Published in The Weekender, 24 October 2009
There’s a widespread and significant misconception about the likely effects of strong action to cut or “mitigate” greenhouse gas emissions: that it will hurt economies. The chair at a recent climate debate in Cape Town perhaps summed up popular perception and prejudice when he said that those who call for a switch to a low-carbon economy are asking for a “huge sacrifice”.
It’s a two-fold misconception.
Firstly, the “damage to GDP” is usually exaggerated, particularly in the US by conservative opponents of the proposed (and rather modest) Waxman-Markey climate bill. The bill, a Republican think tank tells us, “would kill (at best) hundreds of thousands, more likely, millions of jobs and put a substantial and highly-regressive global warming tax on every American”.
This opposition to Waxman-Markey makes it very difficult for the US government to offer significant cuts at the December climate change negotiations in Copenhagen. Since racing carbon emissions are close to doing permanent and irreversible damage to global climate systems, and deep cuts are urgently needed, the propaganda about damage to GDP is a danger to humanity.
Secondly, there is a small but growing international movement of economists and policymakers who point out that growth of Gross Domestic Product (GDP), the statistic typically fetishised by big business and politicians, is in fact an extremely limited and misleading measure of economic success.
But let’s look at the “damage to growth” argument on its own terms before we uproot GDP.
The likely effects of cutting carbon emissions, or “mitigation”, have been closely scrutinised by the UN Intergovernmental Panel on Climate Change, the International Energy Agency, the McKinsey Global Institute, the US Congressional Budget Office and the Nobel Prize-winning economist Paul Krugman, amongst many others. All have concluded that while it is true that in some countries, measures to cut pollution might result in reduced GDP growth, in many others, it is quite likely to actually increase GDP growth. And this is before one considers the benefits of avoiding the enormous damage to GDP that will be caused if climate change is allowed to continue.
The McKinsey Global Institute reported in 2008 that “the macroeconomic costs of [dramatically reducing greenhouse gas emissions] are likely to be manageable, being in the order of 0.6–1.4 percent of global GDP by 2030.”
The International Energy Agency of the OECD calculated in 2008 that combating global warming would cost $45 trillion dollars – but over nearly 50 years, and with the value of the dollar expected to decline sharply over that time. This huge figure made headlines, but most reporters ignored the IEA’s more nuanced description of their conclusions. For this apparently huge sum would only amount to an average cost “of some 1.1% of global GDP each year from now until 2050.” What’s more, said the IEA, “this expenditure reflects a re-direction of economic activity and employment, and not necessarily a reduction of GDP.”
The UN’s Intergovernmental Panels on Climate Change reached similar conclusions in its 2007 report: “… global average macro-economic costs for mitigation towards stabilisation … correspond to slowing average annual global GDP growth by less than 0.12 percentage points.”
In the US, Krugman tells us, “ the Congressional Budget Office released an analysis of the effects of Waxman-Markey, concluding that in 2020 the bill would cost the average family only $160 a year, or 0.2 percent of income. That’s roughly the cost of a postage stamp a day.”
What about South Africa? What would it cost us to start putting a serious dent in our emissions? Well, to start with, it would actually save us money.
The Cabinet has adopted the recommendations of the Long Term Mitigation Scenarios produced for the Department of the Environment in 2008. Stefan Raubenheimer of the SouthSouthNorth Trust is the lead facilitator of the LTMS process.
“In that analysis, it shows quite clearly that a fair amount of the mitigation actions proposed make a contribution to the economy, rather than costing the economy money,” Raubenheimer says of the LTMS findings.
“Things like solar water heaters avoid costs that are much larger than their capital costs. If you apply a systems approach to costing these interventions, you find that quite a lot are in fact very positive to the economy when compared to cost of conventional fossils.
“There are some technologies that will definitely cost cash. The problem is not the overall cost, but the upfront cash requirement. We’ve got to find clever ways to get around the cash flow problem, which is in fact also hitting the high-carbon economy – Eskom can’t fund its conventional programme.
“Saying the old economy is cheaper by a margin, and we should therefore avoid the new economy, that’s a lie. We know that now.”
Andrew Marquard of UCT’s Energy Research Centre was another contributor to the technical work underpinning the LTMS scenarios.
“To follow the most ambitious mitigation scenario would cost on average 0.11% of GDP. The 0.11% is the amount of extra resources going into the energy sector. But a lot of these mitigation measures, such as installing solar water heaters, actually save money as well. If we do a lot of these things, we’ll save money that we would otherwise have spent on the energy system.”
The “damage” that would be done, if we were to follow the recommended mitigation scenarios, would be to the coal industry. “The coal industry would be severely curtailed,” says Marquard.
But the coal industry is inherently unsustainable. The quick, relatively cheap energy it has provided until now has come at a huge cost both in terms of conventional pollution and in terms of the additional carbon dioxide now damaging the climate system.
Not only does Eskom’s support for the coal industry damage the environment; it also exerts a stranglehold on potential job creation. Peet du Plooy, an economist with the World Wide Fund for Nature, has outlined a detailed plan showing how the money being spent by Eskom on its Kusile power station could be spent differently to deliver the energy equivalent in a far more sustainable manner. Du Plooy’s plan would create far less pollution – and create 22,000 jobs. Kusile is expected to create just 1,000 jobs.
The problem with conventional measures of GDP is that they do not take into account damage done to the environment, which is damage done to the “natural capital” on which our human economic systems depend.
The originator of the GDP measure, Simon Kuznets, did not intend for it to be used the way contemporary economists and politicians have come to do. Addressing the US Congress in 1934, he said “…the welfare of a nation [can] scarcely be inferred from a measure of national income…” In 1962, he elaborated: “Goals for more growth should specify more growth of what and for what.”
Recently, the French President Nicolas Sarkozy commissioned the renowned economists Joseph Stiglitz and Amartya Sen to lead a commission looking at new ways of measuring the real economic health of a country.
Launching the report in September, Stiglitz said, “If we have the wrong metrics, we will strive for the wrong things. In the quest to increase GDP, we may end up with a society in which citizens are worse off.”