Lomborg on global warming costs

Environmentalist Bjorn Lomborg writes in The Australian:

Yes, global warming is real and mostly man-made, but our policies have failed, predictably and spectacularly. I was one of the strongest critics of the Kyoto climate change treaty, back when it was considered gospel. People were aghast when I criticised it then. Now Kyoto has no friends, and everyone remembers how they really did not believe in it.

Kyoto achieved almost nothing, because the major emitters were excluded.

When economists estimate the net damage from global warming as a percentage of gross domestic product, they find it will indeed have an overall negative impact in the long run but the impact of moderate warming (1C-2C) will be beneficial. It is only towards the end of the century, when temperatures have risen much more, that global warming will turn negative. One peer-reviewed model estimates that it will turn into a net cost only by 2070.

We need to stop claiming that it will be the end of the world. Just as it is silly to deny man-made global warming, it is indefensible to describe it as the biggest calamity of the 21st century.

So what are the possible costs?

Here is how to quantify this. The most well-known economic model of global warming is the DICE model by William Nordhaus, of Yale University. It calculates the total costs (from heat waves, hurricanes, crop failure and so on) as well as the total benefits (from cold waves and CO2 fertilisation). If you compare these over the next 200 years, the total cost of global warming is estimated at about $33 trillion.

While this is not a trivial number, you have to put it in context. Over the next 200 years, global GDP will run to about $2200 trillion, so global warming constitutes a loss of about 1.5 per cent of this figure. This is not the end of the world but a problem that needs to be solved.

1.5% of global GDP is a significant amount of money. As Lomborg says it is a problem that needs solving, but it is not doomsday.

No matter what carbon cuts we make in the next couple of decades, they will make no measurable difference until the second half of the century, because the climate system is such a super-tanker. This means that a smart climate policy is not about doing just anything now but doing something significant that will be sustainable and cut a large amount of CO2 in the long run. This is the difference between doing something that feels good and focusing on something that will do good.

Similarly, the emissions that matter in the 21st century are from the developing world. Yes, we in the rich world emitted most of the CO2 in the 20th century, but we are slowly sliding towards insignificance. Today we emit just 43 per cent and by the end of the century, we will be down to 23 per cent.

All the rich countries’ climate policies will not matter much unless China, India and the rest of the world are in on them. And they really are not right now, because our feelgood policies are all high cost for little benefit, which poor countries cannot afford.

An agreement without China and India will have almost no environmental impact. But the problem is that there is little economic incentive for them to agree to a cap.

Second, even if successful, this approach would not solve the problem. If everyone implemented Kyoto, temperatures would drop by the end of the century by a minuscule 0.004C. The EU policy will, across the century, cost about $20 trillion; yet will reduce temperatures by just 0.05C.

One can believe global warming is a problem, but believe Kyoto was economic insanity.

The only way to move towards a long-term reduction in emissions is if green energy becomes much cheaper. If it cost less than fossil fuels, everyone would switch, including the Chinese.

This, of course, requires breakthroughs in green technologies and much more innovation.

At the Copenhagen Consensus on Climate, a panel of economists, including three Nobel laureates, found that the best long-term strategy was to increase dramatically investment in green research and development. They suggested doing so 10-fold to $US100bn a year globally. This would equal 0.2 per cent of global GDP.

Of course, R&D holds no guarantees. We might spend billions and still come up empty-handed in 40 years’ time. But it has a much better chance of success than continuing the futile efforts of the past 20 years.

That sounds a good plan to me. It is similar to the investment we are making in research into reducing agriculture emissions. Science is the answer.

This is what the US has done with fracking. It spent about $US10bn in subsidies over the past three decades on innovation, opening up huge new resources of previously inaccessible shale gas. Despite some legitimate concerns about safety, it is hard to overstate the overwhelming benefits: a dramatic fall in natural gas prices and a shift in US electricity generation from 50 per cent coal and 20 per cent gas to 37 per cent coal and 30 per cent gas. This has reduced US annual CO2 emissions by 400 million-500 million tonnes — about twice what the rest of the world has achieved over the past 20 years.

The fracking bonanza also creates long-term social and economic benefits through lower energy costs: US consumers benefit by about $100bn in lower gas prices. By contrast, estimates show that a 330 million-tonne CO2 reduction in the EU using carbon taxes would cost $240bn. It illustrates why we must confess to the failures of the past 20 years. As long as renewables are not ready, we are spending vast sums of money on tiny cuts in CO2. Instead, we should focus on investing dramatically more in R&D into green energy over the next 20-40 years.

The solution is not to make fossil fuels so expensive that nobody wants them because that will never work but to make green energy so cheap that eventually everybody wants it.

He speaks a lot of sense.