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A significant error in Ed Miliband’s demands about climate change

Summary:
Leave aside the more general background concerning climate change and consider just this point from Ed Miliband:This is not simply failing to protect us from the biggest long-term threat we face; it’s economically illiterate too. The case for investing now is not just clear as a question of intergenerational equity, it’s also the only conclusion to draw from a hard-headed fiscal analysis of the costs and benefits. The Office for Budget Responsibility tells us that the costs of acting early are surprisingly small relative to our national income – in the central scenario, an average annual investment in net terms of just 0.4% of GDP between now and 2050.Meanwhile, we know that inaction is entirely unaffordable, leaving massive costs of climate damage racked up and left for future

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Leave aside the more general background concerning climate change and consider just this point from Ed Miliband:

This is not simply failing to protect us from the biggest long-term threat we face; it’s economically illiterate too.

The case for investing now is not just clear as a question of intergenerational equity, it’s also the only conclusion to draw from a hard-headed fiscal analysis of the costs and benefits. The Office for Budget Responsibility tells us that the costs of acting early are surprisingly small relative to our national income – in the central scenario, an average annual investment in net terms of just 0.4% of GDP between now and 2050.

Meanwhile, we know that inaction is entirely unaffordable, leaving massive costs of climate damage racked up and left for future generations.

This assertion is wrong because it’s economically illiterate.

It’s assuming static technology and the truth is that we live in a world where technology - and the prices for the different variations of it - changes.

Again, stay within the logical structure Miliband is using. There are costs in the future to climate change. There are costs today to avoiding that future. If technology - and therefore those avoidance costs - is static then yes, it could be true that action now is desired. But if technology is changing then this equation changes. It is possible - possible only - that the reduction in costs of the avoidance by delaying a year is greater than the damages from the delay as the price of the necessary technologies declines in that year.

For example, it is said that the costs of solar power decline by 20% a year. Alternatively that they have declined by 80% in this past decade. Well, OK, so imagine that we’d carpeted the country with solar panels a decade ago or waited until now to do so. The cost of the move to solar power would be 80% lower through that decade of delay. The costs of the damages in the future through that delay would be?

We do in fact know, or at least can estimate, those climate damage costs of delay. A decade back solar power was not price competitive even adding the social cost of carbon to the fossil fuel alternatives. This is why those amazingly high feed in tariffs. Therefore the gain from the delay caused price reductions is greater than the costs from said delay.

The point here is the logical one, that doing everything now is necessary - or even desirable - just is not true. The prices of those fossil fuel alternatives are changing. Therefore the optimal amount of them is changing too. We’ve even a very large report explaining all of this in detail, the Stern Review. The very place that Mr. Miliband oft claims to gain his proof for the necessity of action from. We suggest he goes read it again with perhaps more attention to detail this time.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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