Avoiding the catastrophe generates huge profits

       

Further reading

• It is the deployment - Stupid! (1876)
• Stern Review on the Economics of Climate Change (160)
• Experience Curves for Energy Technology Policy (IEA) (119)
• Creating Markets for Energy Technologies (IEA) (73)

The Stern Review shows the way ahead.

The review delivered to the British government early last week shows how the narrow road needed to avoid the climate catastrophe may be turned into a profitable highway to the future. This is the market of low-carbon products worth at least 400 b€ per year, but also in "rooting out" distorting subsidies of a value of 200 b€ per year. On top of that energy security and diversification have a value which is harder to define.

Risks and criticism

The risks of not meeting and mitigating the climate change are well defined. The costs of pursuing the Business-as-usual alternative, BAU, could end up in a world recession of a magnitude never seen before. But that is just the analytical description of the aggregated result. In the more realistic terms of human perception the consequences will be unevenly distributed. For the areas worst hit in developing countries this means famine and flooding and literately that people die because we are not able (or do not want) to change our life-styles! But there are still no winners in the BAU-case. The review shows that some areas in the world may reap short-run benefits but will eventually be hit harder!

Some counterattacks on the review have been recorded but seem to shoot behind their target. Some of them argue that the discount rate should be different and some that there are other more important problems in the world to solve. The review works with probabilistic methods, showing the results on a range of probabilities, and has a thorough discussion on ethics and distribution as well as on the technique to compare non-marginal changes. This would care for the discussion over which discount-rate that is the most appropriate. And the problems that e.g. Björn Lomborg raises, such as access to clean water and problems with diseases are just such problems that are severely worsened by the climate effects.

"The most successful economies...

are those that have the flexibility and dynamism to embrace the change", says the review! And the policies they describe contains:

• Carbon pricing (through tax, trading or regulation)
• Technology policies (to develop low-carbon and high-efficiency technologies)
• Removal of barriers to behavioural change (to encourage up-take of efficiency)

The price the review calculates for CO2 is well beyond the EST-price. The review suggest 85$ a tonne (70 €) when the EST-price presently is sliding down towards 10 € a tonne! This seems to indicate that there is a whole lot to be done to reform both quotas and pricing mechanisms. Not the least to secure that funds accumulated from a trading really ends up in investments and not in wind-fall profits.

The technology policies assume that the mechanisms of the "learning-curve" can be used. The review suggest incentives for deployment of technologies in the range of 30 b€ per year, and points at the learning curve in the nominal scale, see figure below. The IEA has done extensive work both on the theory and the practice to make such policies work.

The last part about behaviour may be the most crucial because it speaks to all of us as individuals. No doubt we will be well served if given better instruments to act and understand how to act. But in the end it is about will and about care for the future.

The review has made the BAU-alternative sufficiently clear and frightening. Now it is up to us! If no other reason would be convincing maybe getting a share of this multi-billion market could help?