Memorandum by Dr Terry Baker, Cambridge
University
Q. We understand that you are involved in
the IPCC chapters on economics. Could you tell us what role you
have played and also what your impressions are of the IPCC process?
We have heard that there is sometimes a large gap between what
the authors say and what gets put into the Policy Makers' Summary.
Is this your experience?
At the meeting of IPCC experts to start the
process leading to the Third Assessment Report (TAR), 2001, I
proposed that a new chapter (ie one that was not in the Second
Assessment Report) on the global sectoral costs of mitigation
(ie the costs for the world's oil and coal industries) be included
in the Working Group III (WGIII) Report (Mitigation). This was
accepted by the meeting and I was appointed by a peer-review process
to be one of the two Co-ordinating Leading Authors (CLAs) for
Chapter ("Sector Costs and Ancillary Benefits of Mitigation").
I instigated an IPCC Expert Workshop to stimulate research and
publications. I was an active participant in two major international
meetings in Accra, February-March 2001 (for governments to accept
the WGIII Report), and London, Wembley, September 2001 (TAR Synthesis
Report). I represented (on the platform and in side meetings)
the expertise of the world's scientific community in explaining
the assessment of mitigation costs to governments. I subsequently
addressed major conferences on the economic findings of the IPCC
in 2002 in Bonn (organised by the UNFCC), in London (organised
by The Royal Society) and in Beijing (organised by the IPCC outreach
programme). As an academic expert at the Accra meeting, I was
involved in the highly politically charged discussions on text
for the Policymakers' Summary between representatives of the UK,
Australia, Saudi Arabia and the US.
I also led the writing team for Question 9 of
the Synthesis Report (chaired by Bob Watson, Chief Scientist of
the World Bank): "What are the most robust findings and key
uncertainties regarding the attribution of climate change and
regarding model projections of future emissions of GHGs and aerosols,
future concentrations of GHGs and aerosols, future changes in
regional and global climate, regional and global impacts of climate
change and costs and benefits of mitigation and adaptation options?"
This was the last formal question (the "uncertainty"
question) asked by governments of the IPCC and I worked with other
IPCC experts to develop the answer and resolve issues with governments
when the Summary for Policy Makers (SPM) was discussed. I played
a leading part in the debate in the team on the representation
of climate change, adaptation and mitigation. (The arguments are
set out in a paper published in Global Environmental Change,
April 2003.)
In 2004 I was appointed as CLA for Chapter 11
WG III in the Fourth Assessment Report (AR4) due in 2007 on "Mitigation
from a cross-sectoral perspective", covering the macroeconomic
costs of mitigation at national, regional and global levels in
the short and medium term to 2050. The first Lead Author meeting
was held in Breha, Germany in September 2004.
My impressions of the IPCC process is that it
is an open, highly innovative and progressive means to address
the issue, namely the organisation of the scientific policy-relevant
advice to governments of an evolving, complex and highly contentious
topic. This is particularly impressive in the light of the inevitable
constraints of an international organisation and the requirement
for consensus in the findings. I have seen the IPCC process evolve
and improve between the second, third and fourth reports, becoming
more professional and better organised, learning from experience,
and resolving some highly contentious issues, such as valuation
of human life.
The idea of a gap between what the authors say
and what appears in the Summary for Policy Makers (SPM) appeared
in a critique of the Second Assessment Report (1995). The controversy
is reviewed by Paul Edwards and Stephen Schneider in "The
1995 IPCC Report: broad consensus or `scientific cleansing'?"
EcoFable/Ecoscience, 1, 1977, pp 3-9. My experience in the 2001
process was that political considerations inevitably play a role
in the development of the SPM, since governments will not necessarily
agree with the scientific consensus expressed in the initial drafts
of the SPM. Since there is always some uncertainty in the scientific
findings, reasons can always be found to qualify or remove unpalatable
conclusions. Whether the political considerations introduce a
large gap between what the authors say in the Report and what
appears in the SPM is a matter of opinion.
Q. One of the issues we are focussing on is
the costs and benefits of tackling climate change. Considering
the costs first, we have heard differing stories about how expensive
it will be to tackle climate change. What is your view on costs?
The costs of mitigating climate change depend
on many factors. I take it that the Committee is focussing on
the macroeconomic costs for the economy over the long term. The
costs are not observable from the market, since they involve assessment
of (1) complex energy-environment-economy systems responding to
price signals and regulations influenced by governments and (2)
changes in environmental and other outputs of the system that
have no market valuations. The costs estimated for a proposed
mitigation strategy, such as the UK Energy White Paper (2003)
portfolio of policies, are always hypothetical because they involve
a comparison of two different states of the system over future
years. How these costs are summarised is important if an unbiased
view is to be conveyed.
These macroeconomic costs will depend on the
approaches, models and assumptions used to estimate them. In general,
bottom-up engineering approaches lead to low costs and top-down
economic models lead to high costs. Within the results from the
economic models, those based on general equilibrium theory suggest
lower costs than those based on econometric analysis of time-series
data. Partly because most of the models are tenuously related
to data (many use one year's data to project 100 years or more
into the future), it is easy to put together a collection of plausible
assumptions to yield high or low costs. However, because fossil-fuel
energy is only a very small component of the global economy (3
per cent at most), complete decarbonisation, even under the most
adverse set of assumptions considered in the literature, is expected
to have a negligible cost.
Summing up the literature, the costs depend
on the following factors:
— The time allowed for adjustment:
the longer the time the lower the problem of stranded assets and
adjustment. Basically capital becomes more malleable the more
time is given, because it becomes obsolete and it is more likely
to be replaced.
— The rate of growth of the economy:
faster growing economies have a higher rate of investment and
are able to mitigate more rapidly with lower costs .
— Whether market instruments are used
as recommended in the Royal Society Report "Economic instruments
for the reduction of carbon dioxide emissions", Policy
Document 26/02, November 2002, London. If market instruments
are used, such as the EU ETS, and emission allowances are auctioned
rather than given free to the emitters, and the revenues from
the auctions are spend on reducing burdensome taxes, then the
costs are reduced and may even be converted to benefits.
— If there are ancillary benefits from
mitigation, such as reductions in air pollution, then costs are
lowered further.
— Finally if the mitigation policies
are sufficiently radical to induce more rapid technological change,
then they may provide the opportunity for a transformation of
the economy and its competitiveness in world markets, leading
to higher growth than might otherwise be the case.
Q. We get the impression that IPCC seems very
nervous in talking about the benefits of controlling climate change.
Is this an impression you share? Why would IPCC not want to venture
detailed estimates of the monetary benefits of controlling climate
change?
I assume the benefits referred to here are those
of avoiding climate change rather than the non-climate-change
benefits discussed in my answer to the previous question. I suspect
the hesitancy regarding the costs of climate change (ie the benefits
of avoided change) the committee detect in IPCC reports is a result
of the IPCC experience in the process leading to the Second Assessment
Report, 1995. A crucial feature of climate change costs is that
they are incurred across different countries and over future generations.
This makes any aggregation both approximate and potentially contentious,
since it requires valuations if the aggregation is in monetary
values. The SAR process got bogged down in deep controversy regarding
the valuation of human life in different countries, with those
who advocated cost-benefit analysis arguing that human lives ("statistical
lives") had different worth according to where the humans
lived (and when they lived) and representatives from many developing
countries arguing for an equal valuation of human life, irrespective
of location. This controversy led to special meetings, much emotional
debate and eventually threatened to derail the whole report.
The IPCC assesses the literature and draws any
estimates from the literature, eg the monetary benefits of avoiding
climate change. The cost-benefits literature, which includes these
benefits, often appears to impose valuations that are not politically
acceptable, eg that lives lost in Bangladesh are worth a small
fraction of those lost in the UK. Governments have implicitly
urged the IPCC to ensure that in the Fourth Assessment Report
such estimates are not accepted without qualification.
Q. Some of our witnesses feel that climate
change itself may be beneficial to some countries, for instance
to agriculture and through changes in amenity. Is this allowed
for in the Integrated Assessment Models, for example in your own?
There are benefits of climate change, eg longer
growing seasons are expected. These are allowed in Integrated
Assessment Models. However, there is a problem of aggregation
in that the critical feature of climate change is an expected
increase in the variability of the climate, and indeed this may
be much more important that an increase in mean temperatures and
mean sea levels. The scientific evidence is that climate change
is expected to lead to more floods and droughts, more extreme
climate events, and (if unchecked) to increase the risk of irreversible
long-term changes, such as the collapse of the North Atlantic
thermohaline circulation system.
The idea that we shall all benefit from warmer
summers is a myth. The evidence seems to suggest that we shall
experience more heat waves and cold spells, ie more discomfort
and expense.
Q. It appears that the calculation of global
benefits from controlling climate change is very much influenced
by the discount rate issue (time discounting) and also by "equity
weighting". What are your views on how these issues might
be treated?
Some models convert all climate change effects
into monetary terms using weighting schemes to aggregate across
countries and over time. It is possible and advisable for those
models to use a range of such weights and report the results.
In particular given the uncertainty of future relative incomes,
results assuming equal weights for valuing human mortality and
morbidity are of interest, as are results assuming equal weights
for effects on future generations. Some effects cannot be valued
objectively, eg extinction of species, or displacement of most
of the population of countries like Bangladesh. In my view the
questions of what constitutes damage, how much to value human
life, and how to respond to the uncertainties associated with
the damages are ethical, economic, political and judicial questions,
to be answered through appropriate institutions.
Q. There still seems to be a lot of uncertainty
in the science of climate change. Can you comment on how one should
proceed in face of that uncertainty? Wait and see? Act now? Do
nothing?
The uncertainty issue pervades not only the
science of climate change, but the responses of adaptation and
mitigation.
We are far from certain about the costs of mitigation.
Indeed, a meta-analysis I undertook with some colleagues on the
results from the models used by economists for the IPCC Third
Assessment Report suggested that the results for the costs of
mitigation can be explained by who carried out the analysis instead
of by objective factors such as use of revenues from carbon taxes,
or inclusion of ancillary benefits. The uncertainties are such
that, provided that mitigation policies are expected, well-designed,
and allow time to adjust, the outcome is just as likely to be
beneficial in terms of GDP and employment as costly. I have the
impression that the substantial emphasis on costs of mitigation,
which is not borne out by the literature, is a result of extensive
lobbying by vested interests in misguided campaigns to protect
short-term fossil-fuel profits.
There is the uncertainty underlying the whole
issue of climate change and our responses to it. Mitigation is
unlike adaptation in that it reduces emissions at the start of
the cycle and effects through the cycle. This is important because
there are many unknowns and uncertainties in the effects and feed
backs; in consequence, mitigation reduces risks of dangerous outcomes
much more than adaptation. Mitigation reduces anthropogenic emissions
at source and therefore reduces concentrations of greenhouse gases,
ensuing climate change, the impacts of climate change on human
and ecological systems and finally the required adaptation.
In that the risks of climate change are apparent,
the science convincing, and the costs of mitigation probably low
if not non-existent, my advice is to act now, with deliberation
and consultation, seeking out the highly beneficial options available.
Indeed in the current situation, in which the US has abandoned
leadership in this area, this is an opportunity for the EU and
the UK to strengthen its responses, such as the ETS, and demonstrate
that business and the economy can benefit from strong action.
There is a leading role for learning-by-doing, since many aspects
of the policies are innovative (eg the two-year advance warning
given to business before the introduction of the Climate Change
Levy). A wait-and-see policy is dangerous and short-sighted in
view of the evidence of change, the negligible costs of action
and the risks of irreversible damage.
28 February 2005
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