Thursday, July 12, 2007

The Economy and Climate Change

Credit Agrcole has just put their Eclairages for July on the web with the above title.

The report has an interview with Nicholas Stern, some nifty graphics from Vattenfall and a generally heartening view of costs. Most importantly it has:

In vino veritas
Nowadays, no one would hazard to read the future in the tea leaves—climate models have replaced the empty cup—but everyone is interested in the potential implications of climate change on wine quantity and quality.

First the boring stuff, from page 4:

All told, the total bill can be considered affordable The 27 billion t/yr of emissions avoided, as detailed by Vattenfall, have an average cost of roughly €5/t. To be conservative, if we take 20 USD/t, the total cost would be €540 billion, or US$675 billion, which should be compared with global 2005 GDP of US$44.6 trillion (or US$61.0 trillion in purchasing power parity terms). This is consistent with the order of magnitude of 1% of global GDP, for the cost of fighting greenhouse gases, as calculated notably in the Stern report....

The report ends with this truly terrifying thought: produce the same wines that consumers demand, will they be tempted to move offshore? And how would that affect the muchtouted influence of "terroir" that is France's differentiator in international competition? The prospect is being explored by some Champagne houses, which note that the Garden of England (the southeastern counties of Kent, Sussex, Surrey, and Essex) have south-facing hills and chalk subsoil that make them suitable for sparkling wine production.
Shocking, isn't it?

The whole twelve page PDF is worth a look.
Update: Environmental Economics has some comments on the Vattenfall graphic:

I didn't read the original article, so I'm not sure of all of the broader points being made...

As David points out, the graph raises some interesting questions. If carbon were priced properly, we would expect to see the cheapest abatement technologies utilized first. In fact, based on this graph, there are abatement technologies out there right now--for example better insulation, efficient lighting--that would save money relative to the current technologies. To me that says there must be a reason the market is failing to allocate these resources properly.

Also, according to the graph, the technologies we hear most often for carbon abatement are the most expensive--wind, solar, sequestration. Does that mean we have exhausted the cheaper technologies and are ready to move up the supply curve to more expensive technologies--assuming the demand for abatement intersects somehere to the right of nuclear technologies? Or are we missing low-hanging fruit?

How's that for InstaEconoGraphoAnalysis!