One reason Britain has gone so far down the green path is that politicians have not been honest about its economic implications. During the passage of the Climate Change Act in 2008, which commits Britain to cutting net carbon emissions by at least 80 per cent by 2050, the energy minister Phil Woolas rejected his own department’s estimate that the costs could exceed the benefits by £95?billion. The House of Commons never debated the costs and the Bill was passed, with only five MPs voting against.
An even more egregious example is provided by Ed Miliband, when he was climate change secretary. The Tory MP Peter Lilley had written to Mr Miliband to say that, based on his department’s own impact statement, the Climate Change Act would cost households an average of between £16,000 and £20,000. The future Labour leader replied that the statement showed that the benefits to British society of successful action on climate change would be far higher than the cost. Mr Miliband should have known this was untrue; if he didn’t, he had no business certifying that he’d read the impact statement, which he’d signed just six weeks earlier. The statement only estimated the benefits of slightly cooler temperatures for the world as a whole, not for the UK.
Whether there is climate change is a matter of climate science. That complex mix of physics, chemistry and any number of ologies.
What to do about it is an economic question to be solved using the methods of economics.
For once the ologists have pronounced (and, just for the sake of argument, let us agree that the IPCC is correct in every detail here, even down to the Himalayan glaciers) we then know that there will be costs associated with the continued use of fossil fuels, with land use change and so on. Excellent, we have more knowledge about our world.
But we also know, ineluctably, that doing something about such emissions, land use changes etc, has costs. To take but one, trivial, example. If we all move over to battery powered cars instead of ICE then there are costs involved with this. We\’ve got to invest to design the new batteries for example (and yes, investment is indeed a cost. We could have used the same money to cure cancer. Thus the cost of investing in the batteries is the not curing of cancer). Got to invest to build new charging stations, got to invest to produce more electricity to replace the petrol we\’ll not be using and so on.
And there are further costs: currently battery powered cars are a great deal less safe (for they must be made lighter, ex batteries, then ICE powered cars) so some more people will die in crashes. They are less convenient in some ways, this is indeed a cost to our convenience.
These are relatively trivial objections, this particular instance. But this logic applies to everything. Yes, there are costs to continued emissions: there are costs to limiting emissions.
Which is where the economics comes in. How much should we limit emissions therefore?
The general political (and, sadly, among a lot of the ologists as well, those expert in their own field but not in the one actually under discussion, what we do about what they\’ve found out) is that we should attempt to limit the temperature rise. This is, I\’m afraid, simply wrong.
We should be attempting to limit the cost of doing something. The limit being the cost of not doing something. Imagine, as an entirely made up number, that climate change will cause $1 trillion of damages. And by damages we mean reduction in the utility of people in the future (the only definition of \”damage\” that is usable here for it is the aggregate utility of humans that we are supposed to care about). Precisely because we care about said aggregate utility we don\’t want to then spend $2 trillion on averting those $1 trillion in damages. Because this clearly and obviously reduces aggreagate utility by $1 trillion. Nor do we want to spend nothing doing nothing: that also reduces aggregate utility by $1 trillion.
What we\’d actually like to do is spend $999,999,999.99 on reducing emissions to avoid that $1 trillion in damages from continued emissions. Sure, if we can do it for $0.01, for a cent, then that would be much better. But the absolute peak of our willingness to reduce emissions is when the cost of reducing emissions is equal to the damage that those emissions would cause. Spending more than that makes the future poorer. Which isn\’t our aim at all.
Thus it is not temperature itself which should be targetted. Nor the emissions themselves. It is the costs of doing something about those emissions. If it becomes cheaper to avoid emissions then we should do more of it. If it becomes more expensive we should do less. If the ologists tell us that the damages will be greater we should do more, if they tell us that the damages will be lower we should do less.
And here\’s what the real problem is in the whole debate. The actual economists all agree here. William Nordhaus, Richard Tol, yes, even Lord Stern, all agree in their published work that this is indeed the decision making method we should be using. Yes, I know that Tol in deeply unimpressed with Stern\’s working out of that the numbers are but that\’s a different matter. Yes, there are differences between Tol and Nordhaus on what the numbers are. But there is still that agreement on this basic logical premise. We should not spend more on trying to avert climate change than climate change will cost us.
And the problem is that absolutely none of the politicians or the environmentalists seem to agree. Or even grasp the point being made.
We desire to limit climate change in order to stop us causing the future to be poorer than it need be. It is simply entirely fucking insane to then cause the future to be poorer than it need be by overspending on climate change as a way of preventing the future from being poorer than it need be.
Yes, there are well known methods of implementing policies that achieve this desirable goal, of dealing with the problem identified. But before we go lauding the carbon tax everyone has to sign on to this basic point. The determinant of how much climate mitigation we do depends on the costs of mitigation as compared to the damage that non-mitigation will do. And until the decision makers realise this we\’re all screwed.