Counting GDP costs of green targets

RAISING CLIMATE CONCERNS: Greenpeace activists launching a hot air balloon depicting the globe next to the Eiffel Tower, ahead of the 2015 Paris Climate Conference in Paris, on Saturday.


    Dec 01, 2015

    Counting GDP costs of green targets

    PARIS is hosting the 21st global climate conference and there are high hopes that negotiators will agree on a carbon-cutting treaty.

    But adding up the climate effects and costs of carbon-cutting commitments shows that there is something very wrong with this approach.

    In a peer-reviewed research paper, I looked at the promises that governments have committed to ahead of Paris (their so-called Intended Nationally Determined Contributions or INDCs) for the years 2016 to 2030. These are what the global treaty will be based on.

    By running this data through internationally recognised climate models, I found that the promises will cut global temperatures by just 0.05 deg C by 2100. China's contribution would be a 0.014 deg C reduction by 2100.

    I also explored a far more optimistic, much less likely scenario. What if every government not only keeps every Paris promise but also shifts no emissions to other countries and keeps these reductions throughout the rest of the century? In that artificial scenario, temperatures will be reduced by just 0.17 deg C by 2100 (with China contributing 0.048 deg C).

    The United Nations Framework Convention on Climate Change claims "the INDCs have the capability of limiting the forecast temperature rise to around 2.7 deg C by 2100". This is advocacy, not science. It essentially assumes governments will do relatively little in Paris, but right after 2030 will embark on much more ambitious climate reductions.


    Let us get back to reality. What will it cost to cut global temperatures by so little?

    We can add up the price tags for the Paris promises submitted by the United States, the European Union, Mexico and China, which account for about 80 per cent of pledged reductions.

    The US promises to cut greenhouse gas emissions 26 to 28 per cent below 2005 levels by 2025. Data from the peer-reviewed Stanford Energy Modelling Forum shows hitting the target would reduce gross domestic product (GDP) between US$154 billion (S$218 billion) and US$172 billion annually. The EU's promise - to cut emissions 40 per cent below 1990 levels by 2030 - would reduce GDP by 1.6 per cent in 2030, or US$287 billion in terms of the value in 2010.

    Mexico's conditional promise to cut greenhouse gas and black carbon emissions by 40 per cent below the current trend line would reach 4.5 per cent of GDP by 2030.

    China has promised to cut how much carbon dioxide it emits for every yuan by 60 to 65 per cent by 2030. China's last promise for 2020 of an intensity cut of 40-45 per cent was relatively light - it would probably have been achieved without any additional policies.

    It would be a mistake to assume that the 2030 target will be as easy. Studies by the Asian Modelling Exercise suggest that a 60 per cent cut could cost about US$200 billion annually in lost GDP growth.

    And living up to the Paris climate promise of peaking CO2 emissions around 2030 could easily cost China US$400 billion or more in lost GDP.

    So the promises of the EU, Mexico, the US and China will diminish the global economy by at least US$730 billion a year by 2030 - and that is in an ideal world, where the world's politicians consistently reduce emissions most efficiently. If politicians make less efficient decisions, history shows costs could double.

    Factoring in the other 122 nations, this treaty will leave the global economy worse off by about US$1 trillion every year for the rest of the century - and that is if all politicians do everything right.

    China knows cheap and plentiful power is crucial. Over 30 years, it has lifted 680 million people out of poverty - more than any nation ever in history - and this has been powered by cheap coal. In a new report, the International Energy Agency estimates that China gets just 0.02 per cent of its energy from electric solar cells and 0.3 per cent from wind. Despite the total energy from solar and wind increasing more than 13-fold, China will still get just 3 per cent from solar and wind in 2040.

    Power is one of the most crucial inputs for poverty eradication so it is crucial for China to continue to focus on getting more power at low costs. The real solution to climate change will come from investing much more in research and development into green energy sources, in order to make the likes of solar and wind more efficient and able to compete with fossil fuels.

    Until then, climate treaties will just be hot air.


    The author is director of the Copenhagen Consensus Center and visiting professor at Copenhagen Business School.