Memorandum by the George C Marshall Institute,
1. The George C Marshall Institute, a nonprofit
research organization founded in 1984 that is dedicated to fostering
and preserving the integrity of science in the development of
public policy, is pleased to have the opportunity to submit the
following evidence to the House of Lords Select Committee on Economic
Affairs inquiry into aspects of the economics of climate change.
We will address the role that science and economics can play in
answering the questions in the Call for Evidence.
2. Future climate change will have two components:
a natural component and a human-induced component. While there
is no doubt that climate has changed naturally in the past and
will continue to change naturally in the future, both the magnitude
and sign of future natural climate change are unknown. Both the
and the US National Academy of Sciences
identify determination of the natural variability of climate as
one of the great remaining challenges for climate science. At
this time, it is still not possible to distinguish natural variability
from human influence.
3. Estimates of climate change damages are
estimates of the damages projected to be caused by the human-
induced component of climate change. These are based on computer
models that have not been validated and which are driven by hypotheses.
4. While the focus of this inquiry is on
the economic assessment of climate change damages, it is important
to remember that moderate climate change provides economic benefits
in temperate zone countries, such as the UK.
A complete economic analysis should evaluate the degree to which
these benefits offset any damages.
5. The most sophisticated projections of
the potential damages from human-induced climate change are developed
using the following process:
(a) One or more scenarios for future human
emissions of greenhouse gases (GHGs) and aerosols, and for human-induced
land-use change, are selected as input to a global climate model.
(b) The global climate model is run to project
a future global climate.
(c) The results from the global climate model
are downscaled to project a future regional climate.
(d) Projections of regional climate are used
as input to impacts models, eg models that project the effect
of climate on water availability in a watershed.
(e) The results of the various impact model
studies are summed and monetary values assigned to develop an
overall damage assessment. Alternatively, damages may be stated
in non-monetary terms, number of farmers experiencing drought,
or numbers of additional cases of disease.
This process will generate a damage estimate,
but it is a highly uncertain estimate due to the reservations
in each step of the calculation.
6. While the focus of this inquiry is on
the uncertainty in economic projections, it is also important
to realize that the climate models used in as input for these
economic projections have many shortcomings. The IPCC
list of shortcoming includes:
Discrepancies between the vertical
profile of temperature change in the troposphere seen in observations
Large uncertainties in estimates
of internal climate variability (also referred to as natural climate
variability) from models and observations.
Considerable uncertainty in the reconstructions
of solar and volcanic forcing which are based on limited observational
data for all but the last two decades.
Large uncertainties in anthropogenic
forcings associated with the effects of aerosols.
Large differences in the response
of different models to the same forcing.
Other lists typically add uncertainties about
the role of clouds and ocean currents in the climate system, the
inability to model El Niño and other observed cyclic phenomena
in the climate system, and uncertainty about the sensitivity of
the climate system to changes in GHG concentrations to IPCC's
7. Projections of both the magnitude and
composition of future economic growth are critical to the development
of damage estimates. The first step in the projection of damages
is to pick one or more scenarios for future GHG and aerosol emissions,
and for land-use change. These scenarios are based on models of
economic growth and, as the IPCC Special Report on Emission Scenarios
exhaustively detailed, can diverge dramatically. In SRES the IPCC
described 40 scenarios projecting conditions in 2100. In these
scenarios, cumulative CO2 emissions between 1990 and 2100, the
most important factor determining the human contribution to future
atmospheric levels of GHGs, varied by a factor of more than three.
Sulfur emissions in 2100, the most important factor determining
the human contribution to future aerosol levels, varied by a factor
of nearly eight. Overall, IPCC concluded that differences between
SRES scenarios were as large a contributor to the uncertainty
in projection of future climate as the differences between climate
models. The use of projections in this manner requires the use
of assumptions that are otherwise unknowable.
8. Economic growth will change the nature
and cost of projected damages. Most projections of future climate
change include projections of increases in extreme weather events,
eg tropical storms. While these projections are even less certain
than the projections of changes in mean climate,
they are potentially the most costly impacts of future climate
change. Extreme weather events tend to cause large economic losses
but small loss of life in rich countries. The opposite is true
in poor countries; economic damages may be small in monetary terms,
but loss of life is typically much higher. A future consideration
is the role of adaptation in determining future economic damages.
While adaptation cannot eliminate climate change damages, it can
greatly reduce the monetary damage and loss of life they cause.
Rich countries have more ability to adapt to future climate change
than do poor countries.
9. Almost all recent studies of climate
change damages rely on the SRES scenarios. These scenarios are
base case scenarios, ie, they assume that no overt actions will
be taken to reduce the human contribution to climate change. This
is an obvious shortcoming, since nations of the world are taking
action today to reduce GHG emissions and can be expected to take
significantly more action as the 21st century proceeds. However,
this is not the only problem with the SRES scenarios. The most
dramatic estimates of climate change damages result from the SRES
scenarios with the highest GHG emissions in 2100. These high emission
scenarios have been broadly criticized as unrealistic.
IPCC has decided to retain the SRES scenarios for its Fourth Assessment
Report (AR4), scheduled for publication in 2007, but has begun
a process to develop new scenarios for its Fifth Assessment Report,
which will not be published until 2012 or later. This decision
means that most of the information on climate change damages in
AR4 will be based on suspect economic scenarios.
10. Human emissions of GHGs and aerosols
over the next century will depend on rates of population and economic
growth, and technological change. These rates are unknowable that
far in the future, but some aspects of the future are certain.
For the next several decades the
world will depend on fossil fuels for 80 per cent or more of its
Until productivity growth rates and
innovation of non-carbon technology overtake economic growth,
CO2 emissions will continue to grow.
Developing countries will place a
higher priority on economic growth than on control of CO2 emissions
until they have reached an economic level comparable to the richer
countries of the world.
Over the long-run, economic growth
and advances in technology are associated with fairly continuous
reduction in energy intensity. A steady de-carbonization trend
has been documented as far back as the 1860s.
The scenario approach used by IPCC is the only
manageable way to address the uncertainties in economic projections.
However, the scenarios have to be realistic. At present, there
are no generally accepted economic scenarios for the 21st century
that include potential policy actions to reduce GHG emissions.
11. Due to uncertainties in projections
of climate change and on the cost of climate change damages, there
are no reliable cost-benefit analyses for climate change. The
current state of understanding can be summarized by two statements
from the Summary for Policymakers of the Synthesis Report of the
IPCC's Third Assessment Report: "Comprehensive, quantitative
estimates of the benefits of stabilization at various levels of
atmospheric concentrations of greenhouse gases do not yet exist"
and "For a variety of reasons, significant differences and
uncertainties surround specific quantitative estimates of mitigation
A variety of justifications are provided for current and proposed
climate change policies, but rigorous economic analysis is not
one of them.
THE IPCC TO
12. In general, the IPCC does not conduct
research. It assesses the available literature, and by identifying
gaps in knowledge, encourages research. This process was somewhat
modified in the development of the SRES scenarios, where representatives
of economic modeling teams met and decided on a general format
for the development of the SRES scenario. Each team then went
off to develop its own scenarios based on the general agreement.
While this process provided more coherence than depending on whatever
appeared in the literature, the scenario set is neither internally
consistent nor transparent. These are serious shortcoming for
economic impact analysis.
13. No. The economists in the IPCC process
are in either WG II or WG III. The climate scientists are in WG
I. Participants in the different Working Groups learn of each
others work largely by reading reports. There are few opportunities
in the IPCC process for interactions between the three WGs. But
there is also a fundamental problem in the way the IPCC generates
assessment reports. Ideally, IPCC should work on a cyclic basis.
WG I should assess the state of scientific knowledge. Based on
WG I's assessment, WG II should assess impacts and vulnerability,
and opportunities for adaptation. Finally, based on WG II's assessment,
WG III should consider need and opportunities for mitigation.
Instead, all three WGs work in parallel. As a result WG II considers
science from the last IPCC Assessment, not the current one, and
WG III looks only at opportunities for mitigation.
COULD IPCC MEMBER
THE UK IN
14. Yes. Governments can and should sponsor
economic research aimed at improving the tools available for evaluating
climate change damages. While it is often forgotten, the IPCC
is the Intergovernmental Panel on Climate Change. It is
governments that set priorities for the IPCC and ultimately approve
or accept its findings. Among the priorities that governments
should set for the IPCC are:
Better linkages between the three
working groups to ensure that economic research is informed by
the latest scientific findings. This could include reorganizing
the way IPCC schedules the preparation of its assessment reports
to overcome the difficulties described in paragraph 12.
Better design of the next scenario
development effort to ensure a more complete and transparent set
of scenarios for future evaluation of climate change.
Greater interaction with and formal
involvement of the economic and statistical analysis offices of
participating governments in the scenario development and impact
Setting these types of priorities stays well
within IPCC's charge to be policy-relevant, but not policy-prescriptive.
15. Developing countries are quickly becoming
the dominant source of emissions. Aiding their economic development
through the introduction of new technologies addresses the environmental
concerns most cost effectively as well as enabling a rising standard
of living. Much larger improvements in the quality of life of
poor people in developing countries could be achieved by investing
in poverty-alleviation projects than by investing in greenhouse
gas mitigation. For example, the recently released report: Investing
in Development: A Practical Plan to Achieve the Millennium Development
concluded that a program to cut extreme poverty in half and radically
improve the lives of at least one billion people in poor developing
countries by 2015 would require disbursement of $138 billion in
development aid in 2006, an increase over existing commitments
of $48 billion, rising to $195 billion in 2015. This is still
less than the global target for development aid0.7 per
cent of GDPpledged by developed nation at the 2002 Monterrey
Conference. By comparison, recent economic studies indicate that
it would cost the U.S. about $130 billion in GDP loss in 2010
to meet its Kyoto Protocol target provided there was full Annex
It is widely recognized that meeting the targets in the Kyoto
Protocol will have only a miniscule effect on the buildup of GHGs
in the atmosphere and the potential for human-induced climate
16. No one can predict when damages might
occur or how sever they might be. Most damage projections are
based on assuming climate change near or at the upper end of the
IPCC's projections for 2100. These projections are unrealistic
for three reasons:
They are based on scenarios that
assume that no action is taken to control GHG emissions to 2100,
when such action is already being taken.
They assume unrealistically high
growth rates in GHG emissions, CO2 emissions in 2100 that are
five time current CO2 emissions.
They assume that the climate system
shows a high sensitivity to increases in GHG concentrations. Reports
from a recent IPCC workshop indicate that while there is still
a great deal of uncertainty, climate modelers now believe that
the climate system is less responsive to GHGs than previous high
17. Many of the steps that can be taken
to reduce greenhouse gas emissions can be economically beneficial.
The aluminum industry has dramatically reduced perfluorocarbon
emissions by careful control of operating conditions, and in the
process lowered its overall operating costs. Recovery of landfill
methane can be economically attractive while reducing GHG emissions.
Economically justified energy conservation saves resources and
lowers costs. Similarly, many of the new technologies under development
to provide lower GHG emissions have the potential to increase
energy security while lowering costs and local environmental impacts.
However, these benefits will be achieved only if the choice of
technology is made in a free market and those choices are cost-competitive.
Attempting to dictate which technology is used will lead inefficiency,
higher costs, and fewer co-benefits.
28 February 2005
15 Houghton, J T, et al, (2001): Climate
Change 2001: The Scientific Basis. Contribution of Working Group
I to the Third Assessment Report of the Intergovernmental Panel
on Climate Change. Cambridge University Press, p 698. Back
NAS (2001): Climate Change Science: An Analysis of Some Key
Questions. 24 pp. Back
McCarthy, J J, et al, (2001): Climate Change 2001:
Impacts, Adaptation and Vulnerability. Contribution of Working
Group II to the Third Assessment Report of the Intergovernmental
Panel on Climate Change. Cambridge University Press, p 6. Back
Lu, X, (2004): The methods for impact study on climate change
in China. Presented at UNFCCC SB-20, Bonn, Germany, 18 June 2004.
Houghton, J T, et al, (2001): op cit, pp 59-61. Back
Nakicenovic, N, et al (2000): Special Report on Emissions
Scenarios. Cambridge University Press, 599 pp Back
Houghton, J T, et al, (2001): op cit, pg 15. Back
See, for example: Ausubel, J (2002): Does Energy Policy Matter?
George C Marshall Institute. (http://www.marshall.org/article.php?id=7),
and copies correspondence from I Castles and D Henderson to the
Chair of IPCC and their presentations at IPCC technical meetings,
available at www.lavoisier.co.au/papers/articles/IPCC issues.html Back
Ausubel, op cit. Back
Watson, R T (ed), (2001): Climate Change 2001: Synthesis Report.
Cambridge University Press. Pg 22. Back
Ibid, Pg 24. Back
12 Sach, J D, et al (2005): Investing in development:
A practical plan to achieve the UN millennium development goals.
Canes, M (2003): Unraveling the Puzzle: Differing economic estimates
of climate policy. www.marshall.org/materials/192.pdf Back
Kerr, R A (2004): Three degrees of consensus. Science, 305:932-934. Back