Marianne Fay's blog

For economists interested in climate change, some news.  The long awaited regional version of Bill Nordhaus'  DICE model is now out. (Actually it’s been out since February, but I just got to it...) It’s called RICE with the ‘R’ standing for Regional.  A quick overview of some of the key results can be downloaded here.

Nordhaus is one of the earliest and most prominent climate modelers in the economics profession.  He and Nicholas Stern are often set up as the two book ends of the climate change economists’ spectrum.  I believe their differences are not that great.

Green growth has been in the news lately with much talk about greening the fiscal stimulus for a triple bottom line. Yet there are worries and the question remains as to whether green growth means slower growth with resources diverted to cleaning up the growth process. And what would happen to countries who unilaterally decide to impose domestic environmental regulations and/or a carbon price?. Will this lead to jobs moving abroad—to poorer or less-green countries that would become pollution havens? 

Photo © iStockphoto.com

Unfortunately much of the green growth discussion has been of the proselytizing or the scare-mongering kind, with not enough analysis of the potential trade-offs between greening and growing, and not enough thought devoted to ways of minimizing these trade-offs.
 
In this context, a new paper by Philippe Aghion, Daron Acemoglu and two Harvard graduate students,  on “The Environment and Directed Technical Change” (pdf) is a much needed contribution. It also makes for a fascinating read: do not let the large number of equations scare you off! As in all of Aghion’s work, the key insights of the papers are fully captured in crisp writing in the first few pages of the paper.

In his presentation at the World Bank on March 8, Aghion explained the motivation of the paper: most economic models looking at the trade-offs between acting aggressively or not on climate change assume technical change is exogenous—i.e., does not respond to changes in energy prices (for example through a carbon tax) nor to environmental regulation (like a cap on emissions). This results in green growth being slower than dirty growth, at least if the negative impacts of climate change are small, and/or results in the need for permanent subsidies.  

Andrea Liverani has blogged about the fact that in only 8 of 14 countries polled is there a majority of people believing in a scientific consensus around climate change. Yet it turns out that this is a lot less worrisome than those hoping for action on climate change might fear. 

In fact, what the poll teaches us is that many people believe that climate change is a serious issue even as they don't believe in a scientific consensus. See the graph below on the left: some 20 to 65 percent believe in the consensus, but in no country do less than 70 percent of those polled think that climate change is serious.  Why?  I suppose they just see the evidence in their daily lives. 

And perhaps even more interesting, in most countries people polled thought their government should do more to combat climate change—even when they did not believe in the scientific consensus. See the graph below on the right: in all but three countries, more than 55 percent of those polled thought their government should do more to combat climate change.

The Nobel Prize in Economic Sciences is being shared this year by Elinor Ostrom, a political economist at Indiana University, and Oliver Williamson, an economist at UC Berkeley. The award could not be more appropriate in these times of rethinking what markets can and cannot do. 

The award to Ostrom, who has spent her professional life studying how societies manage common resources is particularly relevant as we draw closer to the Copenhagen summit and countries are busy defining what they are willing to do to protect the global atmospheric commons. 

In fact, Ostrom wrote a background paper for us earlier this year for the World Development Report 2010: Development and Climate Change.  In it, she took exception to the notion that a solution to global change must be global. Such a solution would take too long, she argued. She also reminded us that a solution negotiated at the global level, if not backed up by a variety of efforts at the national, regional, and local levels, was not guaranteed to work well. This is because climate change is the result of many individual and local decisions.   

A question we’ve been asked (and have asked ourselves) is how much climate change mitigation will cost developing countries.   We recently revised our numbers so that the ones presented in the final version of the World Development Report 2010, due out in early November, differ from those in the advance version of the report, which is now online. 

What are our new numbers? Here goes: In the medium term estimates of mitigation costs in developing countries ranges between $140 billion and $175 billion annually by 2030.  That is the annual net cost of developing-country mitigation  measures to stay on a  2 °C trajectory.

But financing needs will be higher however as many of the savings from the lower operating costs associated with renewable energy and energy efficiency gains only materialize over time.  McKinsey, for example, estimates that while the incremental cost in 2030 would be $175 billion, the upfront investments required would amount to $563 billion (over and above business-as-usual investment needs).  McKinsey points out that this amounts to a roughly 3 percent increase in global business-as-usual investments, and as such is likely to be within the capacity of global financial markets (McKinsey 2009).

Photo © World Bank

In step with our Nairobi launch of the World Development Report 2010: Development and Climate Change, we issued a news release focusing on Sub-Saharan Africa , as well as a policy booklet containing the main messages of the report for Africa and elements from the World Bank’s climate change strategy in this region.

Every year, the World Development Report focuses on a different topic of global importance, and, as part of its preparatory activities, consults with various groups around the world.  The 2010 World Development Report on Development and Climate Change is no exception. This report has required unique attention to varying points of view because climate change affects different countries in drastically different ways. Over the past year, as we approached the task of putting together a report on such a significant topic, we sent our team of authors all over the world to consult with representatives from over 40 countries.  We listened to stories about how climate change is affecting them, and sought their views on our report’s evolving messages, which I described in an earlier blog post. We compiled this feedback as it was received, and have posted summaries of these consultations on our website.

I had heard that the world spent less on energy R&D than on pet food, so I decided to check. Actually, it's worse than that.

Photo © Sophielouise at Dreamstime

Worldwide energy R&D spending in 2007 was about $12 billion according to IEA statistics that we are reporting in the upcoming World Development Report.   I could not find what the world spends on pet food - so I looked up what happens in the US.  In 2005, Americans spent $34 billion on pet products, 41 percent (or $14 billion) of which was on food and treats.

The World Bank Group advocates the integration of development issues into the next global climate agreement, without taking sides based on the negotiating positions of individual parties to the UNFCCC. One of the purposes of the upcoming World Development Report (WDR) 2010: Development and Climate Change—as well as a number of other country-level studies at various stages of completion—is to actively share economic analysis and practical knowledge intended to help policymakers in various countries take informed decisions on poverty reduction and sustainable development in “a changing climate”.

As we talk to people around the world on some of the key findings and views that we're building into the next World Development Report, we encounter some heated debates. One of these much-argued points is our view that the world must aim to keep mean global warming below 2oC, but as one of our advisors says, "be prepared for 4oC".

Here are the reactions. Some (mostly, but not just, in Europe) find it shocking that we can even consider a world with warming above 2oC or with concentrations of CO2 at or above 550 ppm. Others worry that we are setting 2oC as a target, which is very sensitive in the context of the upcoming negotiations. We are not. We are simply agreeing in the light of mounting evidence that the world should try very hard to stay below 2oC, since losses will likely begin to rise rapidly above that temperature and irreversibe impacts may occur - particularly in developing countries. A new version of the "burning ember chart" makes this painfully obvious.