- Support for a target of 550 parts per million of concentration of greenhouse gases in the atmosphere.
- Australia to cut greenhouse emissions 10% by 2020, and 80% by 2050, in order to curb the effects of climate change.
- A fixed carbon price of $20 per tonne between 2010 and 2012, settling at $23 after 2013 and rising 4% annually (plus the percentage increase of the consumer price index).
Bizarre comment of the day from Australian Industry Group chief executive Heather Ridout:
“…cost rises in this range would test the viability of many businesses and would give rise to significant restructuring.” Errr, yes restructuring of the economy is the whole point.
Two charts caught my eye. The first shows the per capita convergence different countries would need to make in order to reach the 550ppm scenario. I hadn’t realised Australia was the highest per capita emitter at two-and-a-half times average EU levels. So adjustment here will clearly be very painful.
Second, the chart that points to that very tellingly, is a costs and benefits model to GDP growth of mitigation to 550ppm. It’s all costs well into the 2060s before benefits start to come on line. Like the Stern Report, it then uses two dodgily low social discount rates of 1.4% and 2.7% to determine the cost-benefit of mitigation finding a net cost of around 1% of the economy over the 21st century.
Garnaut asks: “Is this worth paying… for the benefits, insurance value and the enhanced value beyond the 21st century?”. I know we always accuse people of being myopic but really expecting the case to be sold on net benefits accrued to four or more generations in the future is quite an ask.
So with the economics ambiguous at best Garnaut pulls some heart strings, suggesting even some of the mitigation scenarios would be expected to lead to the destruction of the Great Barrier Reef and other coral reefs and lead to (more) species extinction. Very disturbing of course but I thought that it a little odd to appear the next page after the not so great findings from the macro model.
Over to Lord Giddens at the LSE and Policy Network next on the ‘Politics of Climate Change’ who among other things are looking at the implications for social justice.
2 comments:
Come on David!
1. All countries will manage the misalignment of the actual emissions and their allocated rights by trading. So these trajectories will never be as harsh as they look.
2. What assumptions generate the weird curve in the GNP-impact chart? Everyone understands there is a reservoir of negative cost options for reducing GHGs - they don't seem to bother with these - they must have a high cost response strategy coded into the numbers.
3. On the impact cost side, we are left with questions like whether the Southern drought can be attributed to climate change and if it is a permanent feature - how would you cost that?
4. Above all - GNP is a hopelessly inadequate metric to use - basically a measure of activity (good or bad) in the marketised economy. So when you use the loose phrase "with the economics ambiguous at best..." you are allowing that 'the economics' are measured by GNP. That this is wrong is so obvious it shouldn't need stating:
a. What about non-marketed goods and services that people value highly? Real economics means using a real utility function.
b. What the non-market impacts of climate change - eg. what does extension of malarial areas do to GNP? What do heat waves do to GNP? What does a flood do...? (Clue... it increases construction activity but reduces welfare)
c. Why use a flow (income) measure, when a long term problem should also be framed in terms of stocks - eg. biodiversity, fertile land, land with agreeable climates etc. With a better economic measure, the depletions of stocks would be shown as a kind of depreciation cost against GNP.
Shouldn't you employ lessons from innovation and compliance with previous environmental measures to question the high costs attributed to the response? Ex ante businesses argued that we couldn't afford to protect the ozone layer, address acid rain, [insert creation of virtually any public good], without some sort of economic apocalypse befalling us. Armageddon just never happened. Ex post it always seemed to work out. So where is the scepticism about high cost claims?
The question with all studies like this is: "do the economics used reflect real human preferences*, natural resource scarcity, and the costs and benefits of an innovative human response?"
I suspect the answer to these is 'no' in the case of the present study. But then I've only got your blog to go by.
* Including time preferences... then you have to question whether the exercise is 'normative' (economics as the world should be) or 'positive economics' (as the world is). The results are radically different - the latter being more credible and much more likely to justify inaction. As you say in so many words, we just don't care about things far away in time (and for that matter far away in distance or culture).
Okay, so probably should have balanced with more of my natural scepticism of modelling.
It would have been more accurate if I'd described it as the 'pure' economics being ambiguous. Garnaut uses a general equilibrium model for this which brings with it a number of problems:
(1) it works by finding equilibrium in a host of existing markets following various possible distortions. There's no adequate way to pick up the possibility of new markets or innovations.
(2) even in modelling existing markets it has to make a number of assumptions - and the more assumptions the further in time the less likely to be realistic. For example there's an assumption built in of relatively high carbon prices to the middle of the 21st century which in turn assumes relative low rates of technological adaptation. Vary these and the results change dramatically - indeed providing confidence intervals or fan chart error bars would demonstrate how volatile the results are to these.
(3) it has to use a common metric to evaluate costs and benefits -- GNP. I of course agree with the problems you highlight with using this.
It does beg the question why we bother commissioning these economic reviews of climate change at all. People assume economics is somehow neutral in the way that one can scientifically evaluate climate change. But the methodology of economics is thirty years behind pure sciences like physics and highly dependent on value-driven assumptions about the real world.
The legacy of the Stern and Garnaut reviews is therefore that:
-- on the science we pretty much unanimously agree climate change is happening and will have major consequences.
-- on the economics it is costs now for benefits in the future but with massive uncertainty about the size of the costs and for how long. But using standard economic models it has not been good news. As Garnaut puts it "all detailed assessments of the economics have the main benefits of mitigation accruing in the 22nd and 23rd centuries and beyond". We're expecting economics to deliver something that it's not yet capable of doing – e.g. understand the long-term dynamic behaviour of the world and factor in non-market impacts.
-- on the politics it's almost certain we'll undershoot and undershoot badly.
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