Stern medicine

The Stern Report (“The Economics of Climate Change), alluded to in an earlier post, was officially published last week. Commissioned by the British Government, the report is a comprehensive overview of the economics of climate change, and manages to be both optimistic (there’s still time) and cautionary (but if we wait too long…).

This report is a thorough, painstaking and ultimately courageous step forward. The authors recognized they would have to go way out on limb after limb with their assumptions and projections, but rather than take the safe course, they went out onto every limb, taking care to clearly document their assumptions and their methods of projection. Creating economic projections for a single country a year into the future can be a pretty daunting task – this group tackled the entire global economy and went out a hundred years.

But they did it right. Here are the highlights:

Cost-benefit analysis
The report starts with a cost-benefit analysis. On the cost side, looking at a relatively narrow range of the possible economic impacts (based on the 2001 IPCC report), the price tag for global warming is estimated at 5% of global GDP. Per year. If you add in more recent evidence and take a broader view, the costs could rise to 20% of global GDP per year.

On the other hand, the costs to reduce greenhouse gasses are estimated in the 1% of global GDP range. “People would pay a little more for carbon-intensive goods

Is this a no-brainer, or what?

Looking at it another way, each metric ton of CO2 emitted today is causing about $85 worth of damage. Data from the carbon-trading markets indicate that the cost to eliminate that metric ton of CO2 is about $25. “In other words,” says Her Majesty’s Treasury, “we’d be better off…in the order of $2.5 trillion a year.” Throw in the creation of new markets for carbon reduction technologies, and you could add another $500 billion a year of benefits.

Pretty much a no-brainer. Or as we say in Minnesota: Ufda!

What to do?
Well, act now rather than later, to be sure. But the report goes on to list four key elements to acting now successfully:

1. International carbon pricing: The report calls the current global warming problem one of the biggest market failures of all time, and the reason is simple – the true costs of carbon usage are not accounted for by the market. To have the market work for us instead of against us, we need to starting adding in this cost – through taxation, carbon emissions trading and/or regulation.


2. Technology policy: In the long term, developing the technologies we need to drastically reduce our carbon usage is properly the role of private industry. Trouble is, we may not have a “long term” to work with, so in the short term, governments can and should provide the necessary incentives to accelerate the process.


3. Removing barriers to change: All systems resist change, and large companies and institutions can be the worst offenders. Government can help overcome this inertia through a combination of providing good information about the problems and “best practice” solution, by setting standards for new infrastructure so that our current carbon-usages doesn’t become ingrained, by tax and other policies designed to stimulate movement toward a lower carbon, more efficient economy.


4. Adaptation: No matter what, the report says, we will be facing significant consequences from the global warming we’ve already created. The CO2 we put in the air today lasts for a hundred years. And the consequences will fall most heavily on the countries least able to handle them. Governments can assist these countries through provision of good information, and planning and financial assistance.

Sun may give us a breather - let's not blow it.

In an interesting article in New Scientist magazine (16 September 2006), Stuart Clark looks at evidence that the sunspot activity may strongly influence the Earth’s warming and cooling cycles. When sunspot activity is high, global temperatures go up. When sunspot activity is low, little ice ages occur.

In fact, the first evidence of the role of sunspots came as researchers noticed that periods of extremely low sunspot activity corresponded to two recent mini Ice Ages: the Little Ice Age of the late 1600s – when the Thames regularly froze over, and you could walk from Manhattan to Staten Island during the winter - and a similar period from the mid 14th to mid 15th centuries.

Turns out there is a boom-bust sunspot cycle with a duration of about 200 years or so where periods of high sunspot activity are followed by a crash. We’ve been in a high-activity period for a while now, but activity levels are the lowest they’ve been in 50 years. We’re about due for a crash.

Don’t pull out the extra winter coats just yet, though. Recent sunspot activity and global temperatures were pretty well correlated until 1970 or so, an indicator that human-generated warming has overwhelmed the sunspot cycle’s influence. Best guess: a sunspot activity crash might cool off the planet by about 0.2 degrees Centigrade. And these sunspot lulls don’t last that long – in 50 to 100 years, the sunspots will be back as strong as ever.

At best, we might get a little breathing room, a little extra time for the politicians to quit being political and start being leaders. A little extra time to overcome the economic inertia and get serious about reducing greenhouse gas emissions.

At worst, a “natural cycle” slowdown in global warming will give the naysayers just the ammunition they need to stonewall our efforts for another 50 years – so that when the sun rejoins the global heating party we’re even worse off than we are today.

Living beyond our means

This year, our planet began living beyond its means on October 9th. This according to calculations by the Global Footprint Network. They have designated October 9th as this year’s “World Overshoot Day” – the day we humans have used up all the resources that the planet can naturally replace in a year.

The idea behind their calculation is this: the planet can re-grow a certain number of trees each year. If in a given year we cut down more than that number, we start to borrow from the next year’s tree crop. The same principle applies to pollution – the planet can absorb a certain amount of carbon dioxide in a year. Once we exceed that amount, we’re basically passing along the absorption job to next year. If you take all these factors and add them up, you get our ecological footprint. October 9th is the day our collective footprint exceeded the capacity of the planet to sustain it.

But we can’t just stop using resources, so we’ll basically have to “borrow” about another 30% of the planet’s annual resource budget just to see us through the end of the year. It’s exactly like a family who spends all income by October 9th, and has to borrow a third of a year’s pay just to get through the year.

Sure, a family can get into this kind of jam for a year or two and survive, but this kind of deficit borrowing can’t work for very long. It doesn’t work on a planetary scale either. Sooner or later we have to pay the piper.

Unfortunately, we humans have been running an ecological deficit for some time now. The Global Footprint Network’s data goes back to 1987 when the World Overshoot Day was December 19th. That means in 1987 we only had to borrow about 3%. Nearly 20 years later, we not only haven’t solved the deficit problem, but we’re now borrowing 30%. And the really scary part is how quickly we went from 3% to 30%.

And we are starting to pay the piper –rising sea levels, more catastrophic weather, spreading disease…you know, the price for global warming.

There's gold in them thar global warming

I suppose it would be nice if everyone would take up the challenge of combatting global warming just because it's obviously the right thing to do, but I'll be happy if they get into it just for the money.

A study by the Global Development and Environment Institute of Tufts University said that failing to act now to reduce global warming could end up costing trillions of dollars per year by the end of the century. By contrast, spending a tenth of that today to limit the future rise in global temperatures to less two degrees could cut that in half. The good news – there’s still time to act and make a meaningful difference. The bad news: due to our inaction to date, we may end up spending 3-4% of total world economic output on the consequences.

Still, studies like this may help galvanize the movers and shakers of the world, who tend to see things more clearly when there’s a price tag attached.

Speaking of seeing clearly, environmental voices have been saying for a decade that fighting global warming can be an economic boon for any country that engages in the battle, creating new technologies, new jobs, and new wealth. The day before the study was published, Shell Oil came out with a statement that climate change represented a billions-of-dollars opportunity for businesses due to the demand for products and services aimed at reducing carbon emissions. And this from their web site: “Shell is a global group of oil, gas and petrochemical companies with a broad portfolio of hydrogen, biofuels, wind and solar power interests. Our aim is to meet the energy needs of society, in ways that are economically, socially and environmentally sustainable.”

Hopefully, they’ll put their money where their mouth is.

Law: the Stick

In Great Britain, the opposition party and environmental organizations have long called for a bill setting regular carbon emissions reduction targets. No surprise there. The surprise is that such a bill may be introduced by the Government.

Why would a conservative government introduce such a bill? Add up the overwhelming scientific evidence, growing awareness of the economic costs of inaction (see previous post), and, perhaps most importantly, a growing public consensus that our planet is really in grave danger, and the arithmetic becomes pretty compelling to almost any politician.

I say “almost any politician” of course because I live in the United States.

The advantages of passing laws to enforce socially desirable ends has a long history of success in general, and in solving environmental problems in particular. The problem with voluntary action in a free market economy is that no one wants (or can afford to) be first. No automaker wants to be the first to make slightly more expensive cars with better gas mileage – they fear they’ll go out of business if consumers choose their competitors’ cheaper equivalents. A law raising fuel efficiency standards, on the other hand, puts everyone on a level playing field AND gets automakers into competition with each other to invent the most efficient means to the end. Everyone wins. Using the law as the stick got us out of our smog problem and is well on its way to solving the ozone problem.

We can go a long way toward limiting global warming by just passing a law limiting carbon emissions by the power and transportation industries, and then sitting back and watching the free market economy go to work on the problem.