Is the slump good for the environment?

Today’s AFR quotes Ross Garnaut saying that the economic crisis has put a clamp on greenhouse gas emissions. He says that we have “transferred two years” which might turn out to be more if the crisis lasts longer.

I am not sure where he gets this estimate from. Last year I had a research assistant look at the relationship between greenhouse gas emissions and world GDP. The relationship hinges on how you measure those emissions. It turns out that many measures simply measure output and so literally use production proxies for emission measures (e.g., amount of energy produced, fossil fuel burnt, etc). Not surprisingly, crimp output and your crimp these measures. But that isn’t really what we care about. We care about carbon actually in the atmosphere.

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So my RA looked at that too. There are series of data on the amount of CO2 in the atmosphere (using continuous measurements and something called flask measurements). They are pretty similar.

What happens when you correlate these with world GDP? A simple correlation gets you a significant result but CO2 last year likely explains lots of CO2 this year and so autocorrelation is a problem. Probably better is to look at growth rates of CO2 against GDP growth or some other log specification. In that specification, the data tell us that to get a 1 percent reduction of CO2 in the atmosphere requires around a 13 percent fall in GDP! That is on the high end of what we are facing. (I think that if we manage emission reduction efficiently rather than by destroying the economy, the equivalent cost is bounded by 4% of GDP).

To put this another way, if we get a 12 percent reduction in GDP, CO2 in the atmosphere may fall by 4ppm.

The upshot of this is: the global recession/depression is not really buying us anything in terms of environmental benefit.

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6 thoughts on “Is the slump good for the environment?”

  1. “Probably better is to look at growth rates of CO2 against GDP growth “
    Hmmm. I am confused. GDP measures economic activity which should be correlated with CO2 outputs, so I would expect a linear relationship between CO2 growth and GDP – not CO2 growth and GDP growth.
     
    I agree with your conclusion. Garnaut’s comment is absurd. I think someone put a decimal point in the wrong place. . If a modest drop in economic activity could buy us two years then climate change would not be the problem it is

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  2. stocks and flows…stocks and flows…so Joshua is partially right, the slow down in the economy, doesn’t result in much of a change in stocks (given the stocking time already accumulated).

    However, the targets are against flows – and in that context, the slow down does benefit us – in terms of leading to a lower cost of meeting those targets.  Santos today is stating that last year, forward permit prices for 2011 delivery have fallen from $25/t to $21/t because of the slow down (though one might hypothesis there are other factors at play there too).

    cheers,
    Christopher

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  3. I should have added to the above that a more interesting question is given that it is a stock question ultimately being addressed, does the fall in the value of permits due to a a  slow down in the economy lead to an economic opportunity to set more stringent targets?   I think the answer remains no both because it is a stock problem being addressed and a transient effect on flows will change the targets only slightly and doesn’t gain us enough to tradeoff against increases in the costs today (combined with issues around parameter uncertainty). But I haven’t written a model down so the intuition might be wrong. cheers, Christopher

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  4. Mr Garnaut has me scared – a future world with no CO2 production equals a world with no productive output.   Surely the purpose is for economic growth that is achieved with minimal envionmental impacts (irrespective of the incentives developed to drive this) and therefore breaking the correlation between growth and carbon. 

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  5. @ wildman: right on brother.

    still, calculations are that changing over to low(enough)-emissions economy will itself release heaps too much CO2.

    Sigh. If climate change scientists are right, our only hope might be the impending global economic collapse and mega-contraction when peak oil hits. t-minus 10 years, says Monbiot.

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  6. Sorry Joshua. A 1% fall in CO2 for a 13% fall in GDP doesn’t pass the common sense test. Publish the exact specifications of what you did and let you fellow econometricians check it out, and then we may take some notice.

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