The IPCC is Wrong

IPCC WG III on mitigation of climate change had this to say on the costs of a forceful 2 degree C strategy (Summary for Policymakers, page 15, my italics, their godawful prose):

Scenarios in which all countries of the world begin mitigation immediately, there is a single global carbon price, and all key technologies are available, have been used as a cost-effective benchmark for estimating macroeconomic mitigation costs … Under these assumptions, mitigation scenarios that reach atmospheric concentrations of about 450 ppm CO2eq by 2100 entail losses in global consumption – not including benefits of reduced climate change as well as co-benefits and adverse side-effects of mitigation (footnote 19) – of 1 % to 4 % (median: 1.7 %) in 2030, 2 % to 6 % (median: 3.4 %) in 2050, and 3 % to 11 % (median: 4.8 %) in 2100 relative to consumption in baseline scenarios that grows anywhere from 300 % to more than 900 % over the century. These numbers correspond to an annualized reduction of consumption growth by 0.04 to 0.14 (median: 0.06) percentage points over the century relative to annualized consumption growth in the baseline that is between 1.6 % and 3 % per year.

This has been summarised by retail commentators, including yours truly, as an estimate that “2 degree mitigation will cost 0.06% of GDP growth, or “nothing” within the margin of error.”

But it’s wrong. What is the point of an estimate of “macroeconomic mitigation costs” that excludes a substantial part of them, viz. the co-benefits and co-costs? One way forward is to try for a comprehensive estimate in welfare terms, including biodiversity, long-tailed risk of civilisational catastrophe, psychic burdens of anxiety, corrections for inequality, heightened risk of conflict, etc. This is pretty much impossible. Or you limit yourself to a GDP estimate, with its well-known flaws and the merits of familiarity – in which case you must put in all the GDP components. The whole point of mitigation is to prevent the damage from climate change. Not all of this is captured in GDP, but a lot of it is. Leaving out the avoided damage is a fatal flaw in the IPCC’s estimate of net costs. It’s much, much too high.

The WG’s excuse is given in the obscure footnote 19:

The total economic effect at different temperature levels would include mitigation costs, co-benefits of mitigation, adverse side-effects of mitigation, adaptation costs and climate damages. Mitigation cost and climate damage estimates at any given temperature level cannot be compared to evaluate the costs and benefits of mitigation. Rather, the consideration of economic costs and benefits of mitigation should include the reduction of climate damages relative to the case of unabated climate change.

dog-ate-homework

The way I read the last sentence is: the dog ate our homework. They had a shot at it, but gave up on integrating the co-benefits.

Can we have a quick-and-dirty try at this ourselves, misusing the IPCC’s own data? The analysis I found is in chapter 6 of the full report,  especially Table 6.7, pages 469ff. Unfortunately this is essentially qualitative. The experts forgot Robert Watson-Watt’s dictum for advising policymakers – “second best tomorrow” – and went for an impossible Theory of Everything, down to changes in land tenure.

We are on our own. I can’t suggest a credible GDP estimate of net costs, but think we should concentrate on three simpler questions.

1. Is there any significant chance that adverse effects of aggressive mitigation could outweigh the positives? The adverse effects seem to be either trivial amenity arguments (ugly wind turbines) or worst-case conjectures, such as pensioners freezing to death en masse because the electricity supply fails. The co-benefits are solid. Absent some serious scenario, I think we can rule this out.

2. Can we estimate the reduced damage from extreme weather? We do know that the damage is already very large, from the increased likelihood of storms, floods and droughts. It will get worse. So we have an unknown but large number. Help from commenters welcome.

3. Can we estimate the benefits of reduced air pollution from fossil fuels? Any effective mitigation programme will slash this, let’s say by 80%. UNEP estimates the cost of air pollution in OECD countries plus India and China at $3.5 trillion a year, in ill-health and lives lost.  Most of this is due to fossil fuels, though a significant amount comes from wood-burning stoves, which also emit CO2.

Should we really include the lives lost in a GDP estimate? Most economists would I think prefer GDP per head to plain GDP as the welfare indicator, rejecting the Vatican view of the more the merrier. So let’s be cautious, and shunt the value of life per se into the box of non-market values, along with polar bears and biodiversity. We can I think take $1 trillion p.a. as a very safe lower bound for the global GDP health savings from aggressive mitigation by 2050. World product in 2013 was $75 trn, according to the World Bank. Assume straight-line linear growth in abatement starting today, and the cumulative addition to world product by 2050 is $18.5 trn, or 25% of one year’s GDP.

In other words, the health co-benefits of mitigation absolutely swamp the 3.4%-of-a-year’s-GDP estimate of the energy-system costs, which just looks like a rounding error.

The IPCC should have concluded:

Aggressive mitigation starting now is the best bargain the human race has ever seen.

Endnote 1
Niggle, niggle: you could point out that the air pollution can be reduced by measures that don’t do anything for the climate, say by replacing wood cooking fires by diesel-powered electricity. True, but are these measures at all sensible or likely? OECD countries have spent fortunes reducing the air pollution from vehicles, and in London it still kills 4,000 a year. Progress on air pollution is far more likely if, as in China, it is also a climate change measure. We should measure policy against the real world, not an implausible Plan B.

Endnote 2
The cost estimates of WG III optimistically assume that “all key technologies are available”, including carbon capture for coal power stations, which is looking more hopeless by the day. On the other hand, their numbers for wind and solar energy are already too high. Compare the LCOEs in WG 3′s Annex III to Lazard’s latest survey of US energy costs (September 2014), all prices in $ US per mwh:

Onshore wind
IPCC, 10% WACC         min 51 / median 84 / max 160
Lazard, 9.6% WACC    min 37 /                    / max 81

Utility solar
IPCC, 10% WACC         min 84 / median 160 / max 210
Lazard, 9.6% WACC    min 72 /                      / max 86

US prices are keener than in many countries, but not China and India. It is virtually certain that prices of wind and solar will continue to fall relative to coal in most countries, so the net cost of the energy transition in electricity will become negative. The WACC is also becoming unrealistically high for investments that are now perceived as very low risk.

[Cross-posted at The Reality-Based Community]