Costing the climate

Economic motives rather than ethical concerns will be ultimately what prevents runaway climate change, argues Dr Sam Fankhauser (pictured), an economist based at LSE's Grantham Institute on Climate Change and the Environment.

In a new short film produced as part of the Big Ideas series* for The Independent's website Dr Fankhauser explains that he doesn't believe that we can prevent the worst effects of climate change on a voluntary basis.

He argues: 'There needs to be price signal to get people to change their behaviour. This can be achieved by putting a cost on carbon emissions - either through a carbon tax which is politically difficult because of the word "tax" - or through a cap-and-trade system such as carbon trading.'

The UK has had an emissions trading scheme since 2002 and the EU since 2005. Companies are allocated a set allowance of greenhouse gases they can emit. Trading allows companies to emit more than their allocation by purchasing allowances from the market. Similarly, a company that emits less than its allocation of allowances can sell its surplus allowances. This approach gives companies the flexibility to meet governmental emission reduction targets in their own way.

Dr Fankhauser says: 'The market is worth $100 billion and is growing very fast - nearly doubling every year. It's very exciting. You get people from the City involved who don't necessarily care about the climate but care about money and, because of this, they are doing their bit.'

Some argue that this is a cynical way to go about tackling climate change and lets developed nations off the hook because they can buy credits from the developing world.

Fankhauser says in defence of market driven approach: 'Climate change is one of those problems where the atmosphere doesn't care where the emissions are reduced. So we can really do it in the place where it is easiest to do.

'And in many instances it's cheapest to do it here in the UK with things like improved energy efficiency. But there are also very cheap options that we can do in developing countries such as reducing deforestation or improving industrial energy efficiency. Why should we spend $1 and get half the emission reduction by doing it here if you can get more bang for your buck somewhere else?

'Also there's a certain North-South flow of money that is beneficial to the South if it's structured well, as well as being beneficial to the North.

'At the end of the day there's a lot of things we have to do at home. We can't reduce emissions by 80 per cent by 2050, which is what the government has committed to do, and not do anything at home.'

According to Dr Fankhauser, the recession may actually present an opportunity to invest in climate friendly projects: 'Everybody talks about fiscal stimulus - the idea of investing and stimulating the economy through public sector investment. And lot of these investments can be green investments. For example, improving energy efficiency and investing in renewable energy are things that, if they are structured well, can give the economy a boost. These are things that have to been done. It is not a question of doing them or not doing them, but of doing them today or tomorrow. It could be argued that, at the moment, certain jobs are cheaper because there's more labour around than in a period of boom.'

You can see the film at Video and audio channels


* The Big Ideas series is produced by LSE in conjunction with Robin Powell, a freelance journalist for Sky News and The Politics Show on BBC1, and a director of Ember Regis. The company is a pioneer in the field of internet television and produces high-quality video content for a range of private and public sector clients and for all the major UK broadcasters.

18 February 2009