Cross-posted from Kate Mackenzie at FTAlphaville.
‘Collectively, humanity has yawned and decided to let the dangers mount’
So writes the FT’s Martin Wolf in his column today, which starts out noting that atmospheric carbon dioxide concentrations exceeded 400 parts per million last week, the highest level in 4.5m years.
As he says, if we take a prudential view of public finances, then surely a similar approach to something irreversible and much costlier” is warranted.
Martin’s list of the reasons the world is mostly failing to avert highly likely disaster is extremely insightful:
The first and deepest reason is that, as the civilisation of ancient Rome was built on slaves, ours is built on fossil fuels. What happened in the beginning of the 19th century was not an “industrial revolution” but an “energy revolution”. Putting carbon into the atmosphere is what we do. As I have argued in Climate Policy, what used to be the energy-intensive lifestyle of today’s high-income countries has gone global. Economic convergence between emerging and high-income countries is increasing demand for energy faster than improved energy efficiency is reducing it. Not only aggregate CO2 emissions but even emissions per head are rising. The latter is partly driven by China’s reliance on coal-powered electricity generation. (See charts.)
A second reason is opposition to any interventions in the free market. Some of this, no doubt, is driven by narrowly economic interests. But do not underestimate the power of ideas. To admit that a free economy generates a vast global external cost is to admit that the large-scale government regulation so often proposed by hated environmentalists is justified. For many libertarians or classical liberals, the very idea is unsupportable. It is far easier to deny the relevance of the science.
A symptom of this is clutching at straws. It is noted, for example, that average global temperatures have not risen recently, though they are far higher than a century ago. Yet periods of falling temperature within a rising trend have occurred before.
A third reason may be the pressure of responding to immediate crises that has consumed almost all the attention of policy makers in the high-income countries since 2007.
A fourth is a touching confidence that, should the worst comes to the worst, human ingenuity will find some clever ways of managing the worst results of climate change.
A fifth is the complexity of reaching effective and enforceable global agreements on the control of emissions among so many countries. Not surprisingly, the actual agreements reached give more an appearance of action than a reality.
A sixth is indifference to the interests of people to be born in a relatively distant future. As the old line goes: “Why should I care about future generations? What have they ever done for me?”
A final (and related) reason is the need to strike a just balance between poor countries and rich ones and between those who emitted most of the greenhouse gases in the past and those who will emit in the future.
Recognise yourself there somewhere?
We’d add a few things:
– Those future generations aren’t so distant, and aren’t necessarily even future. Kids born in the last few years in a first-world country can reasonably expect to live until late this century.
– In terms of investment, there’s a short-term disconnect. Just look at fossil fuel reserve valuations. Perhaps not surprising, as the discount rate is one of the more contentious issues in economists’ attempts to calculate the cost of action vs inaction. Perhaps in the post-capital world Izzy and James White have written of, where low returns on investments are accepted, investments in infrastructure generally will be more popular and more accessible. For now, the financial world has a fairly narrow approach to climate investing, barring a few experiments.
– Asymmetric risk. The cost of taking action that turns out to be unnecessary will be small compared to the risk of not taking action if it turns out to be necessary (assuming you don’t discount future costs to zero over just a couple of decades). That’s leaving aside the whole question of which outcome is more probable, not to mention the cost of uncertainty itself.
Wolf’s column finishes by pointing out that it’s not just economics and policy to be considered; the technological and institutional conditions necessary to address climate risk are also missing. The technology challenge tends to attract a reasonable amount of discussion but on the latter point, institutional conditions, we have to admit to not being that au fait. This video talk from Andrew Guzman, a law professor and expert on international regulations, trade and investment, gives a bit of a taste of what those might be.
