Wednesday, February 06, 2008

Climate change: a strapped chicken

DPF makes a lot of noise about a Business Round Table-commissioned study [PDF] which claims that reducing greenhouse gas emissions to 1990 levels by 2025 would "cost each household $19,000 a year". DPF regards this as proof positive that the costs of mitigation are too high, and that therefore we should not bother at all to do anything about emissions. Meanwhile, Hot Topic looks at the report and finds that it is a strapped chicken:

But, as is usual with these things, when you look at the assumptions that underpin the forecast, you find that they have been carefully designed to produce the result the sponsors wanted. Take a look at the method used (see PDF linked above): they define a “business as usual” case against which they will measure the costs of emissions reductions - and they shoot for GDP growth of 4.5 - 5% per annum. I don’t have the figures to hand, but I can’t think of any period in the recent past when GDP growth has been that high - and certainly not for 17 successive years. And the costs? They use very high carbon prices (up to $300/tonne). So, when you artificially inflate both long term growth and the costs of action, you discover that action’s expensive.

Why am I not surprised?

This is a classic spindoctor's trick - assume fantasy growth rates, then let the miracle of compound interest do its work - so its no real surprise that the spindoctor has fallen for it. But the idea that this would be considered credible in the real world is just laughable.

For those who are interested, the difference between the BRT's "business as usual" growth scenario of 4.9% per year and a more realistic one of 3% (the trend for the last decade, widely considered to be the best long run of growth New Zealand has had since the 60's, so probably too high on average) is about 27% of final economic output. Which is pretty much their "result" right there.

Update: I have misrepresented DPF in this post; see my correction and apology.