BBC understates Cost of Climate Policy by 45 to 50 times

The UNIPCC has just finished a major meeting in Copenhagen to put finalize the wording of their AR5 Synthesis Report. BBC News Environment correspondent Matt McGrath said

The IPCC says that the cost of taking action to keep the rise in temperature under 2 degrees C over the next 76 years will cost about 0.06% of GDP every year.

Over the same period, world GDP is expected to grow at least 300%

The figure of 0.06% of GDP (strictly Gross World Product) seemed a bit low. So I looked up the source of this quote.

The Synthesis Report states on pages 116-117

Estimates of the aggregate economic costs of mitigation vary widely depending on methodologies and assumptions, but increase with the stringency of mitigation (high confidence). Scenarios in which all countries of the world begin mitigation immediately, in which there is a single global carbon price, and in which all key technologies are available, have been used as a cost-effective benchmark for estimating macroeconomic mitigation costs. (Figure 3.4). Under these assumptions, mitigation scenarios that are likely to limit warming to below 2 °C through the 21st century relative to pre-industrial levels entail losses in global consumption —not including benefits of reduced climate change (3.2) as well as co-benefits and adverse side-effects of mitigation (3.5, 4.3) — of 1% to 4% (median: 1.7%) in 2030, 2% to 6% (median: 3.4%) in 2050, and 3% to 11% (median: 4.8%) in 2100, relative to consumption in baseline scenarios that grows anywhere from 300% to more than 900% over the century. These numbers correspond to an annualized reduction of consumption growth by 0.04 to 0.14 (median: 0.06) percentage points over the century relative to annualized consumption growth in the baseline that is between 1.6% and 3% per year.

Matt McGarth (or a press officer) has wrongly assumed that 0.06% of GDP is the reduction in output, whereas the Synthesis Report talks about a reduction in growth rate. At any rate of growth, the impact of .06% reduction in growth rates will mean output in 2100 will be 4.8% lower. We can put a monetary impact on this through to 2090. The World Bank estimates global output was $74,910 billion in 2013. To keep the figures simple I will assume that 2014 will be $75,000 bn. The figures are below for 2090.

With 1.94% growth global output in 2090 will be $323,038bn, about $14,774bn less than if there was 2% growth. Cumulatively a 0.06% reduction in growth would be $369,901bn. But a cost of 0.06% each year of global output, with 2% growth is a mere $8,087bn. Misstatement of the UNIPCC’s position understates the cumulative cost by 45.7 times.

Similarly, with 2.94% growth global output in 2090 will be $678,356bn, about $30,716bn less than if there was 3% growth. Cumulatively a 0.06% reduction in growth would be $644,144bn. But a cost of 0.06% each year of global output, with 3% growth is a mere $13,107bn. Misstatement of the UNIPCC’s position understates the cumulative cost by 49.1 times.

The BBC or the UNIPCC needs to issue a correction. The UNIPCC have at last recognized that policy will effect economic growth. It is way too low, particularly for the high-policy countries who are put at an economic disadvantage relative to those countries without policies. Now they need to also look at the additional estimated costs of low carbon energy, along with the hidden costs of regulation and failed policies.

Thanks to Joanne Nova for highlighting the quote.

Kevin Marshall

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