The economics of climate change: Discounting the future, ignoring the poor?
Economists looking at climate change face a difficult task, with uncertain climate models, chaotic climate systems and possible catastrophic threshold effects. Often, when looking at the impacts of climate change different mitigation/adaptation options and emission scenarios will be looked at, and the economist will recommend a certain range of policy measures or course of action (and sometimes inaction) as the most economically sound.
When you see this, there are two important economic principles that, when understood, can help change how much faith you put in the economist’s recommendation.
The first, and most important in my view, is the discount rate.
The discount rate is an important and sensible part of any sober economic analysis. Basically, it can be explained thus: would you rather have €10 now, or €20 euro in 10 years?
Most people will choose €10 euro now – a rational and sensible choice. To reflect this decision making in their models, economists discount future values – this can be a range of values – the higher the discount rate, the more the immediate (€10 now) is valued over the long term (€20 in 10 years).
This makes good sense and reflects how we make decisions.
When looking at the long term, discounting has one important effect: it discounts the future! This seems to be stating the obvious, but over the long term impacts of this can be severe. While any individual would prefer €10 now to €1000 in 100 years,(due mainly to the fact that they think they will be dead) and economics reflects this rational individual choice, if you are looking at it from a societal point of view perhaps discounting the future is not such a good choice. Why should the future be valued as less important than today?
At this point, some form of value judgement needs to be made. If you believe that those who will live in the future should be valued as much as those currently alive, pay very close attention to the discount rate in economics.
The second important thing to pay attention to in climate economics is the very nature of economic models. Normally, these are denominated in dollars or euros. Again, economists build models of the future (discounted, obviously) and look at different options based on emissions scenarios, mitigation and adaptation options. Often they will then model global GDP in the future and recommend policy actions on this basis.
This is a sensible way of doing things, however looking at global GDP can have one very important effect. While economists working on climate change and it’s impacts are careful not to value people’s lives according to the GDP they produce, any economic model looking at the impacts of climate change can have a tendency to favour those who are already rich and produce a significant proportion of global GDP.
Again a value judgement is necessary here. If you believe all people are equal, looking at Global GDP can mean that those in rich wealthy states – generally global north, so less affected by climate change, initially at least, and with most money to adapt – who produce most GDP in dollars will be ‘valued’ much more than a poor African farmer on a subsistence wage, whose contribution to global GDP is negligible.
Given the current huge levels of inequality in the global system, any model that primarily looks at GDP means that economic model will favour those are already wealthy, and are likely to remain so. Making policy decisions on this basis will tend to perpetuate this inequality, and valuing people solely by the dollars they contribute to global GDP in a discounted future is not a value system I would want to base my decision making on – at least not without first understanding the underlying principles being used in these models.
To counteract the effect of widely differing GDP between countries on economic modelling, often economists will use what is called ‘equity weighting’. With this method, emphasis is put on the increase and decreases in GDP in specific countries or regions, with this then fed back into models on a weighted basis, as opposed to the world as a whole just being examined for absolute changes in GDP.
For example:- many of the initial effects of climate change on the wealthy developed countries (mainly those in the global North) will be positive e.g. less deaths due to cold in winter. As the developed countries takes such a huge chunk of global GDP, any positive effects on the north will have a significant positive effect on global GDP, at least for the initial impacts of climate change.
Conversely, as the global south controls a small portion of GDP, any negative effects there – even if very large for those countries individual GDP – would not have a large effect on overall global GDP. However, the effects on the people in these countries could be catastrophic, especially for those already on the margins of society.
The effects of climate change are already being felt by those in the south, and they will continue to be the ones who bear the worst impacts of climate change first, even though they can afford it least, and are least responsible for the CO2 causing the problem.
Equity weighting can partially correct for this inherent bias towards countries which are already rich.
Any good economist knows this, and will flag it in their work on the economic impacts of climate change. Often however, it will not be given the prominence that some feel it might deserve – for example, in this paper “Checking The Price Tag On Catastrophe: The Social Cost Of Carbon Under Non-Linear Climate Response” – the following is the final note, on the final page:
“Although not discussed in reference to the scenarios presented here, with equity weighting the projected damages of climate change increase significantly, including in explorations of severe climate change damages (Tol, 2003). Choices about discount schemes are critical to the final 21 marginal damage projections, and these are partly ethical decisions about how to treat future generations that can only be made by policy-makers”
I am not sure if the final note on the final page is the best place for this information, but at least this is highlighted in the paper. Let’s hope policymakers are paying close attention to the papers they are presented with, including the very last note on the very final page.
Driving an Electric Car
The range is stated to be 160km – certainly more than enough for the daily commute in a city. The car comes with Sat-Nav built-in, and the available range is highlighted on the map. Obviously depending on how the car is driven, this range can change, but this is all reflected on the map in real-time so you can see clearly what affect different driving styles have on your range. The car also has an eco-drive mode which reduces the rate of acceleration and hence increases the range.
The manufacturers claim that the battery will be able to maintain an 80% charge after 5 years of usage, and 70% after 10 years. This would reduce the range to 128km and 112km respectively.
The car has several nice power management features – it can be set to only charge between certain hours, so you can arrive home, plug it in and it will only start charging during the hours that you choose. You can also set it to switch on the air conditioning at a set time as well, so the car can be heated up in the morning before you reach it – as this is done from the mains it will not reduce your range for the day. The car can also communicate via a smart phone app so all these features can be controlled remotely, allowing you to check if the car is charged from anywhere you have an internet connection.
The charge time is about 8 hours from a domestic charge point, and 25 minutes from a fast charge point. There are plans for 30 of these fast charge points around the country – for details of their locations, see the ESB’s PDF here.
Overall, first impressions were very good, and I can see electric cars becoming mainstream over the next decade.
I would have some reservations about having one as my primary car, due mainly to thinking if it would be possible drive from my home in Dublin to the family farm in Wexford after owning the car for 7-10 years without having to stop and recharge.
However, for any households who based in or near a city, and who currently have two cars, I can not think of any reason not to get one if you were replacing one of the gas-guzzlers anyway. The last census in 2006 indicated that of the 1,462,296 households in the state 1,173,519 (80.25% of total households) had at least one car, and 609,270 had 2 or more cars (that’s 41.67% of total households, or 51.9% of households with a car) , so there is a large potential market for electric vehicles.
The Leaf will be available in Ireland from February 2011, and will cost €29,995 after a government grant of €5,000. With running costs of approximately 1c/kilometre, anyone doing a significant amount of urban driving should seriously consider one, particularly if it was to replace a second car that was being upgraded anyway.
Welcome to Greece, where even Riot Police riot…
Handy Infographic for UKs Floating Voters…
If anyone in the UK has doubts about which way to vote, this should help…
Penn&Teller – Bullshit – The War on Drugs, The Truth about Bottled Water and more…
Penn and Teller on Bullshit is essential viewing, handily it is available for free on Google Video or YouTube.
Here is their take on the war on drugs…
And on bottled water…
And a classic where they convince people to sign a petition banning DiHydrogen Oxide (i.e H2O)…
The ultimate insanity of China’s deserted city
China, like most countries recently apart from Ireland, has had massive increases in government spending to maintain it’s economy in the face of falling global demand. This has included rebates on white goods, and massive real estate investments. This report from al-Jazeera shows the end product of pursuing the empty economic goal of constant GDP growth – a city built for a million people, standing largely empty…
We Can Remember It For You Wholesale…
The interface between the human brain and machines, and the use of MRIs and other scanners to read people’s minds, is an area of technology that seems to be developing amazingly rapidly. From typing merely by thinking to ‘neurochips’ that fuse silicon and brain cells, and rat brain cells in a petri dish controlling the flight of a plane in Microsoft Flight Simulator, what was once firmly science fiction seems to rapidly becoming a reality.
Add in the ability to read your mind (in limited circumstances anyway) and it appears what was fantastical is on its way to being part of our everyday lives, with some serious ethical and moral dilemmas attached.
So how long til we will be able to scan memories?
How to Report the News
For anyone who hasn’t seen it, Charlie Brooker’s Newswipe is a rather brilliant deconstruction of the insanity that is modern TV news…
Reducing Carbon while Increasing Quality of Life
There are a couple of simple ideas, which if implemented could make deep and long term cuts in our carbon emissions, while increasing the quality of life for all.
In no particular order, they are:
1. Implement a 4 day week (with obvious exceptions for emergency services etc.)
In 2008 Utah (spurred on initially by high gas prices and later by impacts from the global fiscal crisis) decided to do just this. One of the most conservative states in the US (approx. 60% of the population are Mormons) implemented one of the most radical solutions – a mandatory 4 day week for 80% of state employees. Hours were changed from a 9-5 5 day week to an 8-6 4 day week.The results have been startling.
- After initial fears, 82% of employees are supportive of the four day week, and do not want to return to a 5 day week (with a 3 day weekend, who would?)
- Sick days taken fell by 9%
- Air pollution fell as people were spending 20% less time commuting
- Approx. 17,000 (13% of the total) tonnes of CO2 emissions were avoided
While many organisations promoting sustainability are busy promoting radical solutions like ‘Prosperity without Growth‘ or a ‘21 hour working week‘, the simplest and fastest way to reduce carbon emissions and increase quality of life at the same time is being overlooked – the immediate implementation of a 4 day week – and we have the results from Utah to prove it.
2. Deep and Meaningful Reform of the Financial System
The repeal by the United States of elements of the Glass-Steagall Act in 1999 is one act of lunacy that should be reversed as soon as possible. Glass-Steagal was enacted in 1933, and as well as establishing the Federal Deposit Insurance Corporation, it prevented banks from purchasing other financial companies, ensuring a separation of commercial banking and the securities industry. Repealing this and allowing the sedate world of mortgage lending and the heady greed of Wall Street to meet led to the unrestrained casino capitalism of the noughties, with catastrophic consequences. Bringing back the firewalls that used to exist between normal mortgage and business lending by retail banks, and the ‘exotic’ financial instruments and shady business practices of the Wall Street sharks, is of the utmost importance.
While regulating banks may not be the most exciting way of fighting climate change, we simply cannot afford to have to bail out the banks again. With the cost of dealing with the current crisis being counted in the trillions, the amount spent to date on the banks dwarfs the spending on mitigating and adapting to climate change.
With this in mind, the second element of reforming the banking system should be a tax on speculative banking transactions – a Tobin Tax. This cause is one I had the opportunity to speak to Gordon Brown about shortly before the Copenhagen Conference – you can listen to his response here at about 26 minutes 30 seconds in. This cause has recently been taken up by Richard Curtis (of Comic Relief and Make Poverty History Fame) and has led to the rather effective ad below, and also the rebranding of the ‘Tobin Tax’ as the ‘Robin Hood Tax’. Using the funds raised from this to combat poverty, pay down the national debt and fight climate change would give society some return on the trillions that have been thrown at the banks.
http://robinhoodtax.org.uk/
3. Reducing Obsolescence for Consumer Goods
This idea is simple – for cheaper/smaller consumer items a no quibble 5 year guarantee should be mandatory. For larger items like fridges, cars etc. a ten year guarantee.
Interestingly, I can find almost nothing on this online – no groups promoting it, no blogs suggesting it, no news items covering it as a suggested solution to climate. It seems the disposable consumer society has become deeply ingrained in the global psyche!
So there you have it – 3 ideas that could contribute to fighting climate change, and that would increase people’s quality of life – a 4 day week, a return on our taxes that have been thrown at the banks (along with measures to prevent the same mistakes happening again…) and an end to the throwaway culture of rampant consumerism with a decent guarantee mandated by law for all products.
Haiti
Haiti and the Dominican Republic are on the same island; the picture below is telling.
