Comment

New Ground 69
Autumn 2005

Competition: The Futures Market?

A few words from Gordon Brown could have profound implications for the Government's climate change policies. In a statement to the House of Commons Treasury Committee just before the summer recess, the Chancellor announced a review of the economics of climate change to be undertaken by Sir Nicholas Stern, head of the Government Economic Service.

On the same day, the Treasury announced the second Comprehensive Spending Review and identified "increasing pressures on our natural resources and global climate from rapid economic and population growth in the developing world and sustained demand for fossil fuels in advanced economies" as one of the new challenges that Britain will need to address.

Let us hope that the Treasury does a better job than House of Lords Economic Affairs Committee. Just two weeks before Brown's announcement, the committee published a report on the economics of climate change. It cast aspersions on the work of Intergovernmental Panel on Climate Change (IPCC), sought to accentuate the positives of climate change, suggested that UK energy policy is based on dubious assumptions about the roles of renewable energy and energy efficiency, and that the Kyoto Protocol should be abandoned in favour of technology agreements.

The committee is chaired by Lord Wakeham, former Tory cabinet minister and former board member of discredited US energy company, Enron. Lords Lamont and Lawson, former Tory Chancellors both, are also members, as well as others who should know better. Yet the committee's call for stronger involvement by the Treasury in assessing the costs and benefits of climate change, and the balance between mitigation and adaptation, appears to have been heeded.

There has never been a more important time to win the economic argument for reducing greenhouse gas emissions to combat climate change. When the IPCC published its third assessment report in 2001, the situation looked bad enough. It suggested that average global surface temperature might rise between 1.4oC and 5.8oC during this century, with potentially dire consequences for human and ecological welfare. But a major international conference held earlier this year in Exeter considered the latest scientific evidence and concluded that the risks are even greater than previously thought, especially of abrupt or runaway climate change.

While no amount of climate change is safe, and some communities are already experiencing the adverse effects, the evidence suggests that if the average global surface temperature rises by more than about 2oC, then the impacts increase markedly. Whole ecosystems such as coral reefs and the Amazon rainforest may be destroyed. Significant agricultural losses from major food exporting countries are likely. Billions of people in developing countries would be at greater risk of water scarcity, while others would see their low lying lands inundated by rising sea levels.

The worst impacts fall on the poorest people in the poorest countries that are least responsible for causing the problem. But no one should doubt the scale of the human misery and economic damage that can be caused by the kind of extreme weather events that are predicted in even the richest countries. The heat wave across Europe in the summer of 2003 is estimated to have caused 30,000 premature deaths. Hurricane Katrina in the US is another example of the power of extreme weather to humble even the mightiest of nations - and also showed that it is the poor in rich countries who are most vulnerable.

The costs of gradually reducing greenhouse gas emissions pale into insignificance in comparison to the potential costs of climate change. Economic analysis underpinning the Government's commitment to put the UK on a path to cutting carbon dioxide emissions by about 60 per cent by around 2050 suggests a negligible impact on GDP growth. The problem comes if emission reductions have to be made rapidly because early action is not taken.

There are legitimate short term concerns about economic competitiveness if the UK goes it alone. But we are not acting alone and there are long term advantages for UK plc as we move into a carbon constrained world. Along with all but two industrialised countries and many developing nations, including China, the UK has ratified the Kyoto Protocol. The first commitment period from 2008-12 is a first step. The UK is also participating in first international mandatory emissions cap and trade scheme, the EU Emissions Trading Scheme. And though the US will not ratify Kyoto, the Bush administration is increasingly unrepresentative. The US Senate recently passed a resolution endorsing mandatory action, while states from east to west coast are taking the initiative, including the north east states' own emissions trading scheme.

What progressive business leaders want is not backsliding but stability and certainty that the Government is serious about reducing greenhouse gas emissions for the long term. Gordon Brown is increasingly engaged on climate change. He has set the Treasury on a serious task in assessing the economics of climate change but it should not be a closed process. The stakes are too high.

Tony Grayling is an associate director of the Institute for Public Policy Research (IPPR)