This implies that, although Europe and the United States are responsible for a large share of global emissions to date, today’s emerging economies (particularly China) are generating an ever-growing share of current emissions. In fact, China is the single largest emitter of carbon. This is, however, largely due to goods produced in China but consumed elsewhere in the world. If we attribute the emissions to where the consumption takes place, North Americans consume 22.5 tons of CO2e per year per person, Western Europeans 13.1, Chinese 6, and South Asians just 2.2.
Within developing countries, richer people also consume a lot more CO2 than the poor. The richest people in India and China belong to the select group of the top 10 percent of the most polluting people in the world (and contribute respectively 1 percent and 10 percent to the emissions of this group, or 0.45 percent and 4.5 percent of world emissions). In contrast, the poorest 7 percent of the population in India emit just 0.15 tons of CO2 per year per person. Overall, we get the 50-10 rule: 10 percent of the world’s population (the highest polluters) contribute roughly 50 percent of CO2 emissions, while the 50 percent who pollute the least contribute just over 10 percent.
The citizens of rich countries and, more generally, the rich worldwide bear an overwhelming responsibility for any future climate change.
BATHING IN THE BALTIC
On a June day sometime in the early 1990s, encouraged by his friend and fellow economist Jörgen Weibull, Abhijit went swimming in the Baltic. He leaped in and instantly jumped out—he claims that his teeth continued to chatter for the next three days. In 2018, also in June, we went to the Baltic in Stockholm, several hundred miles farther north than the previous encounter. This time it was literally child’s play; our children frolicked in the water.
Wherever we went in Sweden, the unusually warm weather was a topic of conversation. It was probably a portent of something everyone felt, but for the moment it was hard not to be quite delighted with the new opportunities for outdoor life it offered.
It is in the poor countries that there is no such ambivalence. If the earth warms a degree centigrade or two, residents of North Dakota will mostly feel perfectly happy about it. Residents of Dallas, perhaps a bit less. Residents of Delhi and Dhaka will experience more days that are unbearably hot. As just one example, between 1957 and 2000, India experienced on average five days per year with an average daily temperature above 35°C.5 Without a global climate policy, it is projected to have seventy-five such days by the end of the century. The typical US resident will experience just twenty-six. The problem is that poorer countries tend to be closer to the equator and that is where the real pain will be felt.
To make matters worse, the residents of poor countries are less equipped to protect themselves against the potential bad effects of hot temperatures. They lack air conditioning (because they are poor) and they work in agriculture, on construction sites, or on brick kilns where air conditioning is not really an option.
What are the likely impacts of the temperature increases that are going to come with climate change on life in these countries? We cannot just compare warmer and colder places to answer this, since these places are also different in a hundred other ways. What allows us to say something about the potential impact of temperature change is that the temperature at a particular location fluctuates, on a given calendar day, from year to year. There are years with especially hot summers, years with particularly cold winters, and nice years when both winters and summers are temperate. The environmental economist Michael Greenstone pioneered the idea of using these year-to-year weather fluctuations to get some understanding of the impact of future climate change. For example, if it was especially hot in one district in India in a particular year, was agricultural production lower in that year compared to the same district in other years, or to other districts where it was not so hot?
There are various reasons to not trust this particular approach blindly. Permanent climate differences will surely spur innovations to limit their impact. We won’t pick these up in the effects of year-to-year changes, because innovation takes time. On the other hand, permanent changes may have other costs that don’t occur when the change is temporary, such as the draining of the water table. In other words, those estimates could be too small or too large. But as long as the bias in the estimate is the same for rich and poor countries, it is still useful to compare the predictions we get. The general conclusion is that the damage from climate change will be much more serious in poor countries. There will be losses in US agriculture, but the losses in India, Mexico, and Africa will be much larger. In some parts of Europe, such as in the vineyards of the Moselle Valley, there will be more sun warming the vines, and both the quality and quantity of Moselle wine are predicted to increase.6
The effect of hot weather on productivity is not limited to agriculture. People are less productive when it is hot, particularly if they have to work outside. For example, evidence from the United States suggests that at temperatures over 38ºC, labor supply in outdoor jobs drops by as much as one hour per day, compared to temperatures in the 24ºC–26ºC range.7 There are no statistically detectable effects in industries that are not exposed to climate (for example, nonmanufacturing indoor activities). Children have lower test scores at the end of particularly hot school years. These effects are absent where schools have air conditioning, so they affect poorer children the most.8
In India, few factories have air conditioning. In a garment factory in India, a study looked at how labor productivity varied with temperature.9 For temperatures below 27ºC–28ºC, temperature had a very small impact on efficiency. But for mean daily temperatures above this cut-off (about one quarter of production days), efficiency went down by 2 percent for every one degree Celsius increase in temperature.
Putting everything together, across the entire world, a study finds that it being 1°C warmer in a given year reduces per capita income by 1.4 percent, but only in poor countries.10
And, of course, the consequences of a warmer climate are not limited to income. Numerous studies emphasize the danger of hot temperatures for health. In the United States, an additional day of extreme heat (exceeding 32ºC) relative to a moderately cool day (10ºC–15ºC) raises the annual age-adjusted mortality rate by about 0.11 percent.11 In India, the effect is twenty-five times larger.12
LIFE SAVER
The United States experience also illustrates how being richer and more technologically advanced can help mitigate temperature risks. In the United States, the estimates of the mortality impacts of high temperatures in the 1920s and 1930s were six times larger than the estimates for the current period.The difference may be entirely due to the much greater access to air conditioning, a key mechanism through which residents of rich countries adapt to higher temperatures.13 This explains why in hot years energy demand goes up massively in rich countries. In poor countries, where air conditioning is still rare (in 2011, 87 percent of households in the United States had air conditioning, but only 5 percent of Indians did14), we see larger reductions in productivity, and increases in mortality when temperatures go up. In these places, air conditioning could be a critical adaptation tool. It should not be a luxury, but it is.
As poor countries become richer, they will be able to afford more air conditioning. Between 1995 and 2009, the ratio of air-conditioning units to homes in urban China went from 8 percent to over 100 percent (meaning there was more than one AC unit per urban household).15 But air conditioning itself aggravates global warming. The hydrofluorocarbon (HFC) gases used in standard air-conditioning appliances have particularly deleterious impacts on the climate; they are much more dangerous than CO2. This puts us in a rather difficult situation. The very technology that can help to protect people from climate change also accelerates the rate of climate change. Newly available air conditioners that do not use HFC pollute less, but at the moment they are much more expensive. A country like India, which is on the cusp of being able to afford the cheaper air-conditioning appliances, thus f
aces a particularly ghastly trade-off: saving lives today, or moderating climate change to save lives in the future.
An agreement reached in Kigali, Rwanda, in October 2016, after years of negotiation, illustrates how the world navigates this trade-off (when it does manage to navigate it). The Kigali agreement created three tracks: rich countries, including the United States, Japan, and Europe, will start phasing out synthetic HFCs in 2019; China and a hundred other developing countries in 2024; and a small group of countries, including India, Pakistan, and some Gulf States, will postpone the start date until 2028. While realizing its citizens are both the victims and the cause of global warming, the Indian government took the stance that they prefer to save lives today rather than tackle the problem right now. They are probably banking on the fact that economic growth in the intervening years will put them in a position to afford the more expensive devices (which may also have become cheaper in the meantime) by 2028. But during those ten years, there could be a very rapid spread of old-style appliances in India, especially since the makers of the HFC-based machines will want an outlet for their products, and these will stay operational and continue to pollute for years after 2028. This delay could turn out to be quite costly for the planet.
ACT NOW?
The air-conditioning conundrum is a particularly heart-wrenching illustration of the trade-off India feels it is facing, between the present and the future. More generally, until the Paris Agreement in 2015, India had simply refused to contemplate limits on its own emissions, arguing that it could not afford to hinder its own economic growth and rich countries should bear the brunt of the adjustment. The position evolved when India ratified the Paris Agreement and came up with a concrete commitment, asking in exchange for some serious financial aid to afford the energy transition, to be financed from an international fund paid for by the rich countries. Although Indian emissions are not a large fraction of world emissions today, India will be a key player moving forward, as its growing middle class consumes more and more. And unlike the United States, a large part of its population will also be directly and severely affected by climate change, so it should be in a good place to understand the costs of today’s choices. Its reluctance to act is thus deeply concerning, not only because it has direct impacts, but because it illustrates the dominance of short-term thinking among politicians.
The key question is whether the trade-off is as stark as the Indians (or the Americans, for that matter) seem to believe it is. Do we really have to give up something today? Perhaps we can have our cake and eat it too, if we develop and switch to better technologies that will allow us to curb warming without giving up much by way of our lifestyles. After all, just a few years ago energy experts were sternly telling us that renewable energy sources (solar and wind) were simply too expensive, and it was foolish to invest in them as an alternative to fossil fuel. They are considerably cheaper today, notably due to technological progress in those sectors. Energy efficiency has also considerably improved and could improve more. In 2006, the UK government commissioned the former chief economist of the World Bank, Lord Nicholas Stern, to prepare a report on the economic implications of climate change. The Stern Review16 optimistically concludes:
Yet despite the historical pattern and the business as usual projections, the world does not need to choose between averting climate change and promoting growth and development. Changes in energy technologies and the structure of economies have reduced the responsiveness of emissions to income growth, particularly in some of the richest countries. With strong, deliberate policy choices, it is possible to “decarbonize” both developed and developing economies on the scale required for climate stabilization, while maintaining economic growth in both.
Amen to this. Still, it would not quite be free. The Stern report concludes that, assuming a rate of technological progress in the “green sector” based on extrapolating from recent history, it would cost about 1 percent of world GDP annually to stabilize emissions at the level necessary to stave off global warming. But that seems a modest cost to avoid endangering the future of the world as we know it.
One hope is that research and development efforts might respond to incentives.17 R&D expenditures are strongly influenced by the size of the market for the new innovations they are seeking to finance.18 So a temporary inducement to research clean alternatives to dirty technologies (in the form of a carbon tax that would make it more expensive to use the old technologies and/or direct subsidies to research clean technologies) could have a snowball effect by creating a demand. The clean technology would become cheaper and therefore more attractive, which would increase the demand for it and hence the returns to research. Eventually, the clean sector would be attractive enough to root out the dirty sector and we would be home free. Our little economic engine could be back on its balanced path with the same growth as before, fueled by wind, water, and the sun. We could even stop all taxes and subsidies to encourage clean energy after a while.
It is easy to see how it could work. It is also frighteningly easy to see how it could not work. After all, the dirty technology would still be there. If fewer people used coal and oil, the prices of these inputs would plummet. This would make it very tempting to go back to using them. It is true that because coal and oil are not renewable means their prices will tend to go up over time (as the supplies run down), but there is probably enough coal and oil under the ground to take us to Armageddon. It is hard to be entirely sanguine.
FREE LUNCH?
What the optimists are hoping for is that ultimately there will be a free lunch. Firms and people will save money by adopting the cleaner technologies because research will have made them so much cheaper. Adopting clean technologies would be a win for individuals and a win for the planet. The prospect of a free lunch is always enticing. In fact, it is so enticing that it tends to dominate the climate change conversation. Detailed engineering estimates routinely predict investments that enhance energy efficiency, and pay for themselves in the form of a smaller energy bill. A 2009 McKinsey report, “Unlocking Energy Efficiency in the U.S. Economy,” attracted a lot of attention.19 The report estimated that a “holistic approach” of investment in energy efficiency would “yield gross energy savings worth more than $1.2 trillion, well above the $520 billion needed through 2020 for upfront investment in efficiency measures.” In 2013, the International Energy Administration calculated that energy efficiency measures alone could give us 49 percent of the reduction in CO2e emissions we need, without any other change.20
If that is the case, then perhaps we have a relatively easy problem to solve; all we need to do is to bridge this “energy efficiency gap.” We need to identify the barriers preventing consumers (and corporations) from undertaking these investments. Perhaps they don’t know, perhaps they cannot get a loan to finance the upfront costs, perhaps they are myopic, or perhaps they suffer from inertia.
Unfortunately, when one looks at the on-the-ground performance of those supposedly low hanging fruits rather than predictions of engineering models, there is less good news. The federal Weatherization Assistance Program (WAP) is the largest energy-efficiency program for home users in the United States; it has covered 7 million households in the US since its inception in 1976. Michael Greenstone and a team of economists got a chance to allocate an offer to participate in the program to about seventy-five hundred households, randomly chosen out of thirty thousand in Michigan.21 The winners were offered over $5,000 in weatherization investments (insulation, window replacements, etc.) at no out-of-pocket cost. The researchers then collected data on winners and losers. The RCT produced three main findings. First, the demand for the program was really low. Despite an aggressive and costly encouragement campaign, only 6 percent of households in the treatment group eventually took up the offer. Second, the energy-use gains were real (the energy bill went down by 10–20 percent for those who took the program up), but were only a third of what was predicted by the engineering estimates, and much lower than the upfron
t costs. Third, this is not because households reacted to the prospect of a lower energy bill by heating their houses more (the so-called rebound effect); they found no increase in home temperatures. The engineering estimates apparently did not fully apply to real houses in real places; they were much too optimistic.
The gap between the rosy engineering estimates and the truth does not just apply to households. A researcher teamed up with the department of climate change in the government of Gujarat (one of the most industrialized and most polluted states in India) to provide small and medium firms with high-quality energy-efficiency consulting.22 A random sample of firms received a free energy audit, which gave each firm a list of approved energy-efficiency-enhancing investments the state could heavily subsidize (under a preexisting program). Then a random subset of the firms that got the audits received regular visits from energy consultants to facilitate the adoption. The audits on their own had a limited impact on the adoption of the new technologies. The consulting led to more adoption, but it also changed what firms were doing: they started producing more, which increased their energy demand. Overall, there was no effect on energy consumption, this time because of the rebound effect. Again, the engineers who calculated the potential emission gains from technologies that saved energy were too optimistic in their predictions.
Our sense is that there may not be that many free lunches. Mitigation through better technologies may not do the trick; people’s consumption will need to fall. We may have to be content not only with cleaner cars but also with smaller cars, or no cars at all.
Good Economics for Hard Times Page 26