Beware of Stern warnings

Nicholas Stern's report on climate change, focuses on reducing emission today, and therefore exposes its political agenda, rather than its economic concern. The present generation cannot help the future by restraining its consumption today. In a free society, increased consumption today triggers the chain of exploration and innovation that will prepare the future generation to deal much better with their present. I look at the key aspects of the Stern Report, in "Beware of Stern warnings" in the Hindustan Times, on 28 December 2006.

During the colonial era, religious missionaries would often try to scare the local population with impending damnation, and then offer possible salvation if the people accepted the wisdom of their Book. Sir Nicholas Stern, the high-powered British bureaucrat and economist, seemed to be on a similar mission to India recently. Only, he predicted economic losses, natural disasters and disease and then offered salvation in the Stern Review on the economics of climate change. Just as the earlier generation of missionaries who clothed political ambition in religious sermons, Sir Stern sought to cover the political agenda with apparently humanitarian economic concerns. But his stern economic warnings are unlikely to find many takers in the harsh political reality of India today.

The Stern Review is a huge exercise undertaken to highlight the potential hazards of global warming in the next 100 years, and the economic cost of actions taken today. The report predicts that there is a 50 per cent chance that the average temperature could rise by 5 degree Celsius, leading to a loss ranging from 5 per cent to 20 per cent of GDP each year. Stern suggests that an average price of 1 per cent of current world GDP could help stabilise the CO2 level in the atmosphere at 450 ppm. Of course, this 1 per cent translates into a whopping $ 600 billion today!

The report paints a grim picture for India, from disturbances in the monsoon pattern, leading to droughts and floods, loss of agriculture production to coastal displacement of population, melting of glaciers to spread of diseases like malaria. This doomsday scenario is then sweetened by the possibility of a larger share of the global climate fund. The scare-mongering is handy in mobilising armchair activists and the chattering classes who are always looking for causes to support. Money, of course, is an attractive magnet for policy makers.

But there is a small problem — the people and their poverty. Parts of India regularly experience floods or droughts, either water or mosquito-borne diseases. For these people, battling such situations is a tragic reality. And the only thing they hope are fruits of basic development — bijli, sadak, pani — with which they can equip themselves to face their adversities.

Coastal populations in India are not vulnerable because they are on the coast; they are vulnerable because they are mostly poor. Their problem is not too much consumption, but too little. Economic development helps the poor by equipping themselves to deal with vagaries of nature. The Stern report fails this test, because it holds the poor, and not their poverty, as the cause of their vulnerability.

About half of Indian homes today don’t have any electricity, and many who do have the connections, don’t enjoy the benefits. It will be politically suicidal for any Indian leader to promote the virtues of low energy consumption to the Indian masses.

Setting country level caps on emission is central to the Stern report, because without an agreement on the caps, setting the target of atmospheric CO2 at 450 ppm by the end of the 21st century would be impossible. Equally, without the caps, carbon trading can hardly take off at the global level.

The Stern report relies heavily on the notion that carbon taxes and carbon trading will generate enough revenue to finance large-scale clean energy projects in India and developing countries. So the report suggests that rich countries make a high emission reduction commitment today, of 60 to 80 per cent by mid-century, and countries like China and India begin to adopt some caps on emission by 2030.

Now, any discussion of emission quota necessarily raises the issue of equity. Should emission quotas be set at the national or per capita level? Should countries accept a common level of quota? Such questions are minefields and very difficult to come to an agreement on at any international forum. More interestingly, the underlying philosophy of the Stern report is that the future generation needs to be saved by the present. This reflects a level of arrogance on the part of the authors. There is nothing in human history to suggest that civilisation a hundred or a 1,000 years hence will be any less capable than we are today in relation to the past millennium.
So the Stern report may already be quite superfluous in achieving the objective of stabilising the proportion of CO2 in the atmosphere. Technological innovations, driven by open and competitive markets, nurtured within rule of law and respect for property rights, are already contributing to a reduction in the ecological footprint of civilisations. Economic progress typically means producing more out of less; this is the core of efficiency and productivity gains.

Advances in methane, hydrogen and nuclear energy would enable us to continue to meet our needs for more energy, and limit environmental impact. If the farmers around the world achieved the best agriculture productivity prevalent today, based on today’s technology, then a hundred years later, the demand for agriculture land could be about half of what it is today, even while feeding 8 to 10 billion.

If the present generation is unable to take care of the present, they will not be able to contribute for the future. The present generation cannot help the future by restraining its consumption today. In a free society, increased consumption today triggers the chain of exploration and innovation that will prepare the future generation to deal much better with their present. The Stern report’s focus on reducing emission today exposes its political agenda, rather than its economic concern.