European maneuvering on climate change

Source:  The Scientific Alliance

What a difference a day makes: on Wednesday this week, Climate Action Commissioner Connie Hedegaard launched a paper arguing for an increase of the EU’s emissions reduction target from 20% to 30% (on 1990 levels) by 2020. But the next day she had stepped back from supporting a unilateral move, faced with opposition from the French and German governments.

The bloc had previously agreed to make the 20% cuts unilaterally, but had promised to opt for the higher figure if similar commitments were made by other countries. None had been forthcoming and, after the Copenhagen debacle, nothing is likely to change in the short term (Hedegaard, a Danish politician, oversaw last December’s climate change talks). Nevertheless, the new Commission paper released on 26th May – proposing a feasibility study on introducing the higher target – suggested that the EU should now go it alone.

The reasoning was that meeting the 20% target has now been estimated by the Commission to cost 48bn euros per year until 2020, rather than 70bn euros originally agreed in 2008. Now, for 81bn euros annually, ‘only’ 11bn euros more than the original proposal, it is suggested that a 30% reduction could be achieved. To look at it another way, the original proposal was to spend 700bn euros over ten years to achieve emissions reductions.

Now, as member states are slowly emerging from a deep recession and getting to grips with unprecedented levels of government debt, there is a suggestion that the agreed policy could be achieved for 220bn euros less over the decade, and the saving could be banked. It is hardly surprising that the alternative of increasing the spend to 810bn euros has been greeted less than enthusiastically by countries looking to make deep and unpopular cuts in public expenditure.

The reason for the reduced estimate is the economic downturn. This illustrates the clear link between energy use and economic activity; although carbon intensity tends to reduce as economies grow, industry uses energy, and in a recession energy needs go down. The assumption by Commission officials seems to be that the drop in emissions since the financial crisis first began to bite is somehow a permanent one. They may have estimated the direct cost, but have failed to factor in that the real cast was the enormous loss of several percentage points fall in GDP.

There is a clear message here: the easiest way to reduce carbon dioxide emissions is to shrink the economy. The question is, would policies designed to engineer similar falls in emissions balance the equation in the same way; would severe emissions cuts cause a significant loss of growth? On the face of it, the answer must be yes, because the technologies needed to reduce emissions require subsidy. It then becomes a question of how much loss of growth is acceptable. Many people would probably go along with 0.1 or 0.2% but taking, say, 1% off annual growth would be difficult to justify without some clear evidence of effectiveness. And this is the sort of cost which Stern suggests is needed, whereas many economists think this is a significant underestimate.

In this context, the Hartwell paper, mentioned in a previous newsletter, is valuable because it looks at the issue from a different philosophical stance. Put people first, said the authors; make societies resilient and invest heavily in the development of low-carbon energy technology to get it to the stage where it is economically viable, and the sorts of emissions cuts currently being mandated become the desirable (at least to policymakers) side effects of a technology switch which simply makes sense in all respects.

Meanwhile, there are signs that other environmental issues – biodiversity in particular – are getting higher priority and may even topple climate change from its unchallenged position among environmentalists as the greatest threat to our species and the planet. 2010 has been designated the International Year of Biodiversity by the UN and one important event will be the launch this summer of a study somewhat prosaically entitled the Economics of Ecosystems and Biodiversity (TEEB). Three years ago the economist and banker Pavan Sukhdev was commissioned to produce what is being billed as the biodiversity equivalent of the Stern report on climate change.

According to a report in the Guardian, “Sukhdev is a senior banker at Deutsche Bank, adviser to the UN Environment Programme. He also owns a rainforest restoration and eco-tourism project in Australia and an organic farm in south India.” So, unlike Lord Stern, Sukhdev comes to the issue as someone with plenty of experience. Reports suggest that his report will make a strong case for investment to conserve ecosystems.

The key argument will be that the benefit-cost ratio is high; at 10:1 or more, significantly more so than action on climate change as recommended by Stern. Environmental economics sets out to put a value on things many of which, by all normal standards, may be priceless, in the strict sense of the word. On one hand, estimating the money saved by reducing the incidence of storm damage caused by clearance of coastal mangroves (for example) may be calculated quite straightforwardly, but how do you account for loss of species or landscapes?

The usual answer is to survey people for their willingness to pay to keep these natural assets. This may be the best available approach, but in the eyes of many cannot produce figures which are comparable to an analysis of more concrete projects. Essentially, the exercise tries to put a price society is prepared to pay to maintain certain landscapes or ecological niches; if the cost of achieving this is significantly lower, then it is deemed to be economically justified.

Whatever the pros and cons of the methodology, it is certain that prosperous societies do value their environment and are willing to pay to conserve it. But the big issue which seems to be brewing is whether they are more willing to spend large sums on conserving biodiversity than on curbing carbon dioxide emissions. Time will tell.

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