One of the aspects of neoclassical economics is that you make a whole host of assumptions, some of which are highly unrealistic. This enables one to look at the consequences of removing or changing the assumptions one at a time. For this exercise, let us assume the global cost curves are correct. That is to assume that if no policy is enacted that there will be significant global warming with catastrophic consequences for the planet and the people upon it, whilst there are a set of feasible global policies that mitigate against this.

As stated above, for a viable mitigation policy curve to exist, there must exist a set of low cost, high impact (LC-HI) policies. If you believe, as I do, that public policy should aim to make the maximum positive difference, and at a minimum to avoid net harm, then for climate change there is a duty of care in creation and implementation of policy that this truly happens.

The Small Country Problem

A small country is faced with the same climate cost curve as the entire planet. That is, if nothing is done to constrain the growth in greenhouse gas (GHG) emissions this country will face the same escalating costs of climate change. The only difference is that this cost is no longer relative to total gross world product (GWP), but relative to its own GDP. Assuming that the country’s emissions are an insignificant part of the total world amount to begin with, no matter how effective that country is in constraining its own emissions growth path, or even in cutting its total emissions, its policy cost curve will be vertical. It will move to the right with the relentless rise in global temperatures.

The total costs curve, for any temperature level will simply be the addition of the climate change costs and the money spent on emissions reductions.

The more spent by this small country, the greater its prestige in the green movement for unilaterally leading the way on “saving the planet.” But if nobody follows the small country’s example, then its “conspicuous impoverishment”⁽¹⁾ will be in vain.

Avoiding the small country example

How do we avoid the small country example, where the total costs are just added to by wasted effort on cutting emissions?

The standard answer is along the lines of saying if everybody does their bit, with the rich countries taking the lion’s share of the responsibility, then everything will be just fine. What is more, Britain already has some of most draconian emissions reductions targets in the world, as imposed by the Climate Change Act 2008 and others, such as the EU and Australia are also contributing. The small country argument does not hold.

The minority of countries pursuing emission reduction policies I will term the PC1 group. Still assume for the moment that the policy cost curve is correct. The current issue is to enlarge that group to make it the PC2 group. Eventually it is to convince every country to join making the policy curve truly global. As the group enlarges the policy curve shifts to the left.

If all PC1 countries commit to restrain global warming to 3^oC, then they can only do so by crippling their economies. The relative cost is a global one after all. They still could cripple their economies if they went to the climate costs equal policy costs point. If the PC1 countries accounted for 25% of GWP, then they would have a benefit a quarter of all the countries acting together. So should the in the economic interests of an outsider country to help create an enlarged group PC2, that represents 50% of GWP? The PC1 group will rid the planet of over 75% of the climate change costs. The PC2 group could halve that again.

Would it be in the economic interests of a country to join the PC2 group, or stay outside?

My Excel graph gets a bit blocky here – sorry.

Let’s do the maths, with approximate numbers. Enlarging the policy-enacting group moves from point A to point B.

PC1 group members have a climate cost of 3.1 plus a policy cost of 3.1/25% = 12.4

Non PC1 members have a climate cost of 3.1 = 3.1

PC2 group members have a climate cost of 1.7 plus a policy cost of 1.7/50% = 5.1

Non PC1 members have a climate cost of 1.7 = 1.7.

So to join the enlarged PC2 group, would increase costs from 3.1 to 5.1. To stay outside the policy countries would be better for the citizens of that country, even if there is a workable policy to adopt and the clear prospect of catastrophic global warming if no mitigation policy is enacted.

Later arguments on the effectiveness of policy and prospective costs of climate will make this choice look even more unambiguous. This aspect of all countries not acting together to share proportionately the costs has not, as far as I am aware, been seriously looked at in the literature. This is why the annual COP meetings – conferences in exotic locations – will never get anywhere. Any leaders that are persuaded to join the policy-enactors, unless their country will be disproportionately made worse by climate change, are acting against their own national interests.

Policy Risk

Policies carry risks. There is a risk of them not being effective, and costs running out of control. There is also a risk of a ratchet effective. That is once the policy is implemented, vested interests are created that make it very difficult to withdraw the policy even if results fall far short of those expected. The above assumes policy success. Policy failure within PC1 countries will demonstrate to potential PC2 countries that they should avoid adopting mitigation policies, no matter how great they believe in the looming climate catastrophe.

1. Thorstein Veblen attacked in the rich for the “conspicuous consumption”. The “conspicuous impoverishment” of the global warming movement is a variant on this, the difference is that the “prestige” that Veblen went to those wasting their money. The “prestige” heaped on the unilateralist country by the green movement on those implementing the policy and not those suffering the policy consequences.