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What's the cost of global warming?

Doing the maths

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Analysis Let us assume global warming is happening. Let us assume too that it is doing so at a rapid pace. What should we do about it?

There are two very basic approaches. Either we can attempt to mitigate the problem by direct or indirect means, or we can go with the flow, and adapt to a warmer world. Let's examine the costs and benefits of these approaches.

First, there's the "direct approach" as advocated by the Kyoto Protocols and the Stern Review. The current Kyoto proposal for 2008 to 2012 calls for greenhouse gas reduction to 5.2 per cent over 1990 levels. Unfortunately, this is not endorsed by most of the "prime offenders". The US balks at the proposal, and India and China will not even consider it. But Europe is attempting to cajole the world into compliance, so let us consider some of the details.

The most glaring problem is that the countries who are increasing their CO2 emissions most rapidly are among the world's poorest. They did not create the "problem" in the first place, but they are the ones that will pay the highest price, economically, by complying. The estimated costs of Kyoto by 2010, range from £6.2bn for the UK (or 1.1 per cent of GDP) to £17.4bn (or 3.1 per cent of GDP), the Institute Economique Molinari estimated in September 2006. Yet exceedingly affluent Sweden, already thoroughly industrialized, and having made cuts in CO2, would actually be allowed an increase in output. But Spain, even with an more lenient goal of 15 per cent above 1990 emissions by 2012, had already increased CO2 emissions by over a third from 1990 to 2001, making compliance expensive indeed.1

Enforcing these carbon reductions is problematic. Proposed solutions are an emissions tax and/or the creation of an "emission rights market". This would penalize profitable production, so that "rights" would become increasingly expensive over time. Some companies would go out of business, while many would attempt to move to countries not covered by the Kyoto treaty. As one German cement factory manager put it, "If that's the shape the trading will take, we will simply move our cement operation to Ukraine. Then there won't be any trading here, nothing will be produced here anymore - the lights will simply go out here."2. From 2013, the price of carbon offsets for the German cement industry is estimated to be around half of current revenues.

Even if the period for implementing Kyoto proposals was extended to 2100, temperatures would only be only 0.15°C to 0.21°C lower (c. +2.3°C higher from 1990 to 2100) according to Dr M L Wigley, senior scientist at the University Corporation for Atmospheric Research (UCAR). With all its costs, Kyoto would delay global warming by only six years.3

The Kyoto Protocols are clearly costly to all involved, do little to mitigate warming, and place the heaviest obligations on those countries that can least afford it. Therefore it seems unlikely that these goals will ever be met. The poorer countries simply can't comply, and the richer countries simply won't. And any country that made a good-faith effort would in effect, be victimized economically by those which did not.

Sado-economics

Let us now turn to the Review of Sir Nicholas Stern, which has been stirring controversy ever since it was released in 2006. The Stern Review, like Kyoto, favours immediate measures, but looks further into the future. However, even believers in the theory that human CO2 emissions are the primary factor in global warming take issue with Stern's numbers.

Stern asserts that the economic cost of global warming will in 200 years be between five per cent and 20 per cent of global GDP. Stern calls for a CO2 stabilization at 550 parts per million (ppm) by 2050. The current level is 385 ppm. Stern estimates that this would limit the temperature increase to between 2C and 3C/ The cost would be about one per cent of world GDP 4. This cost is comparable with that of the Kyoto protocol, but would be applied worldwide, not just by signatories to the treaty.

Stern takes the worst temperature scenario of a range published by the IPCC. He projects a temperature increase of at least 4°C and possibly in excess of 5°C by early next century. Most of the damage would occur at the high end of the estimate 5.

The Stern Review also uses the extreme IPCC estimate of population growth (up to 15 billion) by 2100, which is far higher than the UN's estimates of under 10 billion by 2150. Projections of population growth by the UN have actually been falling 6. Nor does Stern account for the most significant factor in falling projections - prosperity. As an economy develops and health and education improve, the fertility rate declines.

Since the bulk of the increase in population is projected for the less developed countries, the human cost of global warming in terms of disease and premature death - for example, 1 million to 3 million additional deaths at +3°C from famine, and 80 million additional cases of malaria7 at +5°C over the next 75 years - is magnified by between a third and half. Stern's Malthusianism becomes a self-fulfilling prophecy.

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