Vaclav Klaus: Ignore Climate Change!

Yesterday’s and Monday’s excerpts argued that we shouldn’t fear climate change. Steven Pinker argued that even if climate change causes resource scarcity, it won’t lead to violent conflicts over those resources. Matt Ridley argued that a warmer world might actually be good for people. Today’s excerpt from former President of the Czech Republic Vaclav Klaus’s Blue Planet in Green Shackles argues similarly that we shouldn’t fear global warming because people 100 years from now will be far richer and therefore, capable of adapting to new changes.

Blue Planet in Green Shackles was published by CEI in 2008

If we look to the future and any problems that may possibly arise (including environmental ones) through the eyes of an economist, we have to mention the income, or wealth effect, on the one hand, and the effect of technological progress, on the other. We also have to consider the incredible human ability to adapt to new, unexpected events and circumstances.

It is perhaps needless to talk extensively about the fact that people’s income and wealth will radically increase and that—as a result—their behavior and structure of their demand for material and nonmaterial goods will change as well, not to speak about the immense technological progress that will occur. We all intuitively feel this is the case, but not all of us draw the right conclusions from it.

In “Costs and Benefits of Greenhouse Gas Reduction,” Nobel Prize-winning economist Thomas C. Schelling (1996) ponders how the world will look in 75 years. To get an idea of what the future might bring, he thought of looking back 75 years, to 1920. Interestingly enough, he says that in 1920—when paved roads were uncommon in the United States—mud was the biggest climate-related problem. Pure mud. Schelling adds, “It might not have occurred to us in 1920 that by 1995 most of the nation’s roads would have been paved solid.” This conclusion is not in any way trivial. I am convinced that as a conceptual construct it can be applied to the whole environmental problem.

What will the world be like in 100 years, assuming the expected economic growth? We do not know, but surely we will be miles away from where we are today. Many “roads will be paved solid.” It is thus a fatal mistake to base our thinking about the situation 100 years from now on the knowledge of today’s technologies and wealth.

One conclusion resulting from the debate about the likely wealth of future society—which is undoubtedly nearly unimaginable for us today—seems rather obvious and easy. There are some essential things that we should not solve on behalf of future generations. Obviously, we are not the first ones to face these decisions. Numerous generations of our ancestors were in the same situation before us, and we should not condemn them on the basis of the knowledge we have today. Does anyone really think that our ancestors in Anatolia should have protected all the local vegetation from being grazed by goats? Should our ancestors have been thinking about us at that time? Could they think about us at all? Were they able to even imagine our present-world?

The well-known Stern Review on the Economics of Climate Change (Stern 2006) prepared for former British Prime Minister Tony Blair, is very pessimistic about the future. It assumes that during the next two centuries per capita consumption in the world as a whole will increase annually by 1.3 percent on average. This figure does not seem that high to a lay person, but even with this seemingly very moderate rate of growth, annual per capita consumption, which is about $7,600 today, would increase to $94,000 in 2200! The figure of 1.3 percent is not my assumption but that of the environmentalists—who are anticipating catastrophes—or, to be precise, it is the assumption of one of their significant representatives.

Vaclav Klaus: "Cheers to the future!"

A relevant objection is, of course, whether this growth will be halted for ecological reasons—by climate factors, for example…. Various economists have tried to estimate the possible effect of climate changes (associated with greenhouse gases) on the growth of world GDP. A well-known and often quoted economic studies of this sort was Alan Manne’s (1996) “Costs and Benefits of Alternative CO₂ Reduction,” which proved that nothing really different will happen if we ignore climate change. If we assign—according to Manne’s calculation—the number 100 to GDP in 1990, the world GDP will approach 1,000 in 2100. Different assumptions will change the estimates by only 1 percent or so! Manne argues that the difference is perhaps as large as if we decided to draw the curve of the GDP growth in the graph with a pencil of hardness 2H instead of 4H. Changes caused by the climate will be only that small! …A more recent paper by Robert Mendelsohn and Larry Williams (2004) confirms the previous calculations. They estimate the influence from global warming on GDP in 2100 at 0.1 percent… “The damages resulting from higher temperatures will not be distinguishable from zero.”

Technological progress will make a radical difference… If we conclude that a risk exists approximately once every 30 years a short circuit in our television causes a fire in our apartment, how should it influence our current behavior with respect to the future? Should we throw away the “dangerous” television set or simply ignore the risk? One possible solution would be to recognize our risk aversion and to calculate the probable risk assessment. We also have to realize that is nearly impossible to assume that a television set as we know it today will exist in 30 years’ time. And that is why the probability calculations made today have nearly no relevance for the future. They are relevant only for the present.

The question of technical progress is crucial. Schelling (2002) [writes], “Ask a seventy-five-year-old farm couple living on the same farm where they were born: would the change in the climate be among the most dramatic changes in either their farming or their lifestyle? The answer most likely would be no. Changes from horses to tractors and from kerosene to electricity would be much more important.” Is it meaningful to assume that such changes will happen also in the future? Or that the dynamics of technological change will not be even more dramatic than they are today?

(Excerpted from pages 29-33)