Economics

Shaping climate-resilient development – A framework for decision-making

Climate adaptation is an urgent priority for the custodians of national and local economies, such as finance ministers and mayors. Such decision-makers ask: What is the potential climate-related loss to our economies and societies over the coming decades? How much of that loss can we avert, with what measures? What investment will be required to fund those measures – and will the benefits of that investment outweigh the costs?

The aim of this report is to provide decision-makers with a systematic way of answering these questions. Focusing specifically on the economic aspects of adaptation, it outlines a fact-based risk management approach that national and local leaders can use to understand the impact of climate on their economies – and identify actions to minimize that impact at the lowest cost to society.

2009-04-16 – From the National Round Table on the Environment and the Economy
ACHIEVING 2050: A CARBON PRICING POLICY FOR CANADA

The National Round Table on the Environment and the Economy (NRTEE) today advised the federal government to move quickly to implement a unified national carbon pricing policy across Canada in order to meet the Government of Canada’s greenhouse gas (GHG) emission reduction targets for 2020 and 2050.

“The Round Table’s report concludes that a unified national carbon price through an economy-wide cap-and-trade system across all jurisdictions, emissions, and sectors is necessary to allow Canada to reach its emission reductions targets at the least economic costs,” said NRTEE Chair Bob Page.

Achieving 2050: A Carbon Pricing Policy for Canada [pdf] sets out a comprehensive road-map for establishing a national cap-and-trade system in a phased manner, with adequate transition for industry and consumers to allow Canada to achieve its environmental goals at the least economic cost. The NRTEE conducted original economic modeling, detailed analytical research, and extensive stakeholder consultation to develop its proposed carbon pricing policy for Canada. It concluded that an economy-wide cap-and-trade system would be the most effective way to achieve the federal government’s deep long-term emission reduction targets at least economic cost. The policy is designed to initially contain costs for industry and consumers, but then transition to achieve greater carbon emission reductions through full auction of carbon emission permits in order to meet Canada’s environmental targets.

The companion “Technical Report” (pdf) can be download by clicking here.

NewScientist, 17 Nov. 2008: Prophesy of economic collapse ‘coming true’

Do you remember “The Limits To Growth” commissioned by “The Club Of Rome” and published in 1972? Do you also remember how it was pooh-poohed by economists? A recent study shows just how accurate their “Standard Run” of the model developed at MIT is to the reality over the past 30 years or so. There’s an overview here from “NewScientist” and the paper, by Graham Turner, is here.

From the NewScientist, 17 Nov. 2008:
Things may seem bad now – with fears of a world recession looming – but they could be set to get much worse. A real-world analysis of a controversial prediction made 30 years ago concludes that economic growth cannot be sustained and we are on track for serious economic collapse this century. In 1972, the seminal book Limits to Growth by a group called the Club of Rome claimed that exponential growth would eventually lead to economic and environmental collapse. The group used computer models that assessed the interaction of rising populations, pollution, industrial production, resource consumption and food production. Most economists rubbished the book and its recommendations have been ignored by governments, although a growing band of experts today continues to argue that we need to reshape our economy to become more sustainable. Now Graham Turner at the Commonwealth Scientific and Industrial Research Organisation (CSIRO) in Australia has compared the book’s predictions with data from the intervening years.
Listen to his podcast Examining the limits to growth in MP3 format here.

From the ashes of the crash: 20 first steps from new economics to rebuild a better economy

Having predicted the current crisis in the global economic system back in 2003 with the ground-breaking book Real World Economic Outlook, nef (new economics foundation) now offers twenty proposals both to stabilise the economy and lay the foundations for a new economic order.
Our financial system has long since failed to do the basic job required of it – to underpin the productive economy and the fundamental operating systems upon which we all depend. These have been variously neglected, taken for granted or cannibalised by finance. They include the core economy of family, neighbourhood, community, and society, and the natural economy of the biosphere, our oceans, forests, and fields.

Tragedy of the Commons

The tragedy of the commons is a type of social trap, often economic, that involves a conflict over finite resources between individual interests and the common good. It states that free access and unrestricted demand for a finite resource ultimately structurally dooms the resource through over-exploitation. The term derives originally from a comparison noticed by William Forster Lloyd with medieval village land holding in his 1833 book on population. It was then popularized and extended by Garrett Hardin in his 1968 Science essay “The Tragedy of the Commons.” However, the theory itself is as old as Thucydides and Aristotle.

Such a notion is not merely an abstraction, but its consequences have manifested literally, in such common grounds as Boston Common, where overgrazing required the Common no longer be used as public grazing ground.

An extract from “Tragedy of the Commons” at Wikipedia

The Commons revisited: The Tragedy Continues (pdf)

Garrett Hardin’s classic paper “Tragedy of the Commons” published in Science in 1968 struck a chord with scientists and non-scientists alike and has continued to provide a key reference point to how a number of “commons” related problems can be viewed. Hardin’s paper will be in looked at in view of both anthropogenic global warming and peak oil and some of the solutions he posed for the ‘population problem’ applied to the post peak era. Possible solutions are compared with the Kyoto Protocol for global warming and the Rimini Protocol for peak oil. A carbon indexed, universal tax on non renewable energy resources ‘Unitax’ is mooted as a longer term possibility to overcoming both global warming and the financing of post peak oil problems. Alas the process of dealing with global warming and peak oil seems to be falling into the “no technical solution” category that Hardin identified for population.

Author Bob Lloyd, Physics department, Otago University NZ, Energy Policy 35 (2007) 5806–5818

There’s a good discussion about this at “Head in a Cloud”, The Tragedy of the Commons: Peak Oil and Climate Change

He has also written a fascinating paper:
“The Growth Delusion: why we don’t want to believe in Peak Oil and Climate Change” (pdf)
Here’s the abstract:
Concern for the environment and a move towards “sustainable development” has assisted progress in a wide range of renewable energy technologies in recent years. The science suggests that a transition from fossil fuels to sustainable sources of energy in a time frame commensurate with the demise of the fossil fuels and prevention of runaway climate change is needed. However, while the movement towards sustainable energy technologies is underway the world does not want to give up the idea of continuing economic growth.
The transition will be difficult to achieve as nowhere within existing economic and political frameworks are the limits to when growth will be curtailed being set. It is possible that the irrational insistence on endless growth as a non negotiable axiom, by a large proportion of the world’s population, may in fact be akin to the similarly irrational belief, by a similarly large proportion of the world’s population, that a supernatural being controls our existence and destiny. The irrationality of religion has recently been examined by Richard Dawkins (2006) in “The God Delusion”. Dawkins’ book is used as a starting point to investigate similarities between a belief in God and a belief in continuous growth.

Scientific American: The Ethics of Climate Change: Pay Now or Pay More Later?

Weighing our own prosperity against the chances that climate change will diminish the well-being of our grandchildren calls on economists to make hard ethical judgments.

Scientific American, May 2008.

Scientific American: Brother, Can You Spare Me a Planet?

Neoclassical economic theory is predicated on unscientific assumptions that massively frustrate or effectively undermine efforts to implement scientifically viable economic policies and solutions.

Scientific American, March 2008.

If you are an economist, a politician or anyone else who hasn’t studied physics, then Brother, Can You Spare Me a Planet? is a must read article. Modern theory in economics is a straw house built upon sand. It assumes a zero-sum game and acts upon that premise, that for every winner there must be a loser. See also “The Economist Has No Clothes”

I recall a professor of economics who introduced his concepts in a lecture to a bunch of us, fledgling scientists and engineers; in one particular lecture, he wrote an equation on the board, followed about a half hour later by another, using what he said were the same variables. The difference in the two equations was that the left side and the right side were switched and the coefficients had different names. When we asked whether that meant that the one was the reciprocal of the other (as was implied by the equations), we got a blank stare and a flip comment that they had nothing to do with each other. He lost us then. I’m just worried that he went on to influence other economists and politicians. If you don’t understand what I’ve just said, then please go back to high-school algebra and ask why he was still in grade-school.

Nature Editorial: Danger and opportunity

The response to the financial crisis needs to go beyond the immediate pressures. Policy-makers must seize this moment to solidify the science and innovation required for sustained economic growth.
Nature 456, 141 (13 November 2008) | doi:10.1038/456141a; Published online 12 November 2008

Nature: Economics needs a scientific revolution
… the current financial crisis highlights the crucial need of a change of mindset in economics and financial engineering, that should move away from dogmatic axioms and focus more on data, orders of magnitudes, and plausible, albeit non rigorous, arguments.

Compared to physics, it seems fair to say that the quantitative success of the economic sciences is disappointing. Rockets fly to the moon, energy is extracted from minute changes of atomic mass without major havoc, global positioning satellites help millions of people to find their way home. What is the flagship achievement of economics, apart from its recurrent inability to predict and avert crises, including the current worldwide credit crunch?

Nature 455, 1181 (30 October 2008) | doi:10.1038/4551181a; Published online 29 October 2008

If you do not have a subscription to Nature, you can download a slightly different version of this paper from here in PDF format.

The “Stern Review on the economics of climate change“
is a series of papers produced for the UK “HM Treasury”, available here.

From the summary of conclusions:

There is still time to avoid the worst impacts of climate change, if we take strong action now.

The scientific evidence is now overwhelming: climate change is a serious global threat, and it demands an urgent global response. This Review has assessed a wide range of evidence on the impacts of climate change and on the economic costs, and has used a number of different techniques to assess costs and risks. From all of these perspectives, the evidence gathered by the Review leads to a simple conclusion: the benefits of strong and early action far outweigh the economic costs of not acting.

Climate change will affect the basic elements of life for people around the world – access to water, food production, health, and the environment. Hundreds of millions of people could suffer hunger, water shortages and coastal flooding as the world warms.

Using the results from formal economic models, the Review estimates that if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more.

In contrast, the costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1% of global GDP each year.

Fig. 33 The Stern Review Economy Fig. 3 Executive Summary - Stabilisation levels and probability ranges for temperature increases

Fig. 33 The Stern Review Economy Fig. 3 Executive Summary - Stabilisation levels and probability ranges for temperature increases

The figure [above] illustrates the types of impacts that could be experienced as the world comes into equilibrium with more greenhouse gases. The top panel shows the range of temperatures projected at stabilisation levels between 400ppm and 750ppm CO2e at equilibrium. The solid horizontal lines indicate the 5 – 95% range based on climate sensitivity estimates from the IPCC 20012 and a recent Hadley Centre ensemble study3. The vertical line indicates the mean of the 50th percentile point. The dashed lines show the 5 – 95% range based on eleven recent studies4. The bottom panel illustrates the range of impacts expected at different levels of warming. The relationship between global average temperature changes and regional climate changes is very uncertain, especially with regard to changes in precipitation (see Box 4.2). This figure shows potential changes based on current scientific literature.

Professor Lord Nicholas Stern has published a new paper: Key Elements of a Global Deal on Climate Change, published by the London School of Economics and Political Science.

The Table of Contents lists chapters:

  • Challenges, opportunities and growth
  • Emissions targets
  • The role of developing countries in mitigation and trading
  • International emissions trading – cap and trading
  • Financing emissions reductions from deforestation
  • Technology
  • Adaptation
  • Conclusion

The Key Messages are:

  • The world faces an unprecedented challenge which requires urgent global action to sustain growth and guard against the risks of catastrophic climate change.
  • The global response to climate change must be carefully designed, whilst limiting transactions costs, and without creating additional market distortions, perverse incentives, or promoting protectionism.
  • The technologies involved will be transformational, but action, if taken now, is both manageable and affordable.
  • By promoting reduced pollution, improved resource efficiency, and energy security, cost-effective policies can bring about a safer, cleaner, and more prosperous world without jeopardising growth or poverty reduction. By contrast, inaction stands eventually to damage both growth and social stability.
  • Avoiding the risks of dangerous climate change requires that global greenhouse gas emissions peak within the next fifteen years are halved relative to 1990 by 2050, and then decline to less than 10 Gigatonnes (GT) of emissions (1 tonne per capita).
  • The developing countries, which by 2050 will account for around eight billion out of a world population of nine billion, and the greater part of global emissions, will have to be fundamentally involved in achieving global emission reductions.
  • The world should aim for a liquid international carbon market in order to allow for the most effective, efficient, and equitable emissions reductions.
  • In addition, non-price interventions are required to expand the global market for low-carbon technologies, support common standards, and promote costeffective reduced deforestation.
  • Developing countries must draw up emissions reduction plans now, and be able to benefit from scaled-up opportunities to sell emissions reduction certificates.
  • Developed countries will need to take on immediate and binding national emissions targets, demonstrate that they can achieve low carbon growth, and transfer resources and technologies to developing countries, before developing countries take on binding national targets of their own by 2020.
  • Existing international institutions will need to evolve in order to deal with the nature and scale of the challenge, coordinate global financial flows, and support vulnerable countries in adapting to the impact of climate change. In the longer term it might be necessary to design and create new institutions.

Get real. (22 Sep 2008)
Internationally, “the environmentalists” are in the boardrooms of business.

Gilligan’s Corner – Debt-based Money: A guarantee to destroy the planet.
“I want to take a moment to explain how money is created and destroyed in our debt based money supply. Environmentalists don’t often look for, let alone see the relationship.”
Here’s a link to the home page: Gilligan’s Corner

The Story of STUFF with Annie Leonard
“What is the Story of Stuff? From its extraction through sale, use and disposal, all the stuff in our lives affects communities at home and abroad, yet most of this is hidden from view. The Story of Stuff is a 20-minute, fast-paced, fact-filled look at the underside of our production and consumption patterns. The Story of Stuff exposes the connections between a huge number of environmental and social issues, and calls us together to create a more sustainable and just world. It’ll teach you something, it’ll make you laugh, and it just may change the way you look at all the stuff in your life forever.”

World Bank Report: Low Carbon, High Growth: Latin American Responses to Climate Change (*.doc format)
From the World Bank and announced at the Poznan conference:
WASHINGTON, DC, December 10, 2008 – In the midst of the most severe global financial crisis in decades, the World Bank today urged the international community to look to Latin America for innovative solutions to avert a climate crisis. The region is in a position to lead middle income countries in reducing emissions from deforestation, breaking the impasse on hydropower development, improving energy efficiency, and transforming urban transport, a new World Bank study concludes.

Climate Leadership, Economic Prosperity
New study shows Canada can meet global-warming reduction targets while growing jobs and economy
This report (pdf) shows that governments — and Ottawa in particular — can no longer argue fighting climate change means job losses and declining standards of living.

The study was commissioned by the Pembina Institute and the David Suzuki Foundation, with modelling by M.K. Jaccard and Associates Inc. Key findings include:

  • Canada’s economy can still grow by almost 20% in the next decade while the country reduces its greenhouse gas pollution to 25% below the 1990 level.
  • Canada will continue to enjoy strong net job growth.
  • Meeting the 25% reduction target requires a significant price on carbon pollution as well as targeted regulations and investments to expand the use of clean technology.
  • By 2020 Canadians will save more than $5.5 billion each year at the gas pump because of more efficient vehicles, more public transit and shorter commutes.

The Economics of Climate Change: Open Letter to leaders of Canada’s federal political parties

OTTAWA, Oct. 6 [2008] – More than 230 economists teaching in Canadian universities have signed an open letter to federal political leaders calling for economically coherent action on climate change. Among the signatories are some of Canada’s top economists, including current and past presidents of the Canadian Economics Association, and holders of Canada Research Chairs and the Order of Canada.

“Economists disagree on many things, but on what needs to be done about climate change there is considerable agreement,” explains Ross Finnie, one of the three authors of the letter and an Associate Professor in the Graduate School of Public and International Affairs at the University of Ottawa. “The signatories come from a wide range of political persuasions and will vote for different parties, but we all agree that effective policies for addressing climate change must be based on sound economic principles. Our goal is to help inform public debate on climate change at a time when people are really paying attention to this issue – during the federal election. Our hope is that whichever party forms the next government will act on these principles.” …

See the full text here (HTML) or here (PDF).

Nature Editorial: Natural value
Nature 457, 764 (12 February 2009) | doi:10.1038/457764a; Published online 11 February 2009

The economic downturn might be the best time to include ecosystem services in the real economy.

Worldwide momentum seems to be growing for an approach to environmental protection based on the ‘ecosystem services’ that nature provides for humans. These can range from watersheds filtering drinking water and forests sequestering carbon, to marshes dissipating the fury of storms. As long as the marketplace treats such services as free goods, proponents argue, the value of what nature does for humanity will effectively be set to zero and nature will continue to be trashed. But if the market could somehow be made to price the services appropriately, all those forests, streams, lakes, prairies and seashores would suddenly acquire real economic value, and people would have incentives to preserve them. …

EurekAlert!: What if Oregonians decline to address climate change?

‘Business-as-usual’ would cost a minimum of $3.3 billion a year — $1,930 per household — in 2020

If nothing is done to reduce greenhouse gas emissions, Oregon will face some $3.3 billion in annual costs, which could translate to an individual tab of about 4 percent of annual household income by 2020, according to a report produced for the University of Oregon’s Climate Leadership Initiative’s Program on Climate Economics by ECONorthwest.
 Copy of the Oregon report (pdf)

2009-11-17
U.S. Climate Bill Could Boost Economy by $111B, Study Says

As Republican senators in the U.S. attempt to delay proposed climate change legislation on the grounds that it could harm the country’s economy, a major study from three influential universities suggests that a robust climate bill would have the exact opposite effect and would boost GDP by $111 billion by 2020.

The study, which was undertaken by research teams at the University of California Berkeley, Yale and Illinois, also indicates that action to roll out an emissions cap-and-trade scheme and accelerate the adoption of clean technologies could create between 918,000 and 1.9 million U.S. jobs.

Meanwhile, the average household income could grow by $488 and $1,176 as year as a result of the bill. …

Clean Energy & Climate Policy for US Growth and Job Creation: An Economic Assessment of the American Clean Energy & Security Act