Evidence to the House of Lords Select Committee on Economic Affairs on Aspects of the Economics of Climate Change

Dependence of damage estimates upon assumptions of economic growth and technological development Greater economic growth could, by increasing emissions, lead to greater damages from climate change. On the other hand, by increasing wealth and advancing technological development and human capital, economic growth would also increase a society's adaptive capacity and reduce those damages. Although analyses of the impacts (or damages) of climate change generally incorporate economic growth into the emissions and climate change scenarios that they use as inputs, these analyses do not adequately account for the increase in adaptive capacity resulting from that very growth. Because of this inconsistency, these analyses generally tend to overstate impacts. For instance, the average GDP per capita for developing countries in 2100 is projected to be $11,000 (in 1990 US$, at market exchange rates) under A2, the slowest economic growth scenario, and $66,500 under A1, the scenario with both the greatest economic growth and largest climate change. By comparison, in 1990 the GDP per capita for Greece, for example, was $8,300 while Switzerland, the country with the highest income level at that time, had a GDP per capita of $34,000. Based on historical experience, one should expect that at the high levels of GDP per capita projected by the IPCC scenarios in 2100, wealth-driven increases in adaptive capacity alone should virtually eliminate damages from many climate-sensitive hazards, e.g., malaria and hunger, whether or not these damages are caused by climate change. Current damage estimates are inflated further because they usually do not adequately account for secular (time-dependent) improvements in technology that, if history is any guide, ought to occur in the future unrelated to economic development. A compelling argument for reducing greenhouse gases is that it would help developing countries cope with climate change. It is asserted that they need this help because their adaptive capacity is weak. Although often true today, this assertion becomes increasingly invalid in the future if developing countries become wealthier and more technologically advanced, per the IPCC's scenarios. Damage assessments frequently overlook this. Are scenario storylines internally consistent in light of historical experience? Regardless of whether the economic growth assumptions used in the IPCC scenarios are justified, their specifications regarding the relationship between wealth and technological ability are, in general, inconsistent with the lessons of economic history. They assume that the less wealthy societies depicted by the B1 and B2 scenarios would have greater environmental protection and employ cleaner and more efficient technologies than the wealthier society characterized by the A1F1 scenario. This contradicts general experience in the real world, where richer countries usually have cleaner technologies. Under the IPCC scenarios, the richer A1 world has the same population as the poorer B1 world, but in fact total fertility rates — a key determinant of population growth rates — are, by and large, lower for richer nations and, over time, have dropped for any given level of GDP per capita (Goklany 2001a). Merits of reallocating expenditures from mitigation to international development Halting climate change at its 1990 level would annually cost substantially more than the $165 billion estimated for the minimally-effective Kyoto Protocol. According to DEFRA-sponsored studies, in 2085, which is at the limit of the foreseeable future, such a halt would reduce the total global population at risk (PAR) due to both climate change and non-climate-change-related causes by 3 percent for malaria, 21 percent for hunger, and 86 percent for coastal flooding, although the total PAR for water shortage might well increase. The benefits associated with halting climate change — and more — can be obtained more economically through “focused adaptation”, i.e., activities focused on reducing vulnerabilities to the above noted climate-sensitive hazards, or through broadly advancing sustainable development in developing countries by meeting the Millennium Development Goals (MDGs) by 2015. In fact, such efforts, which together could annually cost donor countries $150 billion according to UN Millennium Project and World Health Organization studies, should reduce global malaria, hunger, poverty, and lack of access to safe water and sanitation by 50 percent (each); reduce child and maternal mortality by at least 66 percent; provide universal primary education; and reverse growth in AIDS/HIV, and other major diseases. These numbers also indicate that no matter how important climate change might be in this century, for the next several decades it would be far more beneficial for human well-being, especially in developing countries, to deal with non-climate change related factors. Not only would either focused adaptation or adherence to the MDGs provide greater benefits at lesser costs through the foreseeable future than would any emission reduction scheme, they would help solve today's urgent problems sooner and more certainly. Equally important, they would also increase the ability to deal with tomorrow's problems, whether they are caused by climate change or other factors. None of these claims can be reasonably made on behalf of any mitigation scheme today. Accordingly, over the next few decades the focus of climate policy should be to: (a) broadly advance sustainable development, particularly in developing countries since that would generally enhance their adaptive capacity to cope with the many urgent problems they currently face, including many that are climate-sensitive, (b) specifically reduce vulnerabilities to climate-sensitive problems that are urgent today and might be exacerbated by future climate change, and (c) implement “no-regret” emission reduction measures, while (d) concurrently striving to expand the universe of no-regret options through research and development to increase the variety and cost-effectiveness of available mitigation options. Ancillary benefits associated with greenhouse gas (GHG) reductions Some GHG emission control options might provide substantial co-benefits by concurrently reducing problems not directly caused by climate change (e.g., air pollution or lack of sustained economic growth, especially in developing countries). However, in both these instances, the same, or greater, level of co-benefits can be obtained more economically by directly attacking the specific (non-climate change related) problems rather than indirectly through greenhouse gas control. On the other hand, a direct assault on the numerous climate-sensitive hurdles to sustainable development (e.g., hunger, malaria, and many natural disasters) would, as indicated, provide greater benefits more cost-effectively than would efforts to mitigate climate change.