Sensible action is needed on climate change

As I waited for the world to descend on Nairobi to debate climate change, a couple of names from my past loomed up in the international headlines. And both, remarkably, were enlightening the world about the vexed issue that is climate change.

The first name was that of John Hawksworth, once a colleague when I worked in London. John is now PricewaterhouseCoopers’ UK head of macroeconomics. He has recently authored a widely reported study, “The World in 2050”. His key conclusion confirmed something that many of us may long have suspected: that it is perfectly possible for the world to combine healthy economic growth while controlling carbon emissions.

Why is this so remarkable? Only because many so-called ‘sceptics’, bankrolled by big global business, have been telling us for years that global warming is a mass delusion, a myth put about by imbeciles. That we should not believe the evidence of our own eyes, because we are unable to understand long-range trends. That the only thing that matters is economic growth, and a failure to maximise growth will lead to more poverty, more gloom, more despair. So don’t worry about carbon, greenhouse gases and global warming – that’s all alarmist nonsense propagated by pesky activists.

John Hawksworth’s study was reasonable and balanced, and said something quite different: that a ‘business as usual’ scenario could actually double carbon emissions by 2050, with potentially grave consequences for our planet. But the study’s ‘Green Growth Plus’ scenario, which allows for emission reductions via a greener fuel mix, annual energy efficiency gains and widespread use of new carbon capture technologies, would stabilise atmospheric carbon dioxide levels at acceptable levels.

The PwC study concludes that there are technologically feasible and relatively low-cost options for controlling carbon emissions to the atmosphere. The cost? No more that 2-3 per cent of world GDP in 2050 – or one year of lost growth in order to achieve emissions 60 per cent lower than if we do nothing.

That account was followed by another one that grabbed even more headlines: the Stern Report. Sir Nicholas Stern, who taught me economics (with limited success) at the London School of Economics years ago, survived that experience to become the World Bank’s Chief Economist and is now the head of the UK’s Government Economic Service. He produced a 700-page report that went even further than PwC: business as usual, said he, will actually derail growth.

In the worst-case scenario, a failure to tackle climate change now could raise temperatures by as much as 5 degrees Celsius over the next century. And if you don’t quite get it yet, picture this: floods, hurricanes and droughts as a global norm; the loss of whole cities; the displacing of 200 million people and the eventual endangering of as many as one billion. Nick Stern takes the very reasonable position that when faced with potential catastrophe, even low-probability catastrophe, most sensible people take precautions. Why else do we buy insurance, when we could be buying beer? Or maintain an army, when we could be building clinics? Because bearing a small cost today to prevent a possible meltdown in our lives tomorrow seems level-headed to most.

To put it in numbers: Professor Stern tells us that stabilising greenhouse gases will cost just 1 per cent of annual global output by 2050. Inaction, however, could result in a fall in global consumption per person of as much as 20 per cent – the sort of consequence that we associate with world wars and crippling global depressions. Paying attention now?

So both my old acquaintances are weighing in with a warning: do something now, or face very severe consequences. But do what? On this they are united: we must put an appropriate price on carbon; we must encourage the rapid adoption of new technology; and we must take action as one race, one planet. The last point is particularly important: even Britain alone can do little to stem disaster, for China builds as many new power-generating plants in one year as the entire installed capacity of the UK. And by 2050, the ‘E7’ emerging economies will actually account for half of global carbon emissions.

What is important to realise, however, is that we have got ourselves into this mess because of a failure in pricing: in Sir Nicholas’s words, global warming is the most colossal market failure of all time. Why? Because we love to consume, and hate to pay the true cost.

Consumers in Europe are delighted to have fresh-cut flowers from Kenya on their coffee tables, but do not have to pay for the emissions made by the plane that brings them there. Britons fly to the Spanish sun for their holidays in the millions, but the air holiday companies are not forced to include environmental cost in the price of the package. Industries spew out effluents and toxic gases, but the cost to the world does not appear on the price in the supermarket. We keep driving around Nairobi in gas-belching armies, because no-one is making us pay for the congestion and pollution we cause.

If things were priced appropriately, behaviour would change. We know this from experience in tackling pollution. In the 1980s, America became alarmed by the acid rain problem caused by sulphur dioxide emissions. The Environmental Protection Agency set up an auction for the right to emit sulphurous gases. Polluters were given a choice: either buy permits to pollute or reduce emissions. What did they do? They reduced emissions. The cost of installing sulphur scrubbers turned out to be nowhere near what the polluters had been moaning about for years. Sulphur emissions were contained, and alternative technologies were developed – all by clever use of the price mechanism.

When something is priced correctly, it is consumed appropriately. The world has been on a binge because of poor pricing. And when the real price (which includes the cost to others of producing something) is finally set, many other realities will emerge. Clever innovators will pop up with alternative technologies. Incensed accountants will push for an end to wastage. And families will make changes to their consumption plans.

It is time regulators in Kenya gave thought to costs and prices. People who impose environmental costs must start to pay. The people who congest roads, pollute lakes, cut down trees, poison rivers – all are getting a benefit from these activities without bearing the costs. They must face the true balance sheet of their actions: then they will produce, and we will consume, in a manner that protects us all. Perhaps we could start by calculating the true costs of holding massive climate-change conferences involving tax-payer funded air travel?

The world will not end because of appropriate taxes and prices – it will merely become more efficient and more sustainable. Economists are now joining the argument about global warming, and are bringing sense and balance to a debate often dominated by emotional extremists. We may need to lose something now in order to prevent disaster later. If we do nothing, we may well be cooked. But a little prevention need not cost the earth.

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