Monday, July 07, 2008

Garnaut Review preliminaries

I have been reading the enormous Garnaut Climate Change Review (hereafter, Review) rather selectively – mainly in relation to forecast events in the Murray-Darling Basin. I'll report on my investigations later and also comment on what to me are the guts of the Review's work - it's findings on designing an emissions trading scheme which are in the last one third of the Review.

I wonder about the size of this Review. Those without specialist interests in climate change will not read the whole document because the effort is too daunting while those with specialist interests might not read it because there is a huge amount of material in the Review that is non-new – I cannot see much that is new in Chapters 1-5. Chapters 6- 7, 11-13 include much descriptive material already published or which is on meteorological websites. The substance starts after Chapter 14 - that is useful information since it cuts the read by 50%.

I can’t help thinking a much shorter and more focused discussion would have been better. It is unnecessary to engage in yet another literature review – there is already plenty of material out there e.g. the Stern Review. What is of interest are the specific problems Australia faces and this should have been the exclusive emphasis – indeed these problems were the main assigned ‘terms of reference’.

On the other hand the document is well-written and thoughtful. Climate change is a ‘diabolical policy problem’ and is ‘insidious rather than confrontational’. Given the high levels of uncertainty involved there are significant incentives to procrastinate yet the costs of doing this are huge. We need to take action when there is no immediate need to do so and where third-rate politicians eager to grab at any short-term political advantage bedevil attempts to deal comprehensively with the issues. Moreover international cooperation of a type never achieved in history is required. The Review points out the problems but also the advantages Australia has in terms of being a resource supplier to Asia and in terms of its resilient market-driven economy.

The Review does not present specific targets or estimate the costs and benefits of mitigation - these we are told will come later - although it does estimate trajectories of the economy without climate change or mitigation comparing this with estimates with climate change but without mitigation – the difference between these scenarios is one way of measuring the cost of climate change.

The Review is frankly a political document that is designed to encourage politicians to show conviction on the climate change issue and to motivate voters to back those who do. Thus there is a considerable amount of pure fiction in the report. For example the Review forecast in 2008 that output in 2100 (in the absence of climate change) will be 700% higher than at present with per capita output quadrupling. With median estimates of climate change and no global mitigation response GDP would fall from this level by 4.8%. I wonder if any economist in Australia places faith in such numbers. Yet it is these numbers which are being used as reference scenarios through to 2100.

Of course the immediate defence is the imperative 'do better' which I cannot. There is also the inevitable defence that a simple message needs to be told to achieve what those pursuing the Review believe is sensible policy.

I also would have liked much more explicit discussion of the 2007 report by the CSIRO detailing climate change forecasts for Australia – these are very similar to the 2001 forecasts. I would also like to see detailed the Monash Multi Regional Forecasting (MMRF) model which is the main way actual climate changes are forecast to translate into economic changes which is barely discussed at all. The only reference to it is to a qualitative piece by Phillip Adams in 2007. We are told that more details will be provided in the ‘Supplementary Report’ due later this year. In my view this is unsatisfactory and not a detail - these two inputs determine the climate change outcomes of the Garnaut Review.

Update: Colleague Damien Eldridge points to this link to further information on MMRF.


Anonymous said...

Harry, regardless of the details of the long-term growth expectations, isn't it reasonable to suppose that a) that barring complete disaster we will be far, far richer, materially, in 2050 let alone 2100 than we are now, and
b) that the costs of a sensible policy for mitigating climate change will be small compared to this increase in material wealth?

hc said...

Not sure about a) but probably so.

Agree with b).

Its a quibble about the 700% and 4.8% figures.

Econometrics has little to contribute to such forecasts in my view. Better to ask economic historians.