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Faculty of Science, Liverpool John Moores University Tel:- +44 (0)151 231 4338 b.j.peiser@ljmu.ac.uk

Economics, Climate Change and Governments

Royal Economic Society, Newsletter, April 2006

http://www.res.org.uk/society/newsletters.asp

Last year we published (Issues 128, 129 and 130) three pieces dealing with economic issues relating to climate change and the treatment of these issues by governments. In the note that follows David Henderson reports and comments on recent developments in this area.

Economic issues relating to climate change were highlighted in July last year by the publication of a report on ’The economics of climate change’ from the House of Lords Select Committee on Economic Affairs. A notable feature of the report is that the Committee voiced concerns about the role and conduct of the Intergovernmental Panel on Climate Change (IPCC). The IPCC is the chosen instrument of governments in relation to all aspects of climate change, and its work is widely taken to be objective and authoritative. It is all the more striking that a group of eminent, experienced and responsible persons, drawn from a national legislative body and spanning the political spectrum, with the help of an internationally recognised expert adviser and after taking and weighing evidence, issued a considered and unanimous report in which the work and role of the Panel are put in question.[1]

The British government’s official response to the Select Committee report took almost five months to appear. It is largely dismissive, and in particular it rejects in toto the line taken by the Committee on the IPCC. In my view this response does little credit to the responsible department. It serves as a further illustration of precisely those aspects of the IPCC process and milieu which prompted the Committee’s concerns.

Going beyond the response, the government has set up a full-scale official inquiry by the Cabinet Office and the Treasury into the economics of climate change, under the direction of Sir Nicholas Stern and due to be completed in the autumn of this year. The Stern Review’s website is now well stocked. Recent additions to it are (i) three documents issued as the first fruits of the Review process, including a major lecture by Sir Nicholas, and (ii) various comments that have been made on these.

In the latter category, nine of us have sent in a collective radical critique of the three Review documents. We conclude by saying that ‘If the Review exercise is to serve a useful purpose, its treatment of the issues has to be more inclusive, more informed, and less dominated and constrained by questionable or mistaken presumptions.’[2] Among their omissions – as distinct from mistakes which are also to be found – these documents make no reference to the debates of recent years on the IPCC’s treatment of economic issues, and do not mention the Select Committee report.

Recent contributions to the debate have served to bring out a basic difference of opinion among economists. One school of thought, as represented in a statement of last December by 25 leading American economists including three Nobel prizewinners, as also in the Stern Review documents, holds that (to quote the latter) ‘the overwhelming weight of scientific opinion supports the view that climate change represents a real and growing threat’, so that ‘strong action has to be taken quite soon’ to limit greenhouse gas emissions. On this view, the role, procedures and conclusions of the IPCC, as also of environment departments and agencies across the world, are implicitly treated as beyond serious question; ‘the science’ is seen as providing a firm basis for far-reaching programmes of action.

As against this, the view which I and others have come to hold is that governments are mishandling issues which remain subject to huge uncertainties. The IPCC process, to which they have assigned a virtual monopoly, is deeply and increasingly flawed, both in its treatment of economic aspects and more generally. Rather than pursuing as a matter of urgency ambitious targets for curbing emissions, governments should take steps, the sooner the better, to ensure that they are more fully and more objectively informed and advised in matters relating to climate change. This requires action on two fronts: first, to improve the IPCC process by making it more professionally watertight; and second, to bring to an end the IPCC’s monopoly status by providing for other sources of information and ideas.[3]

[1] The report, and the evidence submitted to the Committee have been issued in two volumes by The Stationery Office and are on the House of Lords website. The Special Adviser to the Committee was Professor David Pearce, who sadly died soon after the report came out.

[2] The nine authors are Ian Byatt, Ian Castles, David Henderson, Nigel Lawson, Ross McKitrick, Julian Morris, Alan Peacock, Colin Robinson and Robert Skidelsky. Lord Lawson and Lord Skidelsky were signatories of the Select Committee report.

[3] Specific proposals for action on these lines are set out in a note that four of us (Byatt, Henderson, Peacock and Robinson) sent to the Stern Review in December, at the time when the Review was just getting under way. The text is posted on the Review website.