Examination of Witnesses (Questions 154-184)
PROFESSOR SIR
DAVID KING,
DR CAMERON
HEPBURN AND
DR MYLES
ALLEN
14 JULY 2009
Q154 Chairman: Good morning and a
very warm welcome to this session of the Committee's inquiry on
Carbon Budgets. Could I ask, by way of kicking things off, about
the Committee on Climate Change and their view that it is right
to use a 50% chance of exceeding a 2°C rise in average global
temperatures as the basis for their recommendations? Do you think
that is a sensible approach?
Professor Sir David King:
I think it is a very difficult question that you have started
us off with. If you lay it out in scientific terms you would want
to talk always in terms of a probability distribution function.
A function that peaks at 2° with as much of the curve above
as below would only be satisfactory if it were a rather narrow
distribution. The problem is that the best science available would
indicate that with a 50-50 chance of not exceeding 2°C you
still have a relative high chance—I would say perhaps 20%—of
exceeding 3.5°C. Exceeding 3.5°C would probably not
be a wise thing to chance. However, at this point in time, it
is probably as good as we can do. My colleague on my left, Myles
Allen, is one of those scientists who are producing these sorts
of figures so perhaps I could see if he would like to add to that.
Dr Allen: The crucial point is
that if you are going to start off aiming for 2° then you
are accepting the fact that you are going to have to modify what
you do as you go along if you are going to have any chance of
hitting it. Whatever policy we design now in the light of the
knowledge we have today, one thing I can tell you with certainty
is that it will not be correct because knowledge will evolve;
we do not know the right answers now. You are going to have to
design an adaptable policy and invest in technologies that will
allow you to adapt in the future if we discover that we are overshooting.
The other crucial point about this is that often people complain
if you say "learn as you go" because it is sometimes
interpreted as "let's do some more research, it is just an
academic looking for more money". That is not what I am saying
here. The only way of resolving some of the really fundamental
uncertainties in how the climate system responds to increasing
emissions is to reduce emissions. We have done one experiment
so far; the next big experiment we have to do in order to find
out how the climate system responds to changing levels of carbon
dioxide is to change in the other direction. It is only when we
have done that, some ten or 20 years later, after we have made
substantial cuts in emissions, will we know where we are going.
We just have to accept that. We cannot put off reducing emissions
because of the uncertainty because we will only resolve the uncertainty
by reducing emissions.
Q155 Chairman: Some people have suggested
that the Committee on Climate Change and indeed the government
have based their targets for reducing emissions and the carbon
budgets themselves with too much regard to what is feasible in
political terms rather than just focusing on the science.
Professor Sir David King: To a
certain extent I think that is what Dr Allen has just been saying.
If it were practical I am sure that the scientific advice would
be to stop emissions today. The best advice I could give while
I was in government was that we should reduce emissions as much
as is feasible.
Dr Allen: Stopping emissions today
would undoubtedly be painful and so inevitably the Committee on
Climate Change has an eye to two considerations here. I do not
think we should necessarily criticise them. They themselves acknowledged
that they were making compromises on the environmental objectives,
acknowledging the economic imperatives.
Professor Sir David King: Could
I just add that of course your remit is to look at the UK situation
but if the UK were to reduce its emissions overnight to zero and
the rest of the world did not, this would not do very much for
the problem. Part of this is what is also internationally negotiable.
Q156 Chairman: Those of us who have
taken an interest in this for some time, looking back over the
past 15 years the science has got consistently more robust throughout
that period and there is inevitably a tendency for the government
to be playing catch-up. They will be perhaps too optimistic in
what they are hoping for and therefore underestimated the scale
and the urgency of the challenge. Maybe sometimes the scientists
themselves have been quite conservative in their presentation
of what their conclusions are. Do you think we are in danger of
falling into that trap again with the present set of government
targets and budgets?
Professor Sir David King: My immediate
response to that is to refer to inertia. There is inertia in our
geological system which is roughly 20 to 30 years, in other words
the carbon dioxide or the greenhouse gases we have already put
in the atmosphere will lead to a further temperature rise over
the next 30 years whatever we do. The second inertia is the political
system. I think that possibly more serious than the inertia in
the UK is the inertia in the international global governance system.
Kyoto was a long time ago now and progress has not been tremendous.
Q157 Joan Walley: When you had your
position inside government, what advice did you give about overcoming
this inertia? Surely that degree of inertia is not acceptable.
Professor Sir David King: I do
not think that degree of inertia is acceptable and if we are going
to get this problem under control we all know that it would be
better to get it done quickly, rather than to leave it to future
generations when it is going to be a little bit too late. What
did I do? I think that I probably did more than anyone in any
other country did in that time scale. I certainly raised the issue
not only with the cabinet at the time but went on radio and television
and made my position very clear. I do think that having a public
voice on this made my actions speak louder within the cabinet.
It was also, I would have to say, very important when the opposition
took a strong position on this. Once both sides were almost competing
with each other to take a stronger line, I felt that action became
more certain.
Q158 Chairman: I am sure all that
is true and certainly your own substantial contribution is recognised
and respected. Even after all that, are we not in a position where
today it could not be said that we are adopting a precautionary
approach; there is still a considerable level of risk in the position
that the government has now taken.
Professor Sir David King: Yes.
My view is that on both sides of the House it may be easier to
make speeches about climate change than to take action because
action actually costs money. Whether the Treasury has taken this
fully on board is the question I would ask. Very often policies
would end up being massively softened. Take the stimulus funds
for example. I do believe that the use of the stimulus funds to
stimulate a move into a low-carbon economy was the intention when
it was set up. What is the current estimate on how much of it
would be used for stimulating the low-carbon economy as we emerge?
Eight% of the total. I think that is quite a low figure. In South
Korea, on the other hand, the figure is about 80% of the stimulus
fund and in China it is about 50%. I think something goes wrong
and I suppose I tend to point the finger at the Treasury.
Dr Hepburn: Obviously it is easier
to make pronouncements and far harder to commit to them. I think
a critical aspect of our climate change policy and the world's
climate change policy is the credibility of the long run commitments
that we make. You ask about allowing risk to remain in the system.
I certainly do not disagree; there is considerable risk in the
system. Equally the economics and the politics have to be considered
when we think about the credibility of the targets we are setting
ourselves and I do not think there is a great deal of point in
setting targets that we know almost for certain we are simply
going to be unable to achieve because of political realities and
economic costs. This is not a call for a weak approach to climate
change; it is not a call to say that it is all too hard and too
costly. However, it is a call to honestly face up to the costs,
face up to the political difficulties, design policy that is credible
in those contexts and which we can commit to and put the institutions
in place to enhance that credibility. I might add that the Committee
on Climate Change is welcome in this respect. Indeed, I called
for something similar in 2003 in a paper with colleagues at Oxford.
The institutional structure provides us with a greater credibility
about the budgets and the targets.
Q159 Chairman: Do you think that
the Committee's intended target, the more challenging one, is
realistic? Could that be achieved?
Dr Hepburn: With a global deal
on climate change, which is of course the condition that sits
behind the intended target, reductions of 42% by 2020 are still
incredibly challenging and they would be costly. However, I think
they are achievable and I do not think it is economically irrational
to seek to aim for that type of target.
Q160 Colin Challen: Sir David, you
made quite a high profile visit to the States a few years ago
to talk about climate change in a rather hostile environment.
Professor Sir David King: I do
remember that.
Q161 Colin Challen: One might say
that a ripple from that is the Waxman-Markey bill. Bearing in
mind the last question and answer about our higher intended targets
in a global deal, do you think that the Waxman-Markey bill provides
us with enough incentive to go to a higher target? To me it seems
lacking in ambition.
Professor Sir David King: What
I see in the Waxman-Markey bill was, at the outset, the intention
to produce something with real teeth, but as it progressed it
got softened down. My own feeling is that the inertia that we
were referring to earlier on within the political system is playing
through in the United States. Despite the very clear intention
of President Obama on this situation I do not think that that
clarity has got through to the political system as a whole and
I fear it will take four or five years before they have something
that really does deliver what is necessary. The Waxman-Markey
bill is, I believe, watered down, not to the point where it is
not worth having—it is certainly worth having—and
it is taking the United States quite a big step forward.
Dr Allen: On this point about
inertia, one key development in the science over the past few
years has been the recognition that essentially carbon dioxide
is forever. If you emit carbon dioxide into the atmosphere its
effects persist essentially indefinitely. To some extent we need
to start thinking about the cumulative impact of how carbon dioxide
emissions add up over all time, not just emissions in any given
year. That is what the science is pointing to; that is what the
climate system responds to. On the whole recognising this point
might actually help overcome a lot of the inertia in this, in
that once people recognise that if you release carbon today it
will not be available for you to emit in 20 years' time unless
you somehow manage to develop the technology to take it back out
of the atmosphere again, which nobody has at the moment. That
does profoundly change the way you see the nature of the problem.
One of the things I appreciated seeing in the UK Committee on
Climate Change report was an acknowledgement that we are working
within a cumulative budget for carbon dioxide and there is a limit
to the total amount of carbon dioxide over all time that we can
afford to dump into the atmosphere. The number they proposed essentially
is equivalent to around a trillion tons of carbon; we have emitted
about half a trillion so far so you could say we are about half
way there. I should say that it took us 250 years to burn that
first half trillion, with the present trajectory it will take
us less than 40 years to burn the second. You should not use this
as a reason for complacency but it is a very powerful way of framing
the problem, certainly when you are thinking about the long-lived
greenhouse gases.
Q162 Mr Caton: Climate modelling
means projecting what emissions are likely to be in the future.
These projections are based on economic models. Are the models
and the projections up to the job of predicting something in 2050?
Dr Allen: Which ones, the climate
models or the economic models?
Q163 Mr Caton: The approach but particularly
the climate models.
Dr Allen: I will speak to the
climate models. I think the crucial point here is that we are
no longer making a theoretical prediction based on physics alone.
We are in effect simply extrapolating an observed trend. I hate
to make my science sound so trivial. Of course we extrapolate
it very cleverly but we are not working from theory alone; we
are seeing the changes which were predicted and we are seeing
more or less exactly the changes that were predicted back in 1990
by the IPCC. If you look at the IPCC's predictions from 1990 and
what has happened since then they more or less hit it on the nail.
As far as the global temperature projections in response to a
given increase in carbon dioxide concentrations or greenhouse
gas concentrations are concerned, there is an uncertainty in those
but they are pretty robust. As far as how the carbon cycle responds
to emissions, that is one step back. We are pretty confident about
how the climate system responds on a 50 year timescale to a given
concentration path. How emissions translate into a concentration
path—in other words, how much extra carbon might come out
of the biosphere as a result of warming temperatures, for example—that
is much less certain. There are models which predict a massive
die back of the Amazon in the mid-21st century which would release
a huge amount of carbon into the atmosphere, irrespective of what
human emissions are doing at that time, but other models do not
do this. That is a much less certain part of the science. That
is going back from concentrations to emissions. How policies will
actually translate into emissions is the point where I hand over
to Cameron.
Dr Hepburn: The way to understand
economic models is as tools to provide—hopefully—insight
and understanding about the mechanics of the problem. You used
the word prediction; I think that is a dangerous word. Clearly
predictions are going to be wrong. Where they are helpful is in
providing us with scenarios that help us to think through plausible
futures. Sir David may wish to say something about the work at
the Smith School or the work in government. What I would say about
the economy models is that if you go back ten years, there were
very few people predicting a recession. That is something you
might put in a scenario. The original IPCC scenarios—the
so-called SRES models—turned out to be wrong. The actual
pathways followed involved much greater rates of growth of emissions
than even the top level predicted because of the growth in global
trade and China's role in that and the fact that China expanded
its production on the back of coal fired power. These things you
might think were predictable ex ante but in fact effectively were
not. I think it is dangerous to describe the economic models as
predictions. Where they are helpful is when they provide us with
an understanding of the bits and pieces that make up plausible
scenarios.
Dr Allen: In terms of setting
a carbon budget, again bearing on what is predictable and what
is not, we can predict the climate system's response to a cumulative
injection of carbon dioxide with a fair amount of confidence.
We can project the climate system's response to a specific emission
path with much less confidence. That is one of the things which
has come out of the science, that there are some things we know
and other things we just cannot know given the current information.
We will learn as the emissions trajectory changes but it is much
harder.
Professor Sir David King: Your
question is both broad and important. The science does not only
rely on the modelling as indicated, but paleoclimatology is giving
us a very clear indicator of the sort of behaviour of the planet's
climate system in the past as a predictor of the kind of scenarios
we can expect in the future. A very important part of climate
science is studying the planet's previous climate behaviour. All
of this is pointing in the same direction unfortunately.
Dr Allen: To add to that, one
of the key messages that comes out paleoclimate research is that
staying below 2° is a good idea. As soon as you go beyond
2° we start to get into territory where even predicting how
the system will respond, how other sources of greenhouses gases
may get released from the natural climate system and therefore
exacerbate the anthropogenic injection becomes much harder. We
can see in the distant past events of this nature and that is
of course the kind of thing we need to worry about.
Q164 Chairman: When you say "go
beyond" do you mean 3°?
Dr Allen: I would be much more
cautious about claiming to be able to predict how the climate
system would behave at 3° warmer than pre-industrial than
2°. It is the unknown unknowns if you like that worry me
here.
Professor Sir David King: If I
could just add one more thing about the economics, of course the
geological availability of fossil fuels is a major factor in the
economics and so having a very large remaining store of coal in
countries like China, Australia and in the state of Virginia in
America is a major factor in our ability to look at the high carbon
scenario with a high probability.
Dr Allen: There is plenty of carbon
down there to do a lot of damage.
Q165 Dr Turner: I seem to recall
that the paleo record gives us more than pause for thought; it
does not even bear thinking about. Some of the apocalyptic scenarios
could well be true which makes it even more important that we
try to succeed with our immediate moderate plans. We have not
been too successful so far even in keeping on track with our climate
change programme for 2010 let alone anything else. What lessons
do you draw from that? What does the government have to do to
up its game?
Professor Sir David King: I do
not think there has yet been an understanding of what defossilising
the economy actually means. I think if we looked at a defossilised
economy in 2050 we would have to find an astonishing range of
changes. Our entire mode of behaviour depends on the use of fossil
fuels so whether we are looking at our mobile systems (I do not
mean mobile phones), our systems of transporting people and goods
around the planet, if you look at our built environment, those
two together are about 80% of carbon dioxide and about 80% of
our activity. If you look at every item of our behaviour—how
does food end up on the table—we have to re-examine every
aspect of what we do. In government what I saw was that this was
originally seen as a problem for the energy section of the old
DTI as if it had nothing to do with transport, as if it had nothing
to do with all of the other bits of government. I do not think
that we begin to tackle this problem until we understand that.
Yes, I think pricing carbon dioxide is absolutely crucial but
even in Europe today we are toying with pricing carbon dioxide—maybe
"practising" would be a better phrase—but at 12
euros per ton, or whatever the price is today, we are not even
close to the value I think we need to see. A hundred euros a ton
would roughly cover the cost of carbon capture and storage of
the top end of a coal fired power station and I would hope that
the caps across European countries would be squeezed down until
we got the price up to that sort of level. However, even with
the price at that level we will need to see all the levers of
government—regulatory levers, obligatory levers—pulled
out in order to de-fossilise our economy. I have previously argued
that the Committee on Climate Change should have been put in with
the Bank of England because I do think that as we move forward
we want to control both inflation and deflation of our finances,
but we also want to control our movement to defossilise the economy.
I am not joking; I think these two should be put together so that
as we figure out how to manage our finances we are also figuring
out how to lower carbon emissions. We are still a long way from
understanding the depth of the change required. The science and
technology are there (although we need more science) and the technology
will come to the fore provided we get the right economic drivers
playing through.
Q166 Dr Turner: One of the economic
drivers—or rather economic brakes—is cost. Governments,
not unnaturally, look to the cost of their policies and will look
to policies that have the smallest price tag. If you look at it
in terms of cost effectiveness, what do you think are the most
cost effective policies that government could put in place as
of now?
Professor Sir David King: I am
going to have a shot at this and then turn to my young economic
mentor in a moment. For me the most important thing, as we move
into a decarbonised economy, is to avoid making investments in
infrastructure and in long-term projects which are high in carbon
of necessity. For example, whether or not British Airports Authority
were to invest in a new runway or a new airport would come into
that category because I would have imagined a future scenario
in which fast rail overtakes the short-haul flights across Europe.
That scenario is likely to mean that your investment in an expensive
new airport system may not yield the return that you were hoping
for. I am talking, as we move forward, about lowering the cost
to our economy by avoiding stranded assets, by avoiding major
infrastructure investments which are likely to have to be shut
down because they are so heavily based on carbon. I would not
myself have gone for four coal fired power stations with carbon
capture and storage at this point in time because frankly carbon
capture and storage is an unproven technology. It would seem that
caution in investing in coal fired power stations ought to override
that need. What I am talking about is for Britain to avoid companies
like GM going bust, in other words if our major companies go bankrupt
because they have been investing in the wrong sort of infrastructure—I
am referring to the infrastructure required to build Humvees doing
seven or eight miles per gallon—then we are going to find
that it is an expensive transition. I think it would behove government
to see that all the right regulatory behaviour is put in place
to avoid investing in the wrong infrastructure. Now I will pass
to Cameron if you do not mind.
Dr Hepburn: The point made about
stranded assets has to be right. In response to the question about
which technologies are more cost effective or least cost effective,
there are three answers. The first is that we need to be very
careful in assuming that we know. I am not saying that we do not
need some planning but humility about how technologies will develop
and about which rates of learning will proceed more rapidly and
which different technologies are important. What that humility
leads you to conclude is that in a way, like the Monetary Policy
Committee of the Bank of England which does not interfere in every
aspect of the economy, it sets one price and lets the rest of
the economy sort it out. Similarly in climate policy, I am not
saying there is no role for planning but getting the prices right
is really a critical aspect of working out which technologies
are cost effective. If you have your carbon prices sorted then
you do not need vast teams of analysts trying to work out what
your most cost effective response is. To that end the way our
UK input into the European Emissions Trading Scheme prices and
the prices we set here are very important. Let me just make one
critical point about pricing and the political economy of pricing.
First, we should be selling the allowances that we have available
to the private sector and if we sell a large number of them up
front with longer commitment periods, then what you create is
an interest group owning carbon assets who want tighter targets
in the future. At the moment in response to the question about
political inertia we know that there is a vast amount of lobbying
conducted by vested interests against change. Creating a balancing
group that is pro-change—or at least pro-tighter targets—seems
to me to be a rather important feature of speeding up the process
of political change. A very powerful way of doing that is by allocating
emissions allowances now so that the holders of those assets worth
billions of pounds or euros want the trading scheme to continue
and want prices to rise and hence want tighter caps. I think that
political point about pricing is very helpful when we think about
our humility in not trying to pick all of the technologies that
are the least cost. The second point that is key here is recognising
that we want to expose ourselves to upside and positive surprises
and we do that when we invest in research and development in the
low-carbon arena. I think our levels of research and development
in energy have been lamentable. It should be a relatively high
priority to rectify those levels of research and development,
given the scale of the challenge that Sir David has just outlined.
Perhaps the Committee on Climate Change could have spent a little
bit more time thinking about the role of low-carbon research and
development and the role of the government, which is a very clear
one, in supporting that. The third point is on the point that
David made about stranded assets. Some degree of thinking ahead
is helpful and planning is helpful. The reason is that market
prices alone will not get your infrastructure sorted because they
are effectively a marginal price and unless you have a very long
term, very credible price that the financial sector can come in
on the back of that and get the infrastructure in place (as I
was mentioning earlier, political realities have to be addressed
and I think it is unlikely to the case for some time) a level
of clear planning about our low-carbon infrastructure ahead of
time is required.
Professor Sir David King: Perhaps
I could come back with one more point and then Dr Allen would
also like to come in. Again your question was very broad. In setting
up the Smith School of Enterprise and Environment we are bringing
together top economists, top scientists, top lawyers—an
interdisciplinary group—to help to advise governments and
the private sector on this transition. When we are advising the
private sector what we are talking about is persuading them that
there is a massive opportunity for innovation within the private
sector represented by this need to decarbonise our economy. When
we look at the cost to the economy I would say, "Bring it
on" because we have this enormously strong science base in
the UK, second only to the United States in our total output,
and we have this high density of small high tech companies in
that magic triangle between Oxford, Cambridge and London, the
highest density of small high tech companies in the world. In
many ways we are poised to benefit from the innovation coming
through to the private sector that lies ahead.
Dr Allen: On this issue of where
should we be investing and what the most cost effective areas
are, I want to take issue with something Sir David said. Can I
use a visual aid?
Q167 Chairman: By all means, but
we are not being televised.
Dr Allen: Sir David mentioned
thinking about the amount of fossil carbon underground. This is
a one in ten thousand trillion scale model of the problem; each
of these is half a trillion tons of fossil carbon. We have used
one and the second one will take us to around 2°; that is
what the UK Committee on Climate Change says. The fundamental
determinate of whether we are going to hit dangerous climate change
is what we do with the rest of it.
Q168 Chairman: That is what we could
use, is it?
Dr Allen: This is basically what
we could use.
Q169 Chairman: So we know for the
record, how many pieces are there?
Dr Allen: There are ten.[1]
Obviously, this is an estimate of the amount of fossil carbon
that is economically recoverable. Therefore what you invest in
(in terms of to what extent it determines the risk of dangerous
climate change) ultimately depends on how it impacts on what happens
to the rest of this carbon, which is why I would take issue with
what Sir David said about carbon capture and storage. When we
are looking at what is sitting down there there are essentially
three things that might happen to the rest of that carbon. We
could burn and dump it in the atmosphere with all the consequences
we have been talking about; we can leave it down there as fossil
carbon; or it could be used, if the technology evolves such that
it allows it to do so, and the carbon dioxide sequestered back
underground to keep it out of the atmosphere. To my mind that
is the determinant of success, whether or not we actually manage
to come up with the technologies in time to avoid releasing the
rest of that carbon into the atmosphere. That is why I would take
issue with what was said about the investment about carbon capture
and storage. From my perspective as a physicist looking at what
matters for the problem, our investment in carbon capture and
storage is orders of magnitude smaller than it ought to be given
what is actually going to be required to avoid dangerous climate
change.
Q170 Chairman: There are various
ways of trying to drive all of this forward, one of which is the
carbon price, but is there a role for an interventionist approach
which might say that over a certain period we have to generate
electricity only producing so many kilograms per kilowatt hour,
so there is an actual arithmetical limit on the amount of emissions
from each unit of electricity produced? Similarly, could you have
something which related to people's movements as transport is
such a big factor, so many grams of carbon emitted for so many
passenger miles travelled? You could actually have a regulatory
target as well to drive both research and drive investment. Would
that be feasible?
Professor Sir David King: The
example that I would give there that has been enormously successful
is the car exhaust regulation target. Introduced in the 1970s,
today it has reached a remarkable level. We have cleaned up all
our cities around the world through progressive car exhaust regulation,
stating in a given year that in three year's time what the requirement
would be. I do think that is a very smart way forward. We know
how to do it and if we could be tough with the car manufacturers
then we should proceed. I say that because I have been very close
to car exhaust regulation over the last 40 years and I do know
that at every single step the manufacturers have complained and
said that it was impossible. What we have to learn is to ignore
what they say because their scientists and technologists will
find the answer because they fear that if they do not then their
competitors will and they will be wiped out. It is a very good
way forward in my view.
Q171 Dr Turner: You have already
spoken about the inertia of government but, with your experience
within the system, have we got the ability within British government
structures—either political or Civil Service—to make
the smart decisions that are necessary?
Professor Sir David King: I would
have to say that the level of expertise demanded within the advisorial
system in government that you are referring to is not there at
the moment. We have a system based on the generalist rather than
the specialist and I think that that needs a radical change if
we are really going to manage this problem.
Q172 Mr Chaytor: Sir David, in recent
months you have expressed some growing scepticism about the costs
both in the Stern Report and produced by the Committee on Climate
Change, the cost of meeting our targets and the cost of the damage
that the Stern Report originally produced. Could you just say
where you think we now are on costs? Is one% of GDP no longer
accurate in your view?
Professor Sir David King: You
may have asked a question which will now divide opinion between
Dr Hepburn and myself because he has worked closely with Nick
Stern. Basically my view is that the strength of the economic
models used is limited. In other words, these economic models
are really based on almost perfect decision making within the
system. In other words, companies do not do what GM did; they
behave as models companies and they know what legislation is likely
to arise so they are going to invest in the right directions in
the future. My belief is that we can only minimise the cost to
our economy as we go forward if we act to see that information
goes out to the private sector and that we have the right regulatory
behaviour. No economist predicted the recent fiscal crisis. That
fiscal crisis arises from strong negative feed-back terms in the
economy related to confidence and other things. This is not included
in these models. As physical scientists we tend to shudder when
we see the models being used to predict the state of the economy.
I then hesitate in criticising because I know that Dr Hepburn
and his colleagues are fully aware of these limitations. Nick
Stern is now saying two% of GPD. I am still a bit sceptical about
whether it is minus one, two three; I do not know. Here is my
scepticism in a nutshell. If we were to look at the cost of no
action (in other words, to let the carbon dioxide run) what would
the cost to our economy be? Stern has made an effort at calculating
that. How do you include within that calculation the geopolitical
destabilisation that might arise—and is likely in my view
to arise—from an environmental global migration that is
unprecedented? The Indian Government is now putting up a fence
between India and Bangladesh supposedly to keep thieves out; one
suspects it might have something to do with the fact that rising
sea levels could well cause the people of Bangladesh to seek higher
land and higher land is in India. I am just referring to the fact
that by mid-century, if we have not grasped this problem, we will
have massive negative feedback terms in the global geo-political
economy that would be very difficult to calculate. Equally, I
am saying that if we get it right and use our innovative capacity,
we could move forward and actually grow our economy on the process
of defossilising. Having said all of that, I pass over to Cameron.
Dr Hepburn: I think Sir David
and I disagree less than he expects. There clearly is a large
amount of debate about both sides of the equation on costs, both
the mitigation side and the climate impact side. For the reasons
I was setting out earlier, these things are incredibly difficult
to measure and they are incredibly uncertain. Anyone who suggests
otherwise is doing all of us a disservice because that uncertainty
and indeed the unknown unknowns are relevant factors for us to
consider when we think about how we ought to be responding to
the problem. Let me focus on what is agreed amongst the economic
profession because I think that is probably what is helpful. A
lot of debate is of one or two%, it could be a bit more. Bear
in mind that one or two% of global GDP are very large numbers;
these are not necessarily small costs. Are the damages ten% or
20% under different scenarios? So there is debate. However, the
point is that almost all sensible economists would agree that
the damages from climate change—the climate impacts—exceed
or far exceed the costs of doing something about it. That is one
of the points that the debate between the American economists
within American and between America and other countries following
the Stern Review really brought out, that actually we do all agree
that the economics of this problem suggest that we need to take
action, we need to take action now and we need to start doing
it in a very cost effective way. The next thing economists agree
on is that we ideally would focus on two problems. The first is
the carbon price and the absence of one; the second is the failure
to capture research and development spillovers. In the context
of a world where we do not get the carbon price right then you
are looking at other policies like the ones that you suggested,
emissions limits on power plants, limits on cars. These are second
best policies but we do not live in a first best world.
Q173 Mr Chaytor: Has the recent economic
crisis changed fundamentally any of the assumptions on which the
original economic projections were made? If economic growth is
not going to continue year on year at a steady two%, what are
the implications of that?
Dr Hepburn: The financial crisis
has really underscored the fact that humility is really the only
response in the face of the economic uncertainty. In terms of
what it does to emissions—the emission pathway—it
does a little; reduce emissions and the reductions will be persistent
for some time. It is not quite rounding error but it is almost
rounding error. We will have booms and busts and I do not think
that necessarily surprised anyone. I do not think it has led to
a radical re-thinking of the future projections of growth in business
as usual and hence the future of projection of emissions in business
as usual and hence the scale of the problem.
Dr Allen: I think it is very dangerous
that people often get the impression that economic crises are
good for the planet because they reduce the emission rate but
again, thinking back to this budget idea, it is not going to make
any difference being poorer. Burning the carbon a little bit slower
is not going to make any difference at all to what you do with
the rest of it. Again it is a different way of framing the problem
which avoids this misperception that somehow low growth is good
for the planet.
Q174 Mr Chaytor: Is being poorer
less likely to lead to scientific innovation?
Dr Allen: Precisely. The way you
are going to solve this problem is by becoming rich enough to
solve it in effect. Simply being poor will mean that you will
emit the carbon slower over a long period but you end up doing
the same amount of damage to the planet. I think that is quite
an important message to get across because there are advocates
who say we should actually curtail growth in order to solve the
problem of climate change and I would disagree with that.
Professor Sir David King: What
I would say in the response to the fiscal crisis which is one
that I supported very strongly last October was a stimulus budget.
The stimulus budget put decision making in the hands of governments
around the world on how that money should be spent. For example,
the Department of Energy in the United States now has a very large
R&D budget and that has come entirely through that stimulus
funding. Governments can choose to invest this wisely into new
low-carbon technologies which is precisely why Stephen Chu now
has this enormous budget to spend on energy research. So I come
back to what I said earlier about the stimulus fund as an opportunity
to kick start a low-carbon economy.
Q175 Mr Chaytor: In terms of our
government's response through the stimulus fund you drew the comparison
with South Korea where 80% of their funds go into green growth.
The UK Government's defence would be that we are probably further
ahead than South Korea and therefore we do not need to allocate
such a large share of our stimulus onto green growth.
Professor Sir David King: I put
our government's figure at around eight%, as against South Korea's
80%.
Q176 Mr Chaytor: At Question Time
last week the Minister said it was 20%.
Professor Sir David King: Did
he? That is marvellous.
Dr Hepburn: I might just jump
in and say that there are different ways of determining how you
measure green. It is also rather important how you measure policies
that had already been announced prior to the stimulus, whether
you net them off or whether you count them as well. There is a
certain art to the measurement of the greenness of a stimulus.
Q177 Mr Chaytor: Are there very specific
areas of investment that you think should have been in the UK's
stimulus package which were not? Had you been the chancellor where
would you have allocated the money?
Professor Sir David King: I would
certainly have looked at RDD&D all the way through to demonstration
in low-carbon technologies. I am in favour of investment in carbon
capture and storage; it is just the extent of that investment
coupled with the number of power stations where we might disagree.
Harking back to the time when a little white van visited every
home in Britain to convert us from town gas to methane gas with
North Sea gas coming through, I would have seen a little white
van going to every home to improve energy efficiency within the
home, loft insulation and so on. We have modern technology by
which we can actually pick out exactly which houses in any village
or town are poorly insulated so we could have targeted the construction
industry where there are large numbers of unemployed people, by
sending people around to do homes on a very widespread basis.
There is an investment that would pay back in kind year on year
because of lowering energy costs in running the houses, and would
pay back in terms of emerging with a housing stock which is currently
one of the least energy efficient in Europe into one of the most
efficient in Europe. I would also have looked at fast rail. I
would have looked at a whole range of projects where the investment
would be an investment on behalf of those future generations from
whom we are borrowing the money to dig us out of this fiscal crisis.
Q178 Colin Challen: The HSBC report
in February is the one that is most popularly quoted analysing
green stimulus packages across the world and that has the European
Union overall green stimulus—the average across the EU—at
14%. So the elephant in the room is the 86% that is stimulating
GDP growth, or trying to. How far do we need to shift from the
current economic paradigm or do we need to shift at all? What
is your take on this classic economic paradigm that we are trying
to return to?
Professor Sir David King: I will
have a shot to start with and then Cameron will come in. I do
believe that this one number that we judge every country's health
on—GPD growth—is a very misleading number and I do
think we need to look at it again. My favourite number happens
to be from Dasgupta where he looks at the wealth of a nation as
its capital building infrastructure wealth, the human skills wealth,
the environmental wealth and the cultural wealth of a nation.
If you can put a figure to that—I do not see why you could
not—then the growth in that wealth would be a much better
measure than this simple number GPD that we are all so set upon
as the only figure that matters for our economy.
Dr Hepburn: As I am sure we know
here, GDP just measures busyness that is captured by a market;
it does not measure output properly and it certainly does not
measure welfare. We do not have a commonly accepted measure of
welfare that we judge ourselves by and compare ourselves against
one another with. I would echo David's comments there. As you
probably know the Stiglitz Commission is working on a green measure.
There are and have been several measures proposed in economics
over the last few decades and I think it is high time we concorded
on one and adopted it. It does not have to be perfect. GDP is
far from perfect as a measure of output but we use it all the
same, so I would echo the points there. As far as the question
of whether we need to stop growing or slow growing, I do not disagree
with what Myles said earlier. We have in any event population
growth due to come and even if GDP per capita remains constant
the earth's marketed output is going to grow so it is somewhat
of hypothetical question to ask, whether we should stop or slow
growth. I am not sure that answers the question. The question
is how do we grow in a low-carbon and sustainable fashion. On
the stimulus, I do think it was, at least in part, a missed opportunity
here. We should definitely learn the lessons so the next time
we have a crisis—and there will be one—we can get
it right next time. I hear from my colleagues in China that the
last bubble that burst, the Chinese officials said to the rail
industry, "It is not your turn now, but next time there is
a crisis be ready because the money is coming your way" and
it did, billions of it, and they were ready; out they go with
their rolling out of rail infrastructure. I do not think it is
too much to ask that we can plan ahead ourselves for the next
crisis—I hope it is not too much to ask—so that we
do deploy in a more sensible and more low-carbon and effective
way. In the interim the issue actually is the opposite. We have
serious pressure on public balance sheets that is going to emerge.
I do not think there are too many who would doubt that. In that
context it is less about throwing money at the problem and more
about thinking how the public balance sheet can be shored up by
raising funds. The question here is: can we use that requirement
of supporting a public balance sheet to shift to a greener tax
base and to raise environmental taxes.
Q179 Colin Challen: Does the fact
that the Treasury, being the only department in government that
does not employ a chief scientist, have anything to do with its
inability to assimilate these new ideas?
Professor Sir David King: I know
exactly why you are asking me that question. I certainly did try
to get a chief scientific advisor into every major government
department and the Treasury was not very sympathetic to the idea.
However, I think there is another issue with the Treasury that
I could never get through on and this is the issue of not backing
winners. There is a very deep belief in the Treasury that the
market place is the only place where winners are determined. Using
South Korea again as a good example, when a technologist invented
broadband in South Korea the South Korean Government invested
heavily in creating the infrastructure for broadband to spread
in that country. If you look at the development of broadband it
was quite extensive in South Korea before it ever went international.
That was government investment in backing a winner. It was a risk
investment but it turned out to be an enormous winner so companies
like Samsung have massively benefited from that. I would say exactly
the same with Silicon Valley. I do not think that Silicon Valley
would have come into being without the DARPA funding that pulled
the gismos through to the market place and created Silicon Valley.
This is all anathema to the Treasury so the belief that we can
pick winners which are low-carbon winners again does not match
with the Treasury belief in the market system. Treasury will always
look at market instruments as a means of tackling a problem and
not investing risk money. For example, we have £150 billion
a year fund for government procurement and I did try to see that
a ring fence should be placed around 1% of that for risk procurement
on gadgets being produced by our small high tech companies. I
think that would have transformed our economy. Likewise here I
would have liked to have seen government procurement funds being
used to pull through low-carbon technology.
Q180 Colin Challen: In the context
of this inquiry into carbon budgets do you think the Treasury
has, as indicated by this absence of a chief scientist, a fear
of science? In setting the remit for the Committee on Climate
Change and our general political approach, the science is really
something that interferes too much with their perceived wisdom
which is why they do not want a chief scientist.
Professor Sir David King: No,
I do not think that is right; it is much worse than that. One
thing I will never accuse Cameron Hepburn of, is being one of
those that I call suffering from economism, where you think that
economics provides all of the answers. I do think you will find
people who go rather close to my definition of economism within
the Treasury. They feel they do not need the science base.
Q181 Joan Walley: Could I just come
in and ask about the Green Book in the Treasury and how the Treasury
should be revising the Green Book which determines the whole decision
making basis and where money is actually spent. It seems to me
that that failure to revise the Green Book in keeping with the
pressure to decarbonise the economy is just something that has
not been taken on board either by the Treasury or by Treasury
ministers.
Dr Hepburn: I am obviously going
to have a somewhat different emphasis than Sir David on these
issues, particularly with regards to picking winners and the role
of the Treasury. I had a role in the revisions that occurred earlier
in the decade—2002 or 2003—and I think it is important
that we look for consistency across different aspects of government
spending. I am obviously personally very concerned with the environment
and climate change but I do not think that environment and climate
change issues should dominate health or education or other priorities.
The role of the Treasury is to balance up those competing considerations,
face up to trade offs and to do it in a way that promotes consistency.
I did a survey for the OECD on policy appraisal a few years ago
and the UK actually bears up rather well in comparison with other
OECD countries. I say "rather" well but that actually
means "exceptionally" well. This is not to say there
is not a role for revisions of the Green Book to make it green
in the environmental sense, but equally it is not intended to
be and I do not think it should be a document that prioritises
one specific area of public interest over others.
Dr Allen: I would just add one
point to that. I think it would be helpful to simplify matters
as far as possible. I do not know anything about our own Treasury
but other countries' treasuries are understandably concerned about
the level of complexity of carbon regulation and the opportunities
it appears to introduce to distract people from the business of
making money, which is what the treasury wants them to do. For
example, you could focus on the point, as Sir David made earlier,
that if you are going to carry on using fossil energy in the second
half of this century and avoid dangerous climate change then that
fossil energy will carry a cost premium of 100 euros a ton minimum,
that being the cost of disposing of the carbon dioxide within
it. As far as the Treasury is concerned the case for changing
our energy mix becomes a purely economic one; they do not need
to worry about the environment any more because they simply need
to add to their projections the fact that the cost of fossil energy
is going to increase in this way in order to neutralise its environmental
impact. Maybe one solution is to explain things to the Treasury
in a very simple way.
Q182 Chairman: Leaving the Treasury
at one side, are there other parts of the government which do
understand the urgency of decarbonising the energy supply?
Professor Sir David King: Surely
Ed Miliband gets it, does he not?
Q183 Chairman: Yes, I think he does.
In the present Whitehall is that sufficient?
Professor Sir David King: As a
matter of fact I would have to say that our foreign secretary
also gets it. When he was in Defra as secretary of state I saw
a secretary of state who really grasped the problem and I was
very impressed on a recent trip to China to find that we have
28 people in the embassy staff who are working with the Chinese
Government on metrics of carbon dioxide emissions. I think we
are doing some things right but it has to be described as patchy.
Q184 Chairman: Do you think that
the government is doing enough to overcome the planning difficulties
which appear to be one of the obstacles to faster investment in
low-carbon energy?
Professor Sir David King: No,
not enough. More needs to be done. I think we are moving in the
right direction. We all know about planning blockages—the
vast number of wind farms that have never come into being because
of planning blockages—and at the same time the inertia in
moving that on seems to be causing a lot of drag.
Chairman: I am sorry we cannot continue
because we are having an extremely interesting session, but time
unfortunately has overtaken us. Thank you very much indeed for
coming in and we will draw heavily on what you have said when
we come to write our report.
1 Note by Witness: There are ten pieces, representing
what was there in 1750. We have already placed one in the atmosphere,
and can only afford to place one more. Back
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