28. 02. 2008

Alice in Wonderland

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Paul Ekins is an old mate of mine – indeed, a co-founder of Forum for the Future. He is now Professor of Energy and Environment at Kings College London.

Paul is a seriously rigorous academic, very focussed on whatever task is in hand, with very high expectations of himself and everyone he deals with. Despite all that, he is normally pretty mild-mannered and pragmatically recognises that we are in for a long haul when dealing with policy makers. So for Paul to fire off the following broadside for The Guardian a couple of weeks ago is really quite something:

“This is Alice-in-Wonderland economics. One can just imagine the White Queen, who taught herself to believe six impossible things before breakfast, saying: ‘we are on a low-carbon emissions trajectory because I say we are, and that means I can omit as much carbon as I like!’. When future generations, struggling with the multiple ills that climate change will bring about, look back on this sort of policy sophistry, they will realise just how comprehensively, and knowingly, this generation has sold them down the river”.

What’s got Paul so worked up is a new initiative from Defra that I would actually much prefer to be singing the praises of – namely, its decision to introduce a “shadow price for carbon” in the shape of a mandate for all public sector bodies (theoretically!) to include in any Cost Benefit Analysis they may be doing, a shadow charge for every tonne on CO2 that is emitted.

So far so good. But obviously it all depends on where you set the price: at £1 a tonne, who cares? At £100, that’s serious. Defra has gone for £26, claiming that this is what Sir Nick Stern recommends in his landmark report on the economics of climate change back in December 2006.

In fact, the Stern Report offers a range of prices, this one being the lowest, estimated on the assumption that the world will have succeeded in stabilising emissions of CO2 at around 550ppm by 2050 – thus reducing the risk of massive climate-related economic damage.

And that is why Paul is spitting tacks. Given where we are today, in policy terms, the chances of stabilising at 550ppm are literally zero. So, following the good old adage of “garbage-in, garbage-out”, that wholly unrealistic assumption results in a wholly unrealistic shadow price, which (surprise, surprise) promptly resulted in a wholly unrealistic (and indeed appallingly irresponsible) Cost Benefit Analysis which has concluded that a third runway at Heathrow will be “sustainable” as well as economically viable! Oh please!!

If Defra’s economists can’t do better than that, who is going to constrain DfT’s runway-building mania? Something of an own goal I would say.

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28. 02. 2008
Stuart Singleton-White

And that is why I have to say that as I long standing Labour Party member this Government - my government - just don't get it. Despite all the warm words, there are simply no real actions. Sorry Gordon but the tough dicisions you spoke of at the beginning of the year would be not to build a third runway. This government has taken the easy conventional decisions every time.

28. 02. 2008
inel

Also, Sir Nicholas says:
“We underestimated the risks,” in his Stern report, according to the WSJ blog report on his talk at the AEA in January 2008.

What seems bizarre to me is this whole set of events (at least this is how it appears to me as a member of the public):

- the IPCC produced a set of emissions scenarios. Despite these clear indications of future threats and what needs to be done to mitigate disaster, policy lag is so great that climate scientists are increasingly concerned for our future as time marches on and emissions trends are still heading in the wrong direction

- Stern provided a range of carbon prices, and later reconsidered the risks as having been underestimated. I take that to mean we need to take more drastic action sooner to avoid the worst outcomes

- after world-class scientific assessment and report on the economics of climate change, along came the economists at Defra. These are the very people who, in my humble opinion, should understand the details from the likes of IPCC and Stern reports, and should then develop policies to convert expert knowledge into practical and effective policies. Unfortunately, Defra appear to have plumped for one shadow price for carbon—the cheapest, most timid, least likely to succeed option on the table

- meanwhile, the Department for Transport is hell-bent on building us all a rapid road to destruction

Glad you picked up on this story, as the policy conflict and power imbalance between feckless Defra and reckless DfT strategies needs to be hammered home, and sorted out in the safest, speediest way before it's too late.

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