Rapid growth and global warming

The Platinum Age is an economist's description of recent economic growth - stronger than the "Golden Age" of the 50s and 60s.

While strong economic growth is good in many ways - including crucially lifting hundreds of millions of people out of poverty - the close relation of economic growth, CO2 emissions and global warming is a very inconvenient problem.

Growth has been far faster than anticipated, and so CO2 emissions and global warming have increased faster than anyone expected.

Some time ago we recommended serious action in mitigation on the basis of the precautionary principle. “The consequences if we worry and take action about global warming will be minor if we are wrong. If we do not take action and we are wrong, the consequences will be devastating.”

Professor Ross Garnaut is providing a thorough evaluation of the risks of climate change and of policies to mitigate the threat.

In a wide-ranging discussion last week, Garnaut concluded as follows.

"There are several ways in which climate change could end the Platinum Age.

“Climate change itself could seriously disrupt economic life and political stability in some major economies, to an extent that undermined the foundations of sustained, rapid, internationally-oriented growth.

“On the scenarios defined by the IPCC that have drawn most attention, the main impacts of inadequately mitigated climate change would come after the completion of most of the Chinese transition to a developed economy; but there are large statistical variations above and below the central expectations, and the business-as-usual rate of growth in emissions is and is likely to be far more rapid than assumed in the standard projections. The odds are higher that climate change itself would disrupt the extension of high living standards to other parts of the developing world after the substantial completion of the Chinese transition.

”Major shocks can affect economic activity beyond the immediate and direct economic impacts.

“The effects of the 1890s depression in eastern Australia, and of the global depression of the early 1930s, were magnified many times by the changes in attitudes to economic institutions and policies that emerged from them. The financial crisis in Indonesia in 1997 and early 1998 was converted into a catastrophic decline in output and incomes by its interaction with a fragile political system.

“These are amongst the effects to be watched from unexpectedly large climate change impacts. It is worth keeping in mind that carefully designed adaptation policies can reduce the chances and impacts of major shocks.

“The Platinum Age could also be disrupted by poorly thought out approaches to mitigation.

“Stern has presented the results of work that suggests that the global costs of effective mitigation need not be large. On the basis of the application of this analysis to the central forward-looking scenarios of the IPCC, the continuing costs of holding global emissions to levels that greatly reduced the risks of dangerous climate change would be about 1 per cent of GDP, or a modest fraction of one year’s increase in global output. The costs would be somewhat greater if, as I think likely, the underlying rates of emissions growth in the Platinum Age are much greater than presumed in the IPCC scenarios and the Stern Report.

“But the costs of mitigation in practice would depend on the nature of the policies applied to it, and the manner of their implementation. Costs would be minimised within steady policies over long periods that provided incentives that placed with private parties the full external costs and benefits of decisions taken by people and businesses everywhere. Such approaches would allow private decisions within market contexts efficiently to shape the processes of change.

“Poor design, or tardiness in implementation, would increase the costs of mitigation immensely, and compromise the mitigation effort.

“Progress that is later judged to be inadequate is likely to be associated with policy panic, instability and belated concentration of adjustment into disruptively short periods. And there is the ever-present danger of mitigation policies, with their potential to have large effects on the distribution of incomes, being encrusted with the usual political economy of rent-seeking behaviour by vested interests, and becoming intertwined with the familiar distortions in public policies related to trade and investment. For individual countries, and for the world as a whole, such policy distortions can make the difference between strong economic growth and stagnation.

“Income distribution effects will need to be taken into account in design of policies. It is important that there is analytical rigour in design and discipline in implementation of policies designed to secure equitable distribution of the effects of mitigation. Inefficient distribution - an indiscriminate straying of ‘compensation’ towards interests that press strongly for it - would greatly increase the ultimate costs of mitigation.

“Climate change and poorly designed responses to it could bring the Platinum Age to an end. But if they do, it will represent failures in the design and execution of policies.”

Garnaut’s work is vitally important. Read the full discussion here. It will almost certainly lead you to support the Rudd government's attempt to do something about Australia's contribution to the problem.