Chapter 8 - Costing Climate Change (cont.)

 

The highly improbable conjecture is that between 2009 and 2029 $ 550 billion a year extra will be invested in energy efficiency and $ 540 billion less invested in fossil fuel extraction and fossil fuel plants without CCS. The estimates also suggest over $ 100 billion a year will be spent on the totally unproven technology of CCS fuel plants with a further $ 180 billion a year on renewables, which forecasts by the IPCC and official government sources acknowledge will remain three times the cost of coal based electricity generation. 

 

It seems that, having been forced to acknowledge that the much feared global warming has only a trivial effect on real levels of human welfare, the IPCC has to ensure that the estimated costs of its pursuit of the New Jerusalem are not too great. Forcing a radical transformation of society by banning the use of oil and coal and demanding that we reduce energy consumption and shift to horrendously expensive renewables and mythical technology like carbon capture and storage is depicted as a cake walk. Seemingly, only politicians’ myopia is standing in the way of a near costless conversion of the global economy away from energy involving high emissions of carbon dioxide.

 

Just as the government-funded Stern and Garnaut reports produced estimated costs of global warming far in excess of those of the IPCC, these sources also estimated the costs of restraining emissions to be even lower than IPCC expectations. The Stern Report sought reductions in global emissions of CO2 by 80 per cent of current levels by 2050.16 Stern argued that the economic cost will be 1 per cent of world GDP, ‘which poses little threat to standards of living given that the economic output in the OECD countries is likely to rise by over 200 per cent and in developing countries by more than 400 per cent’ during this period.17

Neither Stern nor Garnaut has plausibility. Both reports used a near-zero-interest-rates approach to evaluating future costs. Stern used 0.1-1.4 per cent and Garnaut used 1.35-2.65 per cent. A low discount rate means future benefits appear higher than they should be. As the Nongovernmental International Panel on Climate Change argues,

Discounting is a standard tool of policy analysis on issues ranging from financing public facilities to education and fighting crime. How can climate change be exempted from the use of an analytical tool that is required in all other debates? And if the purpose of reducing greenhouse gas emissions is to benefit future generations, it must be compared to other investments that would do the same thing. Nearly any investment in capital and services that raises productivity and produces wealth benefits future generations. Making investments in emission reductions that yield less than the return on alternative investments in fact impoverishes future generations … 18

 

The modelling Garnaut commissioned resulted in the prices of CO2 for the different scenarios shown in Figure 4.

The prices are assumed to level off once they reach $250 per tonne (in 2014 prices about US $285) because it is assumed that technology that is not presently conceptualised will cut in at that price. 

 

Near future carbon prices are estimated to be rather greater than these by the OECD.19 In US 2007 dollars, the carbon prices necessary for countries or blocs to meet the global goals in 2020 exceed $110 per tonne if each country focused only on its domestic emissions including those from agriculture. If final demand were to be incorporated (‘ including final demand’ in Table 3) the tax would still be $80 per tonne.

 

 

Figure 4: Price per tonne of carbon dioxide for different emission restraints

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The per capita costs of carbon taxes of this magnitude are considerable. For Australia, with emissions of some 18 tonnes per capita (similar to the US and Canada) a tax of $75 per tonne would cost $1350 per head unless it were to be able to be imposed on all sources, in which case it would be around $250 per head (US and Canada are comparable).20 These direct costs of a carbon tax understate the true costs since they exclude the costs that are incorporated in the goods and services we buy.

 

Surveys have indicated that few people, even those voicing concerns about global emissions, are willing to pay these sorts of sums to bring about emission reductions. For Australia, the research firm Galaxy found that only 4 per cent of respondents said they were willing to outlay over $1000 per year to reduce greenhouse emissions (42 per cent said they would outlay over $300 per year).21

Of course , saying one would outlay funds and actually outlaying them is different— people, rich and poor, resist tax outlays even if they consider them to be valid.