The Treatment of Economic Issues by the Intergovernmental Panel on Climate Change*
David Henderson
Issues relating to climate change, and to the choice of policies for dealing with it, are now highly topical. [...] ...readers may be interested to hear of some recent exchanges relating to economic aspects of these issues. Aside from their intrinsic interest, the exchanges raise wider questions as to the role of economics and economists in the policy process. David Henderson, formerly (among other things) Head of the Economics and Statistics Department of the OECD, and now Visiting Professor at the Westminster Business School, has been one of the participants in the current debate. This is his personal report.
The Intergovernmental Panel on Climate Change (IPCC) is a joint subsidiary of two international agencies, the World Meteorological Organisation (WMO) and the United Nations Environment Programme (UNEP). It was created by the member governments of these two agencies in 1988. Since then it has produced three full-scale Assessment Reports, issued respectively in 1990, 1995 and 2001. Work is now in progress on the Fourth Assessment Report (AR4), which is due in 2007.
The Panel operates through three Working Groups. WGI is concerned with scientific aspects of climate change, WGII with the prospective impacts of such change and ways of adapting to it, and WGIII with mitigation of the impacts. Each of the Groups produced its own report as part of the Third Assessment Report. Alongside them was the
Special Report on Emissions Scenarios (SRES), prepared for WGIII, which
provided in particular a range of projections of greenhouse gas emissions, covering the period from 1990 to 2100.
[large parts omitted link:
http://www.lavoisier.com.au/papers/articles/hendersonRES.html#anchor2668951]
A critique and its reception
Over the past two and a half years or so, I and a co-author---Ian Castles, formerly Head of the Australian Bureau of Statistics---have put forward a joint critique of economic aspects of the work of the IPCC. While our main single target has been the SRES, our concerns extend to the IPCC process and milieu as a whole, including the Panel's sponsoring departments and agencies. Moreover, we have gone beyond criticism, by putting forward proposals for action.
The main heads of our critique of the SRES can be summarised as follows:
--For the base year of 1990 it compares real GDP across countries on the basis of market exchange rates (MERs), rather than purchasing power parity (PPP) converters. These comparisons greatly overstate the differences in GDP per head between developing regions and OECD member countries.
--It gives a misleading account of the factors that bear on the choice between MERs and PPPs, and of the implications of such a choice.
It builds in, for reasons that are open to question, rapid convergence in GDP per head between developing regions and OECD member countries.
By thus assuming the substantial closure of a greatly overstated initial gap, it arrives at projections of output and GDP per head for developing regions which are higher than they would have been if the 1990 starting point had been correct, and high by comparison with other projections
--As a result, total projected world GDP is pushed up; and this in turn is reflected in higher projected emissions. Hence even the scenarios which show the lowest cumulative emissions over the present century do not in fact represent lower limits. The SRES projections do not, as is claimed for them, adequately encompass the full range of uncertainties about the future.
Our critique thus covers not only the results of the exercise, in the form of specific projections of emissions, but also the approach, the analytical basis of parts of the Report.
Our arguments have been strongly contested by authors who were involved with the SRES. Interested readers are referred to a series of articles that has appeared in recent issues of the journal Energy and Environment: the first four of these---two on each side---comprise the exchanges between us and the SRES authors, and three further articles have since appeared. [FN 1] Those who would prefer to invest considerably less time can be recommended, first, to two articles from the Economics Focus page of The Economist (15 February and 8 November, 2003), which weigh in on our side, and second, to an official press release issued by the IPCC in December 2003 and now posted, in a somewhat less impolite form than the original version, on the Panel's website.*http://www.ipcc.ch/press/pr08122003.htm* This latter document is concerned to expose our critique as baseless. Among other things, it states that 'In recent months some disinformation has been spread questioning the scenarios used by the IPCC'; and it refers to Castles and me as 'so called "two independent commentators"'.
Along with our critique, our suggestions for change have been rejected by the Panel. The main proposals that we have made are three:
(1) That the SRES, because it is open to serious criticisms, should not be taken as the basis and starting point of AR4: an alternative and firmer basis should be sought, through less elaborate and more short-cut procedures than those of the SRES.
(2) That in assessing possible future developments in the world economy, and ways of projecting them, the involvement of economic historians and historically-minded economists should now be ensured---for the first time.
(3) That more generally, and going well beyond scenario-building, the IPCC process should be broadened, in particular through the active involvement, first, of national statistical offices in member countries, and second, of ministries of finance and economics.