Something has changed in the debate on man-made climate change: the United States is engaged. But its engagement – or at least the engagement of President George W Bush – is neither enthusiastic nor unconditional. In particular, at discussions among the heads of governments of the Group of Eight leading countries in Japan, Bush stressed that China and India had to participate. In this, he was right: it will be impossible to tackle the problem without the participation of leading emerging countries. The question is on what terms they do so.
This is to ignore the debate on whether man-made climate change is either plausible or correctly assessed. I find the arguments sufficiently cogent to justify action. Above all, I find persuasive the argument of Professor Martin Weitzman of Harvard University that it is worth paying a great deal to eliminate the risk of catastrophe. Those who reject such views need read no further.
Professor Nicholas Stern of the London School of Economics, author of the United Kingdom government’s 2006 report on climate change, has analysed the issues in an interesting recent paper. He starts from a few simple propositions: first, the concentration of carbon dioxide equivalent in the atmosphere is now 430 parts per million and rising at the rate of two parts per million a year; second, the aim should be to stabilise concentrations at between 450 and 500 parts per million; finally, to achieve this, global emissions of greenhouse-gas equivalents must peak in the next 15 years and fall by at least 50%, relative to 1990 levels (about 90% of 2005 levels), by 2050, when global average emissions must be as low as two tonnes per head.
Historic trends and current emission levels indicate how big a change from “business as usual” these goals are: two tonnes per head is 10% of recent US levels and half China’s. Yet, argues Stern, this must happen if one takes the risks seriously. Worse, the longer the world waits, the bigger reductions must be, because the gases stay up for centuries.
How is this to be achieved? Any set of policies has to be effective, efficient and equitable. Let us examine each of these criteria in turn.
To be effective, the policy will need to reduce emissions sharply. The implication is that every activity and virtually every country will be affected. Developing countries, which will contain close to 90% of the world’s population and generate the bulk of the world’s emissions by 2050, must make a substantial contribution. On this, Bush is correct. The long-run world average of two tonnes of carbon dioxide equivalent per head is so low that no country can be allowed to go much above it.
The sectoral implications are also dramatic: big efforts will be needed to halt deforestation, for example, which currently contributes some 17% of man-made emissions; electricity generation will need to be carbon-free by 2050; and the global vehicle fleet, projected by the International Monetary Fund to increase by 2.3 billion vehicles between now and 2050, must become largely carbon-free, as well.
Efficiency is as easy to define as it is hard to accept: the marginal cost of reducing emissions should be the same in all activities everywhere. The price of carbon – whether set by a “cap and trade” scheme on emissions, a carbon tax or a hybrid – should also be the same everywhere. That China is now the world’s single largest emitter shows how vital it is for emissions to be priced there, too.
China’s emissions per unit of gross domestic product (at purchasing power parity) are double those of the United States and three times those of Japan. So far as possible, therefore, the best technology must be used everywhere. Yet the existing set of low-emitting technologies is not fully diffused across the globe. Achieving this could, argues Stern, reduce emissions by between five and 10 gigatonnes per annum by 2030 (10 to 20% of 2005 emissions).
Big efforts must also be made to develop and scale up nearly commercial technologies and create new ones. The fact that all the needed technologies do not yet exist makes estimates of what it will cost to achieve the targets an educated guess. This includes Stern’s figure of 1% of global gross output.
Yet the most intractable challenge of all is equity. Emissions have to be reduced everywhere, but the cost of doing so need not be borne by everyone. There are three powerful arguments why costs should be borne by high-income countries: first, they created the current problem; second, they still emit far more per head; and, third, they can afford it. Three-fifths of the stock of man-made greenhouse gases was put up by the high-income countries. In 2004, US emissions per head were also five times those of China and 17 times those of India.
So how is it possible to ensure the same price for carbon everywhere, while imposing the costs on rich countries? One answer is by paying for reductions in emissions in developing countries, while not penalising them for failure to meet targets. Such a scheme exists: the “clean development mechanism”. Its principle is reasonable. The difficulty is defining and measuring benchmarks, monitoring achievement and covering entire economies.
Yet this, however difficult, is the way Stern suggests the world should go up to 2020, when developing countries should also adopt limits. He suggests, specifically, that the current mechanism needs to move from a projects-based one to a “wholesale mechanism, perhaps based on sector-specific efficiency targets or on technology benchmarks”. Can this be made workable in China, India and other emerging economies? To be honest, I doubt it. But it seems to be the only way forward. Moreover, persuading developing countries to accept binding limits even in 2020 is bound to be hard, given the gross inequity of the starting point.
The G8 leaders claim to have made a breakthrough. This is nonsense. They have not begun to reach all the needed agreements, particularly with the developing countries. They have merely taken a first step among themselves. They have not even put in place policies to achieve the necessary reductions in emissions in their own countries, of between 75 and 90% by 2050.
This is much the most complex collective-action problem in human history. Solving it requires concerted action among unequal participants over at least a century. Yet the right thing to do is to try. If not us, who? And if not now, when?
Copyright The Financial Times Limited 2008