Climate change mitigation: a solution in search of a problem

The new IPCC report is out this week and the Secretary of the United Nations has issued stern warnings and rebukes. The report’s co-chair James Skea of Imperial College London cautions that “If we continue acting as we are now, we’re not even going to limit warming to 2 degrees, never mind 1.5 degrees.” The authors of the new report argue that we need to halt all fossil fuel developments, and radically change our lifestyles including our diets to save the planet.

I accept the science. More precisely, I embrace the range of possibilities that the IPCC publishes based on the amount of global CO2 emissions and the likely effect on the atmosphere. But embracing atmospheric science is only a small part of the issue. What all the reports and commentary leave out are realistic cost-benefit analyses and the likely economic outcomes even in the upper range of warming forecasts. Of course the media does a poor job of highlighting the likely outcomes or placing them in proper context. Once we think about the outcomes it becomes clear that climate change is a solution in search of a problem.

Global GDP growth: the surest way to smash global poverty.

So, how can I believe the science but not the climate change mitigation story? First we need to be precise in our questions and goals. Clarity matters. Stripping away all the romance, the real question is:

If we want to spend tens of trillions of dollars today to make the world a better place in 2100, what is the most efficient way to proceed?

An answer to this question centers on three lines of reasoning:

1) Lifting worldwide GDP growth.
2) Avoiding a rare but potentially catastrophic possibility.
3) Protecting the planet’s biodiversity.

Implicit in the climate change narrative is the statement that climate change mitigation tops the list for addressing all three points. Let’s address each.

Lifting worldwide GDP

To begin we need a measure and a sense of scale. When comparing economic well-being, economists use GDP – the value created through production of goods and services. Of course GDP is an imperfect measure, but GDP and GDP growth correlate strongly with all the aspects of life that we consider important. We do not see a rush of immigration from countries or regions with high GDP to lower ones; it’s always the other way around. Since 1950, the planet’s GDP has grown by over a factor of 12. As a percentage of the population, fewer people live in abject poverty, lifespans are longer, health care is more readily available, infant and maternal mortality has plummeted. We are better connected, better educated, more fulfilled, more peaceful, and we are more productive than ever before. In short, the world has gotten an awful lot better for so much of the world’s population. Economic growth has been the key feature for shattering poverty. Nothing else comes close. Unfortunately we have a long way to go. There are many parts of the world where GDP growth has been tepid to say the least. On growth considerations, the germane question is:

If we want to spend tens of trillions of dollars today to increase the world’s GDP to the greatest extent possible by 2100, what is the most efficient way to proceed?

Not all countries have seen the same growth prospects and some countries switched paths over time. A great example of a path change occurred with China in the late 1970s. As China opened up and started to move to a more market based economic orientation, GDP per capita exploded. From 1990 to today, China’s GDP per capita has grown by more than 1,000%. When we think about poor countries and the lessons around economic growth, it’s hard to think about anything else! With China, we have a direct example from the last 30 years which shows what is possible by adopting at least some level of a market based economy. Going back to the end of WWII we have examples at least as impressive as modern day China such as South Korea, Japan, Singapore, and Hong Kong. If Africa took a similar trajectory to any of these examples, 1,000+% GDP per capita growth over the next 30 years is not only completely within the realm of possibility but could even be the most likely outcome. Think of a world in which another 2 billion people experience such economic growth.

Now let’s compare 1,000% GDP growth over 30 years to anything that climate change has in store. The best economic estimates suggest that at 6C of warming by the end of the century – the very upper end of the climate models – the world economy will be about 10% smaller than it otherwise would have been without climate change in 2100. Even if the estimate is wrong by a factor of 2, and the actual effect is 20%, the effect size of climate change is about 0.25% of GDP loss per annum! Climate change is peanuts compared to the variation in growth we see between countries which organize around markets and those which do not. So if we want to spend tens of trillions of dollars today with the goal of making the world a better place in 2100, would it not make more sense to use those resources to persuade as much of the world as possible to follow the success path of well known examples? It’s hard to believe that chasing 0.25% per annum growth level effects come out at the top of the list. Such small effects in our own GDP growth sit at the level of the inefficiencies in the Canadian tax code.

Avoiding Catastrophe

It’s pretty clear that if the path to a better world in 2100 is GDP growth, climate change is one of the last places to start – 0.25% per annum growth effects just don’t make the leap for us. But there are other concerns. Suppose that climate change triggers some presently poorly understood tipping point which catastrophically ruins the environment and makes the miracles of economic growth impossible. In that case, spending tens of trillions of dollars today on climate change mitigation might make a lot of sense. But now the question changes:

If we want to spend tens of trillions of dollars today to make the world safer by avoiding a potential yet poorly understood catastrophe by 2100, what is the most efficient way to proceed?

In other words, we seek to spend a lot of money today in a precautionary sense – buying insurance – so we can have a future with economic growth. To answer this question, we need to think about how climate change compares to other potential catastrophes. We are just coming out of a pandemic that in 2020 shrunk the world economy by an effect greater than 10 years worth of expected climate change damage. Now, imagine a pandemic much worse than Covid, or even much worse than the flu of 1919. A severe global pandemic could erase decades of economic growth almost overnight. But it’s not just pandemics. There are only seven principal cereal crops in the world of which just two, wheat and corn, make up over 60% of global production. Suppose that a serious blight or virus destroys much of the world’s grain output, something like the Irish potato famine but on a global scale. Global debt runs could ruin our economies and throw us into a worldwide great depression that lasts decades. And of course nuclear war always hangs over us like the Sword of Damocles, not to mention a comet or asteroid impact, a major volcanic eruption, the collapse of the Earth’s magnetic field…you get the point. There are many, many, low probable highly catastrophic possibilities to worry about all of which could in part be mitigated right now by tens of trillions of dollars worth of spending today. Where do we start? We can’t insure against all possibilities. To make the case that climate change is special, we have to show that somehow, of all the unlikely but horrible possibilities that exist, climate change makes the top of the list on a cost-benefit insurance basis. It’s hard to make that argument, but I have some limited sympathy for it. But to put catastrophic events in perspective, for at least the last decade governments have told banks and corporations to plan carefully around climate change exposure. Now imagine if a decade ago governments instead suggested that financial institutions and businesses put a potential pandemic at the top of their mitigation priorities. Perhaps Covid would have been handled much better. Stuff that really threatens us are events like Covid on steroids; real catastrophes come out of the blue, not something that gives a century of notice with gradual change.

Protecting biodiversity

Climate change mitigation seems like a weird place to start if we want greater economic growth or mitigation against rare but potentially catastrophic outcomes. But climate change might be special when it comes to biodiversity. Perhaps climate change will be so awful for the planet’s plants and animals that, while GDP will hum along, we will irreparably harm the biodiversity of the planet and eventually poison long term growth prospects. Again we need to think in terms of cost-benefit. The question now becomes:

If we want to spend tens of trillions of dollars today to ensure the biodiversity of the planet through 2100, what is the most efficient way to proceed?

The biggest problems around biodiversity are habitat loss and destruction by direct human intervention. The large mammals of Africa and Asia have nearly been hunted to extinction. Ocean life suffers from over-fishing. Direct human effects on the environment have so far proved far more destructive than the indirect effects caused by climate change. Even if we manage to get all of the Western world on electric cars by 2050, rhinoceroses and elephants will hover near extinction, if not already extinct by then, and another 30 years of over-fishing risks colossal implications for sea life regardless of a slightly cooler climate. I doubt our green infrastructure renewal will save even one giraffe or increase the length of single tuna fish. It’s not clear that climate change is the place to start if we want to protect the environment and biodiversity. Perhaps sectioning off large parts of the Earth as no-go zones for humans might lead to better outcomes. Returning to economic growth, it’s countries with high GDPs per capita that treat their environments the best. Thus a virtuous cycle of higher economic growth with increasingly cleaner environments may end up being the best way to protect the natural world. In that case, the pathway to rapid GDP growth could be the saviour of biodiversity.

Squaring the climate change agenda

Somehow the public has become captivated by an arbitrary, almost magical, threshold of 1.5C of warming with an implicit belief that the world will end at the 2C mark within a hundred years or less. Climate models make no such predictions. Worse, when experts do offer preliminary cost-benefit analyses, they often leave out the effects of human adaptation. Rising sea levels do not mean 187 million people will be displaced over the next century. Urbanization saw billions migrate to cities over the last 100 years. Patterns of human habitation will continue to change over the coming century. Humans live in extreme climates and elevations already, from the Sahara desert to nearly the north pole, from the Tibetan and Andes plateau to The Netherlands and the Mekong Delta. We have lived across this enormous variation for millennia. There is no model of climate change, even with 6C of warming by 2100, that has a level effect larger than the variation that already exists.

The more I think about it, the more I see climate change as a solution in search of a problem. Every time we rephrase the question to precisely address what we hope to achieve in the far off future, climate change does not seem to offer the leading solution. It’s hard to imagine how climate change tops the list for increasing economic growth, protecting us from a potential catastrophe, or sustaining biodiversity. Yes, climate change contributes in some way to all three of these lines, but it’s not leading order. It’s true that climate change is a classic example of an externality in which an unregulated market is unlikely to generate the optimal amount of global warming given the benefits from carbon intensive production that humanity receives. Spending something to mitigate climate change makes sense, but it’s not an all-hands-on-deck-or-it’s-the-end-of-the-world kind of problem and it certainly does not warrant anything close to the attention it receives. And if ultimately the political will is insufficient to address climate change in any substantive way, it’s not a big issue – we’ve learned to live with all kinds of externalities that are just too costly to address. We know how to adapt.

So if climate change represents a rather small or moderate externality, why does it attract so much attention? I am sure there are true believers who claim to “believe the science” and yet focus all their concern on highly improbable catastrophic climate change events as though those outcomes are the most likely to occur. But for others, I think climate change offers a seductive channel for capturing government power. Under the climate change lens, CO2 emissions are a form of pollution, creating an externality for government action to solve. But we have to remember that heavy direct government regulation of pollution is the backdoor to the government marshaling production. After all, pollution is a byproduct of production; you can’t touch one without touching the other. That’s why in industrial settings, economists argue for narrowly targeted pollution mitigation, often emphasizing indirect government involvement that relies on some form of market or price mechanism, tied to carefully delineated property rights and the rule of law. A government that shepherds a sea change of the entire economy through direct action and direct government participation – whether justified or not – ends up in the driver’s seat of the economy, deciding on what gets produced and who produces what. Regardless of intent, as President Eisenhower recognized over 60 years ago, that centralization of power is a danger to democracy and liberty. We face enormous institutional and political risks from the clarion call to centralize power to save the planet from what all reasonable estimates tell us is a rather small problem. But maybe that’s the point…

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