National Post (National Edition)
WE NEED TO PAY ATTENTION TO THE ECONOMICS.
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.