Assessing the green opportunity
The concept of trade- offs has become unfashionable. Politicians around the world like to pretend that their choices will bring us nothing but superlative benefits.
Nowhere is this whitewashing more pervasive or accepted than in climate change. There is a prevalent, comforting notion that we can have our cake and eat it too: that cutting carbon need not involve financial sacrifice.
We hear this rhetoric so often that we almost don’t notice it. In announcing plans to make the UK a global hub for “green finance,” the British minister of state for climate change and industry Claire Perry said, “The transition to a low carbon economy is a multi- billion pound investment opportunity.” Norway’s prime minister recently claimed climate change offers “an opportunity for development and growth.”
And some politicians claim that the OECD has boosted this case with a report called Investing in Climate, Investing in Growth. The Chilean environment minister Marcelo Mena says the OECD finds “climate action causes increased growth.”
The simplest response to all this is to ask: if climate policies really are economically beneficial, why do we need the expensive Paris Treaty, or urgings from climate campaigners? Why indeed does a Nature analysis find every major developed nation is failing to meet its climate promises?
If carbon cuts were good for the economy, the UK wouldn’t be struggling with increases in energy costs, Germany wouldn’t be charging taxpayers more than € 25 billion for electricity, and wind energy pioneer Denmark wouldn’t have the highest electricity prices in the world.
Now, it would be fine to admit that cutting CO2 has a cost, but to argue that this is outweighed by the climate benefits. There is a legitimate conversation to be had about how much we are willing to pay for a smaller climate impact.
But we need to be honest that there is a trade- off. Solar and wind energy is not yet competitive enough to provide us with reliable, cheap energy that out- competes fossil fuels.
Although there are times when solar and wind energy prove the cheapest option — and it is likely that these will increase — they remain, on average, more expensive than fossil fuels.
That’s why the International Energy Agency recently projected that, even in 2040, even if we all entirely implemented the Paris Treaty, and even with a CO2 tax, non-hydro renewable energy will still be the costliest form of electricity generation, in poor and rich countries alike. The IEA estimates we’ll need to pay $ 3 trillion over the next 25 years to support uncompetitive solar and wind.
We have not yet solved the fundamental problem that green sources produce energy at the same time — all solar comes when the sun is shining — which makes it much less valuable because we still need to rely on fossil fuels for backup.
All economic models show that there is a cost to cutting CO2. There is historically a strong relationship between higher GDP growth and higher CO2 growth. The higher the CO2 growth, the higher the GDP growth. To achieve 10 per cent GDP growth per year, China’s CO2 emissions grew by six per cent per year, while the equivalent US figures were three and one per cent, respectively.
Nations can choose to grow slightly less and emit slightly less, and still enjoy positive growth. But this growth will be less than it might have been.
This is not a controversial point. The world’s best collection of peerreviewed energy-economic models from Stanford Energy Modeling Forum all show that cutting CO2 will have a cost in terms of lower GDP growth. Even the United Nations’ climate panel, the Nobel prizewinning IPCC, acknowledges that the cost of cutting CO2 will be substantial — perhaps 2.9 to 11.4 per cent of GDP by the end of the century.
So how do politicians argue that cutting carbon means economic growth? And how do they argue that the OECD report makes this case? They do so by blatantly misreading it.
Here’s what the report actually says: “With the right policies and incentives in place — notably strong fiscal and structural reform combined with coherent climate policy — governments can generate growth.”
This doesn’t mean that increasing reliance on alternative energy sources will make us richer. It doesn’t mean there is no cost for adopting policies that slow growth. What it means is that, for 20 major economies, combining economic reforms with carbon cuts will still mean that overall growth is netpositive.
Those “pro- growth” policies are things that the OECD has longadvocated, such as cutting regulations, paying down debt, and investing more in infrastructure. Only buried deep within the report is the revelation that the OECD believes that these “pro-growth” policies can “offset the negative impact of mitigation policies,” which by themselves “would entail global consumption losses of 2- 6 per cent by 2050.”
This is a nifty little sleight of hand. The “pro- growth” policies would increase growth by perhaps 10 per cent. Mix in CO2 cuts that will cost, say, 6 per cent, and voila, we get a policy that will generate 4 per cent growth. Ergo, green policies equal growth? Hardly.
Politicians talking up their policies is nothing new — but when it comes to an issue as important as global warming, we need to pay attention to the economics, and have a mature, considered discussion about the choices.
We need to challenge politicians when they argue that we can both have our cake and eat it. Instead we need to ask how much the cake costs — and weigh this against the reward.
WE NEED TO PAY ATTENTION TO THE ECONOMICS.