In this paper I will assume that we know
what we don’t know. Indeed, I’ll assume that Earth is really warming,
that warming is largely caused by human activities, and that warming
is a potential threat to humanity and the environment. So, from my
assumptions it follows that we should do something to combat warming.
The question I will try to deal with is, What strategy should we
pursue? A first answer is mitigation – and I will put in balance the
costs and benefits of the mitigation strategies, especially the Kyoto
Protocol. The second answer, in my view the right one, is adaptation.
Kyoto is not enough.
The Kyoto Protocol will do little to help the Earth’s climate. Under
Kyoto, the temperature would be only 0.15°C lower than if nothing at
all were done. This means, in other words, that in 2100 we would have
the same temperature doing something as we would have had in 2094
doing nothing.So the Kyoto
Protocol is not enough to stave off climate change. If we want to act
seriously against man-made global warming, Kyoto is only a first step
towards a crackdown that would have to be much more severe, and would
have to involve every country in the world.
While the Kyoto Protocol requires
that greenhouse gas emissions be reduced by 5% below what they were in
1990, Super-Kyoto would demand a 60-80% reduction.
For example, Grazia Francescato, former President of the Italian WWF
and honorary president of the Italian Green Party, believes it is
necessary to “reduce the infamous greenhouse gases […] not by 5.2% […]
but by 60%” to deal with the problem of global warming.
Therefore, the costs of the Kyoto
Protocol are a mere fraction of the cost of Super-Kyoto.
The Costs of Kyoto.
The reduction in CO2 emissions to be made in order to stabilize
concentrations at 550 ppm are massive.
We are told that IPCC models show
that we must “do something” in order to mitigate global warming.
However, as Dr. Robin Baker has
pointed out, “The only thing that is certain is that the current
models are neither powerful enough, sophisticated enough, or informed
enough to be able to decide.”
As a recent study by the
International Council for Capital Formation (ICCF) illustrates, an
accurate portrayal of the costs of complying with GHG emissions
reduction targets depends largely on choosing an economic model that
captures all the short- and medium-term costs of adjusting to higher
energy prices or regulatory mandates on the economy as a whole.
Studies by the ICCF on the impact of
reducing all six Kyoto gases on four major EU economies, UK, Germany,
the Netherlands, and Spain, demonstrated the impact on GDP of carbon
taxes (or tradable permits) large enough to actually force greenhouse
gas emissions down to the Kyoto target.
- In Germany emissions need to be
reduced by 10% by 2010 and 14% by 2020. Industrial energy prices
would increase, with natural gas rising by 27% and electricity by
60%. Overall effects on the economy would be greater. GDP would fall
by 2.7% below the baseline for the first period, and would continue
2.5% below 2020. Unemployment would increase by about 1 million in
2008-2012, reducing by only 20% of this 2020.
- The effects on Spain would be
dramatic, since emission reductions of 25% and 27% would be needed
by 2010 and 2020 respectively. This would lead to industrial gas and
electricity prices increasing by 63% and 70%, and petrol by 18%. The
GDP would link shrink by 4.8% and by 2010, unemployment would rise
by 850,000.
Macroeconomic Model Estimates for
Italy.
In Italy greenhouse gas emissions are projected to raise to 579.7
million tonnes of CO2 equivalent by 2010, while Kyoto target is 487.0
million tonnes of CO2 equivalent. Accomplishing this would require an
actual reduction of 16%.
A 2003 ICCF analysis of the impact of
Kyoto and additional emission targets on Italy includes the purchase
of emission credits from abroad and other features described in the
December 2002 climate action plan released by the Italian government.
The ICCF analyzed the impact on Italy’s economic performance in
meeting its Kyoto Protocol target during the first budget period
(2008-2012) and further reductions over the post-2012 period through
the purchase of approved credits. It was assumed that the target is
the Kyoto-defined reduction for Italy for 2008-2012 followed by
continuous reductions in the target to 70 percent below 1990 levels by
2050.
Further, it was assumed that current
actions can meet 43 percent of the Kyoto target reductions by 2010,
but all further reductions are met through the purchase of credits
from either other countries or JI/CDM participants under three credit
price assumptions.
- Euro 20 per tonne of CO 2 (equivalent
to € 73 per tonne of carbon)
- Euro 50 per tonne of CO 2 (equivalent
to € 183 per tonne of carbon)
- Euro 100 per tonne of CO 2 (equivalent
to € 366 per tonne of carbon).
The range of price assumptions
reflects the EU’s expectation of a low price ( € 20) up to the maximum
compliance penalty (€ 100) for countries that do not meet the
specified target reduction.
For the three credit price scenarios,
analysis by the macroeconomic forecasting firm, Global Insight,
assessed the impact on Italy’s economic performance and employment.
The results of the analysis show that real GDP would fall 0.5% below
Reference Case levels during the 2008-12 budget period and would be
1.9 percent and 2.9 percent lower in 2020 and 2025 respectively under
the assumption that emission credits would cost 100 euros per tonne.
The annual employment reductions from
the Reference Case in Italy would be as high as 51,000 jobs in 2010,
rising to 277,000 by 2025.
Adaptation.
Global warming is a problem only if it presents a danger to the
wellbeing or survival of humanity. Changes in the Earth’s climate will
most certainly happen, but these will occur over the long run, and we
do have time to rationally consider any number of potential responses.
It is of utmost importance to focus on the effects that climate change
would have on poor and rich countries alike, and how we can adapt to
such changes.
Humanity has adapted to change (climatic
or otherwise) through technology, and through markets. During our
evolution as a species and as civilisations, humans have modified the
environment, first with agriculture, and developed more efficient
technologies to feed, clothe and shelter ourselves, to be transported
from place to place, and to improve the wellbeing of many people.
Economist Julian Simon emphasised
that our “ultimate resource” is human intelligence, which is expressed
through our minds, our creativity, and our ability to address and
solve problems in an original manner, thus creating a better world for
future generations. Without the need to warm themselves, our ancestors
would have not discovered fire; and if that had not happened, we might
still live in caves.
Conclusion.
Individual efforts to solve particular problems, in the form of new
technologies, are harnessed by markets, which leave humanity better
off in the long run. New technologies supply the means to obtain
better goods and services with fewer resources, fewer negative
environmental consequences, and at a lower economic cost. For example,
today’s car engines cost, burn, and pollute far less than those of
past decades. By the same token, energy sources such as
carbon-intensive fuels will be gradually replaced with cleaner and
more efficient alternatives.
In the long run, economic growth
results in a cleaner environment, because wealthier societies
generally can afford to shift their priorities from mere day-to-day
survival, to aesthetic concerns.
Free markets, unhindered by subsidies
or trade barriers, are fundamental to creating economic growth.
Markets harness new technologies, stimulate the circulation of ideas,
information, goods, and services. They create a closed loop of
economic interdependence and labour skills which, in turn, produces
wealth and welfare.
A framework for adaptation may entail
eliminating some of the rent-seeking ability of interest groups, for
instance, removing subsidies for all forms of energy (including
renewables), encouraging technological innovations and adopting those
technologies, and eliminating regulatory barriers which stifle
economic activity and distort prices. While this might be a difficult
short-run strategy, in the long run it would yield greater benefits.
Present EU energy policy is leading us into possibly the worst of all
possible worlds: a strategy which is unnecessary, because the science
of climate change is uncertain; ineffective, because the EU’s
reductions in emissions will not significantly affect climate change;
and negative for nearly everyone in society.
Certainly, risks presented by global
warming should not be underestimated – but shouldn’t be overestimated,
either. Global warming is a problem, not a tragedy, and we must
unleash human creativity to adapt to it.
To summarize and conclude, the costs
of Kyoto are really high, while the benefits are negligible. You may
say that we should consider a cap to GHGs emissions, if we could find
a more cost-effective treaty. But I tend to be more radical: we do not
know if global warming will have adverse effects to humanity and the
environment. We could consider Kyoto if we knew it, but I tend to be
more radical: we don’t know how and how much anthropogenic emissions
contribute to warming. We could consider Kyoto if we knew it, but I
tend to be more radical: we don’t know the causes and the dynamics of
warming. We could consider Kyoto if we understood it, but I tend to be
more radical: we do not even know if the Earth is warming, because
satellite measurements don’t show any trend towards increased
temperature.
The challenge Europeans will have to
face is not global warming, that is, “bad weather” one hundred years
from now. I tend to be more radical: the challenge is tax warming,
regulation growth, and bureaucratic pollution.
Thank you for your attention.
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