What is the Future Worth?


Would you be willing to wait an extra six months for your income to double in order to sharply reduce the odds of catastrophic change to the global climate?

In his most recent report, Ross Garnaut told the Government that you’re not ready to make that sacrifice.

Here is how it works. Professor Ross Garnaut agrees with scientists around the world that we must keep greenhouse gases in the atmosphere below 450 parts per million (ppm) of carbon dioxide equivalent if we are to have any chance of averting disaster.

Even 450 ppm poses serious risks. It will be associated with global warming of about 2°C, which is dangerous. Among the many nasty effects is an expected 25 per cent decline in agricultural productivity in India. We really should be aiming to stabilise at 350 or 400 ppm.

Despite this, Garnaut has decided that keeping warming at 2°C is too hard, at least for the next decade or more, so instead he says we should aim to stabilise at 550 ppm. Climate scientists believe that allowing the atmosphere to reach 550 ppm will dramatically increase the likelihood of catastrophes and runaway climate change, such as an irreversible melting of the Greenland ice sheet resulting in sea-level rise of seven – yes, seven – metres.

That would rule out any chance of returning the atmosphere to a safe level for thousands of years, yet Garnaut seems willing to take that risk because he believes we can only get to 450 ppm if we can be persuaded to accept 550 ppm first.

Yet Garnaut’s recommendation that the Government aim for a 10 per cent reduction in Australia’s greenhouse gas emissions by 2020 is based on the belief that stabilising at 450 ppm is politically infeasible for the forseeable future and we must reluctantly accept a 550 ppm world.

So what are the expected economic impacts that render the target of 450 ppm too hard? Garnaut presents economic modelling results estimating the costs of stabilising atmospheric concentrations at both 450 ppm and at 550 ppm.

The results show that pursuing the 550 ppm target will shave a little more than 0.1 per cent from GNP growth through to 2050. This means that instead of growing annually at, say, 2.5 per cent if we do nothing, GNP per person would grow at "only" 2.4 per cent if we aim at 550 ppm.

How should we understand this? With no emissions target and an annual real growth rate of 2.5 per cent per person, Australia’s GNP will double by 2040 – that is, we will all be twice as well off.

However, if the Rudd Government adopts policies aimed at the 550 ppm target, our GNP will not double until 2042. In other words, we will have to wait an additional two years before we are twice as rich.

What about the extra cost of aiming for the much safer, but still dangerous, 450 ppm target instead of 550 ppm? According to Garnaut’s modelling, if we aim for 450 ppm we will have to wait an additional six months before our incomes double. Instead of two years, we will have to wait for two and a half years.

These new results do no more than verify a dozen or more studies over the last 15 years, all of which show the real cost of even radical cuts in our greenhouse gas emissions would be tiny.

The economic impact of pursuing a target of 450 ppm rather than 550 ppm is so small that it will be exceeded by the normal statistical error involved in measuring GNP growth. Reserve Bank decisions on interest rates over the next decade will have more impact on the economy than pursuing a target of 450 ppm.

Even to ask whether it’s worth waiting an extra six months for our incomes to double in exchange for a much better chance of averting climate chaos is bizarre. To conclude, as Professor Garnaut has, that the trade-off is not acceptable to the Australian community is possible only if economic growth has become a fetish.

Does anyone believe that Australians would be less happy if they had to wait an extra six months before they became twice as rich? The absurdity of the situation set out in the Garnaut report suggests our obsession with economic growth is so powerful that we are unwilling to contemplate sacrificing a tiny amount of consumption to sharply reduce the risk of irreversible damage to the Earth’s climate.

Garnaut himself expresses the trade-off in simple terms, albeit ones reflecting an economist’s worldview. He describes three types of benefits of cutting emissions: insurance against breaching catastrophic tipping points; protection of non-market environmental qualities (such as the loss of the Barrier Reef); and avoiding large costs in the next century.

He then asks: "Is it worth paying over the course of the century less than 1 per cent of GNP for the non-market benefits, insurance value and the enhancing value beyond the 21st century of the 450 strategy?"

He says this is a matter of judgment. His judgment is that we should not attempt now to keep greenhouse gas emissions at a safe level, although when things get worse and we finally realise it won’t cost much to cut to 450 ppm and below we will see the error of our ways.

The Rudd Government will almost certainly agree with him that we should aim low. With climate scientists warning that we have no more than seven to 10 years to stabilise then begin to reduce global emissions before irreversible effects take hold, has anyone ever taken a bigger gamble?

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