Climate Change Policy in Perspective – Part 1 of 4

Introduction

In the Climate Change policy there lacks a simple framework to assess the policy. There is a large consensus of scientists telling us that a large rise in global temperature will occur, and that the only policy in offer is to constrain the growth in greenhouse gas emissions globally. Presented below is a simple graphical model to encapsulate the central policy arguments of the UNIPCC and the 2006 Stern Review. That is, there are policies that can be implemented that though costly, will be an order of magnitude less than the disastrous consequences of letting global temperatures rise unchecked. These consequences will not only affect the human race and for the rest of the planet. Use of this model allows analysis of the relative importance of various issues in devising policy and implementing global policies needed to achieve the consensus objectives.

The starting point for the analysis is to assume that two propositions are correct. First, that if we do nothing in two centuries global average temperatures will be at 5-10oC warmer than at present. Second, that there exists in theory a set of policies that will comfortably constrain CO2 emissions to prevent the atmospheric CO2 levels going above 600ppm and thus preventing global temperatures rising more than 2oC above current levels. I also start from a moral basis for policy that few will disagree with. Political action should only be taken if there is a reasonable expectation that the resulting outcome be a better situation than if no action was taken at all. The treatment, if not a full cure, should at least be expected to leave the patient in a better condition than without treatment. This, I would claim, is an absolute minimum requirement for action, as it can still leave moral dilemmas. For instance, if the policies cause the deaths of a million people, but prevents a 10% chance of 11 million people dying, then it is justified on this rule.

There are four parts to this explanation, which I will divide into separate blog postings. Part one, below, develops a graph replicating the standard consensus argument of the overwhelming consensus case for action. Part two addresses the issues with policy, relating this through movements in the policy curve. Part three evaluates the impacts of that warming, showing how changing the analysis of risk and time can radically change our perception of the costs. Part four brings these together for an overall conclusion, with indications of areas for further research.

The basis of the model is that global warming will create costly consequences, both for the human race and for the rest of the planet. Proposals to resolve this we also be costly. It is therefore to economics that we must turn to understand the issue from the top-down.

Part One – The Consensus Argument for Mitigation in Graphical Form

The following aims to replicate the mainstream consensus case of catastrophic climate change and the mitigation policies deemed necessary to combat it.

The Costly Consequences of Global Warming

We are already seeing some of the minor consequences of increasing greenhouse gases through disrupted climate. But the scientists tell us this will be as nothing compared to what will happen if greenhouse gases continue to increase unchecked for the next century or more. The large increases in temperature – around 4oC to 7oC or higher – would cause massive disruption to the climate system. It is fair to say that as global temperatures increase, these costs would increase exponentially. These “costs” are in the broadest sense. They are not just the human costs of property damage, failed harvests, population migrations and land being submerged by rising seas. These include the damage to the eco-systems and species extinction. Graphically it would look something like this.

There is no scale on this graph. It cannot be predicted how far temperatures will increase if the growth in anthropogenic greenhouse gas emissions are not curtailed, nor at what point the catastrophic consequences will set in. What is essential to recognize is that allowing temperatures to increase will be many times worse than stabilizing that increase at lower temperatures. Without a check, it is near certain that the planet’s temperatures will climb to the top end of the graph with the level of costs predicted.

The Costs of Mitigation

The solution to the problem of climate change is to remove the cause of that change. To remove anthropogenic greenhouse gas emissions totally would be hugely costly. The economic wealth of the rich countries is based upon fossil fuel energy consumption. Stop the energy consumption and you not only stop economic growth, but potentially cause economic collapse. Instead, there must be a rapid but orderly switch in energy use to clean energy sources. This may actually spur economic output as the switch is made, but is more likely to be costly, but have at most a negligible but negative impact on economic growth. Similarly, in the emerging BRIC (Brazil, Russia, India & China) economies, satisfying their rapidly-rising energy demands from carbon-neutral sources need not constrain their economic growth. Indeed for China and India real living standard could rise more rapidly, as the cities suffer less from the choking effects of the pollution from burning fossil fuels. How will these costs map out? To stop climate change now and reverse the impacts would be hugely costly. Even to stabilize emissions at current levels globally would be hugely expensive. In particular with China and India increasing their emission levels rapidly, to stabilize globally would require huge cuts elsewhere. Far less costly would be to stabilize at some higher level than at present.

The shape of the cost of mitigation graph can be represented like this.

The costs of doing little are very small, whilst those of stopping global warming in its tracks, or even reversing the warming that has already occurred, are huge. We are able to choose the policy to pursue.

The Combined Costs of Climate Change and Mitigation

Climate change will incur costs of CCI. Combating climate change involves mitigation costs M. For any temperature that stabilization is reached, the total costs TC will be CCI+M.

The question as to which level of policy to pursue now becomes clearer. A highly aggressive policy could be just as damaging as doing nothing. However, we are left with a large middle ground. By stabilizing the temperature increase from pre-industrial levels at around 2-3oC is generally thought to be where this middle ground lies. However, as there is some uncertainty as to what average temperature the worst effects of climate change start to come into play, a prudent policy is to aim at stabilization at the lower end of the temperature range. Prudent policy is at around point P.

Climate Change in Perspective Part 2 – The Mitigation Curve

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9 Comments

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