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Economic stagnation should not be an excuse for climate inaction

  • 01 Jul 2013, 11:05
  • Mat Hope

Sourced under Creative Commons

Should policymakers be choosing between climate change action and economic recovery?

Governments have increasingly been using the economic fallout as an excuse for climate inaction. International negotiations are  grinding along with no tangible progress and domestic measures are being  deferred or abandoned.

But a new research note I have co-authored with Chris Hope of Cambridge University, published in Nature Climate Change today, suggests economic stagnation is no excuse for climate inaction. Obvious disclaimer: I am a co-author of this paper!

Our research shows emitting an extra tonne of carbon dioxide today is actually more costly when there is low economic growth than when economies grow steadily.

Economic excuses

President Obama recognised the difficulty of getting governments to act on climate change in the midst of a global recession back in 2009 when he told a United Nations meeting that leaders would be seeking:

"... sweeping but necessary change in the midst of a global recession, where every nation's most immediate priority is reviving their economy and putting their people back to work".

More recently, the UK Chancellor George Osborne demonstrated the tension between climate policy and economic recovery when he told the Conservative party annual conference that:

"... [w]e're not going to save the planet by putting our country out of business".

Fast forward another two years and the International Energy Agency's (IEA) executive director, Maria van der Hoeven, last week admitted that:

"... amid concerns over global economic pressures, climate change has quite frankly slipped to the back burner of policy priorities".

She was speaking at the launch of the IEA's latest report which prepares for governments failing to act any time soon to meet the internationally agreed target of limiting warming to two degrees above preindustrial levels.

Our research suggests this neglect is unwise, however.

Emissions cause more damage in a low growth world

We find the damage caused by emitting an additional tonne of carbon dioxide today is $107, assuming economic growth of around two per cent per year. The cost if economies continue to stagnate? $138 per tonne.  

Scientists predict destructive consequences of climate change like more frequent wildfires, extended periods of drought and a higher risk of strong storms could incur heavy costs in the future.

Integrated assessment models estimate changes in temperature and economic conditions based on emissions predictions. The changes are then compared to the predicted damages to calculate the cost emitting one additional tonne of carbon dioxide today - known as the social cost of carbon dioxide.

We used the PAGE09 model to calculate the social cost of carbon dioxide for a range of economic growth scenarios. Our results show the mean value is significantly higher if there is low economic growth.

The main reason for the higher cost in a low growth world is that people have less money when the worst impacts of climate change hit.

The middle column of the table below shows the global average GDP per person if rich economies don't grow is only $27,000 in 2100, that's about $10,000 less than it currently is in the UK. In contrast, average Gross Domestic Product (GDP) per person will be around $164,000 if economies grow as in the Intergovernmental Panel on Climate Change's fourth assessment report's central scenario, as shown in the first column.

SCC02 tbale

This suggest governments should feel more compelled - not less - to implement climate policies if economies are going to continue to stagnate.

One simple change would be to raise the carbon price - either through a tax or adjusting current emissions trading schemes (ETS).  

Our results suggest the EU should be charging about $130 more to emit a tonne of carbon dioxide than the current ETS price if economies are expected to continue to grow slowly. The price is still about $110 per tonne too low even when the additional charge of the UK carbon price floor is included.

Our calculations show just how unfit for purpose the EU ETS currently is. Even If there is better economic growth - as Europe's governments hope there will be - the current price is still about $100 too low.

Governments are currently significantly undervaluing the cost of emitting a tonne of carbon dioxide. This climate inaction is not justified, particularly when economies are stagnating.

Getting much richer isn't the answer

If the main problem is that people are much poorer in the future it might seem like governments should actually put all their efforts into stimulating economic growth. Our results show this isn't the case, however.

The social cost of carbon dioxide starts to rise again with rapid economic growth. The curve on the graph below shows the social cost of carbon dioxide is actually lowest with medium levels of economic growth in rich countries - between about two and four per cent per year.

 SCCO2 graph

If industrialised economies grow at a rate of five per cent per year - an extremely optimistic scenario - average GDP per person is over $2 million by 2100. Which sounds lovely.

But the social cost of carbon dioxide is also higher because the chance of the worst effects of climate change occuring - known as discontinuity - increases as rapid economic growth is accompanied by far greater emissions and and the associated temperature change. Not so nice.

Excuses

Governments should resist the urge to use the economy as an excuse for failing to implement what they see as economically stifling climate policies. Our research suggests they should be in fact be charging more to emit carbon dioxide, not less.

So next time Osborne, Obama or anyone else says a poorly economy means we shouldn't be taking steps to address climate change, raise a sceptical eyebrow and wave our work at the TV screen.

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