Munich Economic Summit
Friday, 29 May 2009
Stephen Fidler
European Finance Editor, The Wall Street Journal, London
Adapt, Mitigate or Die?
Only last week, a study released by the Massachusetts Institute of Technology projected a medium probability of surface warming of 5.2 degrees Celsius by the turn of the century – and a 90 per cent probability of warming in the range of 3.5 to 7.4 degrees.
When it did a similar exercise in 2003, its median projected increase was just 2.4 degrees. There were a variety of reasons for the increase of nearly 3 degrees, including an estimate for the cooling induced by 20th century volcanoes, and changes to take account of emissions.
If this is right, or anywhere near right, the consequences will be devastating. A 5 degree rise in surface temperatures could, among other equally disturbing things, cause the abandonment many of the world’s cities, a rapid and devastating expansion of desert and a poisoning of the oceans, triggering large scale migration.
In such a scenario, or it is to be hoped before we get there, we will indeed have to adapt, mitigate or die, as the title of this introductory debate implies. Of course, and unfortunately, the adaptation, mitigation and dying will fall unequally on different populations, with the most vulnerable doing most of the dying.
We can do something about it before we get there; science convinces us of that. But it is essential to distinguish between feeling good and doing good. Of course we can feel good about doing our bit to ease global warming, of reducing the carbon we reach into the atmosphere, but is what we are doing really helping?
When governments subsidize the production of bio-fuels, ostensibly to mitigate climate change, does it really help reduce carbon emissions?
When as individuals, we pay money to offset the carbon we consume in our driving or flying, does it really help, do we know what our money is buying?
When governments subsidize purchases of new cars, ostensibly to get older fuel hungry cars off the road, has anyone done the mathematics to see whether the impact is to increase or decrease carbon output. Of course, operating a fuel efficient car uses less carbon dioxide, but does manufacturing and operating a new car consume less carbon than merely operating the already manufactured gas guzzler?
And when government actions curb carbon use for some, but leave others uninhibited, does this help? Indeed, did Kyoto, which limited future carbon emissions for some countries, but not for others, help reduce carbon emissions?
Underlying many of these questions is the operation of the pricing mechanism – an appropriate focus indeed for this 8th Munich Economic Summit.
If Germany, or the United Kingdom, or Europe, curb their usage of fossil fuels, basic economics suggests that that will – other things being equal -- depress the price of carbon fuels and encourage others to increase their consumption, as our distinguished panelist Hans-Werner Sinn has pointed out. And as he has also argued, lower prices for fossil fuels and expectations of lower prices in the future will have an impact on the behavior of suppliers, encouraging them to produce more now. So could it be that Europe could cut carbon emissions, meet all its targets, and the world be worse off?
On the other hand, a report from another of our distinguished panelists, Ottmar Edenhofer – co-written with Nicholas Stern – suggests that once economic recovery gets under way, if we continue to pursue the high carbon path to economic growth, sharply higher energy prices are likely to trigger a subsequent slowdown. So, here the price mechanism will provide incentives to transition to a low carbon economy, because if we do not, as the authors say, the next economic crisis is “pre-programmed.”
The backdrop of this discussion is indeed a global economic crisis unprecedented for 70 years. The “foredrop” are the climate change discussions next December in Copenhagen.
When told – incorrectly -- that the Chinese characters for crisis and for opportunity were the same, that great cartoon philosopher, Homer Simpson, coined the phrase crisi-tunity.
So will we be able to pluck opportunity out of our current travails -- or will the severity of our current economic crisis deflect us from dealing with the potentially greater global climate crisis that lies ahead. Perhaps at the end of these discussions, we will be closer to an answer to that question.
