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Tuesday, February 06, 2007

Martin Wolf: Despite What Some Economists Say, Act Now on Global Warming

Martin Wolf says it's time to stop listening to economists and act on global warming:

In spite of sceptics, it is worth reducing climate risk, by Martin Wolf, Commentary, Financial Times: ...[A] new consensus on climate change has emerged: it is happening; it is important; and something needs to be done. ... Yet there is one group among whom dissent reigns: economists.

It was to them, above all, that Sir Nicholas Stern’s review on the Economics of Climate Change was addressed. It has failed to persuade. ... Economists are trained to address the costs and benefits of alternative policies rigorously. Scientists are not.

What then do economists object to in the arguments for early and forcible action...? In essence, they make three arguments: first, the Stern review has exaggerated the economic costs of climate change; second, it has underestimated the costs of mitigating emissions; and, third, it has employed the wrong discount rate...

My answer to these important points is that the problem of climate change should not be viewed as just another investment decision. It is a question of insurance against an uncertain, but possibly world-transforming outcome. ...

These economists are performing a valuable service by forcing policymakers to understand the nature of the decision they confront. My conclusion, however, is that it still makes sense to try to reduce the risks of extreme outcomes. If it were possible to do so at a price of just 1 per cent of GDP, we should pay willingly. .... Losing much more than that would begin to raise doubts. ...

While there are still sceptics on the science, the tide has moved decisively against them. But the question of how much to pay to mitigate emissions remains open. So does how to design efficient policies. Economists are right to argue that eliminating the risk of climate change cannot be the overriding objective of policy... But it is perfectly sensible to pay a significant amount to lower the risks. That was my view on reading the review. It remains my view today.

Not all economists think we should wait. On another question - who caused global warming? - China says we did, so we're the ones who need to pay the costs of cleaning things up:

China blames the west for global warming, by Mure Dickie, Financial Times (free): Rich industrialised nations must take the lead in cutting greenhouse gases since they bear the “unshirkable responsibility” for causing global warming, a Chinese official said on Tuesday.

The comments by a foreign ministry spokeswoman underscore China’s determination not to allow international action on climate change to undermine its economic development.

Rapid economic growth, a huge population and inefficient industry have made China the world’s second largest carbon emitter after the US – new data show that power generating capacity in the country in 2006 expanded by an amount equal to the entire capacity of the UK and Thailand combined. But the country’s per capita emissions have remained far below the global average.

“It must be pointed out that climate change has been caused by the long-term historic emissions of developed countries and their high per-capita emissions,” Reuters... quoted Jiang Yu, a foreign ministry spokeswoman... “Developed countries bear an unshirkable responsibility,” Ms Jiang said. ...

Beijing’s top weather bureau official said ... China was serious about tackling climate change but needs time to introduce the advanced environmental technology available to developed countries. ... There have been recent signs that Beijing is preparing to take a more activist approach..., following a official government enquiry that concluded warming could intensify China’s water shortages and undermine agriculture. ...

However, the comments by Ms Jiang and Mr Qin offer no encouragement for international critics who feel that China should impose limits on its greenhouse gas emissions. ... Mr Qin made clear that other countries should not expect too much of China...

Update: Robert Samuelson says we need to act, but we can't and won't:

Global Warming and Hot Air, by Robert J. Samuelson, Washington Post: You could be excused for thinking that we'll soon do something serious about global warming. Last Friday, the Intergovernmental Panel on Climate Change (IPCC) -- an international group of scientists -- concluded that, to a 90 percent probability, human activity is warming the Earth. Earlier, Democratic congressional leaders made global warming legislation a top priority; and 10 big U.S. companies ... endorsed federal regulation. Strong action seems at hand.

Don't be fooled. The dirty secret about global warming is this: We have no solution. About 80 percent of the world's energy comes from fossil fuels (coal, oil, natural gas), the main sources of man-made greenhouse gases. Energy use sustains economic growth, which -- in all modern societies -- buttresses political and social stability. Until we can replace fossil fuels or find practical ways to capture their emissions, governments will not sanction the deep energy cuts that would truly affect global warming.

Considering this reality, you should treat the pious exhortations to "do something" with skepticism, disbelief or contempt. These pronouncements are (take your pick) naive, self-interested, misinformed, stupid or dishonest....

Poor countries won't sacrifice economic growth -- lowering poverty, fostering political stability -- to placate the rich world's global warming fears. Why should they? On a per-person basis, their carbon dioxide emissions are only about one-fifth the level of rich countries. ...

I do not say we should do nothing, but we should not delude ourselves. ...

What we really need is a more urgent program of research and development, focusing on nuclear power, electric batteries, alternative fuels and the capture of carbon dioxide. Naturally, there's no guarantee that socially acceptable and cost-competitive technologies will result. But without them, global warming is more or less on automatic pilot. Only new technologies would enable countries -- rich and poor -- to reconcile the immediate imperative of economic growth with the potential hazards of climate change.

Meanwhile, we could temper our energy appetite. I've argued before for a high oil tax... The main aim would be to limit insecure oil imports, but it would also check CO2emissions. ...

It's a debate we ought to have -- but probably won't. Any realistic response would be costly, uncertain and no doubt unpopular. That's one truth too inconvenient for almost anyone to admit.

    Posted by on Tuesday, February 6, 2007 at 02:46 PM in Economics, Environment | Permalink  TrackBack (0)  Comments (203)

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