Planetary CFO
  • Blog/Home
  • About
  • Ideas in a nutshell
  • A Finance Manual for the Planet
  • Contact
  • Gallery

Planetary CFO

Reconciling Dieter Helm’s 4th May 2022 article “How to pay for energy” with Ekins and Zenghelis (2021)

5/5/2022

0 Comments

 
Helm says in “How to pay for energy” (2022):

“Whilst the public have been led to believe that net zero is a free lunch (or at least a manageable 1% of GDP or less), it is very much not so. Important and worth doing, but a much bigger cost of living rise than our leaders, and the campaigners against climate change generally, would like us to believe. They fear scaring the horses, but they cannot stop us being confronted with the cost.”
 
I believe the 1% he cites is the estimate from Lord Stern in “The Economics of Climate Change – The Stern review” (2007) that solving AGW would cost about 1% of global GDP:

“Using the results from formal economic models, the Review estimates that if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more. In contrast, the costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1% of global GDP each year.”
 
 
Ekins and Zenghelis, on the other hand, say, in "The costs and benefits of environmental sustainability" (2021):

"Recent evidence suggests the short-term GDP impacts of well-designed environmental action could be positive, crowding-in rather than ‘crowding out’ the drivers of future growth. This paper provides evidence that not only makes the environmental case for action, in terms of its benefits for human health and welfare, it also shows how such action can generate economic returns in terms of productivity, jobs and income and reduce the costs of meeting any emissions and resource use targets. A cost effective low-carbon, resource-efficient transition can generate a cleaner, quieter, more secure, innovative, and productive economy for all countries at all stages of development."
 
So, Ekins and Zenghelis suggest that the net cost of acting to address AGW is not 1% of GDP but, well, less than zero, ie there is a net benefit in acting, not a net cost, providing we take the right actions.
 
 
How do we reconcile these seemingly conflicting views?   Through realising that they might both be true, but only when taking into account all future timelines, not just the next few years.
 
It might well be the case that there might be a net cost of the transition to a decarbonised national or global economy over the next few years or even a decade or two.  This might also exceed the 1% Stern estimate.  Because we have underinvested in the necessary infrastructure changes since 2007 (when the Stern Review was published), we have a lot of catching up to do if future investment is to be large enough to achieve the same end objective of global net zero carbon by mid century. 

However, if an appropriate discount rate is used in a Net Present Value (NPV) calculation, and future net benefits of a net zero carbon economy are factored in once the transition is complete or nearly complete (and for all future years beyond that point), then the overall NPV for deciding to act and invest robustly enough for decarbonisation might well be a positive number.  This positive NPV would be one way of expressing Ekins and Zenghelis’ suggestion about action being GDP-positive.
 
 
0 Comments



Leave a Reply.

    Author

    The Planetary CFO - working towards a sustainable World Balance Sheet.

    Categories

    All
    Climate Change
    Economics
    Inequality
    Land Use
    Migrants
    Sustainability
    The Role
    Transport
    World Balance Sheet

    Archives

    March 2023
    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015

Powered by Create your own unique website with customizable templates.
  • Blog/Home
  • About
  • Ideas in a nutshell
  • A Finance Manual for the Planet
  • Contact
  • Gallery