Monday, June 09, 2008

Where can we find that $45 trillion?

The International Energy Agency released a report that examines what it will take to reduce GHG emissions by 50% by the year 2050. The message of the media coverage: It'll cost US$45 trillion.

The economists and energy experts can debate the details of their projections. See Romm and Pielke for early reactions (which I don't necessarily endorse). Here, I'll only quote the key passage from the executive summary that led to the "45 trillion" headlines. The bold is mine:

"Additional investment needs in the BLUE Map scenario are USD 45 trillion over the period up to 2050. They cover additional R&D, larger deployment investment in technologies not yet market-competitive (even with CO2 reduction incentives), and commercial investment in low-carbon options (stimulated by CO2 reduction incentives). The total is about USD 1.1 trillion per year. This is roughly equivalent to the current GDP of Italy. It represents an averageof some 1.1% of global GDP each year from now until 2050. This expenditure reflects a re-direction of economic activity and employment, and not necessarily a reduction of GDP. While there will be impacts on global GDP, these are hard to predict and beyond the scope of this analysis."

The last bit seems important, no?


Scellus said...

Well, if GDP is a measure of happiness produced by the economy, it does not matter what we do as long as GDP remains high.

But it is not, at least not across different policy decisions external to the economy. For example, the decision to produce windmills instead of food would maybe keep GDP constant, for a while, but radically decrease happiness.

Leaning toward windmills may be good on the long run, but then we have the discounting problem, etc.

And there is a huge uncertainty in all estimates. Even if we knew how climate develops, estimating its effects on the economy is impossible. Numerous small adjustments will be necessary - summing up all the effects is simply impossible. The same applies to energy policy changes. If calculating the net effect of such changes were easy, we would not need markets but 50-year plans instead. :)

These are great reasons to be either a denialist or a pessimist.

Simon Donner said...

Doubting out ability to mitigate climate change is very different from doubting the evidence for climate change. The point here is that the coverage tends to focus only the costs of action and not the benefits.