Select Committee on Economic Affairs Written Evidence

Memorandum by Christopher Beauman, former Adviser, Central Policy Review Staff, Cabinet Office

  1.  I have followed closely the very interesting Hearings of the Committee, in person and through transcripts. It would be presumptuous to second-guess the wide range of expert and distinguished witnesses. However as an interested layman, I would like to comment briefly on three related topics—the IPCC process and the accessibility of scenarios, the role of economists, and, briefly, the contribution of Bjorn Lomborg, and to make two recommendations.


  2.  It has clearly emerged that the IPCC is a systematic, broadly-based international process, with all the strengths and weaknesses that that implies. The weaknesses, from viewpoint of economics and of public policy, chiefly concern the ponderousness of the process, and the difficulty of understanding the underlying assumptions within it. This is important because the IPCC process is the foundation both for intergovernmental agreement on climate change and for the mobilisation of domestic support for action.

  3.  One example may make the point. In October 2003 Goldman Sachs published a much-discussed report "Dreaming with BRICS: The Path to 2050" which suggested that China might overtake the US economy in size in around 2041, and that by 2050 China's per capita income would be close to that of the US in 2000. Subsequent to that report the explosive growth of China's economy has had a dramatic and unpredicted effect on commodity markets, and China's production of steel, 114mt in 1998, is no longer on a expected trajectory of doubling during this decade, but will almost certainly have tripled by 2006. This obviously has a giant effect on China's emissions of CO2, directly, and indirectly though its carbon-intensive power industry, and—along with all the parallel developments in China—it raises the base from which China's sizeable emissions will continue to rise towards 2050.

  4.  The implications of these developments will have been very quickly absorbed by major UK multinationals like BP and RTZ, and factored into large investment programmes to meet the markets of the coming decade or two. But it is not clear how and at what speed the IPCC process can deal with absorbing new economic information of this kind. Yet the credibility of the underlying assumptions, especially on the six major emitters, the US, China, the EU, Japan, Russia and India, is essential to the strength of the case for action on climate change.

  5.  If the UK is to play a leading role both in international agreements and in exemplary action, then it also needs to lead on the analytical underpinnings, especially where they are controversial. When the Chancellor of the Exchequer publishes the UK Budget, he also publishes a Red Book of assumptions, which are then scrutinised and criticised by a range of independent commentators. The US National Intelligence Council published in December 2004 its latest scenario-based geopolitical "Mapping the Global Future", based on widespread consultation. What we need is an equivalent UK publication for climate change, in order to stimulate over years much greater understanding both domestically and internationally, and to provide some common ground for the discussion of potential tipping-points. It should also be accessible: rather than the style of the IPCC's publications, which are more cited than read, a good model would be the reports of the Royal Commission on Environmental Pollution.

  I would, therefore, RECOMMEND that the UK should develop the capability to present and publish the latest information and assumptions on likely international developments in long-run economic growth, in the stock and flow of GHG emissions, and the implications for the range of temperature changes, in comprehensible scenario form, designed for accessibility and for public discussion and debate.


  6.  Unfortunately economists have, so far, badly lagged the climatologists. As Dieter Helm has written "the usual economists' toolbox looks puny against the scale of this challenge". In "Economic Models of Climate Change: a critique" (2003) Stephen DiCanio wrote that "The climate problem hinges on issues which are very poorly handled by conventional energy economics—matters of distributional equity, nonmarket environmental quality, intergenerational fairness, and the internal workings of firms".

  7.  In the UK there appear to be only two well-recognised economists with a solid reputation in this area, David Pearce and Dieter Helm. For much of the analysis, the UK, like China or India, has to depend on a small number of US economists eg at Yale and Stanford. It would appear that the latest efforts of the ESRC have been focussed on establishing and supporting the Tyndall Centre, which is becoming an important climatological, rather than economic, centre.

  8.  The big gap appears to be the economic analysis of possible catastrophe. Much of the economic analysis assumes gradual change. Yet one of the main talking-points at the recent Exeter conference was the wide range of possible global and regional catastrophes being assessed by the climatologists—over various time-scales. William Cline was on to this in his 1992 "The Economics of Climate Change", but most subsequent economic analysis appears to have downplayed or ignored this.

  9.  This is where an integrated analysis needs to take account of the relationship between economic growth, the stock and flow of emissions, and the climatologists' evolving views on tipping-points. It needs to absorb the latest empirical climate research as it emerges year-by-year. And it may, as one witness suggested, need to draw, for its intellectual underpinnings, on the well-developed work in the financial analysis of futures and options. Only then will there be a robust base for public policy.

  I would, therefore, RECOMMEND that the ESRC substantially enhance its support for the economic analysis of climate change, in order to build a UK cadre of recognised economists in this field who can aim to match or surpass those of the US and can lead the domestic and international debates on public policy.


  10. Bjorn Lomborg has played a significant part in stimulating debate, and his charm and energy make him on first impression a persuasive figure. But it is now clear that much of his effort is misguided or worse. This emerges from an analysis of his 2004 so-called "Copenhagen Consensus", involving an array of economists, including two major figures, Thomas Schelling, who first suggested that developing countries might benefit more from increased aid than from action on climate change, and Robert Mendelsohn, described by The Economist as "a conservative Yale economist who was an official `critic' of the climate paper in this process". The outcome of the Copenhagen Consensus was an agreed ranking of climate change as one of the least important major global challenges. According to The Economist of 5 February 2005, Schelling has now said that "presenting climate change at the bottom of the list "(for investment) "as `bad' is misleading", and Mendelsohn went further, worrying that "climate change was set up to fail."

  11.  It appears that the "set-up" was based in part on the disjunction between the original question for the Copenhagen Consensus participants, who were asked for the ranking of a hypothetical $50 billion of investment to address global problems "over four years" (see B Lomborg—Global Problems, Global Solutions (2004) p 3), and the conclusions (eg p 605) and subsequent publicity which made little or no reference to "over four years".

  12.  This shows the importance of the twin recommendations set out above. Without (a) an authoritative, accessible publication of latest information, developments and scenarios, and (b) a broad and international range of leading economists integrating the evolving research of climatologists into economic analysis and recommendations for public policy, the whole debate is vulnerable to being hijacked or unhelpfully politicised.

17 March 2005

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