Saturday, June 09, 2007

To fight climate change grow by 0.1 per cent less

Is it my maths or his? Terry McCrann of The Australian thinks the cost of 0.1 per cent of GDP until 2050 to cut emissions by 50% is way too much to bear.

Now the cost, the very real cost of cutting emissions, tends to be airily dismissed as minor. So it might knock 0.1 per cent off our growth rate, perhaps even 0.2 per cent. But you'd hardly notice.


Aggressive emission cuts had been modelled to suggest that 2050 GDP (gross domestic product) would as a consequence be 5 per cent less than otherwise.

That's another of those "minor" numbers. Especially as it would be 5 per cent off a much bigger economy than now. But another way of looking at it, according to Switkowski, is that 5 per cent would represent about a $120 billion reduction in the size of the economy.

Even more critical, is the cumulative losses over the 43 years to 2050. Add them all up and you get around $1 trillion or $1000 billion. That was a serious amount of money, Switkowski added.

Now this is not a criticism, but Switkowski seriously understated the cost. A reduced growth path that ended up being 5% per cent below potential in 2050 would actually cost closer to $3 trillion - $3000 billion all-up.

To add some critical context. The Australian economy today is just a tick over $1 trillion - $1000 billion. So that would be tantamount to closing it down, completely, for three years.

As my table shows, even a seemingly completely unnoticeable 0.1 per cent reduction in the annual growth rate, from 3 per cent to 2.9 per cent, would mean GDP in 2050 - to stress again, in today's dollars - would be $145 billion less than otherwise.

But the cumulative loss over the 43 years would add up to $2220 billion - the equivalent of two of today's economy.

The hardly more noticeable reduction in growth to 2.8 per cent a year would cost $4390 billion of lost production.

The tyranny of big numbers. I failed to find a figure for the size of the Australian economy in say, 1950, using Google. But I established we lost 1.6% of GDP growth over the last 54 years since 2000.

Taking McCrann's figure for The Australian economy measuring $1 trillion - $1000 billion, I estimated the size of the economy in 1946 was between $113.84 billion and $116 billion, or 11.38% of size the today's. About nine times smaller.

I'm sure the good folk of 1946 would have accepted a growth rate of 0.1% less to ensure we had a stable, robust climate and a clean environment now, had they known about global warming. They were the war generation after-all, and they knew how to fight for their children's democratic future.

How soft have we become? We now know we have a new, unforgiving enemy - are we going to throw away the sacrifices and gains of our grandparents' past as well as our grandchildren right to a stable climate by taking this Neville Chamberlain policy of appeasement to greenhouse gas emissions?

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