UK Government see-sawing with costs & benefits of their Climate Change Bill 2008

I was amazed to hear reports quoting UK MP Peter Lilley that the Climate Change Bill 2008 “….puts the Bill’s potential cost as up to £205bn, it says the maximum benefits of this massive expenditure is £110bn(out to 2050).” BBC article from Nov 2008.
I thought, surely no rational society would do something so harmful to itself.
In March 2009 the Labour Government drastically revised the costs & benefits which are now as in this screen-shot.

What a descent into fairyland – and of course the huge and utterly illusory benefits are pumped up by the benefits of UK emission reductions around the world (page 7 of the pdf).
Do readers have an idea where the UK Govt is with all this now in May 2012 ?

5 thoughts on “UK Government see-sawing with costs & benefits of their Climate Change Bill 2008”

  1. Benefit to cost ratio of the Australian CO2 pricing scheme to 2050

    In an interesting exchange between Roger W. Cohen, William Happer, and Richard Lindzen, reply by William D. Nordhaus on “The New York Review of Books” here:
    www.nybooks.com/articles/archives/2012/apr/26/climate-casino-exchange/ William Nordhause (hereafter WN) said:

    The final part of the response of CHL comes back to the economics of climate change and public policy. They make two major points: that the difference between acting now and doing nothing for fifty years is “insignificant economically or climatologically,” and that the policy questions are dominated by major uncertainties.

    Is the difference between acting now and waiting fifty years indeed “insignificant economically”? Given the importance attached to this question, I recalculated this figure using the latest published model. When put in 2012 prices, the loss is calculated as $3.5 trillion, and the spreadsheet is available on the Web for those who would like to check the calculations themselves. If, indeed, the climate skeptics think this is an insignificant number, they should not object to spending much smaller sums for slowing climate change starting now.

    I am surprised that WN says the $3.5 trillion is a significant number, given that it is cumulative to 2050 for the whole world. I am also surprised that WN says skeptics “should not object to spending much smaller sums for slowing climate change starting now.” I calculate the costs to achieve the predicted $3.5 trillion reduction in climate damages would be around nine times greater than the estimated $3.5 trillion saving. Here is how I did my calculations.

    I converted the estimated $3.5 trillion world damages avoided to the Australian proportion on the basis of Australia’s share of world GDP, i.e. 1.17%. So Australia’s share of damages avoided is 1.17% x $3.5 trillion = $41 billion. That is the cumulative damages avoided by Australia to 2050. It assumes an optimum CO2 price and assumes the whole world implements the CO2 price in unison.

    The Australian Treasury estimated the loss of GDP that our legislated CO2 tax and ETS will cause. [However, it seems they may have underestimated because they, apparently, have not estimated the compliance cost, www.onlineopinion.com.au/view.asp?article=13578. The cumulative loss of GDP to 2050 is $1,345 billion (undiscounted), or $390 billion discounted at 4.34%, which I believe is the discount rate that is the default in RICE 2012 and gives the value of $3.5 trillion quoted by WN.

    If my calculations are correct, the benefit, to Australia, of the optimum CO2 tax rate (if the world implements it in unison) would be $41 billion and the cost in reduced GDP would be $390 billion. Therefore, the benefit to cost ratio is 0.11. [benefit/cost should be greater than 1 for the policy to be justified] .

    Therefore, I do not understand WN’s statement that “[skeptics] should not object to spending much smaller sums for slowing climate change starting now.” My calculations suggest we would spend nine times greater sums, not smaller sums, to achieve the benefits estimated by WN.

  2. I should add a point of clarification to my comment above:

    I expect WN would say most of the damages occur beyond 2050 and I have not included these. However, the damage estimates seem to be exaggerated, and may not make proper allowance for adaption. Projecting damages out to 2590, as WN does, and based on a small number of studies that are likely to over estimate the damages, is not a sound basis for policies that will seriously damage our economy now and forever.

    References for previous post:

    [1] Treasury (2011):
    archive.treasury.gov.au/carbonpricemodelling/content/chart_table_data/chapter5.asp (Chart 5:13)

    [2] Nordhaus Yale-RICE Model (2010):
    nordhaus.econ.yale.edu/

  3. Preliminary comment on the UK costs and benefit from March 2009:

    I notice the table quoted in the lead articel mentions that their cost estimates are in the range etimated by the Stern Review. However, the Stern Review has been largely discredited. For example, William Nordhaus says in the Abstract for “A Review of the Stern Review on the Economics of Climate Change”: piketty.pse.ens.fr/fichiers/Nordhaus2007b.pdf

    How much and how fast should we react to the threat of global warming? The Stern Review argues that the damages from climate change are large, and that nations should undertake sharp and immediate reductions in greenhouse gas emissions. An examination of the Review’s radical revision of the economics of climate change finds, however, that it depends decisively on the assumption of a near-zero time discount rate combined with a specific utility function. The Review’s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today’s marketplace real interest rates and savings rates.

    The section “2. Overview of Issues” is interesting. It starts with this statement (and elaborates in the following paragraphs):

    First, the Review should be read primarily as a document that is political in nature and has advocacy as its purpose.

    Another point that Nordhaus makes elsewhere is that the damage estimates are likely on the high side.

  4. After a good deal of delving, I must admit to being not much wiser in relation to your question: “Do readers have an idea where the UK Govt is with all this now in May 2012?”

    There is a fantastic amount of material on the UK Department of Climate Change DECC site, but very little of it is of a strictly factual character. Much of it is in the same vein as this document – fantastic modelling based on long chains of unproven assumptions.

    Fancy counting the benefits of what other countries might do as a gain from adopting your own country’s policies!

    The whole modelling exercise is also cloud-cuckoo land stuff. Tens of billions of pounds a year in benefits are assumed to come from improvements in air quality that would be a supposed side benefit of CO2 restriction. But air quality has been a non-issue in Britain for a generation, and further improvements could have only the most marginal of benefits. About the only dirty air you can find these days is in the London underground – that well-known alternative to climate-killing cars.

    The modelling in this study is based on over-presumption and over-simplification of the climate change issue, such as:-

    “1.2.15 Climate change is caused by the emission of greenhouse gases to the atmosphere.
    2.1.4 Climate change is caused by various greenhouse gases.
    [2.4.1] MARKAL modelling assumes perfect foresight about the future availability of technologies.”

    Among all the dross on the DECC site are a few hard facts: actual data, more or less related to climate change. For example, we can learn that at five selected sites around the UK coastline, sea level has been rising fairly steadily for 150 years or so and is now about 8 inches higher than it was in the late 19th century.

    Other shocking figures available on the dire effects of man-made emissions on the UK include the news that precipitation in the UK varies quite a bit from year to year but that the summer and winter rainfall totals in 2010 happen to be about the same as they were in 1960, which was about the same as in 1925, and that there is not much trend in overall annual rainfall over the last 100 years or so.

    One thing, however, has changed a bit over recent decades. The growing season in the UK was only about 250 days a year up to around 1930, but it has been on a rising trend since then and is now about 270 days a year.

    Be afraid, be very afraid.

  5. ‘The Australian’ this morning:

    ONE of the nation’s leading carbon-pricing experts has described as “unrealistic in the extreme” Treasury’s budget forecast of a $29-a-tonne carbon price in 2015-16, and warned of a multi-billion-dollar risk to the budget and a failure of the scheme to change emissions behaviour if a floor price is not maintained.

    Frank Jotzo, the deputy director of the Australian National University’s Climate Change Institute, told The Australian an oversupply of credits in the UN’s Clean Development Mechanism meant carbon prices would stay low and a more realistic estimate was $5.

    Read the article here:
    www.theaustralian.com.au/national-affairs/treasury/carbon-price-denounced-as-unrealistic-by-expert/story-fndbwnla-1226352517718

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