Memorandum by Dr Peter Read
THE WAYS
IN WHICH
THE PROBLEM
OF CLIMATE
CHANGE HAS
BEEN ASSESSED
1. I have researched the economics of climate
change for the last 15 years with a recent explicit focus on strategies
for countering the threat of abrupt climate change. My 1994 book
Responding to Global Warming "Points toward a key
strategy . . . which links energy and forestry, North
and South" (Michael Grubb) and is "a skilled attempt
at fashioning policy and a deep foundation for thinking on the
subject" (Thomas C Schelling). In effect that book and my
subsequent work shows that the climate change problem is both
more urgent and more easily dealt with than in the conventional
wisdom.
2. The Committee's intent to leave aside
consideration of control policies gives me some difficulty, since
my work treats the problem and the response holistically. However,
I Annex the abstract for my presentation to the Scientific Symposium
"Stabilisation2005" held at the Hadley Centre 1-3 February
. It is titled "Carbon cycle management with increased photo-synthesis
and long-term sinks" and I trust that the Committee will
find time to look into it and come to recognise that the nature
of the problem, the nature of an effective response, and the distribution
of costs and benefits are inextricably linked. Failure to recognise
this has led to the problem being wrongly assessed (mis-specified)
as one of reducing anthropogenic greenhouse gas emissions (largely
CO2, largely from the energy sector) rather than using the mechanism
provided by nature to manage the level of CO2 in the atmosphere.
3. Energy related emissions are just over
5 per cent of CO2 terrestrial flows into and out of the atmosphere,
which suggests that mitigation investment in the heavily capitalised
energy sector is likely to be less cost-effective than investment
designed to increase photosynthesis on under-capitalised land.
Accordingly, I have argued that policy-driven land use change
offers lower cost response options than the conventional environmental
economics prescription of raising the price of the polluting activity,
ie the cost of using fossil fuels. Indeed, as outlined in the
Annex, an effective response yielding global economic benefits
is available. This reality has been overlooked in the intricacies
of negotiating the Kyoto protocol, which has been informed, since
the adoption of the Berlin Mandate, by the outdated comparative
static general equilibrium price theoretics pioneered, as regards
environmental policy, by Baumol and Oates in 1975.
4. By coincidence, it was also in 1975 that
Schultz and Kneese commented in a Brookings Institute Report that,
"conflicts between material well being and environmental
goods are, in the long run, ameliorated by technological change"
(or, implicitly, not at all). The economics of competing technologies
is fundamentally dynamic and not amenable to general equilibrium
theorising. But it was at that time awaiting the pioneering work
of W. Brian Arthur, whose 1994 study Increasing Returns and
Path Dependency in the Economy demonstrates that simply "getting
prices right", eg by internalising the detrimental pollution
externality, can easily fail to stimulate the most beneficial
technological path. While not sufficient, it is at least necessary
to incorporate into the analysis the dynamical benefits of learning-by-doing
with desired and ultimately cost-effective new technologies, sloping
the playing field enough to ensure they are adopted and that investment
in undesirable technologies is progressively reduced.
5. But not only is technological competition
path dependant, so also is a negotiating process, with participants
extremely reluctant to reopen the can of worms that has been sealed
by agreement at a previous meeting—the dynamic is always
to move on, building on previous agreement. So there was no prospect
that the path adopted after the Berlin Mandate would be influenced
either by a reading of my book or of Arthur's. However, the impasse
reached in negotiations for the post-2012 regime offers prospect
of adopting a more holistic perspective than Baumol and Oates's,
for which the position adopted by the Bush administration towards
Kyoto may prove to be the grit in the oyster. Securing the pearl
involves recognising the potential urgent nature of climate change,
seeing it as one of carbon management rather than capping emissions,
and driving the potential win-win-win technological changes that
can radically alter the perceptions that appear to underlie the
Committee's questions.
6. The nature of climate change is, along
with the evolution of technological choice analysed by Arthur,
an example of non-linear dynamics ("chaos theory").
This suggests that the policy-makers' (and negotiators) vision
of global warming as a gradual process, to which an appropriate
response can be gradually developed, may be incorrect. This intuition
is substantiated by an understanding of the numerous positive
feedback processes that can contribute to climatic instability,
as revealed by paleo-climatological research. These include: the
stability of the thermo-haline circulation that drives the North
Atlantic "Gulf Stream"; the accelerating release of
methane as tundra thaws; the destabilisation of land based ice
on Greenland and in the West Antarctic Ice Sheet; the reversal
of the CO2-fertilised biotic sink due to plant stress under raised
temperature, etc. Several of these, on latest reports to the above
mentioned "Stabilisation2005" Symposium, are giving
increased concern on a decadal rather than millennial time-scale.
7. However, the Atmosphere-Ocean General
Circulation Models that provide the basis for long run climatic
projections are generally less sensitive than nature and fail
to reproduce the dramatic changeability of the paleo-climatic
record. Yet it is these Models' projections that inform the gradualist
perceptions of economists and policy makers, as exemplified in
William Cline's 1992 study of "The Economics of Gobal
Warming" and embodied in the DICE model, which provides
the work-horse for most policy-oriented analyses. Whilst climate
scientists constantly strive to reproduce the paleo-climatic record
in model projections, the difficulty of doing so with computer
models, along with scientific conservatism, results in the message
received by the policy-making community being one of gradual change,
for which the DICE-based prescription is for delayed action pending
improvements in technology and improved ability to pay, given
continuing economic growth (together with the pervasive influence
of non-zero discounting). Thus the perceptions of economists have
failed to match the real concerns of scientists.
8. The evolving concept of CO2 capture and
"sequestration", stimulated mainly by US DoE funding
(and driven by coal industry survival concerns, in the face of
prospective climate policy) led recently to the concept of BECS
"Bio-Energy with CO2 Storage". BECS constitutes a "negative
emissions energy system" (growing biomass absorbs CO2; capturing
the CO2 emitted, when the biomass is burned as bio-energy feedstock,
prevents it getting back to atmosphere). On a large enough scale,
BECS can yield pre-industrial CO2 levels by around mid-21st Century.
Such management of the carbon cycle is order of magnitude better
that can be achieved with the zero-emissions energy technologies
stimulated by an emissions cap and consequential high price on
emissions. It gives some prospect of effective response, if the
threat of abrupt climate change becomes imminent. This led Bob
Watson, former IPCC Chairman, to prompt the UN Foundation to support
an expert workshop on the policy implications of abrupt climate
change, which I convened in Paris end September 2004 (please visit
www.accstrategy.org for details).
9. This workshop concluded that the world
would be better placed to respond to abrupt climate change in
the event it is shown to have become imminent, say in 2020, if
by then there is in being a large scale global bio-energy market
with South-North trade in bio-fuels such as ethanol and Fischer-Tropsch
bio-diesel. However, large-scale bio-energy carries so many ancillary
benefits that the abrupt climate change aspect comes last in the
list on page 2 of the Annex. In providing greater energy security
(a concern of the USA) a WTO-acceptable basis for farm support
(an EU concern, given the high cost of agriculture in the recent
East European accessions) and prospects of sustainable rural development
with export led growth based on trade in bio-fuels for many developing
countries (a concern of G77) it is a prospectively negotiable
way ahead for a "coalition of the winning" after 2012,
and hopefully sooner. In linking the Prime Minister's dual concerns
for climate change and progress in Africa, it could provide a
basis for G8 agreement during his Chairmanship.
10. Managing land so as to substantially
increase the total amount of terrestrial photosynthesis, and hence
the supply of biomass, raises concerns related to the human "ecological
footprint". These neglect the reality that natural ecosystems
do not maximise the sustainable productivity of the land where
they have evolved. Such simple investments as stock-proof fencing
to prevent animals destroying crops and plantations at the seedling
stage can improve on nature. Carbon fixing soil amendment yields
environmental benefits, including enhanced fertility and water
retention. Efficient management of part of the land, in lieu of
widespread unsustainable traditional land management, can enable
natural bio-diversity to flourish in conservation areas.
11. Such efficient management can yield
food and forestry products co-produced with bio-fuels on existing
cropland. Alternatively (and hence additionally) estimates of
land requirements to effectively mitigate all current anthropogenic
emissions of CO2 fall well short of the 1.5Gha of potential arable
land (IPCC 2001) that is not in use. So there is no shortage of
land but of investment in land. Additional biomass can be used
in lieu of fossil fuel; its carbon content, in the form of bio-char
("charcoal") can be used for soil amendment with 5K-yr
half life; or it can be used as wood, or in advanced materials
such as carbon fibre, for long-lived artefacts. Note that "defossilisation"
is a far less daunting prospect for the energy sector than decarbonisation.
Biomass can be the basis for bio-fuels and bio-electricity using
here-and-now technology (and with ample prospect of technological
improvement) that is highly compatible with fossil fuel technology
and hence gives rise to minimal "stranded assets" in
the existing energy infrastructure.
How are the current estimates of the scale of
climate change damage derived?
12. It is a mistake to balance costs and
benefits in a situation of fundamental uncertainty since there
is no basis for establishing the probability distributions needed
for the calculation of expected values. An alternative approach
(Chapter 3 of Responding to Global Warming) uses "decision
theory" to determine a matrix of outcomes under different
policy decisions and different possible "states of nature"
and to select policy options that avoid the risk of unacceptable
outcomes. In practical terms, this means directing scientific
effort towards detecting thresholds and triggers for such outcomes
as, eg, a failure of the Gulf Stream that keeps Europe warmer
than Siberia, and taking low cost steps to be prepared for effective
action if/when such a threshold appears to be imminent.
How far do the estimates of damage depend on assumptions
about future global economic growth, and how valid are those growth
assumptions?
13. As noted above, damage estimates under
gradual climate change are an irrelevance since we have no basis
for estimating the probability of such gradual change. Economic
growth may be brought to a standstill or put into reverse by armed
conflicts resulting from the failure of climate based production
systems that are essential to life, but which yield produce that
is low-priced in the consumption patterns of advanced economies.
The DICE model treats all output as equally essential. However,
growth is not inevitable but dependant on wise policy and good
fortune as regards the state of nature.
How does uncertainty about the scale of the problem
and its impact affect the economics of climate change?
14. Uncertainty is inevitable in a non-linear
dynamic system where small current events can radically change
the subsequent evolution of the system. This does not mean that
such systems cannot be stabilised by suitable negative feedback
control mechanisms. But without effective policy to create such
mechanisms, uncertainty is pervasive to the problem and invalidates
much of the economics that has been done on climate change. There
is great uncertainty as to the climatic effect of raised levels
of CO2, similar uncertainty regarding the impacts of these climatic
effects, moderate uncertainty about the pace of technological
change, and some uncertainty about its direction (that can be
resolved by a well-conceived agreement between a "coalition
of the winning" on a technologically-oriented policy to secure
the policy-desired direction). As regards the great uncertainty,
it should be noted that the IPCC's Third Assessment Report range
of 1.4 to 5.8 degrees Celsius by 2100 is a range from the possibly
benign to the certainly catastrophic, which should not be regarded
as a continuum. Furthermore, it emerged at the Stabilisation2005
symposium that this is only a 90 per cent confidence range on
a (subjective) probability distribution, and that the upper end
of possibilities could be an extinction-threatening 10 degrees
Celsius.
THE KEY
ROLE OF
THE INTERGOVERNMENTAL
PANEL ON
CLIMATE CHANGE
What has been the approach within the IPCC to
the economic aspects of climate change, and how satisfactory has
it been?
15. The work of the IPCC is dominated by
the published literature and therefore gives too much emphasis
to what is known and insufficient warnings regarding the importance
of what is not known. When what is thought to be known is incorrect,
this can lead to seriously wrong assessment. In making that comment
I have no wish to denigrate the devoted and largely unthanked
contribution made by hundreds of scientists from both the natural
sciences and the social sciences. However, scientific conservatism
leads to unwillingness to question the outputs of other disciplines:
economists accept the gradual change predicted by the climate
models; scientists accept economic folklore that getting prices
right is effective; few question that land use change is costly
and likely inequitable. The consequence has been that the contribution
of economists to the work of the IPCC has been poorly focused
on the nature of the problem, which they have perceived in the
Baumol-Oates tradition of capping CO2 emissions rather than managing
the carbon cycle.
Is there sufficient collaboration between scientific
and economic research?
16. Furthermore the weight of scientific
information contained in the IPCC's Assessments is so great that
public perceptions are based on "Summaries for Policy Makers"
that are the property of the member Governments, with a process
of line by line agreement ensuring an anodyne result. This masks
the reality that the division of the Assessments into working
group 1 (climate science) working group 2 (ecological science)
and working group 3 (social science) inhibits inter-disciplinary
collaboration in the assessment process. Added to the rubric that
its work should be "policy relevant but not policy prescriptive",
the effect is that no framework exists within the IPCC process
in which natural and social scientists can work together to devise
an effective response strategy. It is for that reason that the
Expert Workshop that I convened last autumn (para 8 above) was
organised outside of the IPCC process.
Could IPCC member governments, and the UK in particular,
do more in future to contribute to the robustness of the economic
analysis?
17. As regards what is incorrectly known,
it is not at all well appreciated within the economic profession
that the doubling of pre-industrial levels of CO2 was adopted
within the climate modelling community as a basis for model comparison
and has no scientific basis as a criterion of what is a safe level.
It was transferred to economic analyses as a social construct,
what economic analysts thought the policy-making community—and
the voters—would accept, given the analysts perceptions
of the cost of response. These were in turn based on "top-down"
misperceptions of the cost of response based on macro-economic
behaviour through decades of low oil prices, interrupted only
briefly by the OPEC price hikes. Nevertheless that episode stimulated
enough innovation to provide ample evidence of the availability
of low cost "bottom up" response strategies which, as
noted above (para 4), require a technologically aware policy package
for their effective take-up.
18. IPCC member governments, possibly at
the instance of the UK government, could improve the robustness
(relevance) of economic inputs by initiating a problem-oriented
approach. As noted at the recent Stabilisation2005 Symposium,
this would involve reviewing the set of plausible unacceptable
outcomes from continued high levels of greenhouse gases—uniquely
high in geological time going back over 1 million years—and
then providing a technological assessment of how to avoid such
outcomes. The problem oriented approach would then involve the
description of alternative measures for driving such technological
change, only then followed by economic assessment of the cost-effectiveness
(see para 22) of such alternatives.
WHO BEARS
THE BRUNT
OF CLIMATE
CHANGE AND
OF THE
COSTS OF
CONTROLLING IT?
In monetary terms, the impact of change and the
costs of control may be greater in rich countries than poor ones.
But is this an adequate measure?
19. The issue of equity in burden sharing
and impact assessment using standard cost benefit techniques was
the subject of a major disagreement in relation to Chapter 6 of
the IPCC's 1995 second assessment report (Working Group 3 contribution)
where the summary for policy makers is at variance with the text
of the Chapter (which is the property of the authors, not the
member countries). The problem arose because it was unacceptable
to some member countries that the value placed upon a statistical
human life was lower than the value placed in other, richer countries.
Of course, the application of cost benefit analysis requires that
distributional issues have been settled elsewhere, eg by government
at the national level. In the absence of effective supra-national
government, the application of CBA trans-nationally is clearly
inappropriate, a fortiori with a simple monetary calculus.
The development of a strategy that yields multiple benefits rather
than costs, as with the Expert Workshop (para 8) proposal for
a global bio-energy market (see Annex), may help resolve some
distributional issues.
What would be the relative costs and benefits
of using resources, otherwise expected to be allocated to climate
change control, instead to expand international development assistance?
20. It has always been a concern of G77
countries that new and additional resources should be made available
through international transfers to defray any costs they incur
in response to climate change mitigation and adaptation. So far
rather little has been forthcoming through the CDM and through
GEF expenditures on capacity building, a G77 grievance. But to
terminate such flows and claim that compensating increases were
being made to official development assistance, in a context of
long term decline in such assistance, would rouse suspicion of
some sleight of hand. It would thoroughly muddy the waters as
regards prospects of developing country participation in the work
of the UNFCCC. Yet such participation is essential for success
in mitigating climate change. Prospective growth of developing
country emissions, under a business as usual pattern of development
in their energy sectors, will far outweigh anything that can be
done to constrain industrial countries' emissions. Thus the cost
of such a proposal will be the ultimate failure of the UNFCCC
process. Of course, if the view is taken (contrary to my views
expressed above) that climate change damages are certainly slight,
and that such failure doesn't matter, then—as pointed out
by Thomas Schelling in his 1992 Presidential Address to the AEA—the
best thing we can do for developing countries is to boost their
growth, making them better able to afford the cost of the minor
impacts, when they occur.
When are damages likely to occur and how satisfactory
is the economic approach to dealing with costs and benefits that
are distant in time?
21. The discount rate employed in cost benefit
analyses of climate change response strategies is usually taken
as exogenous, determined either "descriptively" (ie
the risk-adjusted market rate of real return on investment) or
"prescriptively" (by reference to welfare theoretical
assessments of the social rate of time preference). Apart from
the general inapplicability of cost benefit analysis in relation
to a problem of pervasive uncertainty noted above (para 12) the
application of a decision theoretic approach in which some outcomes,
under combinations of foolish policy and an unkind state of nature,
lead to low or even negative growth rates points to the need for
the discount rate to be endogenous to the scenario (and likely
time variant) and not based on a history of economic growth that
is discontinuous under such scenarios.
22. It should be noted that the UNFCCC's
wording envisages cost effectiveness analysis rather than cost
benefit analysis, an approach which greatly shortens the time
horizon and leaves it to scientific experts to determine how the
ultimate objective under the Conventions Article 2 should be quantified.
But as regards inter-generational equity, work by Geoffrey Heal
and collaborators, based on Rawlesian equity considerations, suggests
that—given present indifference between the welfare of generations
200 or 2,000 years ahead—it is appropriate to single out
a selection of "worst served" generations under any
particular scenario and to select policies that ensure they are
no worse off than the present. That—if I understand this
very difficult work correctly, which is by no means certain—seems
to me to be a reasonable basis for securing intergenerational
equity.
What other associated benefits might there be
from reducing greenhouse gas emissions?
23. As discussed above, the attempt to respond
to climate change by reducing emissions is costly and likely doomed
to failure through inability to secure international agreement
on the deep cuts that are needed to achieve stabilisation even
at 550ppm by 2100, still more so in relation to stabilisation
at the sharply lower levels that may prove to be needed if the
threat of abrupt climate change becomes imminent. Modest co-benefits
may follow from such a programme, in terms of reduced local pollution
associated with more efficient use of fossil fuels, particularly
in transportation, but these are trivial compared to the magnitude
of the risks that are run by neglecting the threat of abrupt climate
change.
24. To reiterate the core message of this
submission, climate change response must be seen in terms of carbon
cycle management rather than capping emissions. If that approach
is taken after 2012, and hopefully before, very great associated
benefits can flow to the many land-rich but otherwise impoverished
developing countries that can become exporters of bio-fuels. The
take-off of sustainable rural development can be funded by carbon
credits financed ultimately by demands for energy services, especially
personal mobility, in developed countries. Numerous other benefits
follow as detailed in the Annex, p 2. Crucial to the realisation
of this prospect is to seize the opportunity offered by the breakdown
of the Kyoto process that is ironically coincident with its coming
into force. The reality of this breakdown is manifest in the decision
of COP10, meeting in Buenos Aries in December, to hold an inter-governmental
seminar in May to discuss possible ways forward. It is my hope,
in providing this evidence, that the Committee will be persuaded
to give its support to the expert workshop's recommendation to
develop a large scale global bio-energy market.
1 March 2005
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