Select Committee on Economic Affairs Minutes of Evidence

Examination of Witnesses (Questions 62-79)

Dr Chris Hope

18 JANUARY 2005

  Q62Chairman: Dr Hope, we are very grateful to you for coming. I know you have been sitting through the previous evidence and you know that I start by saying would you please speak up and speak slowly so that we can make sure we get a complete record of it. You know something of the questions that we are going to ask you. Let us see how we get on with those. I will start the ball rolling by asking the first question. We understand you have your own integrated assessment model called PAGE. I have to say that I thought your written evidence was very interesting insofar as I could understand it. I wonder if you could briefly explain what an integrated assessment model is and what it tries to do?

  Dr Hope: Certainly, my Lord Chairman. Thank you very much for giving me the opportunity to talk to you and hear your questions this afternoon. The last part of Sir John's evidence led in very well to what an integrated assessment model does. It is trying to take the best scientific and economic information that there is out there in the world and combine it together to find out what the policy implications of it might be. Of course, there are huge uncertainties with all the scientific and economic information and therefore to have a credible integrated assessment model you have to have some way of dealing with that uncertainty and providing a consistent framework in which you can reflect different people's opinions about economic uncertainties like discount rates or equity weighting and scientific information like climate sensitivities, what will happen if we double the concentrations of greenhouse gases. That is what an integrated assessment model gives you. It gives you a consistent framework to look at different opinions about the scientific and economic information and what the possible implications of that might be.

  Q63Lord Sheldon: There must be a very wide range of estimates that are produced as a result of examining these models, both because of the uncertainty of dealing with the future and of course the long term forecasts. You have got two problems: the uncertainty and the time. The range of models must be very great indeed. Can you give us an indication as to why these models are presented?

  Dr Hope: Yes. The best source of information typically is the IPCC that Sir John has been talking about. It has very good information on the science, and it has very good information on the economics as well. The scale of the problem on the science side is that if we have a doubling of the concentration of carbon dioxide in the atmosphere then we would expect perhaps eventually to have a one and a half to five degree centigrade rise in global average temperature. That is one estimate of the uncertainty there. On the economic side, if we were to have, say, a two and a half degree centigrade rise in temperature, which is around the middle of the range of scientific information, then the kinds of impacts that you might expect to see may be from one or two tenths of a per cent of GDP in developed regions if we are able to adapt well to it, up to possibly several per cent of GDP in developing regions where adaptation is less possible, so again you have some idea of the scale of uncertainty. What integrated assessment models do is allow you to put in ranges for all of these parameters. The PAGE model has the possibility of putting in ranges for about 50 of these different parameters, combine them together and run them in a probabilistic way using Monte Carlo analysis in order to try and get some output probability distributions, output ranges for the kinds of things you might be interested in: the total impacts in perhaps dollar terms of global warming, the marginal impacts of the last tonne of carbon that you might be emitting, and therefore that gives you some sense of the benefits that you would have if you were to start reducing the emissions of carbon dioxide. The kind of range that seems to come out is that it looks as though the last tonne of carbon we emit maybe causes a mean estimate that the damage would be $60 or so, but the range around that is quite wide, from maybe $10 up to above $100, round about at least an order of magnitude of uncertainty of what the marginal impacts would be and therefore what the benefits would be of reducing carbon emissions.

  Q64Lord Sheldon: How do they take account of the possible offset because of advantages in certain areas where global warming could be an advantage for agriculture and so on?

  Dr Hope: They try to take it into account as well as they can. Most of the integrated assessment models would not just look at the world as a single place. They would divide the world up into regions and would have separate estimates for what the economic implications of climate change would be in each of those regions. In the PAGE model, for instance, one of those regions is the former Soviet Union/Eastern Europe and there the mean estimate is that there would indeed be a benefit from moderate amounts of global warming. It is outweighed by the negative impacts that there would be in most of the other developed countries, fairly small ones, but particularly the negative impacts that there would tend to be in developing countries, particularly in Asia and Africa. The figures that I quote in my note include the offsetting benefits that you would get in the Soviet Union/Eastern Europe and they do not come anywhere near the negative impacts that you would get in the rest of the world.

  Q65Lord Sheldon: What about Antarctica?

  Dr Hope: Antarctica is a difficult one to deal with. There is not much economic impact in Antarctica because there is not much economic activity in Antarctica, but of course it is one of the last wildernesses of the world and you would expect to have some estimate of the kind of damage that there would be in terms of people disliking the fact that you are spoiling this great wilderness. At the moment those kinds of estimates for damages to Antarctica tend not to be included in the economic estimates which the integrated assessment model is built on.

  Q66Lord Sheppard of Didgemere: How does one, in an economic model like that, build disaster in if you are flooded out in East Anglia or Bangladesh? It must be a bit more than a one per cent effect on GDP, either in terms of refugees or whatever.

  Dr Hope: Most of the integrated assessment models do not include estimates for refugees, which was the last point that Sir John made, and PAGE is no different from that. PAGE can only really build on the kind of economic information provided by the economic and scientific specialists. It does include things like the effects on sea level rise, which would lead to flooding in Bangladesh and other parts of the world. It does include the kinds of extra extreme events that you would expect to see more frequently occurring, whether they are storms or droughts, and it does include the five causes for concern that the IPCC identified, which includes damage to unique eco-systems, damage from these extreme weather events, the distributional impacts across the world, the fact that poor countries are likely to suffer more than richer countries, aggregate economic impacts and also it makes a first attempt to try and include the fifth reason for concern which the IPCC put down following large scale discontinuities, which is nice scientific language for the real disaster scenarios that people have, maybe the West Antarctic ice sheet melting, leading to several metres of sea level rise, or the Gulf Stream turning off so that the climate of northern Europe would be very strongly affected. It makes a first attempt to try and incorporate what is the enhanced probability of that kind of event occurring and what would be the impact of that and therefore whether we can fold that into the uncertainties that we are dealing with.

  Q67Lord Vallance of Tummel: I was interested in reading your written submission. It could have been written by an economist but I gather that your first discipline is as a natural scientist, so you are an ideal man to talk to in these two languages. Can we take a peer into an integrated assessment model? Perhaps you could tell us how, once the emissions scenarios have been produced, they are then linked into atmospheric concentrations of greenhouse gases and how then those concentrations are linked into global warming, because with those you have to span the economics and the science, I guess.

  Dr Hope: Different integrated assessment models do it in different ways. The ones that are built by economists tend to have a very rudimentary treatment of the science in that way. The model I am involved with, the PAGE model, takes the emissions, looks at the stock of carbon dioxide and other greenhouse gases in the atmosphere and tries to keep track of that by a very simplified form of carbon cycle and lifetimes for the other gases. From that you can deduce what the concentrations are likely to be in the future and you can then use the formulae that are in the IPCC and elsewhere for looking at how that increases the radiative forcing, the extra trapping of heat that will lead from those concentrations, and again they are not straightforward equations. Some are logarithmic, some are square root functions, some are linear functions. Once you have got those estimates for the increase in radiative forcing you then need to have some treatment of the thermal inertia of the earth and how that leads the temperature to rise gradually rather than suddenly, and you can put that in and then look at the effects that you might expect to see in different regions of the world when you take into account the kind of global dimming that Sir John was talking about, the effects of sulphates which will lead to temperature rising more slowly in some regions than others, particularly if they have got high levels of sulphates in them. It has simplified forms for all those factors taken from the scientific models in such a way that the end result for the temperature rises that you see from the integrated assessment model are consistent with more detailed models to within a few tenths of a degree centigrade. Given the uncertainty that Sir John was talking about, where temperature rise from 2100 might be from one and a half to as many as six degrees centigrade, that is probably a reasonable degree of accuracy for the work we need to do. Of course, when we are using those simplified forms what it also allows you to do is to have uncertain values for the parameters and to track through the uncertainty in what is going to happen to radiative forcing and concentration of temperatures, which is what we need to feed into the economic impact part of the model which comes later.

  Q68Lord Vallance of Tummel: Can I ask you the general question I asked Sir John, and that is whether you think that the IPCC as a forum is capable of melding the scientific and economic aspects in a sensible way or whether you should try to do it yourself?

  Dr Hope: I think it is very good in terms of getting together scientists to provide the best scientific information and getting together the economists to provide the best economic information. They tend to be rather separate from each other. The scientists tend to be in Working Group I and the economists tend to be in Working Groups II and III. There is some conscious attempt made to have a transfer of people between the working groups but there is always the difficulty that it is quite rare to find a scientist who is fluent in the language of economics or an economist who is fluent in the language of science, so those kinds of transfers of people do not happen all that much. What the IPCC tries to do at the end is to build a synthesis report which brings together all the scientific and economic information but it does not tend to have its own modelling capability to be able to bring them together in the kind of way that I am talking about here in the PAGE model. It tends to have to rely on integrated assessment models that have been developed by people like myself or other people around the world, or else it just has to try and do some order of magnitude comparison by saying, "It looks as though the science says that the temperature will rise by two and a half degrees centigrade if we have a doubling of concentrations. What do the economic models say will happen if the temperature rises by that kind of amount?", and it gets them together in some sort of rough and ready form.

  Q69Lord Vallance of Tummel: But you would prefer it to be inter-disciplinary?

  Dr Hope: I would prefer it to be done in a consistent framework where they are put together in this kind of integrated assessment model which tries to have a view of the science and of the economics and allows you to see what happens if you make slightly different assumptions either of the scientific side or of the economic side, what that will do in terms of the impacts that you would expect.

  Q70Lord Skidelsky: How satisfied are you with the idea of using a cost-benefit approach to determine the extent of global warming in general terms?

  Dr Hope: It is not the only approach. I do not think it should ever be the only approach. It is one component of trying to get a handle on this very difficult problem. There is a huge amount of uncertainty about both the science and the economics, yet we still have to make decisions. One way of doing that is to bring them together in a common cost-benefit framework that an integrated assessment model gives you and that allows you at least to see if you are in the right ball park with the efforts that you might be making. If the integrated assessment model gives you values for the social cost of carbon, as PAGE does, which is tens of dollars for every tonne that you save, and you think that there are measures that you can take either by using fiscal incentives or other measures which will allow you to address that problem and cost much less than that, then that is probably quite a good sign that you should be beginning to do something fairly serious about the problem. There are other ways of dealing with the issue which are perhaps equity-based rather than cost-benefit analysis-based, which tends not to be economic efficiency-based. As modellers we try and incorporate those kinds of equities by using equity weights which give more concern to us if these kinds of impacts occur in poor countries rather than rich countries, but there are other equity based approaches which would say, "No, you should pretend that you do not know where you are in the world and try and make sure that what you are doing is bringing up the standard of living and the benefits to the poorest people in the world almost exclusively".

  Q71Lord Skidelsky: Your models are dependent on the science and also on the economics?

  Dr Hope: Yes.

  Q72Lord Skidelsky: Do you feel sceptical about any of this? For example, and I will just take the economic side, some of the assumptions about convergence for poor and rich countries I do not think are worth very much. Yes or no? How do you deal with that kind of uncertainty? How do you incorporate it into your model?

  Dr Hope: Sir John talked a little bit about the family of scenarios that is used by the IPCC and the very high end ones have this kind of assumption of convergence. I prefer, in the scenarios that I use, although I do base them on these emission scenarios from the IPCC, to use purchasing power parity exchange rates rather than monetary exchange rates because I think that is a more sensible way of trying to aggregate things across different countries. If you do that, then a lot of the problems that have been identified with these emission scenarios are much smaller. For instance, in 2100 the GDP per capita under purchasing power parity exchange rates would be about $50,000 per capita in the US and western Europe and would be still under $10,000 per capita in south Asia. Therefore, although you have got some convergence there is still a long way to go before you get complete convergence. If you were to do that then most of the scenarios are very useful and a good basis for a start of the analysis, which is to say that if we do not do anything very aggressive about climate change, if we allow emissions to continue growing without doing anything to address them, what sorts of scale of impacts might we get, what sorts of marginal impacts might we get, what sorts of impacts would we get from the last tonne of carbon that we are emitting nowadays? Of course, climate change probably is a serious problem and we are not going to just let the emissions carry on in that sort of way. We will want to make some sort of effort to constrain them because under those kinds of scenarios from the IPCC the kind of concentration of greenhouse gases that you would expect to see would be maybe 800 parts per million by 2100 compared to 275 parts per million in pre-industrial times and about 370 parts per million now. The concentrations would be well over double, triple, those of pre-industrial times and they would be continuing to rise. Obviously, if we are at all concerned about climate change we will not want to allow that to continue to happen. What we have tended to see are the kinds of intervention scenarios which are based around trying to keep concentrations of greenhouse gases below certain levels, and a common level people look at, just because it is a nice round number, is 550 parts per million, which happens to be twice pre-industrial levels. The interesting thing from my point of view in building these integrated assessment models and looking at the impacts of gases is that the marginal impact that you get, the social cost of carbon that you get, if you assume that that carbon is being emitted on top of a controlled scenario which controls the concentrations down to about 550 parts per million, is almost exactly the same benefit as you get if you assume that that tonne of carbon is being emitted on top of one of these uncontrolled scenarios, like scenario A2 from the IPCC. It is a rather odd result and it is not one that you would normally expect. You would normally expect, if you were to have a tonne of carbon emitted on top of a high emission scenario, that that would cause more extra damage than a tonne of carbon emitted on a low emission scenario because you would be in the kind of regime where the temperatures were much higher and we would expect that the damage would be a non-linear function of temperature, that it would be a greatly increasing function of temperature. You would normally expect that if you emitted a tonne of carbon on one of these unconstrained scenarios it would cause more damage than a tonne of carbon on top of one of the constrained scenarios. It turns out that is not true because of this interplay between science and economics because the function which relates temperature change to concentration is non-linear and that acts in the opposite direction to the function that relates damage to temperature change and the two things seem to cancel each other out and it looks as though the exact details of the emission scenarios on which you superimpose a tonne of carbon are not very important in terms of being able to try and work out what the impacts of that tonne of carbon will be, which is quite fortunate because everything else of course is extremely complicated.

  Q73Lord Skidelsky: That is an important conclusion.

  Dr Hope: Yes.

  Q74Lord Macdonald of Tradeston: You seem to have a contrast between the alarming effects on the scientific side, which might be the flooding of great cities and the reversal of the Gulf Stream or enforced mass migration and so on, which predisposes you to dramatic intervention and action, and what we have been hearing about the economic impacts of climate change which seem to be measured, you said, in percentages of a GDP point or more. We have of course suffered in the 20th century variations much greater than that. It seems to me that there is a contrast here. Do you think if you were talking in terms of economic impacts of climate change alone that is likely to justify changes in international behaviour or personal behaviour?

  Dr Hope: It would greatly depend on the view that you took about how serious economic impacts are in the developing countries compared to the economic impact in developed countries. If we were limiting ourselves just to the way that the economy functions, maybe the effects on agriculture, the effects in terms of energy that we will be using, then the impacts in developed countries would almost certainly be less than perhaps one per cent of GDP by 2100, but the impacts in developing countries could be much larger, partly because their ability to adapt to the kinds of changes that we would be expecting to see would be much smaller and therefore the agricultural productivity would probably be hit very hard and a lot of their GDP still depends on agriculture, of course. It really depends on the view that you take. Are you only going to be concerned about the developed countries, about our part of the world, or are you going to be concerned about all the rest of the world? Of course, different people can have different views on that and the kinds of figures that come out of integrated assessment models typically assume that we are at least as worried about what happens in the rest of the world (or possibly even slightly more worried about it), because we put positive equity weights on that, than we are about what happens in our part of the world. That is not necessarily how we behave in other areas of policy.

  Q75Lord Elder: You have already to some extent covered this but can you say a little bit more about gases other than carbon dioxide? Everyone talks in terms of carbon dioxide. It seems to me that on the very limited evidence so far we should be at least as worried about other things.

  Dr Hope: People talk about carbon dioxide because if you were to identify one single gas that would be the biggest component, but it is certainly not much more than half the total problem. You do have a range of other greenhouse gases, primarily methane, sulphur-hexafluoride and other gases of that sort. The integrated assessment models take different routes to dealing with those. Some of them deal exclusively with carbon dioxide. The PAGE model does not. It includes methane and the other greenhouse gases as well so you can begin to make some sort of comparison of the benefits you get if you were to cut back one tonne of methane, let us say, compared to cutting back one tonne of carbon dioxide. In theoretical terms that is the sort of comparison you should be making to tell you the amount that you should be putting towards dealing with emissions of methane and emissions of sulphur-hexafluoride as opposed to emissions of carbon dioxide. It is the ratio of the impacts that we get from the different gases. It looks as though the impacts from emitting a tonne of methane are maybe 15 times or so the impacts from emitting a tonne of carbon dioxide. The impacts from emitting a tonne of sulphur-hexafluoride are tens of thousands times as serious as emitting a tonne of carbon dioxide but fortunately the total emissions of sulphur-hexafluoride are very small around the world, whereas the total emissions of carbon dioxide are billions of tonnes and that is why when we aggregate them carbon dioxide is the biggest part of the problem.

  Q76Lord Elder: If I pick you up correctly your model does deal with the other gases.

  Dr Hope: Yes.

  Q77Lord Elder: But most of the other models do not?

  Dr Hope: I would not say most of them do not. I would say that a majority of them now do but there is a split in the integrated assessment modelling between those models which are based on simulation; they take emissions of the different greenhouse gases and say, "What is likely to occur if we have these kinds of emissions? What kind of impacts might we see?", and models which are based on attempts to optimise, which is trying to say, "What is the best profile of emissions of greenhouse gases over time?". The ones that try to optimise tend to be the ones that just look at one gas, at carbon dioxide, because it is quite hard to do the optimisation of the different gases together, and they tend to have rules of thumb for comparing methane and putting it in in terms of carbon dioxide equivalent rather than dealing with it properly in terms of what its lifetime will be in the atmosphere.

  Q78Lord Sheppard of Didgemere: Lord Sheldon was talking about a hundred years being a long time and I think we agree with that. The knowledge that you and maybe some of your colleagues have built up on modelling and the whole of this subject has led you to some fascinating subjects, anything from football downwards. Has it allowed you to look at some of the short term energy issues against that total background? If I take just one, which I am not directly involved in but is interesting, the use of tidal energy, has that led you to some short term action?

  Dr Hope: Yes, because ultimately the decisions we have to make cover the whole range from very short term to medium term to long term. It is wrong to say that because this is a long term issue that only occurs over decades and centuries then we should be waiting for that sort of time before making decisions. The estimates that I have given in terms of what is called the social cost of carbon or the social cost of other gases does aggregate those kinds of impacts over a very long time period and bring them back to the present day to say, "What are the aggregated impacts of a tonne of gas emitted today?", because it is today's emissions that we have to try and deal with—today's, tomorrow's, next year's—rather than waiting for 50 or 100 years before doing something about the problem. You need to have a long term perspective in order to get the full picture of what the impacts are likely to be from a tonne of gas emitted today. If it is carbon dioxide it is going to stay in the atmosphere, certainly for many decades and probably for centuries, and therefore, if you were to have a time horizon of maybe only the next 10 or 20 years when looking at the impacts of today's emissions, you would miss out the vast majority of those impacts, so you have really got to have this long time period of 2100—and I am sorry to say that most integrated assessment models go even longer than that and the PAGE model goes to 2200—to try and get a full picture of the impacts that will come from these gases. When you have brought them back to today and said, "This is the social cost of one tonne of carbon or methane emitted today", you can then immediately compare that with the measures that you might take in order to try and cut back the emissions. You can do it either in terms of individual projects, saying, "How much would this project cost, this tidal power project, and how many tonnes of carbon would it save for us over a certain time period?", and you can see if the cost of saving that carbon is less than the social cost that you have just calculated, or you can take perhaps a more economic approach and say, "We have got this estimate of the social cost of carbon and other gases. Can we have some sort of economic incentive which will allow the market to deal with this by imposing either a tax or a tradable permit?", which has its own price if you are going to emit a tonne of carbon or a tonne of methane and you have to either pay the tax or buy one of these tradable permits, and that will then give you an automatic incentive to build projects like tidal power beyond their normal incentive of just generating electricity.

  Q79Lord Macdonald of Tradeston: Is it possible to build a model of mitigation when you consider that in 1900 we would have had very little idea of what might have been feasible a hundred years on in the year 2000, and that if you go back to 1800, of course, most of what we are doing now would be almost unthinkable? Since you have got a couple of hundred years of historical record can you not make a projection based on some probabilities about what new technologies would produce which would allow us to mitigate before the worst consequences happen in 50 or 100 years' time?

  Dr Hope: Yes, you certainly should be trying to build models of mitigation and not just mitigation but also models of adaptation, because whatever we do within the realms of plausibility to try and mitigate the problem and cut back the emissions of gases, we are committed to a certain amount of temperature rise, almost certainly between one and three degrees centigrade just from the emissions that we have seen up to now.

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