Thursday, November 19, 2009

The Cost of a Global Deal on Climate Change

As we ease out of a serious recession it is becoming apparent that if we are to afford the costs of managing climate change the global economy must grow. The estimates of the cost of a global deal on climate change varies from less than $200 billion a year to over half a trillion dollars.

In September the WWF called on G20 finance ministers to commit to providing $160 billion per year to help the world's developing nations to adapt to climate change and work towards a low carbon economy. These funds are in addition to both Overseas Development Assistance and carbon market finance. The 2009 Davos Forum forecast that world needs will average $515 billion a year through 2010-2020.

The debt and finance sector crisis of 2007-2008 led to the most massive government spending in human history. The cost of the banking and financial meltdown was approximately 4 trillion dollars or roughly 10 percent of Organisation for Economic Co-operation and Development (OECD) GNP.

The plans put forth to combat climate change at COP15 will increase short-term spending, and borrowing requirements. By some estimates, climate change mitigation and energy transition spending by the OECD group between 2010 and 2020, could attain a cumulative total of $4 to $6 trillion. Already struggling with unnprecedented levels of deficit spending, governments around the world are understandably concerned about incurring more debt.

Although it is expected that wealthier nations will pay the lion's share of this amount, there is considerable disagreement about where this money will come from and this is one of the key issues impeding progress ahead of COP15. As the world strives to develop a formula to pay for global climate change mitigation, finance ministers acknowledge that only economic growth will enable them to address mounting government deficits.

Electric vehicles, renewable energy, smart grid, agriculture and transport will all require heavy spending. Over half of total climate change mitigation money will go to the energy and transport sectors. Energy alone may cost as much as $300 billion in a couple of years. To put this into perspective the global oil and gas industry spent approximately $400 billion in 2007.

Despite legitimate concerns about deficits, energy inflation and energy price volatility, G20 leaders continue to indicate their willingness to accelerate the shift to a low carbon economy. World leaders acknowledge that managing climate change is not a choice it is an imperative.

The Obama Administration is trying to come up with a reliable economic estimate of the cost of unchecked climate change, but quantifying inaction is difficult. How do you quantify harm to future generations or catastrophic risk?

According to a report entitled, "Climate Change in the United States: The Prohibitive Costs of Inaction," Unchecked climate change could cost taxpayers, businesses and governments hundreds of billions of dollars in damages accross the US. The cost of doing nothing is far greater than the costs of a binding agreement on climate change.

For years before the banking and financial crisis, the cost of managing climate change was considered too high. However the cost of doing nothing threatens not only our economic system but our very survival.

Cost is not a valid excuse for resisting efforts to manage climate change but the astronomical costs of unchecked climate change are an impetus to act.

There will be major challenges in finance and resources, but managing climate change demands long-term government involvement in the economy. Contrary to the conservative views of those mired in old paradigms, this is not a socialist call to arms. We are tasked to marshall all the capitalistic creativity we can muster because this level of public spending can only be sustained by significant economic growth.
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5 comments:

vshamanov said...

Clearly, managing costs of shifting to the low carbon infrastructure is a crucial task. If these costs are to be covered by governments, we need more tax revenues, which means, we need more economic growth. But we already can't afford more growth, because vast majority of growth is fueled by carbon emissions. Some, like Peter Brown, even advocate passionately for zero (at most) and negative growth: http://www.amazon.com/Right-Relationship-Building-Whole-Economy/dp/1576757625.

I think we need to apply the collective creativity to designing an innovative cap-and-trade solution that would be attractive to investors.

Criss said...

Well .... My feelings on cap and trade can best be expressed by reading my comments at:

An Informed Voter's Opinions on Cap and Trade http://responsiblenergy.blogspot.com/2009/10/informed-voters-opinions-on-cap-and.html

An Independent, Free Thinking, Informed Voter

Anonymous said...

It was certainly interesting for me to read the article. Thanx for it. I like such topics and anything that is connected to them. I definitely want to read a bit more on that blog soon.

flyingbuffaloes7.net said...

Scientific Doomsday

by
Amitakh Stanford
22nd November 2009

There is a doomsday message that is swiftly gaining global acceptance. The new wave is clothed in acceptable clich├ęs and has won over the support of many of the respected scientific communities.

Unlike most other doomsday messages, this one is supposedly based upon scientific evidence. The scientific “doomsdayers” wear masks and pretend that they are predicting calamities based on hard evidence. This lulls the unsuspecting public into absolute belief and acceptance of the doomsdayers’ ravings.

If the same message were given in a spiritual setting, the adherents would probably be encouraged to turn to God in preparation for the final days. Generally, scientists have sneered at and mocked spiritual predictions regarding the end times, and the same scientists have convinced the general public to do likewise. Further, governments of the world use their police powers to suppress, restrict, or even eliminate these spiritual-based groups. Scientists have now one-upped the spiritual believers by supporting their dire predictions of calamity with supposed scientific evidence. Using their scientific clout, they have now convinced most of the world leaders to meet in Copenhagen. The stated agenda of the gathering is to halt global warming with a unified and urgent approach.

People may remember that there have been similar gatherings to solve the global economic crisis. In those meetings, every leader attending was told to boost their economies by stimulus spending. By and large, the world leaders have dutifully followed those dictates. One might ask: Is the global recession over due to this unified approach – or is it deepening? Many thinking economists have finally realized the latter to be the case.

[...]

Were the carbon traders truly concerned that global warming is a seriously urgent issue, they could perhaps justify following their untested carbon-trading notion. But if it were an urgent situation, why would they offer a solution that will take decades to take effect? If they have decades to work on the solution, by definition, it cannot be that urgent. And, if they have decades to implement their plan, could they not spend at least a few years or even a few months openly and transparently debating which course of action will save the planet from its imminent death?

To demonstrate the absurdity of the current “green” position, consider that they are proposing massive increases in nuclear power because it is supposed to be carbon friendly. The nuclear proponents do not seem to care about the disposal of nuclear waste from these sites. This means that they are presenting an extremely short-sighted solution, which is not really a solution at all. Besides, the proponents of expanding nuclear power want to tremendously restrict who can and who cannot use nuclear power. For instance, Iran and North Korea are presently being ostracized for, among other things, having nuclear-power programmes. This is a glaring instance where part of the real agenda of the ruling elite shows through; the nuclear proponents are not as concerned about global warming as they are with political dominance.

As indicated earlier, humans are only marginally responsible for global warming. The hotter sun is undeniable, and it is the main reason for global warming.

[...]

This would be all well and good if it could be believed that scientists are acting in the people’s best interests. But, since when have scientists been assumed to be altruistic? Why is it accepted that they will only act in the best interests of humans? And why should it be accepted that the scientists are correct about human causes of global warming?

[...]

The carbon-trading schemes, and other emissions-based solutions presented by the ruling elite’s scientific doomsdayers, will not solve global warming. But, if they get their way, they will change the lives of people for the worse.

Richard Matthews said...

Thank you for all your comments

In response to vshamonov: In my view, zero growth is simply not realistic within the time frames available to us. However growth need not be based on carbon emissions, in fact, growth in low (or no) carbon technologies can drive the world's economies.

May I suggest that flyingbuffaloes look at the science before they reprint inaccurate and politically motivated assertions.

Please see the following GREENMARKET articles:

Green Dissent (Part 1)

Green Dissent (Part 2)

Primer on CO2 and other GHGs

CO2 Myths and the Science of Climate Change

The Effects of Global Warming

Green Science

Green Stimulus and Opposition

What is Wrong with the Right

Action on Climate Change