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Can climate spending save money?

Richard Black | 17:19 UK time, Thursday, 10 September 2009

How much are you prepared to pay to combat climate change?

It's a question that's being asked in government offices from Berlin to Brasilia - and nowhere more so, this week, than in Europe.

The European Commission reckons that the EU should contribute between $2bn and $15bn per year to poorer countries from 2020 onwards, to help them adapt to impacts of climate change.

Nicolas_SarkozyFrench President Nicolas Sarkozy, meanwhile, is preparing to spend some valuable political capital introducing a carbon tax for domestic consumers and some businesses.

But there's a surprise awaiting across the big Atlantic pond, where a rather different question is being asked: how much of a financial benefit will accrue from combating climate change?

Since the Waxman-Markey bill - capping emissions of industry, establishing a carbon trading scheme - came into existence, all sorts of institutions have sounded warnings about the economic calamities it might bring.

Now, though, the American Council for an Energy-Efficient Economy (ACEEE) calculates that Waxman-Markey could create more than half a million new jobs and save the average household nearly $300 per year - a boon to individuals, families and the nation itself.

You might contend, of course, that this is exactly the sort of conclusion you would expect from an organisation that supports energy-efficiency legislation.

You might also contend that warnings of economic doom are exactly what you'd expect from organisations such as the American Petroleum Institute that are none too keen on anything that might upset the current status quo of high fossil fuel use.

So who is right and who is wrong?

Often, these calculations depend on which factors you include and which you leave out, and what guesses you make about the numbers that you can't know.

The whole adaptation debate is a good example. In the immediate term, it'll cost, of course, for Europe and the US and Australia and Japan and so on to assist in the climate protection of poorer nations.

But the calculation is that in the end, it'll be money well spent if it results in fewer refugees, more cheap food to import, healthier markets overseas, and so on.

Sorry if that sounds cynical - but when you hear western politicians refer to climate change as a "security issue", you know whose security they're concerned about.

Putting exact financial costs on all that, though, is... well "difficult" would be an understatement.

Heat_image_of_Buckingham_PalaceThe argument that President Sarkozy's is making is that a carbon tax is a better option for curbing emissions than a national carbon trading scheme.

Opinions on that one are divided. Some economic experts (of whom I am emphatically not one) maintain the market is always a better mechanism because it's intrinsically more efficient than taxation.

But Norway and Sweden have made carbon taxes work for them, and both governments believe their emissions would be significantly higher now if they hadn't brought the taxes in during the last decade.

The current recession provides a nice example of the arguments.

It has brought the carbon price tumbling down, removing the financial incentive for businesses to invest in low-carbon technologies and practices.

A tax, meanwhile, would have chuntered along regardless, placing the same premium on every tonne of carbon emitted whatever the state of the economy - and so, presumably, constraining emissions.

Some would see that as a failing, others as a desirable outcome; you pay your money and make your choice. The UK has chosen domestic trading for small businesses; across the channel, Mr Sarkozy has chosen the other option.

Politically, Mr Sarkozy is betting that a reduction in income tax concomitant with the increased take from fuel, plus support for poorer families and rural communities, will eventually prove a more popular equation with voters than opinion polls on the issue would presently suggest.

If France's tax proves more effective than the UK's domestic trading scheme, and the ACEEE analysis of the US situation transfers to Europe, then French consumers stand to benefit by comparison with their British counterparts; the tax will eventually make them richer.

Stock_marketMeanwhile the Optimum Population Trust (OPT) has thrown another intriguing angle into the mix this week, issuing a report concluding that clean technology and carbon-penalising market mechanisms are both relatively inefficient.

Western governments could combat climate change five times more cost-effectively if they invested their money in programmes that lowered the birth rate in developing countries, the organisation concludes.

A controversial suggestion, for sure, and one that I am certain will find no place in the various financial mechanisms established by the new UN climate treaty, if and when such a beast emerges.

But being controversial doesn't necessarily mean the OPT is wrong. I'll turn once again to the words of long-time activist Jonathan Porritt in my recent radio documentary on the state of our shared environment.

He related the case made by a Chinese government official who recently visited his Forum for the Future offices.

Describing China's one child per family policy as having led to "400 million births averted", and calculating the volume of greenhouse gases those extra human inhabitants would have produced, she said that no other country had done as much to curb climate change.

The logic, said Mr Porritt, was inescapable, adding the rider: "You don't have to accept the China route to that logic.

"You can look to all kinds of alternative ways of reducing human numbers which aren't done as coercively as the one child per family policy was done in the past."

There are, of course, many factors whose monetary value we struggle to calculate, and others that are intractable to being turned into financial form.

Again, to some people's minds, that's a good thing - aspects of our lives and our world transcend mere money, they would say.

Nevertheless, economists are bound to try, whether they ply their trade in government, think-tank or campaigning organisation.

But which analysis you end up supporting is, perhaps, as informed by gut instinct and political persuasion as by the quality of the economic arguments.

How much are you prepared to pay? How much do you stand to benefit?

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