Evidence to the House of Lords Select Committee on Economic Affairs on Aspects of the Economics of Climate Change

SUMMARY Dependence of damage estimates upon assumptions of economic growth and technological development • Greater economic growth could, by increasing emissions, lead to greater damages from climate change. On the other hand, by increasing wealth and advancing technological development and human capital, economic growth would also increase a society's adaptive capacity and reduce those damages. Although analyses of the impacts (or damages) of climate change generally incorporate economic growth into the emissions and climate change scenarios that they use as inputs, these analyses do not adequately account for the increase in adaptive capacity resulting from that very growth. Because of this inconsistency, these analyses generally tend to overstate impacts. • For instance, the average GDP per capita for developing countries in 2100 is projected to be $11,000 (in 1990 US$, at market exchange rates) under A2, the slowest economic growth scenario, and $66,500 under A1, the scenario with both the greatest economic growth and largest climate change. By comparison, in 1990 the GDP per capita for Greece, for example, was $8,300 while Switzerland, the country with the highest income level at that time, had a GDP per capita of $34,000. Based on historical experience, one should expect that at the high levels of GDP per capita projected by the IPCC scenarios in 2100, wealth-driven increases in adaptive capacity alone should virtually eliminate damages from many climate-sensitive hazards, e.g., malaria and hunger, whether or not these damages are caused by climate change. • Current damage estimates are inflated further because they usually do not adequately account for secular (time-dependent) improvements in technology that, if history is any guide, ought to occur in the future unrelated to economic development. • A compelling argument for reducing greenhouse gases is that it would help developing countries cope with climate change. It is asserted that they need this help because their adaptive capacity is weak. Although often true today, this assertion becomes increasingly invalid in the future if developing countries become wealthier and more technologically advanced, per the IPCC's scenarios. Damage assessments frequently overlook this. • Regardless of whether the economic growth assumptions used in the IPCC scenarios are justified, their specifications regarding the relationship between wealth and technological ability are, in general, inconsistent with the lessons of economic history. They assume that the less wealthy societies depicted by the B1 and B2 scenarios would have greater environmental protection and employ cleaner and more efficient …