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The Ethics of Shortchanging Present Generations
Comment on the Stern Review, Part 1
Indur M. Goklany
One
of the devices used by the Stern Review (SR) to show that the costs of climate
change might reach 20 percent of global GDP is its use of low or declining discount
rates which it justifies, in part, on the notion of intergenerational equity
(SR, p. 23).1 However, even if for the sake of argument one accepts the Stern
Review’s claim that GDP (or GDP per capita) would be reduced by such an amount,
the numbers provided in the Review and the analytical sources that it relies
upon indicate that despite any climate change, future generations of both
the developing and industrialized countries will be far better off than the
present generations inhabiting these areas. That this is the case is shown
in Table 1. Specifically, this table shows that under the richest-but warmest
(A1FI) scenario, “net” annual GDP per capita in the “developing” world, after
accounting for a 20 percent loss in welfare due to climate change, would be
over $53,000 in 2100 compared to $875 in 1990 (the base year used in the IPCC
scenarios).2 Under the poorest but-less-warm (A2) scenario, the net annual GDP
per capita for developing countries in 2100 would be $9,500.
The
Stern Review also suggests that per capita GDP losses due to climate change
could total 35.2 percent in 2200 if one accounts for the risk of catastrophe,
and market and non-market losses (SR, pp. 156 and 158). I will, for the sake of
calculating a lower bound for the GDP per capita under climate change in 2100,
assume that the losses would equal 40 percent in that year, that is, double the
losses shown in Table 1. Even under this extreme assumption, the net GDP per
capita for developing countries in 2100, ranging from $8,015 under the A2
scenario to $39,900 under the A1FI scenario, would substantially exceed the
1990 level of $875. Notably, under the A1FI scenario, the average inhabitant of
the developing world would be better off in 2100 than the average person in the
industrialized world was in 1990 even if climate change losses amount to 78
percent of GDP.
1
The 20 percent estimate considers both market and non-market impacts of climate
change. It also assumes that climate sensitivity to greenhouse gases is high,
and it weighs climate change consequences for the poor more heavily.
2
I use market exchange rates (MXR) only because the data are readily available
in terms of the MXR rather than purchasing power parity (PPP). The differences
between current and future GDP per capita might have been lower had PPP-based
rates been used, although given the wide gaps in GDP per capita projected
between 2100 and 1990, the basic results of this analysis are unlikely to
change. The GDP per capita figures for 1990 are taken from the World Resources
Institute’s EarthTrends, online at http://earthtrends.wri.org/.
Where
do the numbers shown in Table 1 come from? The unadjusted GDP per capita in the
absence of climate change in 2100 for each IPCC scenario
shown
in the table are obtained from the DEFRA-sponsored “Fast Track Assessment”
(FTA) of the global impacts of climate change. The FTA provided much of the
basis for the Stern Review’s impact estimates (see SR,
* Assuming (a) climate change will reduce GDP by 20% for
A1FI in 2100, per the Stern Review’s upper estimate in its Executive Summary,
(b) for each scenario the cost of climate change in 2100 increases as the
square of the temperature increase in 2085, and (c) the cost of climate change
in 1990 is zero. Sources: Warren (2006b), Arnell et al. (2004), WRI (2006);
Stern Review (2006).
In
Table 1, to calculate net GDP per capita, I adjusted the GDP per capita in 2100
downward to account for welfare losses due to climate change, assuming that
these losses would, per the Review’s conclusions, be as high as 20 percent for
the warmest (A1FI) scenario if both market and non-market impacts are included
in the losses (see SR, Executive Summary, p. x). Adjustments for the other
scenarios are based on the assumption that losses due to climate change would
increase quadratically with the increase in global temperature (as of 2085), as
they were estimated by the HadCM3 model used for the Fast Track Assessment
(FTA). I have assumed that the cost of climate change in 1990 (the base year
used in the FTA) is zero. Using a non-zero cost would only reinforce the conclusions
arrived at here.
Thus,
by using low or declining discount rates, the Stern Review would have today’s
poorer generations subsidize tomorrow’s much wealthier generations to make them
even richer. In addition, because of the combination of greater wealth and
secular advances in technology, future generations would have greater access to
more sophisticated technologies to improve their health and otherwise advance
their well-being, which, moreover, would enhance their capacity to cope not
only with climate change but all other forms of adversity, despite a 20 percent
(or greater) loss in GDP due to climate change. Accordingly, a wealth transfer
from current to future generations (and a low discount rate) does not serve
intergenerational equity. One must question the ethics of using low discount
rates that would encourage withholding resources from today’s poorer and less
technologically advanced societies who suffer from numerous real poverty
related problems such as hunger, disease, unsafe water and poor sanitation in
order to solve the less certain problems that may — or may not be — faced by
tomorrow’s richer and more technologically advanced societies.
Table
1 also illustrates a second point, namely, even with climate change, human
well-being would be higher in the richest-but-warmest world characterized by
the A1FI scenario than it would be under other scenarios (see also Goklany,
2005a). Moreover, for three of the four scenarios, on average the developing
world will be better off in 2100 than the industrialized world is today, even
after accounting for climate change. The A2 world — the scenario with the
slowest growth — is the exception. Accordingly, results of the Stern Review
suggest that at this time greater priority should be placed on sustainable
economic growth for present generations, rather than reducing greenhouse gas
emissions to benefit future, wealthier generations.
As
shown elsewhere, in a piece titled “Living with global warming”, this doesn’t mean
that nothing need be done about climate change now. That paper notes that
climate change doesn’t create new problems as much as it exacerbates existing
ones, e.g., malaria, water shortage, hunger and flooding (see, also, Lawson
2006). Moreover, the results of the FTA and its precursors reveal that through
the foreseeable future the contribution of climate change to these problems is
generally small compared to other non-climate-change-related factors (Goklany
2005b). These two features suggest that over the next few decades the focus of
climate policy should be to: (a) broadly advance sustainable development, (b)
reduce vulnerabilities to climate-sensitive problems that are urgent today and
might be exacerbated by future climate change, and (c) implement “no-regret”
policies, such as eliminating subsidies for energy consumption, land conversion
and agricultural overproduction in developed countries, while (d) striving to
expand the universe of such measures through research and development of
cleaner and more affordable technologies, and (e) closely monitoring climate
change and its impacts so that rational midcourse corrections can be devised,
but without the hysteria accompanying the Stern Review.
Such
a policy would help solve urgent problems facing humanity today while
increasing its ability to address future problems that might be caused or
heightened by climate change. As shown explicitly in the references furnished
above, over the foreseeable future such an approach would provide greater
benefits more rapidly than even eliminating further climate change. The
bonus is that it would cost far less than the 1 percent of global GDP that the
Stern Review estimates would be the cost of stabilization at 550 ppm.
References
Arnell, N.W., Cannell, M.G.R. Hulme, M., Kovats, R.S.,
Mitchell, J.F.B., Nicholls, R.J., Parry, M.L.,
Goklany, I.M. (2005a). ‘A Climate Policy for the Short and
Medium Term: Stabilization or Adaptation?’ Energy & Environment 16:
667-680.
Goklany, I.M. (2005b). ‘Is a Richer-but-warmer World Better
than Poorer-but-cooler Worlds?’ 25th Annual North American Conference of the
US Association for Energy Economics/International Association of Energy
Economics, September 21-23, 2005, revised.
Lawson, N. (2006). The Economics And Politics Of Climate
Change: An Appeal To Reason, A Lecture to the Centre for Policy Studies, 1
November 2006.
Warren, R., N. Arnell, R. Nicholls, P. Levy, and J. Price
(2006b): 'Understanding the regional impacts of climate change', Research
report prepared for the Stern Review, Tyndall Centre Working Paper 90,
http://www.tyndall.ac.uk/publications/working_papers/twp90.pdf.
World Resources Institute (2006). EarthTrends,
online at http://earthtrends.wri.org/.
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