Striking the right economic balance on consequences of climate change

Planning, 20 June 2008

After becoming headline news a year or so ago, climate change has all but vanished from the national media. The credit crunch and the threat of economic slowdown have distracted attention from a potentially life-threatening issue.

Support for a commitment to tackle global warming poses a challenge when political horizons are governed by short-term economic imperatives. Questions that need answering include how it is possible to save the planet without threatening economic growth and employment in such a time frame. Economic arguments are needed that will lead to sustained political commitment to save the planet.

Improved energy efficiency can achieve much and there is potential for new economic activity associated with green goods and services. But most actions to cut energy consumption, such as reduced car use and air travel, less packaging or forgoing non-essentials are likely to affect jobs and incomes. There seems to be no clear discussion of the part to be played by different strands in a coherent strategy.

The science of global warming is now accepted by most people. The Stern report made an important contribution by showing that the world economy will suffer if climate change is not tackled. The cost is put at as much as 35 per cent of global gross domestic product (GDP) by 2200. However, today's politicians are not accountable to the electorate of 2200 and find it difficult or impossible to focus on long-term goals if the shorter-term consequences are unpalatable.

Unless economists can chart a path of action that can be taken without politically unacceptable consequences, the prospects of a sustained and coherent response are bleak. No-one has ever fought an election on the platform of reduced economic growth and higher unemployment in order for future generations to benefit.

The Stern report suggests that the cost of tackling global warming is equivalent to one per cent of gross national product (GNP) a year. If it were met primarily by developed nations it would amount to 1.8 per cent a year, although Stern does not fully explain how costs would be distributed over time or around the world. There is lively debate among academics but this is neither reassuring nor easily understood.

It is based on assumptions of the social discount rate, how willing people are to pay for the economic prospects of future generations over a long period, or indeed whether they need to pay. These assumptions are subject to uncertainty and as commentators point out may vary widely in either direction from Stern's figure. It is also worth noting that one per cent of global GNP is seven times the annual global aid budget and current spending on climate change is nearer 0.1 per cent.

Concerns about a global slowdown demonstrate the extent to which short-term economic growth remains the prime imperative for politicians. At the same time, it shows the difficulty of maintaining the commitment to tackling global warming in the face of economic fluctuations. While it is conceivable that spending one per cent of GDP to save the planet could be defended when growth is 2.5 per cent a year, it would be a different story with growth of just one per cent a year or a recession.

Economists need to enter the public domain and debate the implications of climate change in a way that can be understood. There is a huge gap between symbolic initiatives such as banning plastic bags and the full practical implications of responding to the challenge of the Stern report. The issues are complex - but no more so than the science of climate change, and scientists have succeeded in communicating its impact in simple terms.

Until the economic path is set out clearly and acceptably, efforts to press for economic growth and sustainable development will continue in a fragmented and incoherent way. Faced with a stark choice between economic growth or climate change measures, governments or councils are likely to favour economic growth because that is where the short-term political benefit will lie.

Richard High is an independent planning and regeneration consultant and a member of the RTPI regeneration network.