How the Intergovernmental Panel on Climate Change deals with economists

The Intergovernmental Panel on Climate Change (IPCC) is a joint subsidiary of two international agencies, the World Meteorological Organisation (WMO) and the United Nations Environment Programme (UNEP). It was created by the member governments of these two agencies in 1988. Since then it has produced three full-scale Assessment Reports, issued respectively in 1990, 1995 and 2001. Work is now in progress on the Fourth Assessment Report (AR4), which is due in 2007.

The Panel operates through three Working Groups. WGI is concerned with scientific aspects of climate change, WGII with the prospective impacts of such change and ways of adapting to it, and WGIII with mitigation of the impacts. Each of the Groups produced its own report as part of the Third Assessment Report. Alongside them was the Special Report on Emissions Scenarios (SRES), prepared for WGIII, which provided in particular a range of projections of greenhouse gas emissions, covering the period from 1990 to 2100. Between them these four reports make up some 3,300 pages of text. Their preparation involved a small army of participants - authors, contributors, reviewers, and commentators - with delegates from member governments closely involved in the final stages of revision. Collectively, these participants make up what may be termed the IPCC milieu.

An economic dimension

In an official document headed “Principles governing IPCC work”, which can be viewed on its website, the role of the Panel is specified as being:

… to assess on a comprehensive, objective, open and transparent basis the scientific, technical and socio-economic information relevant to understanding the scientific basis of risk of human-induced climate change, its potential impact and options for adaptation and mitigation. Thus the responsibilities of the IPCC include that of advising and informing its member governments on the economic factors that may bear on “human-induced climate change”.

The economic aspects are sometimes viewed as incidental or peripheral. For example, in a recent exchange in the House of Lords (July 15, 2004) Lord Whitty, replying for the government to a question put by the former Chancellor of the Exchequer, Nigel Lawson (now Lord Lawson of Blaby), said:

… the scientific basis for, and the physical effects of, climate change are virtually unchallenged by any serious scientists. The economic calculations are subject to some degree of dispute. I am happy to urge people to engage in discussing these questions, but they do not undermine or threaten the basic conclusion that, unless we do something, this world will get dangerously warmer.

This is a misleading statement. For one thing, economic considerations, and criteria, are relevant to deciding what form the “something” that “we do” should take. For another, projections of global warming are based on projected atmospheric concentrations of CO2, which in turn are based on the projections of CO2 and related emissions which emerge from the SRES, And the emissions figures themselves are linked to SRES projections of world output, world energy use, and the carbon-intensity of energy sources. In these latter projections economic factors are central. True, they act in conjunction with demographic and technical factors, but these are themselves subject to economic influences. If and in so far as the treatment of these latter influences is open to question, the basis for IPCC projections of global average temperature changes cannot be taken as assured.

Given its unavoidably close involvement with economic issues, it is worth inquiring how and through what mechanisms the IPCC has chosen to deal with them. What is the role of economics and economists in the production of IPCC reports? Is there scope for improvement here? For me, recent personal experience has thrown some light on these questions.

A critique and its reception

Over the past two and a half years or so, I and a co-author - Ian Castles, formerly Head of the Australian Bureau of Statistics - have put forward a joint critique of economic aspects of the work of the IPCC. While our main single target has been the SRES, our concerns extend to the IPCC process and milieu as a whole, including the panel’s sponsoring departments and agencies. Moreover, we have gone beyond criticism, by putting forward proposals for action.

The main heads of our critique of the SRES can be summarised as follows: 

• For the base year of 1990 it compares real GDP across countries on the basis of market exchange rates (MERs), rather than purchasing power parity (PPP) converters. These comparisons greatly overstate the differences in GDP per head between developing regions and OECD member countries. 
• It gives a misleading account of the factors that bear on the choice between MERs and PPPs, and of the implications of such a choice.
• It builds in, for reasons that are open to question, rapid convergence in GDP per head between developing regions and OECD member countries. By thus assuming the substantial closure of a greatly overstated initial gap, it arrives at projections of output and GDP per head for developing regions which are higher than they would have been if the 1990 starting point had been correct, and high by comparison with other projections.
• As a result, total projected world GDP is pushed up; and this in turn is reflected in higher projected emissions. Hence even the scenarios which show the lowest cumulative emissions over the present century do not in fact represent lower limits. The SRES projections do not, as is claimed for them, adequately encompass the full range of uncertainties about the future.

Our critique thus covers not only the results of the exercise, in the form of specific projections of emissions, but also the approach, the analytical basis of parts of the report.