Select Committee on Economic Affairs Minutes of Evidence

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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