_ Yuri Kofner, economist, MIWI Institute. Munich, 4 December 2021.
The aim of this analytical is to give a short summary of the new book by renown climate economist Bjorn Lomborg – “False Alarm: How Climate Change Panic Costs Us Trillions, Hurts the Poor, and Fails to Fix the Planet” (2021), mainly chapters 4 and 5.
Following the structure of Lomborg’s book, the analytical note first investigates past and future global extreme weather trends and if they are related to global warming; then looks at the past and future economic and human costs of global warming; before finally examining the economic costs of climate mitigation efforts. The author ads to Lomborg’s argumentation by bringing in examples and research results on the effects of climate change on Germany and the country’s climate policy.
Extreme weather? Rather extreme exaggeration.
In chapter four, Bjorn Lomborg persuasively and based on research evidence shows that over the past 20th century and the beginning of the 21st century, extreme weather events, such as droughts, floods, wildfires, and tropical storms, have increased neither in intensity nor in frequency. They might partially do so within the next 80 years. However, and most importantly, there is little scientific evidence for a significant human influence on the frequency or intensity of extreme weather events.
Researchers from the IPCC state that “there is low confidence in attributing changes in drought over global land areas since the mid-20th century to human influence (i.e., to human CO2-emissions, – Kofner)”.
They also argue that the risk of droughts in already dry areas might increase by the year 2100 only in scenarios of unrealistically high global carbon emissions.
Research on water management (reservoirs and irrigation) from California show that drought deficit can be reduced by 50 percent (reservoirs) or almost doubled (extensive irrigation). Thus, climate adaption would be much faster and more effective in dealing with droughts, than trying to change global CO2 levels.
Climate researchers from the IPCC conclude that there is “a lack of evidence and thus low confidence regarding the sign of trend in the magnitude and/or frequency of floods on a global scale” in the 20th and early 21st centuries.
They argue, that “streamflow trends since 1950 are not statistically significant in most of the world’s largest rivers” and that more streamflows are decreasing than increasing.
The US Global Change Research Program states that cannot find detectable changes in flooding magnitude, duration, or frequency. It also states that it cannot attribute changes in flooding to atmospheric CO2 levels.
IPCC researchers do expect the frequency of heavy rains to increase by 2100, which will lead to increased flooding hazard. However, they also state, that changes in river management will have a much more significant effect on future flooding trends.
Relative damage from flooding has decreased over the past century. E.g., although between 1903 and 2018 average housing density increased 7.5 times in the United States, during the same period the average flooding damage decreased from 0.5 percent of GDP to only 0.05 percent of GDP.
German politicians, especially from the left-green spectrum, were quick to blame the 2021 flooding in West Germany on man-made climate change. However, between 1881 and 2021 the German Weather Service cannot identify an increasing precipitation trend during the summer months. According to a recent report by the German Federal Environment Agency, floods in the catchment area of large German rivers have not become more frequent between 1961 and 2017.
Globally, floods have not become any more deadly either. Despite the growing world population, the average number of deaths worldwide after reported floods did not increase between 1988 and 2016. The researchers cite a functioning disaster control system such as modern early warning systems as the reason for this.
Again, according to Lomborg, adaption to climate change in the form of proactive river management and disaster control are much more effective in reducing future flooding hazards than costly carbon abatement policies.
Sedimentary charcoal records beginning two thousand years ago show that global burning has declined sharply since 1870.
Between 1901 and 2007 the global amount of area burned has declined more from 1.9 million to 1.4 million square miles.
According to a simulation model, between 1900 and 2010 global annual burned area decreased by a third.
A US-American study from 2017 found that where humans are present, climate is less important in determining fire activity. It found that significant human presence, such as closeness to towns and roads, the number of people living in an area, and the amount of land developed, can “override, or swamp out, the effect of climate.”
Between 1966 and 2017 damage from wildfires in Australia, adjusted for housing density and value at risk, has been decreasing slightly.
According to an unrealistically worst-case high global warming scenario the burned area worldwide is modelled to increase by 8 percent in 2050 and 33 percent in 2100 compared to the year 2000; but even in 2100 this would still be less than the total area burned in 1950.
Direct adaptation measures, Lomborg argues, such as more foresighted land-planning management, stricter insurance policies and better fire management will be more effective in reducing damages from wildfires than costly and very indirect carbon abatement attempts.
Observations show that neither the frequency nor the intensity of continental US landfalling hurricanes increased between 1900 and 2017.
On a global scale, over the 20th century hurricanes have not become more frequent. There is “no significant observed increasing trend in global tropical cyclone frequency”, the IPCC (2013) report states.
It also states that there is low confidence in attributing changes in hurricane activity to increased anthropogenic carbon-dioxide emissions.
According to researchers from the US National Oceanic and Atmospheric Administration, between 1880 and 2010 “the historical Atlantic hurricane frequency record does not provide compelling evidence for a substantial greenhouse warming-induced long-term increase”.
Growth in coastal population and regional wealth are the overwhelming drivers of observed increases in hurricane-related damage. Adjusting hurricane-related costs for housing density and wealth in the coastal areas of the United States, Australia and China show that these costs have not increased between 1900 to 2019.,
Climatologists from the IPCC forecast hurricanes to become fewer but stronger in the future due to global warming.
In 2016, the global cost and damage from hurricanes was 0.04 percent of global GDP. World GDP will quintuple by the year 2100, but resilience to natural disasters will also improve. Without global warming, damage from hurricanes will account for 0.01 percent of global GDP in 2100, with global warming – 0.02 percent. This means that although global warming will double the nominal hurricane-related costs, the real costs in comparison to the gross domestic product will be twice lower than today.
Lomborg here again states that increasing adaption efforts, such as “building codes, flood maps, infrastructure, and insurance in at-risk communities” will be much more effective in reducing the negative impact of tropical storms, than CO2-related climate mitigation efforts.
Global warming costs shrink and are not “the end of the world”
Next, in chapter 5, Lomborg goes on to demonstrate that the humanitarian and economic costs of global warming have been decreasing significantly over the past 120 years. Based on results of a meta study he then shows that future global warming will not entail the end of the world, but that its costs will be rather manageable.
Past climate-related deaths and economic costs
Using data from the EN-DAT database, Lomborg shows that from the 1920s to the 2010s the overall number of climate-related deaths decreased by 96 percent from almost 500 thousand per year on average to less than 20 thousand per year on average. Adjusted for the fourfold increase of the world’s population during the same period “average personal risk of dying in a climate-related disaster has declined by 99 percent”.
Using data from the Munich Re insurance group and the World Bank, Lomborg shows, that the average global weather-related disaster costs as a share of global GDP declined from 0.26 percent of global gross domestic product in 1990 to 0.18 percent of global GDP in 2019.
Another study confirms the clear decreasing trend in both human and economic vulnerability from climate-related hazards, with “global average mortality and economic loss rates that have dropped by 6.5 and nearly 5 times, respectively, from 1980–1989 to 2007–2016”.
Economic costs of future global warming
A meta-study by the famous Nobel-prize-winning climate economist William Nordhouse (2017), which gives the best fit estimate for 39 research studies on climate-related economic costs, shows that a rise in global average temperature by 2 C° (compared to the average global temperature in “pre-industrial times”, i.e., 1850-1900) will decrease global GDP by 2.04 percent and a temperature rise of 4 C° will decrease global GDP by 3.64 percent. To put this into perspective: Compared to 2010, global GDP is estimated to grow between 3.1 and 9.1 times by the year 2100. Thus, if the global average temperature increases by 4 C° by the year 2100, then global GDP will grow “only” between 3 and 8.7 times, respectively.
The IPCC report (2018) estimates that the “business as usual” worst case global warming scenario will cost the world economy 2.6 percent by the year 2100.
It should be noted here that there are several studies that ascribe positive economic effects to global warming. For example, the much cited, but also much criticized study by Tol (2002).
The case of Germany: climate cost or climate benefit?
The economist Jörg Guido Hülsmann (2020) assumes that the advantages of global warming could outweigh its disadvantages. These positive effects of global warming are likely to become particularly noticeable in the northern hemisphere.
E.g., according to a gravity simulation by the Dutch Office for Economic Policy (CPB), the opening of the Arctic North Sea Route thanks to thawing of the north pole ice sheets will increase Germany’s GDP by almost 0.3 percent. A German study estimates that global warming and the CO2 fertilization effect will improve domestic crop yields and thus increase Germany’s net agricultural income by 5-6 percent in 2040. That would correspond to an increase in German GDP of 0.1 percent.
The right policy mix? Mitigation, adaptation, innovation.
A recent joint study by 17 leading research centres around the world concluded that in 2030 the mean worldwide CO2-abatement cost will be between -0.5 (current Paris pledges) and -1 percent of global GDP (long-run Paris temperature goal). According to the study, compliance with the CO2 reduction targets will reduce German GDP in 2030 by 1 to 1.5 percent.
The case of Germany: mitigation, adaptation, or innovation?
According to calculations by IfW Kiel, in 2019 Germany had the second highest net carbon price worldwide – on average 55 euros per ton of CO2 (471 euros per capita). By 2030 this price might reach 115 euros per ton of CO2 (between 606 und 981 euros per capita in 2030).
The MIWI Institute and the öko-Institute estimate the overall tax burden on Germany’s economy for the purpose of climate mitigation between 47.1 and 54.6 billion euros per year on average respectively (as the sum of: national CO2 levy, EEG surcharge and German share of the EU ETS). This amounts to between 1.4 and 1.6 percent of Germany’s gross domestic product in 2019 or between 570 to 660 euros per capita yearly.
A new comprehensive study on behalf of KfW Bank quantifies the amount of German climate protection investments, i.e., the sum of state (including subsidies) and private investments for the goals of CO2 neutrality, including, for example, for e-cars, the expansion of renewable energy generation and for the conversion of the German industry, etc., at around 119 billion euros per year (1430 euros per capita) or 3.1 percent of national GDP.
In order to achieve the federal government’s goal of “climate neutrality” by 2045, according to the study model, a further 72 billion euros must be invested annually for climate protection purposes, a total of 191 billion euros per year (2300 euros per capita) or 5.2 percent of German GDP.
It is evident that the welfare costs of the carbon abatement measures should not exceed the economic costs of global warming, which one tries to avoid by doing so. But is Germany indeed spending too much money on climate mitigation (CO2 reduction) efforts?
One way of determining this would be to compare the long-term growth trend of the German economy (e.g., until 2050) in two scenarios. First, in a “business as usual” scenario, with the possible economic advantages and disadvantages of global warming (-3.64 percent of global GDP by 2100 according to Nordhaus). Since its effects would be unevenly distributed around the world, they, as suggested above, could even prove to be net positive for Germany, which is situated in the northern hemisphere.
Moreover, as Lomborg has shown throughout the book, this scenario needs to include a cost-benefit analysis of climate adaption measures, such as better river management, in order to adequately reflect the reduction in climate change costs.
Second, in a “climate neutrality” scenario, which takes into account the effects of the above-mentioned climate tax burden and climate protection investments on German GDP growth. Although many proponents of the “green transformation” rate its effects with a positive sign, there are also more sceptical economists. Stefan Kooths, the new co-president of IfW Kiel, argues that the decarbonisation measures of the federal government have a substitutive rather than a multiplicative character. This suggests that climate taxes and investments have long-term growth-stifling effects. Much will depend on how much of these national costs and investments can be turned into productivity-enhancing innovations, and how much the global market for green technologies and carbon abatement will grow in the future.
If one aims to cut CO2 emissions, then one should do it in the most efficient and cost-saving way, i.e. how and where it is the cheapest.
Thus, the average avoidance price per tonne of CO2 for China is estimated to be only 5 euros (51 euros per capita) in 2019 and 10 euros (95 euros per capita) in 2030, i.e., around 10 times lower than in Germany.
Implementing a worldwide emissions trading system would reduce the carbon abatement costs for Germany by a third or a half.
Creating a global “climate fund” – a proposal put forward by the German economist Ulrich van Suntum in the MIWI Institute – would be another good instrument to encourage carbon-intensive developing and emerging countries to implement a CO2 reduction policy, since they would receive financial transfers from the fund for their carbon reduction efforts. Through financial transfers to the fund, Germany could save the same targeted amount of carbon emissions much cheaper than it currently trying to achieve through national efforts.
Among other things, Lomborg regards innovations in nuclear power, i.e., in reactor research of the 4th and 5th generation, as well as in nuclear fusion, as one of the most important incentives for effective, reliable and inexpensive incentives to save carbon emissions.
Indeed, a comprehensive cost comparison by Blümm (2021) has shown that, at 2.7 c / KWh, extending the service life of paid nuclear power plants by one to two decades is the cheapest way of generating electricity in Germany.
An analysis by the MIWI Institute has shown that nuclear energy has the greatest price-reducing effect: an increase in the share of nuclear power plants in the generation mix by 1 percent lowers the average electricity price for non-household consumers by 1.36 euros per MWh.
In his book Lomborg uses evidence-based studies to demonstrate clearly and logically that climate alarmism has no scientific foundation and that governments should not fixate on climate mitigation efforts. The human and economic costs of climate-related extreme weather events have been drastically reduced over the past 120 years and will remain manageable over the next 80 year, i.e., at 3.64 percent of global GDP. A much more efficient and promising approach would therefore be an “innodaption” policy mix focussing on adaptation measures (e.g., better water management, land planning, insurance policies, etc.) and the promotion of innovation through financial and administrative support for research and development of new green technologies in a technology-neutral way.
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