Climate: A Matter for Economists

By Stéphane Foucart
Le Monde

Friday 17 November 2006

So now macroeconomic equations include a new variable: the climate. Or rather, several new variables, given how numerous the variables subject to effects from global warming are. This evidence has been marshaled and broadcast for several years by experts at the Intergovernmental Panel on Climate Change (IPCC). Yet it seems to have made an impact on people's thinking since quite recently only, as attested by the considerable media coverage of the Stern report, delivered to the British government on October 30. According to this report, warming could, in the coming years, cost the world economy 5,500 billion Euros and provoke a recession comparable to the Great Depression in the 1930s.

The interest of a growing number of economists in climate change and its impact is part of a comprehensive upset that began several years ago. This turning point has seen the results of research in climate science emancipate themselves. These works were first taken up, adapted and faked by authors of militant cinematographic (Roland Emmerich's "The Day After Tomorrow") and literary (Michael Crichton's "State of Fear") fictions.

Recently, but sometimes with a surprising willfulness, the political world has also tended to seize on the climate question, as the documentary film of Davis Guggenheim and Al Gore ("An Inconvenient Truth"), Tony Blair's recent statements on the subject, the measures (Republican) Governor Arnold Schwarzenegger has taken in California, those measures American mayors have taken to limit greenhouse gas emissions in their municipalities, and even, in France, the attempts to retrieve Nicolas Hulot's discourse attest.

Economists' appropriation of the climate question is salutary. It alone will allow the broader mobilization beyond Kyoto of political officials for whom the increase in average earth temperatures of 2 or 3 degrees Centigrade is frequently a pure abstraction only. To such a degree that some (including several rare scientists) don't hesitate to assert that such a change will not ultimately involve much consequence. Nicholas Stern - whom one cannot reproach with making catastrophe-mongering a lucrative basis of trade - brings them back to the painful ... economic reality.

Two degrees higher average global temperature (a very optimistic scenario for the end of the century) means the complete disappearance of the Andean glaciers, for example. And, more generally, an even more intense withdrawal of all high elevation glaciers in the middle latitudes. With, as an immediate corollary, a significant drop in water availability in numerous regions. To maintain the structure of the occupation of those territories, heavy investments will be unavoidable. High-elevation water retention facilities, establishment of desalination factories and new water transportation networks, etc.

In the absence of these investments in the construction of new infrastructure - which the Stern report evaluates at between 15 and 150 billion dollars a year in the OECD countries - the abandonment of entire regions could have a still higher economic and social cost. Another parameter must be taken into account by the economists: in addition to climate change, energy resources are becoming scarce. A fact which technological progress will not be able to completely mitigate. The response to global warming will therefore have an energy cost that, as time goes by, will become higher.

Two more degrees means agricultural yields reduced by 20-30 percent along the Mediterranean basin and in Sahelian Africa. Hence, increased migratory pressure with its cortège of economic and political consequences. Two degrees more also means, according to the scientific literature cited by the Stern report, 15 to 40 percent of animal and vegetable species condemned to rapid extinction by virtue of the disappearance of their habitat. There again, the abstraction may leave you unmoved, even make you smile: could the global economy easily get by without biodiversity? No, answer the United Nations agencies and NGOs involved in environmental protection.

The Cardinal Character of the Stakes

For the last few years, these latter organizations have had ever more recourse to economists to identify and evaluate the "services rendered" by ecosystems to help measure their value. The champions of unbridled production can't shrug their shoulders any more when the destruction of bees through the use of phytosanitary products is evoked: the United Nations Food and Agriculture Organization (FAO) estimates the value of the service these pollinating insects perform for world agriculture at 200 billion dollars a year. In their absence, that's the sum that would have to be spent annually to maintain agricultural production at its current level.

In the same spirit, the United Nations Environment Program (UNEP) has calculated the annual economic contribution of mangroves and coral reefs at between $200,000 and $900,000 per square kilometer, depending on the region. It's these types of considerations and calculations that, added together, allow Nicholas Stern to evaluate the future cost of warming. Some may - no doubt deservedly - question the strict accuracy of these statistics; it is nonetheless the case that their order of magnitude accurately indicates the cardinal character of the stakes involved.

Climate enters economics: it could cause a profound reconsideration of certain market dogmas. For example, the price of fossil fuels defined by supply and demand does not include the cost for the repair of the inevitable future damage their combustion will occasion. Consequently, carbon must be taxed, all carbon, Mr. Stern says in essence - to reduce emissions on the one hand and, on the other, to obtain the financial room for maneuvering necessary to develop public and private research around clean technologies.

In [free market, economically] liberal circles, people freely express the idea that protection of the environment is an illusory objective if it runs counter to the economy. Perhaps that's true. One thing is certain; the statement may be reversed: the economy will not withstand a massive degradation of the environment. Not concerned by Kyoto, the Chinese government - which one could not easily tax with ecological fanaticism - seems finally to have understood that. It has just allocated the colossal sum of 175 billion dollars to an environmental protection program that is supposed to last five years.

Translation: t r u t h o u t French language correspondent Leslie Thatcher.

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