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Drastic and immediate cuts in carbon emissions, as advocated by most of the green lobby, are an expe

There is a disturbing tendency among many in the climate debate today to deride as "deniers" anyone who does not advocate making huge and immediate carbon cuts. The framing began nearly a decade ago with discussions about the science of climate change. People who questioned the link between carbon emissions and warming were branded "deniers".

The semantic similarity to Holocaust denial was made overt when several prominent environmental campaigners suggested a need for Nuremberg-style trials for their opponents. Such rhetoric was deeply unfortunate. However, one could at least argue that the resulting fiery debate achieved one positive thing: it played a role in rousing most climate scientists to join together to underscore the message that global warming is largely man-made.

We have long since moved on from any mainstream disagreements about the science of global warming. Now, the crucial conversation is about the economics of our response. Today, the labels "denier" and "sceptic" are hurled at anyone who does not fervently argue for drastic, immediate carbon cuts. There is no possible justification, given that so many climate economists - the specialists in this field - recommend very different policies from those being advocated by the zealous carbon cut lobbyists.

In my book, first published in Danish in 1998, and then in English as The Skeptical Environmentalist in 2001, I wrote that man-made global warming exists. I could not have been clearer; the introduction to the section on climate change states: "This chapter accepts the reality of man-made global warming." My position has not changed. Thus, when I am labelled a "long-time climate sceptic" or "climate change denier" by
bloggers and activists, it is not based on any suggestion I have ever declared that the science of global warming is wrong. Rather, it is the campaigners' heated response to my pointing out that drastic carbon cuts don't make sense and that smarter policy responses should be considered.

It is understandable that emotions run high in such a defining discussion. I can appreciate, even in those who disagree with me, a moral intent to do good for humanity. But I cannot see how responding to empirical economics with slander will ever be helpful. Much worse than that, I believe that ignoring - or, indeed, denying - basic economic reality is a shoddy way of helping the planet.

In July, the G8 agreed to make carbon emission cuts to limit global warming to no more than 2°C above pre-industrial levels. This would be the most costly public policy humanity has ever enacted.

The Copenhagen Consensus Centre recently asked top climate economists to explore the benefits and costs of different responses to global warming, to prompt a discussion about the solutions that would have the biggest impact on climate for the lowest cost. We convened a second stellar group of top economists, including three Nobel laureates, to examine independently all of the research and rank the proposals in order of desirability.

One research author, the prominent climate economist Professor Richard Tol, who has been a contributing, lead, principal and convening author for the IPCC, strikingly showed that grand promises of drastic, immediate carbon cuts are a hugely expensive way of doing very little good. Reducing emissions by 80 per cent by mid-century (to achieve the 2°C goal) would avert much of the expected damage of global warming; based on conventional estimates, it would avoid climate damages of about £1.9trn a year by 2100. However, the cost of this would be a reduction in growth - particularly damaging to the world's poor - to the tune of around £25trn a year. Moreover, the costs would come much sooner than the benefits. Every pound spent on this grand plan would achieve twopence worth of good.

Put starkly: drastic carbon cuts would hurt much more than climate change. Cutting carbon is extremely expensive, especially in the short term, because the alternatives to fossil fuels are few and costly. Without feasible alternatives, we just hurt growth, which would be especially damaging for countries such as Brazil, China and India, dependent on fossil fuels to lift millions out of poverty.

It is important to emphasise that Tol's figures are based on projections from all the major economic energy models of the Stanford Energy Modelling Forum. Around half of the models found it impossible to achieve the target of keeping temperature rises lower than 2°C with carbon cuts. The £25trn price tag is optimistic because it comes only from the models that project the target is even possible.

The cost assumes that politicians everywhere in the world would, throughout the entire century, make the most effective, efficient choices possible to reduce carbon emissions. Dump that far-fetched assumption and the cost could be ten or even 100 times higher.

The Copenhagen Consensus on Climate's expert panel considered Tol's research - along with other proposals for responses to global warming - and concluded that drastic carbon cuts would be the poorest approach. The economic lessons are underpinned by real-world experience. In Rio de Janeiro in 1992, politicians from wealthy countries promised to cut emissions by 2000, but did no such thing. In Kyoto in 1997, leaders promised even stricter reductions by 2010, yet emissions have kept increasing unabated. It is little wonder that politicians are backing away from promising that they will be able to broker a new deal on carbon cuts in Copenhagen this December.

Despite the shambles of the Copenhagen negotiations, many carbon cut campaigners refuse to discuss alternative approaches. By dismissing critics as "deniers" and "sceptics", they commit the planet to the poorest policy choice - and one with very little chance of succeeding in controlling temperature rises. We could and should do better. The expert panel of Nobel laureate economists, working for the Copenhagen Consensus on Climate, revealed smarter solutions.

The panel recommended immediate research into climate engineering technology and a substantial increase in research and development of green energy alternatives. The two approaches complement each other. Climate engineering has the advantage of speed. There is a significant delay between carbon cuts and any temperature drop - even halving global emissions by mid-century would barely be measurable by the end of the century. And making green energy cheap and prevalent will also take a long time. After all, electrification of the global economy is still incomplete after more than a century of effort.

Climate engineering has a lot of potential as a way for us to buy more time - but it does not appear to be a long-term answer. We could gain time to ensure that we can shift sustainably and efficiently away from reliance on fossil fuels, which requires the investment in researching alternatives to these fuels.

Many of us fear climate engineering. But the groundbreaking research paper by Eric Bickel and Lee Lane at the University of Texas - one of the first studies of the costs and benefits of these technologies - offers compelling evidence that a tiny investment in climate engineering might be able to reduce as much of global warming's effects as trillions of pounds spent on carbon emission reductions.

The most attractive technology Bickel and Lane examine appears to be marine cloud whitening, where boats spray seawater drop-lets into clouds at sea to make them whiter and thus reflect more sunlight back into space, so reducing warming. This augments the natural process whereby sea salt from the ocean is whipped up and provides cloud condensation nuclei. Marine cloud whitening would not lead to permanent atmospheric changes, and could be used only when needed.

The researchers conclude, remarkably, that we might be able to cancel out this century's entire global warming with 1,900 unmanned ships spraying seawater mist into the air, at a total cost of about £6bn. When the benefits from averted warming are calculated, this is the equivalent of doing more than £2,000 worth of good with every pound spent.

President Barack Obama's science adviser, John Holdren, has said that climate engineering has "got to be looked at", and many prominent scientists agree. Concerns about the ramifications of this technology are a reason to research now to identify all of the limitations and risks. If it turns out that this is not a feasible or sensible approach, we need to have that information as soon as possible.

Marine cloud whitening would obviously not solve every aspect of global warming. But it would achieve more, much faster, than any plausible carbon cuts could ever do, and at a fraction of the price. If we are concerned with solving global warming, then we have a moral obligation to research what we could achieve with this technology.

But there is no point in using climate engineering to buy more time if we do not use it effectively. Since politicians started negotiating carbon agreements, we have wasted nearly 20 years without making any significant progress in reducing global warming. Focusing primarily on how much carbon to try to cut through taxes, rather than on how to achieve this technologically, puts the cart before the horse.

Global energy demand will double by 2050, according to research by the respected climate change economists Chris Green and Isabel Galiana from McGill University in Montreal. Use of fossil fuels remains vital for our development, prosperity and survival. Alternative sources of energy are unfortunately far from ready for widespread use. Green and Galiana show that, to reduce carbon emissions by three-quarters by 2100 while maintaining reasonable growth (a less ambitious goal than the G8's), non-fossil-fuel-based sources of energy will have to be an astonishing two and a half times greater in 2100 than the total level of global energy consumption in 2000.

If we continue on our current path, technological development will not be anywhere near significant enough to make non-carbon-based energy sources competitive with fossil fuels on price and effectiveness. Green and Galiana examine the state of non-carbon-based energy today - nuclear, wind, solar, geothermal, etc - and find that, taken together, alternative energy sources would get us less than halfway towards a path of stable carbon emissions by 2050, and only a tiny fraction of the way towards stabilisation by 2100. The technology will not be ready in terms of scalability or stability. In many cases, there is still a need for the most basic research and development. We are not even close to getting this revolution started.

Current technology is so inefficient that we would have to blanket most countries with wind turbines to power everybody's needs, and even then we would have the problem of storage when the wind doesn't blow.

Many environmental campaigners lauded China's ambition to create "green cities", powered by huge wind farms. But China plans to build dozens of new coal-fired power plants for these cities, too: otherwise, there will be blackouts every time there is not enough wind. The vast majority of Chinese cities will still rely on electricity from coal.

If governments try to cut carbon through taxes and trading schemes without effective replacements, we will make virtually no difference to climate change in the future, while in the shorter term there will be significant damage to economic growth.

Public funds on research and development also need to increase dramatically. We cannot rely on private enterprise alone. As with medical research, early innovations will not reap significant financial rewards, so there is no strong incentive for private investment today. While many of us assume that green research and development must have increased dramatically over the past decade, the actual numbers from the International Energy Agency show that not only has this spending not risen, but it has actually declined significantly since the early 1980s.

Policymakers should abandon fraught carbon reduction negotiations and instead make agreements to invest in research and development to get this technology to the level it needs to be. Provided that this spending doesn't go into subsidising existing, inefficient technology, but is instead put towards promoting innovation, this would have a far greater chance of tackling climate change - and a far greater chance of political success.

The biggest carbon emitters of the 21st century, including India and China, are understandably unwilling to sign up to tough, costly emission targets. They would be much more likely to embrace a cheaper, smarter and more beneficial path of innovation. Ultimately, we will not succeed politically or economically in tackling climate change by making fossil fuels so expensive that nobody will use them. However, if we forge onwards with dramatically increased research and development, towards the middle of the century we could make green energy so cheap that everyone will use it.

Discussions about solving the planet's problems will always be emotional. But they should also be reasoned. The most reasonable response to global warming is to change our course and focus on an approach that would actually work.

Bjørn Lomborg is the director of the think tank the Copenhagen Consensus Centre at Copenhagen Business School and the author of "Cool It: the Skeptical Environmentalist's Guide to Global Warming"

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This article first appeared in the 23 November 2009 issue of the New Statesman, Green Heroes and Villains

MILES COLE
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The new Brexit economics

George Osborne’s austerity plan – now abandoned by the Tories – was the most costly macroeconomic policy mistake since the 1930s.

George Osborne is no longer chancellor, sacked by the post-Brexit Prime Minister, Theresa May. Philip Hammond, the new Chancellor, has yet to announce detailed plans but he has indicated that the real economy rather than the deficit is his priority. The senior Conservatives Sajid Javid and Stephen Crabb have advocated substantial increases in public-sector infrastructure investment, noting how cheap it is for the government to borrow. The argument that Osborne and the Conservatives had been making since 2010 – that the priority for macroeconomic policy had to be to reduce the government’s budget deficit – seems to have been brushed aside.

Is there a good economic reason why Brexit in particular should require abandoning austerity economics? I would argue that the Tory obsession with the budget deficit has had very little to do with economics for the past four or five years. Instead, it has been a political ruse with two intentions: to help win elections and to reduce the size of the state. That Britain’s macroeconomic policy was dictated by politics rather than economics was a precursor for the Brexit vote. However, austerity had already begun to reach its political sell-by date, and Brexit marks its end.

To understand why austerity today is opposed by nearly all economists, and to grasp the partial nature of any Conservative rethink, it is important to know why it began and how it evolved. By 2010 the biggest recession since the Second World War had led to rapid increases in government budget deficits around the world. It is inevitable that deficits (the difference between government spending and tax receipts) increase in a recession, because taxes fall as incomes fall, but government spending rises further because benefit payments increase with rising unemployment. We experienced record deficits in 2010 simply because the recession was unusually severe.

In 2009 governments had raised spending and cut taxes in an effort to moderate the recession. This was done because the macroeconomic stabilisation tool of choice, nominal short-term interest rates, had become impotent once these rates hit their lower bound near zero. Keynes described the same situation in the 1930s as a liquidity trap, but most economists today use a more straightforward description: the problem of the zero lower bound (ZLB). Cutting rates below this lower bound might not stimulate demand because people could avoid them by holding cash. The textbook response to the problem is to use fiscal policy to stimulate the economy, which involves raising spending and cutting taxes. Most studies suggest that the recession would have been even worse without this expansionary fiscal policy in 2009.

Fiscal stimulus changed to fiscal contraction, more popularly known as austerity, in most of the major economies in 2010, but the reasons for this change varied from country to country. George Osborne used three different arguments to justify substantial spending cuts and tax increases before and after the coalition government was formed. The first was that unconventional monetary policy (quantitative easing, or QE) could replace the role of lower interest rates in stimulating the economy. As QE was completely untested, this was wishful thinking: the Bank of England was bound to act cautiously, because it had no idea what impact QE would have. The second was that a fiscal policy contraction would in fact expand the economy because it would inspire consumer and business confidence. This idea, disputed by most economists at the time, has now lost all credibility.

***

The third reason for trying to cut the deficit was that the financial markets would not buy government debt without it. At first, this rationale seemed to be confirmed by events as the eurozone crisis developed, and so it became the main justification for the policy. However, by 2012 it was becoming clear to many economists that the debt crisis in Ireland, Portugal and Spain was peculiar to the eurozone, and in particular to the failure of the European Central Bank (ECB) to act as a lender of last resort, buying government debt when the market failed to.

In September 2012 the ECB changed its policy and the eurozone crisis beyond Greece came to an end. This was the main reason why renewed problems in Greece last year did not lead to any contagion in the markets. Yet it is not something that the ECB will admit, because it places responsibility for the crisis at its door.

By 2012 two other things had also become clear to economists. First, governments outside the eurozone were having no problems selling their debt, as interest rates on this reached record lows. There was an obvious reason why this should be so: with central banks buying large quantities of government debt as a result of QE, there was absolutely no chance that governments would default. Nor have I ever seen any evidence that there was any likelihood of a UK debt funding crisis in 2010, beyond the irrelevant warnings of those “close to the markets”. Second, the austerity policy had done considerable harm. In macroeconomic terms the recovery from recession had been derailed. With the help of analysis from the Office for Budget Responsibility, I calculated that the GDP lost as a result of austerity implied an average cost for each UK household of at least £4,000.

Following these events, the number of academic economists who supported austerity became very small (they had always been a minority). How much of the UK deficit was cyclical or structural was irrelevant: at the ZLB, fiscal policy should stimulate, and the deficit should be dealt with once the recession was over.

Yet you would not know this from the public debate. Osborne continued to insist that deficit reduction be a priority, and his belief seemed to have become hard-wired into nearly all media discussion. So perverse was this for standard macroeconomics that I christened it “mediamacro”: the reduction of macroeconomics to the logic of household finance. Even parts of the Labour Party seemed to be succumbing to a mediamacro view, until the fiscal credibility rule introduced in March by the shadow chancellor, John McDonnell. (This included an explicit knockout from the deficit target if interest rates hit the ZLB, allowing fiscal policy to focus on recovering from recession.)

It is obvious why a focus on the deficit was politically attractive for Osborne. After 2010 the coalition government adopted the mantra that the deficit had been caused by the previous Labour government’s profligacy, even though it was almost entirely a consequence of the recession. The Tories were “clearing up the mess Labour left”, and so austerity could be blamed on their predecessors. Labour foolishly decided not to challenge this myth, and so it became what could be termed a “politicised truth”. It allowed the media to say that Osborne was more competent at running the economy than his predecessors. Much of the public, hearing only mediamacro, agreed.

An obsession with cutting the deficit was attractive to the Tories, as it helped them to appear competent. It also enabled them to achieve their ideological goal of shrinking the state. I have described this elsewhere as “deficit deceit”: using manufactured fear about the deficit to achieve otherwise unpopular reductions in public spending.

The UK recovery from the 2008/2009 recession was the weakest on record. Although employment showed strong growth from 2013, this may have owed much to an unprecedented decline in real wages and stagnant productivity growth. By the main metrics by which economists judge the success of an economy, the period of the coalition government looked very poor. Many economists tried to point this out during the 2015 election but they were largely ignored. When a survey of macroeconomists showed that most thought austerity had been harmful, the broadcast media found letters from business leaders supporting the Conservative position more newsworthy.

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In my view, mediamacro and its focus on the deficit played an important role in winning the Conservatives the 2015 general election. I believe Osborne thought so, too, and so he ­decided to try to repeat his success. Although the level of government debt was close to being stabilised, he decided to embark on a further period of fiscal consolidation so that he could achieve a budget surplus.

Osborne’s austerity plans after 2015 were different from what happened in 2010 for a number of reasons. First, while 2010 austerity also occurred in the US and the eurozone, 2015 austerity was largely a UK affair. Second, by 2015 the Bank of England had decided that interest rates could go lower than their current level if need be. We are therefore no longer at the ZLB and, in theory, the impact of fiscal consolidation on demand could be offset by reducing interest rates, as long as no adverse shocks hit the economy. The argument against fiscal consolidation was rather that it increased the vulnerability of the economy if a negative shock occurred. As we have seen, Brexit is just this kind of shock.

In this respect, abandoning Osborne’s surplus target makes sense. However, there were many other strong arguments against going for surplus. The strongest of these was the case for additional public-sector investment at a time when interest rates were extremely low. Osborne loved appearing in the media wearing a hard hat and talked the talk on investment, but in reality his fiscal plans involved a steadily decreasing share of public investment in GDP. Labour’s fiscal rules, like those of the coalition government, have targeted the deficit excluding public investment, precisely so that investment could increase when the circumstances were right. In 2015 the circumstances were as right as they can be. The Organisation for Economic Co-operation and Development, the International Monetary Fund and pretty well every economist agreed.

Brexit only reinforces this argument. Yet Brexit will also almost certainly worsen the deficit. This is why the recent acceptance by the Tories that public-sector investment should rise is significant. They may have ­decided that they have got all they could hope to achieve from deficit deceit, and that now is the time to focus on the real needs of the economy, given the short- and medium-term drag on growth caused by Brexit.

It is also worth noting that although the Conservatives have, in effect, disowned Osborne’s 2015 austerity, they still insist their 2010 policy was correct. This partial change of heart is little comfort to those of us who have been arguing against austerity for the past six years. In 2015 the Conservatives persuaded voters that electing Ed Miliband as prime minister and Ed Balls as chancellor was taking a big risk with the economy. What it would have meant, in fact, is that we would already be getting the public investment the Conservatives are now calling for, and we would have avoided both the uncertainty before the EU referendum and Brexit itself.

Many economists before the 2015 election said the same thing, but they made no impact on mediamacro. The number of economists who supported Osborne’s new fiscal charter was vanishingly small but it seemed to matter not one bit. This suggests that if a leading political party wants to ignore mainstream economics and academic economists in favour of simplistic ideas, it can get away with doing so.

As I wrote in March, the failure of debate made me very concerned about the outcome of the EU referendum. Economists were as united as they ever are that Brexit would involve significant economic costs, and the scale of these costs is probably greater than the average loss due to austerity, simply because they are repeated year after year. Yet our warnings were easily deflected with the slogan “Project Fear”, borrowed from the SNP’s nickname for the No campaign in the 2014 Scottish referendum.

It remains unclear whether economists’ warnings were ignored because they were never heard fully or because they were not trusted, but in either case economics as a profession needs to think seriously about what it can do to make itself more relevant. We do not want economics in the UK to change from being called the dismal science to becoming the “I told you so” science.

Some things will not change following the Brexit vote. Mediamacro will go on obsessing about the deficit, and the Conservatives will go on wanting to cut many parts of government expenditure so that they can cut taxes. But the signs are that deficit deceit, creating an imperative that budget deficits must be cut as a pretext for reducing the size of the state, has come to an end in the UK. It will go down in history as probably the most costly macroeconomic policy mistake since the 1930s, causing a great deal of misery to many people’s lives.

Simon Wren-Lewis is a professor of economic policy at the Blavatnik School of Government, University of Oxford. He blogs at: mainlymacro.blogspot.com

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt