Climate change: a godsend to politicians and business

published 9 November 2006

I've just come across an article in Newsweek that is enough to make your hair stand on end. It talks of an impending environmental catastrophe brought about by changes to the Earth's weather patterns. It apocalyptically warns of declines in food production, widespread famine and social and economic upheavals. It talks of the failure of politicians to face up to the challenges and says that, the longer they leave it, the higher the bill for everyone. "The drop in food output could begin quite soon," it warns. "Perhaps ten years from now."

Fortunately, that article was published in 1975 and in 1985 the world was producing more food than ever before just as it is now 30 years later. But the interesting thing about the article is its title: "The Cooling World." Back in the mid-1970s, what kept climatologists awake at night was the prospect of a new ice age. Temperatures were falling, extreme weather was on the rise, and the UK growing season shrank by two weeks. A similar article in Time magazine was headlined, "The Big Freeze."

What are the findings of the Stern report?

With hindsight, we can thank our lucky stars the politicians were too cowardly to listen to the scientists. Global Cooling proved just another doomsday scenario, in a rich tradition that stretches back to Malthus. If the climatologists had had their way, they would have persuaded the politicians to divert rivers and melt the Arctic ice cap by covering it with black soot. Imagine the catastrophe that would have caused when, as we now know, the real problem is global warming. We know this because Sir Nicholas Stern this week told us so in a 600-page report, commissioned by Gordon Brown. Unless we take dramatic action, the former World Bank economist warned, the ice caps will melt, large parts of the world will disappear under water; other parts of the world will face severe water and food shortages; we can expect a huge increase in extreme weather including more frequent hurricanes; and many species will disappear. The economic impact, he said, will be greater than the combined effects of the two world wars and the great depression.

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Now, I'm no climate change denier but this is particularly strong stuff. Stern says the evidence is compelling, that the amount of greenhouse gases in the atmosphere has risen from 280 parts per million at the time of the industrial revolution to 420 today, triggering a 0.5% rise in average temperatures.

He says that, left unchecked, emissions will rise by the end of the century to levels that could cause temperatures to rise by a catastrophic 5%. Perhaps all this is, as the Financial Times gleefully put it, "incontrovertible". But climatology has never been an accurate science. And not all experts agree on how much of this is man's fault. Yet, sadly, dissenters get only a paragraph from Stern.

What are the problems with Stern's conclusion?

Instead, Stern's report relies on complex economics to show that the cost of acting to cut emissions is much lower than that of adapting to climate change in the future. Acting now will cost a manageable 1% of global GDP, compared with 5% of GDP if we don't do anything. Under Stern's doomsday scenario, living standards will fall 20%. If he's right, then it is a no-brainer. We should buy his whole package of strict caps on carbon emissions, more regulation, higher green taxes and more investment in new energy technologies. But there are at least three problems with his conclusions.

First, his projections are inevitably highly speculative. The best brains in the City struggle to predict growth one year ahead, let alone 100 years hence. Second, this is a global problem. Europe has had some success with its emissions trading scheme, but no one is going to sign up for meaningful cuts unless big polluters such as the US and China join in which is unlikely. Third, the cash-strapped UK government is sure to use Stern as an excuse to ramp up taxes. Since the UK accounts for 2% of global emissions, this would hurt us, but do nothing to stop climate change. What's the point of Brits spending their summers in Cromer if the Brazilians cut down an area of rainforest the size of Wales every year?

Why climate change will mean new taxes - and new investment opportunities

Even so, Stern's report was greeted with near-universal acclaim by politicians and business. That's because climate change has been a godsend to both. Politicians love climate change because it is an opportunity to sound statesmanlike while avoiding difficult decisions that might improve people's lives today. Businesses love it because it has proved unexpectedly profitable. Environmental taxes and regulations have had little impact on competitiveness, but government initiatives have opened up lucrative new markets such as wind farms and emissions trading. Companies have even found that going "carbon neutral" by adopting gimmicky offset programmes can actually boost their image.

Will anything much change as a result of Stern? Probably not. Perhaps one day the world will regret not settling for his up-front costs. But for the time being, we'll muddle along, doing our bit to save energy, making the most of the weather, and vowing that, so long as there is ice in the Arctic, no one will cover it in soot.

Simon Nixon is executive editor of Breakingview.com

Simon is the chief leader writer and columnist at The Times and previous to that, he was at The Wall Street Journal for 9 years as the chief European commentator. Simon also wrote for Reuters Breakingviews as the Executive Editor earlier in his career. Simon covers personal finance topics such as property, the economy and other areas for example stockmarkets and funds.