16 April 2020

Fatal calculations: How bad economics encouraged climate inaction

Pandemics and climate disruption are existential risks that require that particular emphasis be placed on the high-impact possibilities, not middle-of-the road outcomes. Released today by Breakthrough, Fatal calculations: How economics has underestimated climate damage and encouraged inaction, shows how economists  have ignored the real risks of climate change.  This is the introduction to the report.

by David Spratt and Alia Armistead

At the heart of global policymaking is a concern that mitigation should not be economically disruptive or curtail future growth in production. Perhaps as a consequence, and in order to mesh with this policy paradigm, the economic methods of analysis applied to climate change have underestimated the risks and provided reasons to delay action.

The evidence is all around us. Listen to most governments and business leaders, and especially those nations with a large carbon footprint, and the climate conversation for decades has been about taking it slowly; of incremental policy change that does not rock the economic boat, cost jobs, disturb growth or disadvantage significant national industries.  With minimal discussion about the jobs and growth that will be destroyed in a hotter world.

Business largely holds sway over government, and many companies have prefered to live with the risk of global warming than face the consequences of government action to decarbonise at the speed required. As well, business fears government leadership on climate mitigation may open the door to increased government spending and investment in other areas neglected by the private sector.

This primary concern for the non-disruption of the economic system was displayed in the reports to the UK and Australian governments by two of the best known economists in this field: Sir Nicholas Stern and Prof. Ross Garnaut.

UK researchers have provided a penetrating analysis of reports, including those by Stern and the UK’s Committee for Climate Change (CCC) in 2008, that constrain the maximum emissions reduction each year to levels thought to be compatible with economic growth and are considered politically feasible: normally 3% to 4% per year. The CCC report said that “rich developed economies need to start demonstrating that a low-carbon economy is possible and compatible with economic prosperity”, but acknowledged that “it is not now possible to ensure with high likelihood that a temperature rise of more than 2°C is avoided” .

In other words, if there is a trade-off between economic growth and keeping warming below what at the time was conceived to be a dangerous threshold, growth wins.

It’s all about the costs of transition, not about future economic damage as the climate gets hotter. A case in point occurred in Australia in February 2020, when federal parliamentary opposition leader Anthony Albanese announced a recycled Labor Party climate policy “to make Australia a net-zero-carbon emitter by 2050”, but with no interim (2030) target.

In the aftermath of a devastating drought and record-breaking season of megafires, the National Farmers Federation said Albanese was unable to point to any economic case for the target; the agriculture minister said Labor had to “take the target off agriculture’s back”; and The Australian newspaper warned that “the policy could put the growth of the key sectors at risk” . Prime Minister Morrison said Albanese “can’t tell you what it would cost… can’t tell you how many jobs will go” .

Journalists piled on too, and it wasn’t just the Murdoch media. The ABC reported that Labor’s lack of costings means “the prime minister is zeroing in on the same weakness that haunted (former Labor leader) Bill Shorten during last year’s election campaign”.

These responses illustrate the policy paradigm where mitigation action is framed as “all cost and no benefit”, even though Labor’s 2050 policy was mirrored by states and territories across Australia and in 73 countries.  

Analysis of the economic damage caused by the failure to act barely saw the light of day. This portrayal of the issue would put a smile on the face of fossil fuel executives: lots of talk about the burden of Labor’s policy, none about the existential risk to humanity of their own industry’s business model.

When the Prime Minister was asked in parliament, just days after Labor’s announcement, about the economic damage of 3°C of warming, he replied that “we do understand there are costs associated with climate change”, but did not say what they were Three years earlier, Morrison had gleefully brandished a lump of black coal in parliament to goad his political opponents.

Morrison’s glib response was similar to that of former Prime Minister John Howard on 5 February 2007, who told the ABC’s Lateline that it would be “less comfortable for some than it is now" if average global temperatures rose 4-6°C by the end of the century. In fact, 4°C is likely incompatible with the maintenance of an organized global community.

Too often, the real economics of climate damage is the missing element in Australia’s climate debate because attention swings to the costs of action, for example the cost of a zero-carbon energy system. What is overlooked is that ageing coal-fired generators need to be replaced one way or another, and doing so with renewables will be cheaper than rebuilding with coal or gas as the solar/wind/battery option slips under the fossil-fuel-energy cost curve.

More importantly, understanding of the real economic damage that will be done by failing to act fast is poor across politics, business and most of the media in Australia. Shortly after the Prime Minister’s non-answer to the question about damage at 3°C, evidence emerged that the Australian Treasury had not modelled the damage cost of global warming for more than a decade (Stayner 2020). This is an appalling omission given that climate change is the greatest economic threat facing Australia.

In fact, a cursory survey of the scientific literature on the likely impacts of 3°C paints a frightening picture of a world in which it is likely that the structures of societies will be severely tested, and some will crash .

Australia’s intelligence community is well aware of this analysis, and has a duty of care to brief the prime minister on its risk assessment. So when the prime minister refuses to detail the impacts of a 3°C-warmer world, and his Treasury fails to make such assessments, ignorance is not an excuse.
Nevertheless, the Australian government’s predatory delay on climate action has played a significant role in ensuring that a 3°C or more warmer future has become accepted in global policymaking circles, where urgent action is “all cost and no benefit” and catastrophic levels of warming are normalised.

This report is the story of the underestimated future damages and missing risks that have blighted economic analysis of climate disruption. Bad economics has contributed to a policy-making failure on a global scale, and continues to drive the world to the edge of civilisational collapse.