Stern Measures

Averting climate change is surprisingly affordable. Or is it?


It never fails. Just before the United Nations' annual negotiating conference on climate change, the world is treated to reports warning that the problem of man-made global warming is—you guessed it—worse than we thought. The world's climate negotiators will begin gathering in Nairobi next week. Right on time, the British government issues the Stern Review, which argues that climate change could cause global economic devastation equivalent to a world war or the Great Depression. (Note: U.S. GDP fell by 45 percent between 1929 and 1933.) Fortunately, the report, compiled by former World Bank economist Nicholas Stern, cheerily concludes that humanity will only have to spend the equivalent of 1 percent of gross domestic product to avert the looming catastrophe.

Consider that the current global GDP is about $45 trillion. That translates into the claim that really bad weather 100 years from now can be avoided at the cost of spending only $450 billion per year from today until GHG gas concentrations are stabilized at some acceptable level in the atmosphere. Of course, that means that that $450 billion won't be spent on other things, but presumably it won't be a total waste.

Stern makes his case by combining worst case climate model predictions with worst case economic model predictions. The predictable result is disaster 100 years hence. For his economic analysis Stern essentially uses the A2 storyline from the Third Assessment Report, issued in 2001 by U.N.'s Intergovernmental Panel on Climate Change. That storyline supposes relatively slow economic growth (2 percent per year), global economic autarky, continued population growth, and retarded technological progress. The result is that world GDP by 2100 would be only $243 trillion while world population reaches 15 billion. Today, GDP per capita is almost $7000, although unevenly distributed. In this scenario, world per capita GDP would rise to just over $16,000 by 2100.

But there are other IPCC scenarios. For example, the A1 scenarios foresee stronger economic growth (3.5 percent per year), global economic integration, population peaking then falling to 7 billion, and a lot of technological progress. The result is global GDP of $550 billion and a per capita income of nearly $80,000 by 2100. Quite a bit of difference. Surely it is reasonable to argue that if one wants to help future generations deal with climate change, the best policies would be those that encouraged economic growth. This would endow future generations with the wealth and superior technologies that could be used to handle whatever comes at them including climate change. In other words, responsible policy makers will select courses of action that move humanity from a slow growth trajectory to a high growth trajectory.

Just as a thought experiment, let's assume that boosting energy prices by imposing a carbon tax reduces economic growth by 1 percent per year. And because people like Stern, who are worried about climate change, are constantly mentioning their concern about the poor in Bangladesh, let's look at how a 1 percent cut in that country's growth rate would affect their future prospects. In recent years, Bangladesh's economy has been growing at about 6 percent per year. Let's assume the new carbon taxes cut Bangladesh's economic growth rate by 1 percent to 5 percent per year. Bangladesh's current GDP is $55 billion. So if Bangladesh's economy grew at 5 percent compounded for 50 years, it would increase to $630 billion and in 100 years it would exceed $7.2 trillion.  However, Bangladesh's economy grew at 6 percent for 50 years, it would top over $1 trillion and in 100 years it would be $18.5 trillion. A 1 percent reduction in economic growth makes a big difference over the generations. Now the main concern about Bangladesh is how a warming world will cause rising sea levels to flood much of that country. It's interesting to note that the Dutch manage to keep the sea from flooding their low lying country with a GDP of just $500 billion.

Of course, Stern argues that raising the price of energy produced from fossil fuels could produce net economic benefits as companies rush to develop and market new low carbon technologies. But there is always an opportunity cost--the economic value of a benefit that is sacrificed when an alternative course of action is selected. I am fairly confident that humanity will be using a lot less carbon fuels by the end of this century as part of the ongoing market progression from dirtier to cleaner fuels that we have been experiencing for the past two centuries. So hurrying the process of switching from carbon-based fuels along by boosting energy costs means that humanity will have to delay buying other good things such as clean water, better sanitation, more and better food, and more education.

In fact, this very point was made on the same day the Stern Review was issued, by the Copenhagen Consensus Centre. The Consensus, headed by skeptical environmentalist Bjorn Lomborg, held a session with United Nations ambassadors from 24 countries representing 54 percent of the world's population and ranging from Angola and Australia to the United States and Zimbabwe. The ambassadors pondered the question: If we had an extra $50 billion to be put to good use, what problems should be solved first?  What did they choose to prioritize? "The representatives agreed to a large extent that high priority should be given to initiatives on communicable diseases, sanitation and water, malnutrition, education," according to the Consensus outcomes report. As an added bonus, all of these improvements would help humanity to adapt to any future climate change.

Mitigating climate change came way down the Consensus list. And why not? Taking care of these more urgent problems offers a much bigger and more immediate bang for your buck in improving lives and boosting economic productivity. Perhaps that would be like boosting Bangladesh's growth rate from 6 percent to 7 percent.That would mean Bangladesh's economy would surge to $1.6 trillion by in 50 years and almost $48 trillion in 100 years.

And finally, I still think it is an open question: is global warming worse than what governments might try to do about it?

Global warming heads up: I will be covering the United Nations' next climate change conference in Nairobi beginning on November 13.

Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.