Reply to Davidson and Robson
Phillip Adams and Peter Dixon have prepared a reply (over the fold) to the opinion piece by Robson and Davidson in the Australian which offered a range of incoherent criticisms of proposals to reduce emissions of greenhouse gases. Disgracefully, but not at all surprisingly, the Oz has declined to print it, marking yet another step in its decline.
Admittedly, the debate is so one-sided that printing the reply would have made it obvious how ill-advised it was to publish the Davidson-Robson piece in the first place. Dixon is Australia’s pre-eminent economic modeller, and Adams is his successor as Director of the Centre of Policy Studies at Monash. They have published extensively in leading economic journals on modelling and climate change, and their expertise shows. Robson and Davidson have essentially zero professional expertise on these issues, and that shows too. Of course, they have exactly zero professional expertise in climate science, and that hasn’t stopped them claiming the entire profession is wrong, so we shouldn’t be surprised.
Insurance against catastrophic climate change: backing the Kyoto protocol
In an opinion piece (The Australian, 11/5), Alex Robson and Sinclair Davidson attempt to ridicule a petition currently being signed by university economists calling on the Australian Government to ratify the Kyoto Protocol.
We have signed the petition for three connected reasons: (1) compelling advice from the scientific community suggests that a sharp cut in world greenhouse gas (GHG) emissions would substantially reduce the risk of catastrophic climate change over the next century; (2) the Kyoto forum offers the best available possibility for Australia to play a constructive role in setting up world-wide arrangements for cutting GHG emissions; and (3) as part of a world-wide effort, Australia could achieve deep cuts in its own GHG emissions at only a moderate cost in terms of reduced economic welfare.
It is on point (3) that economists have particular expertise, justifying the presentation of an â€œeconomistsâ€? petition.
Cutting GHG emissions is like buying an insurance policy: we incur a cost (a loss in GDP) to reduce a risk (catastrophic climate change). In any insurance decision, the cost matters. If a worthwhile reduction in risk costs 50% of income, then living with the risk may be preferable. But if it costs 1% of income, then taking the insurance policy may be the best option. So what will it cost?
For the last 20 years, we have been undertaking economic modelling exercises for Australian and overseas organizations on the costs of GHG reductions. Our modelling, and that of other quantitative economists around the world, supports the claim in the petition that:
â€œCredible estimates suggest that a 50% emissions reduction is achievable for less than one yearâ€™s economic growthâ€?.
Robson and Davidson have difficulty in figuring out what this means. Just to be clear, we will explain it in terms of the report by the Allen Consulting Group to the Business Roundtable on Climate Change (March, 2006).
Modelling we contributed to that report shows Australiaâ€™s real GDP growing between now and 2050 at an annual rate of 2.2% under the assumption of no new GHG policies. In this scenario, Australiaâ€™s GHG emissions by 2050 are 80% above their level in 2000.
In an alternative scenario, Australia undertakes policies to reduce its GHG emissions by 2050 to 60% below their level in 2000. Even with this very deep cut in emissions, Australiaâ€™s GDP grows between now and 2050 at an annual rate of 2.1 per cent. The implication is that a massive 60% cut in GHG emissions (relative to the 2000 level) costs about 20 months growth â€“ the level of GDP that we would have reached on January 1, 2050 is not reached until September 1, 2051. A lesser cut would incur a lower cost. Taking account of non-linearities (the first 1% cut is much easier than the last 1% cut), a reasonable estimate for the cost of the 50% cut mentioned in the petition is 12 monthâ€™s growth.
Why do modelling results suggest that GHG emissions could be sharply reduced at seemingly moderate cost? Are these results plausible?
The main GHG-emitting activities are fossil-fuel-based provision of electricity and motor fuels. In Australia, these account for about 5.4% of GDP. Advice from scientists and engineers indicates that the adoption of current alternatives to fossil-fuel-based technologies would no more than double the costs of electricity and motor fuels. As a back-of-the envelope calculation, this suggests that Australia could make a 50% switch to alternative technologies at a cost of 2.7 per cent of GDP, a little over an average yearâ€™s growth.
But this is a pessimistic view of the costs of climate insurance. If the world embraced the need for deep cuts in GHG emissions, we would expect rapid technical progress in GHG-benign technologies which would reduce the costs of their adoption.
Professor Philip Adams and Professor Peter Dixon
Director and former Director of the Centre of Policy Studies