Joint Committee on the Draft Climate Change Bill Minutes of Evidence

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 that—four degrees centigrade—that 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 years—just think of what has happened in the past 100 years—there 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 calculations—and economists always try and calculate future benefits and costs against present expenditure and so on—they 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 cities—Helsinki and Singapore—in 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 danger—not 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 years—then 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.

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