Select Committee on Economic Affairs Minutes of Evidence

Examination of Witnesses (Questions 86-99)

Professor David Henderson

25 JANUARY 2005

  Q86Chairman: Professor Henderson, first of all, welcome to the Committee. I think I have spied you in the background on earlier occasions but you are welcome to come to talk to us and we are grateful to you for the written information you have given to us which has been very helpful. As on all these occasions, we hope we will ask the questions sufficiently succinctly and that you will give us not too long an answer to each one so that we will get through as much as possible. Before we ask the questions, is there anything you want to say at the beginning?

  Professor Henderson: Only, my Lord Chairman, that I think this is a very important inquiry and I am pleased and honoured to have the opportunity to take part in it. Having said that, I am very happy for you to go straight ahead with your questions.

  Q87Chairman: Thank you very much. If I may, I will start the ball rolling by asking the first question. In your writing, you have focused on two main issues relating to the global warming debate, the IPCC's projection of greenhouse gas emissions and the IPCC process. Taking perhaps the emissions projections first, I wonder if you could summarise for us your criticisms of both the processes?

  Professor Henderson: If I may, my Lord Chairman, I will answer a slightly wider question and come back to the specific point about emissions, for reasons which I think I can make clear. The criticism we have made is not just about the specific projections of emissions that emerge from the Special Report on Emissions Scenarios, it is a broader critique of the Special Report as a whole, part of which extends to other aspects of the IPCC process. If you like, I can enlarge on that a little.

  Q88Chairman: Yes, please do.

  Professor Henderson: In its recent Report, the IPCC has determined that the Special Report on Emissions Scenarios, and let me call it the SRES from now on, provides a satisfactory basis for the Fourth Assessment Report which is now in the course of preparation. I think, and those who think like me think, that is not so. The reasons go beyond the question of emissions projections, and indeed if I were writing the critique today I would put less emphasis on that aspect, for reasons I can explain. Why is it that the SRES should not be given the status? First, because five years have gone past since the work was done, five more years will pass before another such exercise as elaborate can be undertaken, and there is a need to check what has happened against actual events. Second, there are a lot of unsolved questions yet, one of which relates to emissions projections. Another such question was raised by Lord Skidelsky in your session two weeks ago and relates to the issue of probability assignments for the scenarios. A third, which features large in my mind, is that major mistakes in approach are still there, in particular, the mistake of making inter-country comparisons of output and GDP on the basis of market exchange rates; that has not been changed and is a serious weakness. The fourth reason is that what I might call the milieu of the Special Report is not representative of economic and statistical thinking generally. That is true of the authors, equally it is true of the reviewers. The range of participants should be increased. Last, and this is a personal bee in my bonnet, the whole Report, which is a very lengthy one, and all the IPCC's work in their very lengthy reports, has no systematic review of what has happened in the past: the historical aspect is missing entirely. I think that a very useful contribution to public enlightenment has not been made, an opportunity has been missed. For all those reasons, which are independent of the specific projections of emissions, I would question whether the SRES should continue to have their status.

  Q89Chairman: Are you able to indicate, briefly, what the effect has been of them proceeding in a way you find unsatisfactory? How serious is it for the end results?

  Professor Henderson: If I am right, it means that all the economic aspects of this process are not being dealt with in a way which is sufficiently professional and representative. Just how much effect that would have on the outcome is a different question and a very debatable question, and one which has not yet been cleared up in the technical arguments which have been going on.

  Q90Lord Lawson of Blaby: May I take you up on one of your points, which I think you said was a bee in your bonnet, about market exchange rates. What they seem to be saying is that, alright, it is normally used nowadays in all the international comparisons, it is accepted that in all international comparisons purchasing power parity should be used rather than market exchange rates. What they are saying is "Well, of course, what we're really talking about is inter-temporal comparisons, we're talking about things happening over time, and there it really doesn't make any difference whether you use market exchange rates or purchasing power parity." As I understand it, that is their argument. Before we get into the question of which it should be, what difference does it make, in practice?

  Professor Henderson: I think the best way of illustrating that perhaps is from a rather sharp letter that I wrote last year, which I might quote from perhaps: this was in April last year, my Lord Chairman. I wrote to express the concern that "Michael Howard"—that is our Howard, not the Australian one—"is quoted in today's Times as saying the Chinese GDP is now close to that of Britain." I wrote to say that Mr Howard should know, or his advisers should know, that is a very questionable and indeed misleading statement: the more accurate statement would be that the Chinese GDP now is probably more than four times that of Britain. So that one's picture of the world is altered very considerably, if one takes a PPP comparison rather than a comparison in market exchange rates.

Chairman: That is a fairly startling statement, for some of us anyway. Can you elaborate on that?

  Q91Lord Marsh: Can I ask a question on that? As I understand it, the generally accepted Chinese GDP growth rate at the present time is around 8 per cent, or so, per annum, which a lot of people believe is an exaggeration.

  Professor Henderson: The growth rate, yes, that is true.

  Q92Lord Marsh: Are you saying that is much faster?

  Professor Henderson: That is a good question. I am not querying the growth rates, which are certainly high though there is room for argument about exactly what they are. What I am saying is that the level which the Chinese economy has reached now, of course—largely as a result of these very high growth rates—is such that its GDP, on the best estimate I could produce for the Committee, is about four times that of Great Britain and more than twice that of Japan, which is normally reckoned to be the second largest economy in the world, if, which you should not, you judge by market exchange rates.

  Q93Lord Lamont of Lerwick: I wonder if I could pick up one of the points you made when you were criticising this and you said there had been no systematic review of what had happened in the past. Could you just enlarge on that and say precisely what you would like to have seen reviewed?

  Professor Henderson: Certainly, Lord Lamont. I should say to the Committee, this is a personal view of mine and not one that I would put forward as representative. I think that any such inquiries that IPCC embarked on, and the Special Report on Emissions Scenarios embarked on within it, ought to have contained a careful examination and presentation of past trends and all the things that are of interest, a very wide range of things that are of interest, an informal commentary on those trends, and comments on the ways in which this analysis could throw light on the future. There is no such thing. None of the participants, as I see them, certainly on the economic side, is historically minded. No economic historian has been asked to take part in this.

  Q94Lord Lamont of Lerwick: There have been analyses of emissions and of temperatures?

  Professor Henderson: Yes, but they are all looking forward.

  Q95Lord Lamont of Lerwick: I thought, of the past?

  Professor Henderson: If you look at the SRES, you will find very little on this. I would have liked it to be almost a separate exercise. To repeat, this is my personal line.

  Q96Lord Lamont of Lerwick: Certainly in the evidence we had from Sir John Houghton there was a lot about the past?

  Professor Henderson: There is not much about the past presented in the sort of way that I would like, with facts, figures, analysis, commentary, and even in the Report of WG1, with which of course Sir John was very closely associated. Perhaps I am asking too much of that. As I say, it would have been part of public enlightenment and it has not been provided.

  Q97Lord Macdonald of Tradeston: Professor Henderson, I am just looking at this IPCC press release, which counter-attacks and talks about disinformation and criticism mounted by two so-called independent commentators, actually it dignifies it by C and H, and goes on to quote some other academics who became critical of you and of you and Ian Castles. That includes Professors Manne and Richels in California, Professor Richard Tol in Hamburg, Drs Alfen and Holtsmark in Norway. Obviously, they have got quite a heavy group of academics lined up in criticism of yourself and Ian Castles. Have you anything to say in reply to that?

  Professor Henderson: Yes; a small point but a significant one. The only authors that are mentioned in the press release are Manne and Richels and that refers to an article which has already been subject to revision. I think it was mentioned, if I may be a little malicious, on the principle that my enemy's enemy is my friend or my critic's critic must be right, so that has not weighed on me very much. The Norwegians whom you mentioned have made a very good point, which we may well come to, but that is not mentioned in the press release. On the press release, I would make three points. First, I have not lost a wink of sleep over those references you quoted. I lost a few winks, or a few winks were put in jeopardy, by three other features of that press release, in ascending order of importance. One, in its first paragraph it exudes complacency. Two, there is a reference later on to this question of PPP versus MER, in which they say that this is no different, it does not change the economy, it is like measuring temperature in Celsius or Fahrenheit. I just put it to the Committee that whether the GDP of China is roughly equal to that of the United Kingdom or four times as great goes beyond questions of Celsius versus Fahrenheit. This is not trivial, it is not non-substantive. Last, this did worry me, as a bureaucrat. I am an ex-official and I did not like to see the following incongruity, that the IPCC has said, formally and in writing and it has been repeated, that it would not reply to criticisms of the SRES, but this is a reply and it was not just a personal inspiration on the part of the Chairman. First, he is the Chairman. Second, it appeared with the IPCC logo. Third, you can find it now on the IPCC website, in a slightly less impolite form than the original, as one of only two press releases which the IPCC issued for the calendar year 2003. I wonder what these officials are paid for, whether they mean what they say—that the IPCC does not wish to reply, as such, which I would respect, or whether they stand by what they put on their website.

  Q98Lord Macdonald of Tradeston: And Professor Richard Tol of Hamburg, whom I believe we might be talking to at some future point, do you have a response to that?

  Professor Henderson: There are interesting technical issues which I am rather looking forward to discussing with your Special Adviser, Professor Pearce. The only critics who count, to my mind, sufficiently for it to be worth considering today, are the Norwegians, for reasons which I can explain.

  Q99Lord Lawson of Blaby: Professor Henderson, let me ask you the question about the IPCC's assumption of the convergence of incomes per head in the developing and the developed world over the next 100 years. There are a number of questions in that area. The first is, like the question I asked earlier but I do not think you answered it quite, what difference on the convergence front does it make whether you use market exchange rates or purchasing power parity? The second thing is, is this convergence there because there is some historical evidence to suggest this is likely to happen, or is it just an assumption made because it would be nice if it did happen? The third question is—and you know the IPCC system process backwards, I do not—is this convergence a kind of average of the poor countries of the developing world, or does it happen to each country, does each country converge, all together? If it is an average, are they saying that those who run their economies most successfully, most intelligently and with a minimum amount of corruption will do far, far better than the developed world, to offset the fact that those who run their economies in a shambolic way with masses of corruption—and I do not want to name countries but we know plenty that do this—presumably are not going to converge, so the others are going to have to overtake everybody else? How do they work this?

  Professor Henderson: If I could answer Lord Lawson's last question first, because it is the simplest, my Lord Chairman. The projections are made on the basis of regions and there are two regions of developing countries. Nothing is said of individual countries, nothing is said about the questions you raised about possible misgovernment or good governance. These are aggregate projections for whole areas of developing countries; one is for Asia, the other is for Latin America and Africa and the Middle East. To my mind, that is not objectionable, that is not a worry on my part. I think it is quite reasonable to look at groups of countries and make aggregate projections. It is also not only reasonable, but I think what most of us would want, that convergence is built into these projections. Lord Layard made the point, two weeks ago, I think, that in fact we would expect convergence from good arguments in theory and from experience.

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