Examination of Witness (Questions 240-259)
Dr Terry Barker
22 FEBRUARY 2005
Q240Lord Skidelsky: One of our witnesses, Professor
Lomborg, made the argument that the costs of any mitigation that
makes any difference over the period in question would far outweigh
any possible benefits.
Dr Barker: Absolute nonsense.
Q241Lord Skidelsky: That was the argument that
he put to us and that is generally one of his main contentions.
Do you agree?
Dr Barker: I do not agree with that at all,
no. It sounds as if Lomborg is not looking at risk and returns;
he is just looking at returns. If we just looked at returns I
doubt if that would be the case; but the issue is not returns,
the issue is risks. In any investment we look at the risk and
the return, whereas in the case of climate change it is the risks
that dominate consideration, to my mind, not the returns. It is
climate variability that is important, not the fact that the sea
level might rise a few centimetres; the fact that storm surges
might overwhelm our sea defences; that is the issue and the problem.
If we are looking at risk and returns, then we have to look at
the balance on risks and what action we might take which would
reduce the risks and, as far as I can see, this means that mitigation
becomes far more important than adaptation because mitigation
reduces the risks through the whole system, whereas adaptation
only reduces the risks at the end, after it has all happened.
Q242Lord Lawson of Blaby: I do not think that
is true, if I may say so, with great respect. Climate change is
not like a tsunami that is going to happen suddenly, just like
that; climate change is a thing which is very gradual over a very
long period of years, that is what we are told. Therefore, there
is plenty of time to adapt. Farmers can adapt with perhaps different
seeds, slightly different crops, different types of things to
changing climatic conditions; that is what farmers always do.
Sea defences can be gradually built up. When you are in your model
looking at the cost of climate change, do you assume that there
is continuous adaptation, which is what would happen in the real
world, or do you somehow assume that what we have been told is
the dumb farmer hypothesis, that everything stays exactly the
same and that there is no adaptation at all, and base your cost
estimates on that?
Dr Barker: The modelling that I personally am
involved with is modelling of mitigation rather than adaptation.
However, the work I do is part of an integrated assessment model
which indeed does take into account the fact that private groups,
social groups will adapt, of course they will adapt. They see
the risk of climate change. When you live in Bangladesh and you
can see that the floods get worse each year, then you will build
your house a little bit stronger and a little bit higher, and
this is a very important response. But there is a large difference
between that and mitigation because as an economist I would not
expect mitigation to take place on the scale of adaptation, simply
because mitigation is a global problem and if each of us mitigates
it makes precious little difference to the overall problem. Whereas
if I adapt by moving to higher ground or building a house higher,
then I shall have an immediate benefit for myself and my family.
So it makes a very large difference between adaptation and mitigation
and it means that mitigation has to be a social response—in
fact a global response—for it to make sense in the long
term.
Q243Lord Macdonald of Tradeston: Dr Barker,
can I just come in here? You talked about the difficulties in
monetarising loss of life, but as an economist how do you approach
the possible damage to cultures or the extinction of species?
Can you factor that in?
Dr Barker: I do not accept that the extinction
of species or the extinction of the human race for that matter
is subject to a monetary valuation. My view is that we need to
look at these subject to political and social decisions as well
as economic decisions. Economists can use different valuations
coming out of the political process and accept that as a reasonable
thing to do in making these evaluations, but at the end of the
day I would suggest that you need to do not simply a monetary
cost benefit analysis but a wider one, taking into account loss
of life and employment effects and extinction effects, and not
necessarily put them all in monetary terms.
Q244Lord Sheppard of Didgemere: Dr Barker, you
went into the problem of how one adds together, both from an ethical
point of view and an economic point of view, the benefits; but
there are some benefits that are not often mentioned, such as
agricultural benefits, be it length of season or whatever. How
do you pick those up in the model? Not necessarily your model
but in the models generally?
Dr Barker: Yes, in the models. It is extremely
crude. The long-term economics of all of this is very immature;
it is at a very early stage. Economists have largely concerned
themselves in this context with rather short-term economic responses
and effects and we have largely assumed that the technological
change and change in tastes is outside the models. So the first
remark I would make is that it is very stylised, very crude, very
simplistic and not really believable if you look into the details
of it. A lot of it just does not make very much sense. There is
a real problem in just taking averages for large areas like Europe,
the average temperature for Europe over the next 100 years, and
then imputing damages from that; it is not really a good idea
to do it. It may be the best you can do but it is an extreme simplification,
especially since we know from the science that it is the variability
of the climate that is important; it is the storms and the floods,
not the fact that the temperature is a little bit higher. That
is where the damages come from.
Q245Lord Lawson of Blaby: If I may? This is
interesting what you say, that it is not the global warming as
such which is the problem, but the variability. You are the first
witness to appear before us who has made this point. Others have
talked entirely in terms of an actual rise in the temperature
and the consequences of that. Are you yourself a scientist?
Dr Barker: No, I am an economist.
Q246Lord Lawson of Blaby: How is it that you
come with a different scientific projection than our other witnesses?
Dr Barker: Because I have been working in multi-disciplinary
teams for the last 10 years, talking to scientists.
Q247Lord Lawson of Blaby: But not all scientists
take this view, do they?
Dr Barker: I only see this literature in as
much as it is condensed and synthesised. I do not read the scientific
literature. I attend presentations about it but I am not a climate
scientist. The reports state over and over again, and it is quite
obvious, that this might be the case.
Q248Lord Skidelsky: That variability is the
issue?
Dr Barker: Is the issue.
Q249Lord Skidelsky: That is not the small projected
increases in temperature over the next 100 years, which is the
sensible focus of things like the Kyoto Protocol and other things.
Dr Barker: Yes, but at the extreme range of
the latest estimates the temperature increase is globally coming
to 11 degrees centigrade, which is an awful lot. You add 11 degrees
centigrade to a 40 degrees summer heat wave and we are talking
about an extremely high temperature.
Q250Lord Skidelsky: You are the first person
who has mentioned the 11 per cent.
Dr Barker: I am talking about the latest reports.
I was at the Exeter meeting of the Met Office.
Q251Chairman: Am I wrong in getting an impression—and
you seem to be confirming what I feel—that the science is
extremely uncertain, the economics are extremely uncertain? What
is there that is certain about all this? What would you say are
the certainties?
Dr Barker: That is an interesting question.
What is certain is that we are responsible for these emissions
of greenhouse gases. There is no doubt that burning coal produces
carbon dioxide. But what seems almost completely certain is that
this leads to a greenhouse effect because the science is well
known. What is less certain, but the evidence seems to suggest
very strongly, is that this is leading to the phenomenon of global
warming and climate change, so we are getting to much less certainties.
Then we have seen the phenomena over the last year, since the
topic has been investigated further, of more and more problems
emerging, issues emerging from the science. As we are looking
at it we see that we do not know as much as we would like to know
about the world's climate and what might happen by putting more
greenhouse gases into the atmosphere, raise the concentrations
of greenhouse gases and lead to an enhanced greenhouse effect.
We do not know the effect of clouds and water vapour, which is
the most potent of greenhouse gases on global warming.
Q252Lord Layard: I want to ask you about the
discount rate because obviously much of the damage that has been
caused by current emissions is in the future, and often in the
quite far distant future, and we are talking about costs which
we might incur in advance, to try to reduce them. So the discount
rate becomes very important and obviously one of the reasons for
discounting that has been given in the literature is that people
will be richer in the future, and so on. What do you think about
the right discount rate for dealing with these problems?
Dr Barker: It is a surprisingly controversial
and a complex topic. You would think that it is easy but it is
not. One of the reasons for the difficulty is that in deciding
what the appropriate discount rate is we have to imagine what
future incomes will be. So it is basically the ability of future
generations to pay. In doing that we need to look at how would
one do such a thing? We could look at the history of income growth
and what we would find is that it is a history where the growth
has been punctuated by wars. Severe reductions in growth rates
have occurred during wars, and also there have been periods where
there have been very low growth rates and long-term depressions.
So that would caution against taking the growth rate, say, for
the last 30 years and extrapolating it for the next 100 years.
One would want to be more cautious and therefore probably not
take such as one would expect, just 2 or 3 per cent, but maybe
just 1 per cent growth per annum. And this has to be taken into
account as to how much we would say that future generations would
be able to pay for future damages. So my own view is that in doing
the cost benefit analysis and using the discount rates one would
want to put in a very low discount rate to account for the fact
that we are rather uncertain about future incomes.
Q253Lord Layard: Could I follow that up, going
back to the issue of lives, which you raise? You seem to be hinting
at treating all lives as equally valuable, which might be right
morally but if you look at the way we currently spend our money
we obviously value lives in the NHS maybe 25 times more than lives
saved through foreign aid. How do you respond to that?
Dr Barker: It is an interesting question. My
answer is fairly straightforward. I respond to that by saying,
"Who is the `we' making the decision?" If the "we"
is the British Government on behalf of the people through a political
process which has decided what our current discount rate is, that
is fine, I do not have objection. There may be objection though
if we decided that the poorest members of our society were worth
far less than the richest. Then there would be a problem. When
we are coming to a global problem like global change then I suggest
that the "we" should be governments meeting together
in some kind of quasi-judicial way. It is an inter-governmental
problem and it is a global problem in as much as mitigation is
not in the interests of any single government but in the interests
of all governments together and it is in that context that I think
the "we" should be decided on the valuation, and in
that context it is quite obvious that there has to be some equity
in the value of human life. We are not at all sure that the people
of Bangladesh would be as poor as they are now in relation to
the people of, say, Europe, in 100 years' time. All sorts of things
can happen.
Q254Chairman: Could I ask you this question?
You not unreasonably point out the need to have a relatively low
discount rate because of the relatively low growth rates, which
you assume. Yet when we started this inquiry one of the first
things that was given to us in evidence, as I understand it, was
the view that in 100 years or 150 years, or whatever figure it
was, the whole world would have the same standard of living and
therefore there would be considerable economic growth in those
countries which now are underdeveloped and we would come to a
pattern of equilibrium. We could understand the political need
for having that in the IPCC process; we perhaps had a little more
scepticism as to whether that was an economic reality of which
one would put much money on a bet. But how do you square it with
the low rate of growth for the discount purposes? How are they
reconciled?
Dr Barker: By the fact that one would want to
be cautious, and look at a range of potential outcomes. That is
the only reason for choosing for looking at a lower rate. If you
ask me what I would have thought was the most likely outcome I
would have thought growth rates of about two to three per cent
in the long-term. That is what I would choose as the most likely
outcome, but considering a long period of time and a lot of things
can happen in that period of time. So I think we do need to be
very cautious in looking and not just pick one particular view
but pick a range of views and test policies against different
possible states of the world.
Q255Chairman: The convergence idea of all the
countries in the world, is that therefore a political view rather
than an economic view?
Dr Barker: That is a subject of considerable
controversy in the literature as to whether countries are converging
or not. My own view is that they are probably not and that there
are strong forces leading away from convergence as well as forces
leading to convergence, and it is really a matter partly of politics
and partly the way that the economic system works as to which
way things go.
Q256Lord Lawson of Blaby: If you are right and
there is not this convergence, then of course it means that the
projections of growth in greenhouse gases issues, based on the
assumptions of convergence, are greatly exaggerated, does it not,
because the lack of convergence, if you are right, is unlikely
to be the developed world's economy suddenly leaping forward much
faster than before? There is no evidence to suggest that it is
likely. So it must mean that the Third World, or whatever you
like to call it, is not going to catch up nearly as fast as is
presupposed here. One hopes that in due course they will catch
up, but it is not going to happen as quickly as that. Therefore
the growth is likely to be less and therefore the growth in greenhouse
gas emissions is likely to be less; therefore, the projections
of global warming have been distorted in an upward direction by
this convergence assumption.
Dr Barker: I am a bit reluctant to be pinned
down to just one projection because it seems to me that there
are a lot of alternative ways that the world economy might evolve.
The fact is that there is a large amount of coal available to
be burnt, so much coal that we as mankind could really fry the
planet over the next 400 years if we chose to use this coal. And
we can imagine that the coal might be produced very cheaply with
modern equipment, and therefore it is by no means sure if we continue
as we are going, without any convergence, that we would not burn
a large amount of coal. The Soviet Union wasted huge amounts of
fossil fuel; China burns huge amounts of coal already and could
easily burn more.
Q257Lord Lawson of Blaby: You said that there
is a wide range of different models and assumptions in the future
and I would like to ask you a few quick questions on that front.
The first question is what should policy makers do? Should they
decide which within this huge range seems to them the most likely
and base their policies and their calculations on that? Or should
they say, "Let us take the extreme worst possible assumption,
however unlikely, and base our policy assumptions on that?"
The first question is: how should policy makers act? The second
question is: can you explain why you say that this uncertainty
means that the discount rate as to the long-term future should
be lower? The ordinary man in the street, like myself, would think
that if, for example, you were investing in a business project
which was alleged by the promoters to produce a wonderful return
in 100 years' time, you would want a pretty high rated discount
because of the uncertainty, not a low one.
Dr Barker: The first question was regarding
how policy makers should treat this big range. I think it is fairly
straightforward, that one would want to check that the policies
that were being recommended were robust in the face of the different
possible states of the world, or would they collapse if the world
changed in a particular way? It is possible that we might have
a high carbon world where a lot of fossil fuels are being burnt.
We want to look at the policy recommendations in respect of that,
as opposed to recommendations from the same policies if the world
was a very high tech world with very low emissions. So it is a
question of using these different projections and assumptions
and comparing the effects of the policies under these different
assumptions. On the second one, again it is a question of returns
and risks; one would want to look at the risks as well as the
returns and if the risk are particularly high it is then a matter
for government as to whether they want to take these risks or
not.
Q258Lord Macdonald of Tradeston: Dr Barker,
just building on that, as a Select Committee we are pretty open-minded,
even after two months, perhaps because we have heard repeatedly
from witnesses about the profound uncertainties of the science
and the economics. On the economics, for instance, we have heard
that the effect might be 1 or 2 per cent impact in GDP for the
United Kingdom, which, in the context of wars and depressions
of the 20th century that you mentioned, does not seem too alarming.
Yet, on the other hand, you mentioned that you were at Exeter
where clearly there appeared to be a great consensus increasing
alarm about what they believed was happening. It is rather difficult
for us because if we look at the linear changes, the 1 or 2 per
cent does not seem overly alarming. But then people say, "But
it could go exponential and accelerate at some alarming rate and
who knows what might happen?" How as policy makers do you
approach that? What guidance can you give in this context on whether
you wait and see or whether you go in and spend vast sums of money
despite all these uncertainties? How would you point us forward,
to build on Lord Lawson's question?
Dr Barker: My view is that since there do appear
to be substantial risks and the costs of doing something about
it are negligible, then we ought to be doing something about it.
Of course I use that word "costs" in terms of macroeconomic
costs. It is clear, for example, that if we use the word "costs"
more widely, more in the way a lay person might use it and certainly
in the way that Senators in the United States are currently using,
then the political cost of introducing a carbon tax in the United
States is obviously extremely high, and we know that taxes can
be extremely unpopular. The economic instrument, which is most
suitable for addressing this problem, is a carbon tax, with appropriate
consideration of the equity and competitiveness effects of such
a tax. The idea of introducing a carbon tax perhaps to replace
Value Added Tax over a long term, which would have great appeal
to me personally as an economist in terms of its efficient solution
to the problem, may have a very high political cost as opposed
to a macroeconomic cost. So it is a question of changing attitudes
and perceptions, and there is a cost in doing that—a cost
of institutional change.
Q259Lord Skidelsky: Could I follow on from Lord
Macdonald? The question Lord Macdonald asked had to do with the
uncertainty but you have talked throughout about risks.
Dr Barker: Yes.
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