Examination of Witnesses (Questions 32-39)|
16 MAY 2007
Q32 Chairman: Welcome Lord Lawson, Professor
Henderson, is there anything you would like to say by way of opening
statement before we go to the questions?
Lord Lawson of Blaby: Well, thank
you very much, my Lord Chairman, it is very good of you to have
invited me to help you with this impossible task with which you
have been entrusted. Perhaps it might help if I say a few words
because it is a very, very complex issue and impossible to do
justice to in a few words; but nevertheless, to put the thing
in perspective, if you read the latest IPPC report, that is the
Summary for Policymakers which they produced in their Fourth Assessment
Report, you see that they are suggesting for the next 100 years
(on the basis of what they believe to be the best science they
can get, although the scientists are divided) that there will
probably be an increase in global mean temperature of between
1.8 and four degrees centigrade. They also say that if you take
the upper end of thatfour degrees centigradethat
is likely, they think, to result in a loss of global GDP of between
one per cent and five per cent. You will find that in the Summary
for Policymakers, Working Group II. If you therefore take the
worst end of their best estimates, the upper end at four per cent,
and you take the worst estimate of the cost of that, five per
cent of GDP, which is indeed a very large sum (and I believe totally
unrealistic because they say explicitly that this takes no account
of changes or developments in adaptive capacity, and the idea
that over the next 100 years with the growth of wealth in the
world, which in fact will drive the emissions scenarios which
are driven by development, and the growth of technology over the
next hundred yearsjust think of what has happened in the
past 100 yearsthere will be no change or development in
adaptive capacity, this is somewhat implausible, so therefore
it is a very extreme assumption) what it means for growth, at
the lowest of their various estimates, namely two cent per annum
in living standards in terms of GDP per head over the next 100
years, then what they are saying is that the problem is that in
100 years' time our great grandchildren (in my case: in some of
your cases your great great grandchildren) instead of being more
than seven times as well off as we are today will be slightly
less than seven times as well off as we are today. So that is
the great existential threat facing the planet. The question,
in a nutshell, is how big a sacrifice should we impose on the
much poorer present generation in order to avoid the horror of
people in 100 years' time not being more than seven times as well
off as we are today but only slightly less than seven times as
well off as we are today. So that is the perspective, that is
the scene, and of course for the developing countries it is more
acute and more dramatic because they are expected to have a faster
rate of growth, quite reasonably, and therefore they will be something
like 11 times, on the IPPC's own projections, as well off in 100
years as they are today, and today they are in great poverty.
So it is very understandable that the Chinese and the Indians
and others do not want to have any part of this. They say, "Our
priority is to drag our people out of poverty and destitution
and stop them from dying of malnutrition as fast as we can, and
that means the most rapid rate of growth now and that means using
the cheapest energy we can find, which is carbon-based energy."
So that is the perspective. We then get the Government's quaint
proposal in this draft Bill which, even if you thought this was
a path on which it was worth embarking, is dangerous in two ways.
First of all, it seems (but it is not clear) to put the emphasis
on carbon trading. Carbon trading is a very poor second best method
even if you did want to cut carbon dioxide emissions by 60 per
cent by 2050. Even if you did want to do that, it is a very second
best way of doing it, for two reasons. One is that it is not really
a market system at all because it is essentially a system of rationing
and it is not a true market system so you do not get the efficiencies
of the market. The other way it is a second best is that of course,
as the Financial Times interestingly pointed out in a couple
of articles about ten days ago, the carbon trading systems as
we know them are a huge scam for the most part and they are bound
to be a scam. One of the most extraordinary things is what is
happening in China, where under the Clean Development Mechanism
of Kyoto, two-thirds of the credits that are being bought are
going to China. China finds that this is such a lot of money coming
in that the Chinese Government has taxed heavily the income from
the Kyoto Clean Development Mechanism. That enables them to put
more money into developing their huge coal-fired power station
programme; and of course, since they are not part of any target
or controls of emissions, there is nothing to stop them doing
that and they can go on doing that as much as they like, so the
whole thing makes no sense at all. If you are going to do this
at all and go this way because you do think it is the right way
to go (which I do not), then the only sensible way is to tax carbon
and go on taxing it until you get a sufficient reduction either
through more efficient use of carbon energy or switching to other
non-carbon forms of energy, and then you will get the reduction
you want. This is agreed by anybody who has seriously looked at
the issue, ranging from Dieter Helm, the eminent energy economist
and Chairman of Defra's academic panel to, say, Martin Wolf, the
Economics Editor of the Financial Times, who has looked
at this a great deal. They all agree that the only way that makes
sense is to tax carbon and to go on taxing it until behaviour
has changed sufficiently to get the amount of reduction you want
and stabilised carbon is sufficiently understood. The other thing
is that this only makes sense if everybody is doing it. For Britain
to go out on a limb alone is going to have absolutely no effect
on global warming in any way. The UK accounts for less than two
per cent of emissions and the proportion is declining. The higher
the cost of carbon energy in this country the more energy-intensive
industries will migrate to China or India or wherever else, so
you will not even be changing what is happening in the atmosphere
very much. We will be damaging our own economy for no good reason.
Even the European Union, when they agreed on their 20 per cent
reduction of carbon dioxide emissions by 2020 (which is not legally
binding and the allocation of that 20 per cent reduction among
the various member nations of the European Union is still very
far from agreed) even then they said, "We will only go to
30 per cent if everybody else is going to come in with us."
However, we alone say we are going to go to a 60 per cent reduction
by 2050 and will make it legally binding regardless of what happens.
The idea is that we will give a lead and then everybody else will
follow. The Chinese have made it quite clear that they not going
to follow and our lead will be the equivalent of the lead of the
Earl of Cardigan in the Charge of the Light Brigade.
Chairman: Thank you very much indeed.
The first question from Helen.
Q33 Helen Goodman: Lord Lawson, you
have made wide-ranging criticisms not just of the Bill but of
the policy, so obviously I went back to look at the House of Lords'
report on the economics of climate change which you were involved
in writing and I noticed in that that throughout in your assessment
of the costs and benefits you used a discount rate of three per
cent. Would you accept that this technique and the figures used
on time preference curves are built over short time periods and
that applied to climate change it is wholly inappropriate because
it suggests that current generations place no or very little value
on the utility of future generations, which is precisely what
the policy is aimed to do?
Lord Lawson of Blaby: No, I do
not agree with that at all, except with one thing, that you are
quite right, that when they are doing these calculationsand
economists always try and calculate future benefits and costs
against present expenditure and so onthey use a discount
rate and you are quite right to imply that the discount rate you
choose makes a huge difference to what seems to be cost-effective
and what is not cost-effective. I have to say that Stern's choice
of a two per cent discount rate and declining has been dumped
on really by the great majority of academic economists, ranging
from Nordhaus of Yale to Dasgupta in Cambridge to Weitzman in
Harvard, and it also raises problems of how you can justify as
a chancellor of the exchequer having one rate of discount for
one lot of projects and another rate of discount for a whole lot
of other projects designed for the public well-being, but perhaps
David Henderson, who is a distinguished academic economist (which
I am not) might like to comment on that particular aspect.
Q34 Helen Goodman: Before we go on
to the technicalities, I wonder if I could press you a little
more because you quoted some economists, but Amartya Sen, for
example, the Nobel prize-winning economist, has said: "The
cost in utility calculus cannot begin to convey the complexity
of choices because we are capitalising on the arbitrary fact that
we could get at the resources before the future generation could."
Surely, Lord Lawson, it is a basic ethical point?
Lord Lawson of Blaby: I think
it is an ethical point and there are a lot of ethics in it. You
are quite right, it is an ethical point. My ethical point, I suppose,
is that I am not prepared to sign up to a policy which is dooming
the present generation in the developing world to a whole lot
of unnecessary suffering in order to gain a speculative benefit
for generations who will be very much wealthier in 100 years'
time even if the science is right, which is by no means certain.
Q35 Chairman: Professor Henderson?
Professor Henderson: I would only
add that the three per cent and the Stern Review's 2.1 per cent
declining do not represent a judgment as to how to discount the
welfare of people in the future. Stern actually takes a much lower
rate for that component. It also allows for the fact or the assumption,
a reasonable presumption, that people in the future will be considerably
richer than today.
Q36 Mr Yeo: Lord Lawson, you have
dismissed in characteristically trenchant terms the potentially,
I believe, disastrous consequences for the world of a rise in
temperature of four degrees centigrade. I think it would be true
to say, though, whether you are right or wrong, at the moment
the way opinion is moving, not just in Britain and Europe but
in America and in the Far East, is in the opposite direction and
more people are taking the opposite view to the one you have enunciated.
That does not mean to say they are right but it simply seems to
be a fact. The fact that people are changing their minds in that
direction will also affect economic behaviour, so would it not
be possible that far from it being an economic disadvantage to
Britain to be out in front of other countries in setting very
challenging targets for cutting carbon emissions, it might actually
be an enormous business and economic advantage if the result of
those targets meant that British businesses were in the forefront
of innovating and developing the low-carbon technologies which
would subsequently become saleable around the world?
Lord Lawson of Blaby: I think
that these are two different things which you have somewhat confused.
There may be business opportunities, there are no doubt business
opportunities in palmistry, but that does not mean to say that
they are conferring any great economic benefit (although it is
a free country and people are entitled to do that if they want
to) but anyhow these benefits to these companies are nothing like
the disbenefits and the damage that will be done, both relatively
and absolutely, to the economy as a whole. I also do not also,
incidentally, Mr Yeo, that opinion is moving that way. I think
there is a growing, as it were, sceptical movement of opinion,
if you realise how serious the lacuna is of the failure to take
into account adaptation. Man (woman, people) is extremely adaptable.
If you just take the world today, for example take two very effective,
flourishing, bustling citiesHelsinki and Singaporein
Helsinki the average annual temperature, if you even it out over
the 12 months of the year, is less than five degrees and if you
take Singapore, it is over 27 degrees; so under five degrees in
one case and over 27 degrees in the other. In other words, the
difference between these two very successful cities is over 22
degrees centigrade. That does not prove anything but it does demonstrate
that mankind is extremely able to adapt to differences in temperature
and when you reckon that what we are talking about now is the
IPPC's best case is somewhere between (on assumptions as I say
which are contested but nevertheless let us have them for the
time being) two and a half and three degrees over 100 years, to
suggest that we would have huge difficulty and even insuperable
difficulty in adapting satisfactorily to that, I think is implausible.
Q37 Mr Yeo: What proportion of the
world's population lives below sea level?
Lord Lawson of Blaby: A very small
proportion. If there are people in dangernot necessarily
in the Maldives where we have been told the Maldives is going
to be inundated any day now, and in fact, as it happens, sea levels
in the Maldives have been falling slightly over the past 30 yearsthen
you build effective sea defences. This costs a tiny fraction of
the cost of putting a huge carbon tax and making energy extremely
dear. Indeed, the Dutch did this very effectively 500 years ago
and technology has moved on a little bit over the past 500 years.
There are certain things that might well need to be spent but
we should wait and see and if it is necessary the money should
be spent. Economic aid is very important in this respect. One
of the nonsenses about the IPPC's assumption that there is no
change or development in adaptive capacity is they are very concerned
that the countries that might be most affected are the countries
which in their opinion (and they use this frequently in their
document) lack adaptive capacity. They are not worried about Europe
so much, they are not worried about the United States, they are
not worried about Australia and New Zealand where they say adaptive
capacity is high, but in the developing countries they say there
is low and very poor adaptive capacity. Quite apart from the fact
that as they get richer over the past 100 years of economic growth,
as technology develops, adaptive capacity will improve, we can
help them. Overseas aid can be geared towards helping them with
their adaptive capacity if there is an adaptive capacity problem.
Q38 Mr Chaytor: Lord Lawson, are
you accepting that human beings can live with a temperature rise
of possibly four degrees and, if so, why would it be necessary
to impose a carbon tax?
Lord Lawson of Blaby: I do not
believe it is necessary to impose a carbon tax.
Q39 Mr Chaytor: But you said that
the imposition of a carbon tax was the only way to deal with the
consequences of climate change?
Lord Lawson of Blaby: No I did
not. I said the imposition of a carbon tax is the only sensible
way if you want to cut back carbon dioxide emissions. If that
is what you want to do, then the only sensible way is to put on
a carbon tax.