. This will enable them to proceed along a more environbmentally friendly development path than might otherwise be the case.

    Regards,

    Damien.

  12. November 1st, 2006 at 16:17 | #12

    My previouys comment (comment number 61) should have been addressed to Crbonsink, not Hermit. Sorry for the mistake. Also, I should repeat my earlier disclaimer that notes that I used to work for the Emissions Trading Team at the Australian Greenhouse Office.

    Regards,

    Damien.

  13. November 1st, 2006 at 16:33 | #13

    Further clarifications on comment 61:

    When I wrote “A more effective approach might involve threatening countries that do agree to reduce their emnissions with international sanctions”, what I meant was “A more effective approach might involve threatening countries that do NOT agree to reduce their emnissions with international sanctions”.

    Also, when I refer to specific proposals, I am talking about policies that might be used to encourage emission reductions in a least cost fashion.

    Regards,

    Damien.

  14. Mike Hart
    November 2nd, 2006 at 11:25 | #14

    Daily in my aviation career I now receive ‘harzard alerts’ from AirServices Australia, why because of unforecast metereological phenomena. Daily I see atmospheric temperature lapse rates that do not fit the text book rates and the level of mid level atmospheric instability appears to be increasing. Clouds there, moistures not, cold or warm air it is very dry. The empirical evidence before me suggests the climate models are biased to a very conservative outcome. Remember what you may think should occur globally or regionally may not because of local geographical effects. The climate modellers have done their best and they will get better, but we are into uncertain times and outcomes. Since economics drives what we do now it is time for the economic fix.

  15. painter
    November 6th, 2006 at 17:57 | #15

    I agree with you, Proust. As on all the blogs, the hallmarks of the Leftists are ridicule and name-calling, flip-talk and their abject aversion to actually dealing with any issues raised by those with an alternative view…’ shill’ being their all too ready and gutless label on the global warming issue. Why, I wonder, are they all so deathly afraid of listening to any scientist ( those brave ones who haven’t yet been intimidated into silence lest they lose their livelihoods)…. who raises legitimate issues that suggest that we may be in the midst of a natural cycle, and that although human impact may be part of the cause, natural processes may be the main cause? Could it be that to allow that theory to take hold would interfere with the environmentalists’ ambitions for global control over just about everything…we all know which side of the political spectrum would grab that control don’t we.

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