Gillard, Abbott & the true cost of carbon

August 12, 2011

When the right-wing press isn’t hacking the voicemail of murdered teenagers, much of its energy goes to denouncing “green extremists”. You know, the ones who’d destroy our economy just to claw back a few tonnes of greenhouse emissions.

So what would Rupert Murdoch, Andrew Bolt and their whole tribe prefer be done, in practice and in the near term, to stop global warming? Let’s be honest — nothing.

Cutting emissions, they implicitly argue, will inevitably cost more than if society lets carbon polluters get on with what they do best.

What, then, would this latter cost be, if humanity were to let fossil-fuel corporations carry on polluting as their bottom lines dictate?

The answer, according to an estimate by the US government’s Interagency Working Group on the Social Cost of Carbon was US$21 a tonne, for CO2 emitted in 2010. I can’t recall the Australian or the Herald Sun citing this figure, but I’m sure they would have if they’d spotted it.

US$21 a tonne for all the damage carbon emissions would do is less than Julia Gillard’s tax of A$23. See? We’d be better off doing nothing!

But as it turns out, neither the US government’s working group nor its “Social Cost of Carbon” figure deserves to be believed.

There is nothing scientific about the working group. It was appointed from among officials of a long list of US government agencies and departments —+ people who were variously bureaucrats and economists, often both.

Economics is far from being an exact field of knowledge. And unlike climate scientists, who breathe the clear air of atmospheric physics, economists tend to be more at home amid the cigar-smoke of corporate boardrooms.

Even when economists work for governments, their mindsets tend to be much the same.

To be fair, this is not true of all economists. The working group and the figure of US$21 — with all its implications of a do-nothing approach to emissions abatement — have been challenged by the group Economics for Equity and Environment (E3).

In July, E3 published a new report by two economists from the US Center of the Stockholm Environment Institute, at Tufts University in Boston.

Titled Climate Risks and Carbon Prices: Revising the Social Cost of Carbon, the report by Frank Ackerman and Elizabeth Stanton reworks the calculations of the government’s economists, substituting scientific findings for politically-driven guesswork.

How much do Ackerman and Stanton conclude greenhouse emissions will really cost humanity? Repeating the working group’s general methodology, but inserting several more soundly-based values, they arrive at figures as high as US$893 a tonne for CO2 emitted last year.

For emissions in 2050, when accumulated CO2 in the atmosphere will be greater, the cost is put as high as US$1500 a tonne.

Or perhaps, the authors imply ominously, the whole attempt to calculate economic losses when warming exceeds a few degrees might be no more than a thought-experiment. The cost, according to one economist they cite, could be infinite.

And indeed, if climate change causes civilisation collapse and a huge human die-off, the cost of greenhouse pollution will, for all practical purposes, have become endless. How do you calculate economic losses when there’s no longer an economy?

Polluters off the hook

So how did the US government come to endorse a figure for economic damage from carbon emissions as small as one-fortieth of the results that independent researchers found soon after?

Ackerman and Stanton leave no real doubt: the working group’s choice of models and inputs was aimed at reaching a result that would let greenhouse polluters off the hook.

Some of the omissions and assumptions which the group allowed to pass would be comical — were it not for the real-world dangers.

From a wide range of computer models of the economic impacts of climate change, the working group chose to use just three, known from their initials as FUND, DICE and PAGE.

In a 2010 paper, Ackerman and Stanton describe how the FUND model, through a series of mistakes and miscalculations, concludes that the early stages of global warming will cause a huge cuts in human death rates.

The allegedly saved lives are then valued at an arbitrary figure of 200 times the per capita incomes of the people involved, creating “a huge spurious benefit of moderate warming”.

DICE recommends a very slow “climate policy ramp” on the assumption that the “optimal” global temperature is far above the current average. According to DICE, the losses from 2.5°C of global warming would be just 1.8% of Gross World Product.

This figure would not wash with renowned climate scientist James Hansen, who recently said government’s plans to limit warming to 2°C as “not sufficient ... a prescription for disaster”.

PAGE makes the improbable assumption that developed countries will adapt to climate change at near-zero cost. Runs of this model nevertheless produce a wide range of estimates — the higher of which the working group is reported to have simply ignored.

All three models “discount” the price of climate change over time in such a way as to load the cost heavily onto future generations.

Within each model, the quantities assumed for human-caused greenhouse gas emissions during the first half of the century are close to the United Nations’ improbably mild B1 and B2 scenarios.

These are far below the worst-case A1FI “fossil intensive” scenario that emissions rates have actually followed so far this century.

The working group’s models also ignore the danger of climate “tipping points” being crossed, and of natural factors then driving further warming regardless of human actions.

Run through a computer by the working group, FUND yielded a total social cost a tonne for carbon dioxide emitted in 2010 of just US$6. DICE put the damage at US$28, and PAGE at $30. Averaging the three, the group arrived at its figure of US$21.

Shoddy analyses

Ackerman told the magazine Miller-McCune in February that the working group’s models draw on “dated economics based on shoddy analyses that ridiculously lowball the damages of climate change”.

No one in the US government last year seemed to want to own up to what the working group was doing. The US$21 figure was published in an appendix tacked onto an obscure document.

“There’s no office that claims credit,” Ackerman told Miller-McCune, “no website that explains anything about it. This crucial number, which turns out to be the fulcrum for climate policy, was decided in secret by a task force with no names attached to it.”

Nevertheless, the magazine notes the US$21 value “has already been applied to standards for fuel efficiency and tailpipe emissions. It will be figured into any carbon emission strategy, whether cap and trade, cap and dividend or carbon tax.”

For their analysis, Ackerman and Stanton used the DICE model, the best-known of those employed by the working group and the one yielding the result closest to the figure of US$21. But they inserted more scientifically credible — or in the case of the discount rate, more ethically defensible — values for four key uncertainties.

This recalculation still includes many of DICE’s too-conservative assumptions. Still, the new model run yielded a set of results for emissions in 2010 that in most cases are more than four times the working group’s figure. The most plausible results are 16-23 times higher.

For the cost of emissions in 2050, Ackerman and Stanton obtain results that are almost all higher than $200, with the more probable ones higher than $500.

How do these new figures compare to the cost of actually solving humanity’s climate dilemma?

Ackerman and Stanton said: “A review of scenarios that reach zero or negative net global emissions within this century finds that they often imply carbon prices, and marginal abatement costs, of $200 to $500 per ton of CO2 by 2050.”

That’s in the same range as many of the figures that Ackerman and Stanton reached for the economic damage from carbon emissions in coming decades using the “lowball” DICE model.

Crucially, it’s much less than their higher damage figures, which are more likely to be correct.

The two economists make the obvious point: “If the damages per ton of carbon dioxide are that high, then almost anything that reduces emissions is worth doing.”

Do-nothing preference

Australian PM Julia Gillard’s proposed carbon price of $23 a tonne does not stand up well here. And you can almost hear Tony Abbott howling: to spend even a fraction of $200-500 a tonne on combatting climate change would destroy the economy.

Actually, no. Human societies, even in 20th century capitalism, have repeatedly borne much greater relative costs, and survived.

But Abbott’s do-nothing preference would in time destroy the economy very effectively indeed. Human civilisation requires a liveable environment, and climate change is quite able to put an end to that.

The price of putting a timely end to greenhouse emissions is not small — recent analyses that take proper regard of climate science put the cost at around 3% of global gross domestic product.

In Australian terms, that’s close to twice what this country now spends on its armed forces.

But leading Western powers spent far more than 3% of GDP on their military machines for whole decades during the Cold War, and their economies were not destroyed. On the contrary, much of that period was highly prosperous, with near-full employment and rising wages.

Along with the findings of Ackerman and Stanton, these are the kind of facts that need to be in the forefront of an honest public debate on climate change and the economy — a debate that is not hidden away in government closets, and in which fossil-fuel interests do not dictate the outcomes.

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