The salience of climate change is growing by the day. It is not going to be very long before the costs of dealing with it start impinging heavily upon both our living standards and our lifestyles. This raises three distinct but overlapping issues. How are we going to pay for climate change? How are we are going to carry public opinion to support the difficult changes which will have to be made? And what are the ultimate limiting factors which we need to take into account?
The UK is in a relatively favourable geographical position in the world to weather global warming, but the bill is still going to be high. Estimates for the costs of climate change vary because they are hard to quantify accurately but they were recently estimated by the Chancellor of the Exchequer, when spread over the period up to 2050, to be of the order of £1 trillion. This is equivalent to about half the value of our current annual GDP.
If this figure is correct, it will equate to a bit over £30 billion a year on average. It will be about 1.5% of GDP and equivalent to around 4% of total government expenditure. Some of these costs will fall on the government, requiring taxes to be raised to pay for dealing with threats such as rising sea levels and combatting climate change consequences such as flooding from more extreme weather conditions. Part will have to be paid by consumers, especially as relatively cheap hydro-carbon sources of energy are replaced by more expensive renewables.
A big difficulty about climate change is that its downsides are not very immediately apparent. They will mostly materialise some way in the future, and thus outside many peoples’ immediate time-frames. Hence the response in France to President Macron’s increase in fuel taxes from the gillets jaunes protestors that they were much more worried about the end of the month than the end of the world. Comments like this reflect all too accurately the fact that there is a big problem in pulling together a sufficiently strong political consensus to drive through the radical changes and acceptance of the cost burden which needs to be achieved.
This has a heavy bearing on the political and economic environment in which mustering the necessary support to deal with climate change is most likely to be achieved. For understandable reasons, there are Influential people who advocate that an important way of mitigating the threats from climate change should be to slow down the rate of economic growth, or even to reverse it, to reduce the strain on the earth’s limited resources and carrying capacity. The problem then is whether there will be a majority of people willing to pay more taxes and higher costs to combat global warming at the same time as they are being asked to accept their living standards stagnating or falling. It does not seem likely that there will be.
A better and more realistic approach may well be to adopt policies which will see the economy growing at least as fast as it is at the moment – and maybe faster – but to skew this growth as much as possible towards combatting climate change. This would entail both increasing living standards and taking action to mitigate global warming at the same time. This sounds like a much more realistic political strategy – if it can be achieved.
Much will then depend on what can then be done to bias economic growth away from producing more and more greenhouse gases and to encourage green investment. This will involve more awkward and difficult choices. How much of a role will there be for nuclear energy? How is sufficient electricity going to be generated and stored to decarbonise transport and heating? How are we going to handle vital industries such as steel and cement production, which will always produce greenhouse gases? How quickly can we complete the transition away from burning coal to using gas instead, as a stepping-stone to being carbon neutral? How soon can we develop technology on a big scale to capture carbon dioxide from the atmosphere – and the oceans – to reduce the impact of global warming?
The UK has done quite well so far in moving towards decarbonising but largely by manufacturing less and shifting production of goods to other parts of the world, but leaving our economy very unbalanced as a result. If we are going to play a fairer and more positive role in dealing with climate change, at the same time as we rebalance our economy to enable it to grow faster so that living standards for most people can be increased, this will have to alter. To deal with our huge regional and inter-generational imbalances, our stagnant productivity, our chronic balance of payments problems and our excess borrowing, we will need a significant measure of reindustrialisation, not the reverse – but to achieve this goal in a way which still needs to ensure that we can hit our carbon neutral targets.
Is this achievable? Given the right incentive, it should be. We will need a combination of policies. On the supply side, we will need the right tax incentives, education and training, finance and infrastructure. On the demand side, to get investment up to the required level and to ensure that there is enough of the most productive types – mechanisation, technology and power – we will need the right macro-economic policies and a sufficiently competitive economy, involving difficult and controversial exchange rate issues, to make it worth investing in industry in the UK rather than elsewhere in the world .
While the UK needs to make its own contribution to global warming, we need too to play a positive role in the other big problem about combatting global warming, which is that everywhere in the world has to be engaged in this battle. There is no room for free riders who rely on everyone else’s efforts. Of course, there are arguments that the developed West ought to take most of the strain as we benefitted from early industrialisation, before global warming was perceived as a problem. This is not a viable approach, however, starting from where we are now. Of course, big polluters such as the USA need to play a role, but so do the developing countries. The necessary numbers just will not stack up without their support and commitment.
All of which takes us on to what will be the ultimate constraints on world development. Despite suggestions to the contrary, we very probably will not run out of raw materials or energy, or water, or food, or storage space for waste. Nor will humanity be wiped out by asteroids, a plague or nuclear war. The ultimate limiting factor is much more likely to be population growth – and here the developed world’s willingness to offer aid but particularly trade opportunities to the poorest countries to enable them to become richer is crucial.
Across almost all cultures, religions, races and geographical locations, once average living standards reach around $3,000 per head per year, there is a dramatic democratic transition. Women stop choosing to have anything up to six children and the birth rate per mother drops to about two. It is the progress made on this process which will determine the ultimate size of the world’s population. The problem at the moment is that in large parts of the world, particularly Africa and South Asia, living standards are well below $3,000 per head per year and the birth rate is still very high. This is why we may yet finish up with the world’s population – already over 7 billion – rising to anything up to double this figure, before it becomes truly unmanageable. The only way to stop this happening is to get living standard up in these poor countries – and again the only way of achieving this objective is for living standards to be rising in the developed world sufficiently to provide the political support needed for aid and trade to be provided on a large enough scale.
It may seem paradoxical to propose that the way to get our over-exploited world back on track is to get our economies to grow both in the developed and developing world. In fact, however, this looks like being the only way to bring together the combination of sufficient resources and the political will needed both to deal with global warming and the threat posed by the world’s population becoming unsustainably large. Whether we shall be able muster the wisdom and ability to meet this huge challenge remains to be seen.