Select Committee on Economic Affairs Minutes of Evidence

Examination of Witnesses (Questions 20-32)

Professor Colin Robinson

11 JANUARY 2005

  Q20Lord Lawson of Blaby:—If you took the income of the developing world in terms of equivalent market exchange rates most of the people in the developing world would be dead because it could be demonstrated that if you translated it into market exchange rates they did not have enough to survive on, but in fact they were alive even though very poor. For that reason, purchasing power parity has been considered to be rather more useful. This makes a huge difference of course to how heroic your assumptions are on the rate of growth over the next 100 years. As an economist what is your view on this?

  Professor Robinson: I think for the purpose of these scenarios they should have used purchasing power parity. My recollection of the numbers is that the ratio of 16:1 of developed to developing countries' income comes down to 8:1 if you use purchasing power parities, so it makes a huge difference, if you assume convergence, to the rates of growth. So I think that purchasing power parities probably should have been used and indeed that is supposed to be the international standard for making these kind of comparisons. At the least if you are doing scenarios and if you are trying to encompass the likely range of uncertainty, you ought to use purchasing power parity rather than doing everything, as I understand it has been done, at market exchange rates. I think that is quite a serious flaw in the methodology that has been used by the IPCC.

  Q21Lord Lawson of Blaby: If I may continue on the longest line. If that is so, then would you not agree that the range of uncertainty on global temperature, assuming anthropogenic causes, as I believe they are called, are of greater importance rather than other things which we may know even less about, the true range should be very much wider than the range which the IPCC has published and promulgated and which seems to have been accepted? That is to say, maybe the upper limit is a reasonable upper limit (although I accept your qualification that it is quite impossible to know what will happen in 100 years' time anyway so it is all rather academic), but nevertheless there is clearly a lower range, whether it is because you should assume the purchasing power figure, or you maybe should not make an heroic assumption such that world poverty has been solved in 100 years, and the lower limit should be a great deal lower than the lower limit that they have forecast?

  Professor Robinson: Yes indeed, I think that is the conclusion. There appears to be an upward bias in their forecasts and if they had used purchasing power parities they would presumably have come out with lower figures for the amount of gases and emissions and warming. I just have this uneasy feeling, having read the scenarios, that I am just not very clear how they get from these driving forces like economic growth to their conclusions. It is not really very clear. So I think in anything one says about changing these assumptions one cannot be quite sure what would happen to the conclusions.

  Q22Lord Lawson of Blaby: No, I am not clear either. If that is so, if there is this huge variety of possible outcomes in 100 years' time, how should governments set about approaching the issue? I know you have said they should do it ambulando and using market mechanisms, and certainly in the parallel which you drew earlier, that of worries about the depletion of energy resources, that absolutely was the right solution and the alarmist prophets were recommending things which were absurd. Do you think cost-benefit analysis has any part to play? Do you believe that it is possible to use cost-benefit analysis sensibly when there is such a wide variety of outcomes? Do you think that cost-benefit analysis should be confined to spelling out clearly what the costs will be of particular sources of particularly policy proposals or do you think there is some other means?

  Professor Robinson: In a word, Lord Lawson, no, I do not think cost-benefit analysis is really very helpful in this case because unfortunately, as so often is the case with cost-benefit analysis, the costs and the benefits are both so very uncertain that the chances are when you do the analysis that what you get is very much governed by the analysts' preconceptions.

  Q23Lord Lawson of Blaby: I do not think short-term costs are difficult. For example, if you were to close down all power stations—I am just taking extremes—which emitted greenhouse gases and rely entirely on power stations which were fuelled in ways that did not emit greenhouse gases you would work out very clearly what the cost would be. One last point, have you read an extremely well-written (I thought) chapter in Adair Turner's book Just Capital which has been helpfully circulated by the Clerk to all of us, in the section on global warming in the chapter on green capitalism, market economics and the environment?

  Professor Robinson: No, I have not.

  Lord Lawson of Blaby: I think it would be very helpful if we could ask Professor Robinson on the economic side, particularly on the energy economic side, as he is an energy economist, to let us have a note on that.[15]

  Chairman: Okay.

  Q24Lord Sheldon: One aspect of climate warming, of course, is that there are going to be greater costs to some countries but greater benefits to others, and so there is a division here between countries. The low-lying countries are likely to suffer the most and those in more moderate temperature climates are likely to find their agricultural products increasing in quantity and value, if there is enough water to deal with that, and there is an argument as to whether the total world output might not even be greater than it is now. You have only got to think in terms of hot-houses and the way in which you get greater production from them. Therefore it could lead to international problems whereby some countries suffer and some countries benefit, and this could be a real problem, enhanced, if anything, by the loss of the Arctic Ocean and the possibility of the Antarctic becoming a new continent. There are these pluses and minuses and looking as far ahead as 100 years you cannot be sure that there would not be an actual benefit to the world but a disadvantage to some countries. Now this becomes a very difficult international problem and so it may be that by interfering too much in this mechanism we are complicating an issue which may have a rather simpler solution because more money could be made available for dams and all sorts of things. What you have said about uncertainty in the future is multiplied by looking at all sorts of other possibilities which may impinge upon this.

  Professor Robinson: Yes, I absolutely agree, I think it is a situation where you cannot say unequivocally lots of people are going to lose. The situation will be that some people will lose and some people will gain if we have a warmer atmosphere. That makes it an extraordinarily difficult problem to deal with because you are not sure whether to leave it all alone and it will work itself out. It is the sort of problem, as I indicated earlier, from which economists often shy away because one has to think of a way of weighting the gains to the gainers against the losses to the losers and coming out with some kind of sum, which is very difficult to do.

  Q25Lord Sheppard of Didgemere: If I take you back from 100 years forward to 10 years back, which may be easier, has the whole of this debate not actually brought economic benefit because people, and by people I include business, are more energy conscious (it is partly of course price but it is partly this debate) and in general they are more conscious of pollution? Has it not had some side benefits regardless of whether the long-term case is made or not?

  Professor Robinson: This really comes back to something I mentioned very briefly in the memorandum which is, although I was criticising prophets of doom, I said they can perform a useful function because they alert people to problems which need to be dealt with. Past experience suggests that human ingenuity one way or another usually does deal with them, so I think it is correct that by alerting individuals and organisations to possible problems in the future people do actually start to deal with them and in that sense normal market forces will actually deal with many problem of the environment, as with other things.

  Q26Lord Skidelsky: I am just thinking about what you said and the questions that have been asked. It seems to me there are two distinct problems. One is the base year problem, what is the actual gap between developed countries and developing countries today? The second is the assumption that convergence will take place. The second seems to me to be very dubious because historically it is true there has been some convergence but, on the other hand, some parts of the world are diverging at the moment. I am thinking particularly of Sub-Saharan Africa which has been diverging from rich countries, since independence at any rate. Would you accept as an economist that those two problems can be separated out in one's thinking about the economic effects of climate change?

  Professor Robinson: Yes certainly, although the way in which the initial gap is defined, if you are going to assume convergence is going to affect the rate of economic growth if you define it incorrectly and say it is wider than it is.

  Q27Lord Skidelsky: That is certainly a problem but then you also have an assumption that convergence, will take place. If there is no trend to convergence it does not matter what the initial gap is.

  Professor Robinson: Yes.

  Chairman: Does anybody else want to ask a question? We have gone through the questions that were prepared in advance and we have had some supplementaries.

  Q28Lord Goodhart: Could I ask one following up the last one on the convergence issue. Does it not look now as if convergence is happening since the two largest relatively undeveloped countries in the past—China and India—now seem to be developing much faster than the developed world, so they at least (and they account for something over a third of the world's total population) do seem to be converging with the developed economies?

  Professor Robinson: Yes, I think that is absolutely true and I am sure most people would assume there would be a rapid growth in both those economies. One of the problems with the IPCC scenarios is that they work in terms of regions so it is quite difficult to see what the assumptions are for individual countries. If we want to do this kind of thing I guess you really ought to be trying to pick out particular areas like this where most people would agree there is probably going to be rapid economic growth and looking at it in rather more fine detail than has been done in these scenarios.

  Q29Lord Sheppard of Didgemere: I am not starting the whole conversation again and I have read your paper and I hear your arguments and, to the extent it is possible, I understand it. But so what, so what? What should we be doing? Apart from worrying about it a bit less, what should we be doing? Anything?

  Professor Robinson: I think there is an argument for saying we just do not really know what is going to happen in this area, as in so many areas, so the Government ought to take out an insurance policy for everybody by taking some action that will help to mitigate the effects of any possible warming in the field. I think the best way of doing that is to strengthen these emissions trading schemes which essentially work with market forces. To some extent markets will help to work it out anyway. There are energy technologies around that conceivably could solve all these problems. There are these ideas that seemed fanciful for many years that are now attracting a lot of research like the use of hydrogen for energy which would essentially give virtually zero pollution. These things may come along in the fullness of time. I think we want to avoid taking massive action now to deal with problems which might never occur in the future.

  Q30Lord Lawson of Blaby: Would you not also agree that markets are particularly useful and, I would say, entirely the best means of adapting to changes that are happening gradually? If you have something like the recent tsunami, then clearly there was no market solution there, although even there it has been said authoratively that if they had had (which they could have had) an early warning system in place, they could have had two hours or even one hour's warning, and then the human cost would have been negligible instead of appalling, even though there would still have been material damage done on a large scale. Here we are talking about something where we have decades of warning ahead of us and that is pre-eminently something that markets can cope with and therefore it is important to distinguish between an apocalypse, which is something that happens out of a clear blue sky very suddenly and is something which, even on the IPCC assumptions, happens very gradually over a very long period of time?

  Professor Robinson: Yes.

  Lord Sheldon: Can I ask one thing because talking about 100 years does set one dreaming a little bit and to my mind it would be rather surprising if 100 years from now we do not have abundant supplies of fresh water from the sea and that would change so many things in the whole world. However, the dreaming has to stop now and we have got to deal with the present situation.

  Q31Chairman: Perhaps we ought to draw this session to a conclusion. Listening to what you have been saying, right at the beginning you said to us you accept that there is some evidence of global warming but you have spent a lot of your time calling into question the validity of economic forecasts for 100 years. You are not able to give us, and I think rightly so, any rational explanation as to why there is this convergence that is likely to take place according to the forecasts except "equity", but I would have thought the obvious thing that you may have been too polite to say to a bunch of us sitting here concerns the political realities of the situation. If you are a leader of an under-developed nation and you are told the standard in your country is 25 per cent of that of the United States and you are asked to support a forecast for 100 years from now and you say, "Well, it will still be 25 per cent of the standard of living of the United States," I would not want to be in your position when you had to fight an election in South Africa or wherever it was. It seems to me that the pressures in the absence of good strong economic arguments to go for convergence seem to be overwhelming here because of the political realities of it and why should the western world worry too much either because it is 100 years from now. Harold Wilson talked about a week being a long time in politics and I think that has been shortened in recent years, so it is not surprising that this notion of convergence is there in the absence of any strong evidence. That is not really meant to be a question. Is that ridiculous?

  Professor Robinson: No, I think that is probably an important underlying force.

  Q32Lord Marsh: I was going to enter one thing on this 100 years point because I was struck by several references and footnotes which exist in the papers which have come along to the late Professor Jevons in 1866, who forecast this great problem over the next 100 years of a shortage of carbon fuels. I became Minister of Transport in 1966 exactly 100 years later with a specific remit to cut down the coal mining industry because we did not know what to do with the bloody stuff. It is an example of how one can waste an awful lot of time on a 100-year horizon and it is probably, as I believe you were suggesting, in slices of relatively short periods, recognising that some of the things you need to do do require long lead times to get into any action and relatively short periods and seeing how it goes. I do not think it is attractive to start looking at what will be happening in 100 years' time because I do not think anybody has ever been able to forecast it.

  Lord Layard: Since this catch-up question has been discussed, this is not an issue which has been short of research. There is pretty well-established empirical literature on economic growth which is centred on the concept of catch-up, and the idea is you catch up at a rate which depends on the difference between your equilibrium level, as it were, and your current level. The explanation of the low rate of growth in Africa as opposed to the high rate in Asia is that their equilibrium level itself is low so their equilibrium and current levels are not so far apart. These are perfectly respectable models. I do not know how they have been used by the IPCC and that needs to be looked at, but the idea that this is not the central way of looking at it is not right; this is the way it should be looked at. It is just a matter of the numbers that are used.

  Lord Lawson of Blaby: I think you make a jump from saying this is a very usual way of looking at things to saying this is the way it should be looked at. I think that our Chairman has made a very powerful point in saying that it is very difficult for any international body, for political reasons, not to make an assumption of catch-up, so they do, and everything follows from that. It does not mean to say that is the way it should be done. It does not mean to say that this is the assumption that this Committee should make.

  Chairman: I just wonder whether this is the moment we ought to finish the session. As a matter of fact, as far as I am concerned, if Professor Robinson wants to stay for a few minutes I am perfectly happy he should and he might well be able to contribute to the discussion. We might have a few minutes' discussion at the end off the record to finish. Can I thank the stenographers for taking notes and let's have a few minutes' discussion and then adjourn. Let me formally thank you very much indeed for coming and for a stimulating session. A lot of things have got us going. I started by thinking that we might have a nice gentle run through this policy rather than monetary policy but I suspect it is quite a controversial issue and we need to steer ourselves carefully through if we are going to throw any useful light on it at the end. You have given us a good start and we are very grateful to you.

15   No supplementary evidence received. Back

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