Two news stories recently competed for headlines. Both were about climate change. But one was the cause for gloom and the other for cheer. The bad news was a report by the Intergovernmental Panel on Climate Change (IPCC) on the disastrous consequences of not limiting global warming to 1.5 degree Celsius compared to the pre-industrial era. The good news was the award of half of the Nobel Prize for Economics to William Nordhaus for his pioneering research on economic policies to address climate change.
Three things are notable about the IPCC report and the commentary surrounding it. First, the 1.5 degree Celsius goal tightens the already stringent two degree Celsius target set in the 2015 Paris Agreement. Second, the measures suggested to achieve the ambitious goal are in the realm of science fiction. Third, commentators including those in this paper have argued that limiting global warming to even 1.5 degrees Celsius is not enough and that we must do more.
On the first point, recall that the Paris goal required reducing greenhouse gas (GHG) emissions by 50% from 1990 levels by the year 2050 and eventually to zero by the year 2075. The ‘50-by-50’ goal was dead on arrival since voluntary commitments by countries at Paris would not have been enough to meet it. On top of it, the decision by the United States last year to pull out of the agreement was the last nail in the coffin. The new 1.5 degree Celsius target requires reducing GHG emissions by 50% by 2030 compared to 2010 levels and to zero net emissions by the year 2050. As a reality check at present, GHG emissions are rather increasing, and we are only 12 years from 2030. The fudge used in the IPCC report is to allow “overshooting” of 1.5 degrees Celsius before returning to that level.
A key measure proposed to achieve this impossible target is sucking massive amounts of carbon dioxide (CO2) out of the atmosphere — as much as billion tonnes — depending on the extent of overshooting. According to the IPCC report, “carbon dioxide removal (CDR) deployed at [such a] scale is unproven and reliance on such technology is a major risk in the ability to limit warming to 1.5°C.”
It is also unclear how low the target can go since a warming of 1 degree Celsius has already happened. If that amount of warming will lead to a runaway climate change then the game is over. The problem with reports such as this, and with commentaries on them, is they paint a gloom and doom scenario but the solutions they propose are either platitudes — “alter lifestyles”, “change value systems”, “re-connect humanity with nature” — or impractical — suck CO2 out of the atmosphere.
In this context, the decision of the Nobel Prize committee to recognise Nordhaus is welcome since it focuses attention on practical solutions to global warming. Odd as this may sound, action on climate change is an exercise in cost-benefit analysis where the costs of reducing GHGs reflect in present but the benefits will appear in the future.
Starting with his pioneering paper in 1977, “Economic Growth and Climate: The Carbon Dioxide Problem”, Nordhaus has over the last 40 years developed and refined a tool for cost-benefit analysis of climate policies. His Dynamic Integrated Climate Economy (DICE) model is a simple but elegant device that integrates climate change with the economy, one that can even be run on a spreadsheet. It can answer the crucial question of how GHG emissions should be priced. While economists agree that pricing GHG emissions, currently free, is the only way forward and that this can happen either through carbon taxes or carbon trading, opinion differs on the pricing. The DICE can generate results that support big bang economists who want steep and high prices versus gradualists who want to start with low prices. Unlike a popular misconception, this has little to do with the discount rate one uses to value future benefits vis-à-vis costs that must be incurred now. In fact, using DICE, there is now a growing consensus among economists that fairly high prices for carbon are called for.
Starting with DICE, other so-called Integrated Assessment Models (IAMs) have been developed, some of which are very large and elaborate. But DICE and its refinements continue to provide insights into policies to address climate change. Unlike the Nobel laureates who are recognised for work done decades or years ago, Nordhaus, now 77, continues to develop and use his tool — and has recently written a popular book summarising his work,‘Climate Casino.’ For his fundamental and ongoing contribution of developing a framework for sober and rational climate policies shorn of hype and hyperbole, half a Nobel is better than none.
Shreekant Gupta is professor at the Delhi School of Economics, University of Delhi
The views expressed are personal
First Published: Nov 08, 2018 15:34 IST