Politics, not economics, curtails smart investments to prevent climate change.
By David Dapice*
In a poetic irony, while world leaders met in Paris to address the climate change threat, two of the major countries key to global warming saw their capitals – Beijing and Delhi – smothered in dense smog. Beijing even issued its first “Red Alert” urging citizens to stay indoors. As the so-called 21st Conference of the Parties concludes in Paris, there are commitments by countries to hold back carbon emissions and increase use of renewable and low-carbon energies like solar, wind, nuclear or hydropower. Despite such commitments, keeping the global warming below 2 degrees Celsius, or 3.6 degrees Fahrenheit, may be an impossible task. Scientists have warned that carbon emissions must drop as much as 70 percent by mid-century to restrict the rise of global temperatures.
This is extremely unlikely in 35 years. Commitments made in Paris would likely result in restricting the rise in global temperatures to at least 4 degrees of warming later this century. Energy systems are large and complex and take decades to change. Making substantial reductions in average global temperatures would be expensive, yet the costs are substantial should the world fail to act.
Reducing carbon emissions would be less expensive if governments were smart about where they spent money – reducing emissions and restricting temperatures might even have no net cost.
But it’s unlikely that politics from incumbent global interest groups would allow the best policies. Also, scientists are not sure when costs from global warming will start to rise rapidly, much less how high the costs may go. Leaders are being asked to do something hard when the costs of doing so are unclear and the benefits of accomplishing tough goals are not yet known. Indeed, if variables such as methane release from the tundra and undersea deposits are added, the uncertainties grow even more. Consider, methane is frozen in land and in undersea deposits and is released as temperatures rise. Methane, while not as long-lived, has about 20 times the global warming power of carbon dioxide.
It is normal in such discussions to list breakthrough technologies, or plead for subsidies or regulatory relief for existing ones. Some combination of solar, wind, geothermal, biofuels, energy storage, nuclear and conservation are invoked. Unconventional technologies that are potentially promising are also mentioned – carbon capture and storage, possible in some places but expensive at present, and geoengineering – are popular. In conducting cost-benefit analyses, economists prefer the simplicity of a carbon tax or perhaps a cap and trade system: A carbon tax could replace taxes on labor and so leave total revenues unchanged, though in some countries the tax on carbon might be mildly regressive. This could be solved by rebates or programs to promote efficiency. Companies have gamed the cap-and-trade system, and so far in Europe, substantial reductions have not been achieved.
Recent investigations of falsification of fuel efficiency in many automobiles suggest that passing laws and regulations are not enough. Some experts throw in the towel and urge adaptation – giving up on cities and entire nations that cannot be defended, relocating tens and eventually hundreds of millions people away from islands and low lying areas.
Then there are the global politics. Four-fifths of the net increases in global carbon since 2000 have come from China and India, home to one out of three people in the world. Both nations can anticipate continuing GDP growth along with slower but still considerable growth in energy demand. In addition, their per capita carbon emissions are much lower than those in North America. China has caught up to Europe on per capita emissions, while India’s levels are a quarter of China’s. In general, developing countries are hit hard by climate change and have fewer resources to adapt.
China will try to cut coal, in large part due to local pollution concerns. That will slow carbon growth. India has an equal pollution problem, but current policy aims for unimpeded growth in energy use. Indeed, many Indians lack any electricity and incomes are low. The government’s insistence, reiterated by Prime Minister Narendra Modi at the COP21 conference, will increase premature deaths and illness, especially among children. India requests free clean- technology transfers, but replacing coal is difficult.
Convincing nations to cooperate is hard if temperatures rise anyway. It is a classic “free rider” problem, as many try to avoid the short-term political costs associated with reducing reliance on fossil fuels.
This is where politics meet policy. If subsidies were directed to technologies that reduce carbon rather than to entrenched special interests, current levels of spending would have greater impact. Ethanol in gasoline is required in the US – a kind of subsidy – but makes little if any net contribution to carbon reduction and instead favors farmers who grow corn. Many nations still subsidize fossil fuels and electricity, including energy exporters in the developing world.
Studies by the McKinsey Global Institute suggest that in the US net costs of drastic carbon reduction could approach zero because many investments end up saving money and offset costs of those that do raise costs. A recent MIT study suggested the global cost of reducing carbon emissions by 2100 could be as low as 3 percent of global GDP, or one year of growth. Such estimates suggest that neglecting a relatively modest insurance policy and instead risking the costs of climate change, running into trillions of dollars a year even without the security costs of new wars, would be little short of insane.
International transfers to boost conservation and produce renewable energy and storage so that these sources can compete with coal would solve part of the global political problem. Philanthropist Bill Gates’ initiative to invest in clean energy technologies will help. As costs of renewables drop and if carbon taxes rose, poor countries would switch to renewables.
Political debates in the United States, with many candidates declaring that global warming is not real or not caused by human activity, prompt worry that COP21 may be a futile exercise. However mistaken they may be, such leaders simply represent their voters and donors: The US is divided with just over half of Democrats, less than two-fifths of independents and only 15 percent of Republicans regarding global warming as a priority. Perhaps years of propaganda from carbon interests have persuaded people that the science is less clear than virtually all scientists claim.
The US system in particular is designed to allow special, if narrow, interest groups to have an outsized influence on laws. In the absence of leadership, people do not see a reason to vote for a rational insurance policy, and the politicians follow along.
So, there are solutions to stemming climate change, but they are multifaceted and require more coordination than global institutions can easily manage. Solutions require persuading people of the gravity and urgency of the scientific consensus and then getting politicians to follow public opinion rather than donors. It will require more research and development to lower costs carbon-free power production and storage along with carbon capture and storage. Payments from one country to another are needed so that every dollar spent has a maximum impact. All of this must happen quickly. The list is not impossible, but it is improbable. Meanwhile, think twice about buying oceanfront property.
*David Dapice is the economist of the Vietnam Program at Harvard University’s Kennedy School of Government.