r.i.c.e.

Two pieces of news today.  First, a new paper in PNAS by Francis Dennig,  Mark Budolfson, Marc Fleurbaey, Asher Siebert, and Robert H. Socolow: Inequality, climate impacts on the future poor, and carbon prices.  It is available for free at that link.

Economists use computer models to figure out how policy today should optimally take into consideration the threat of climate change making people worse off in the future: it's obvious that we should reduce our carbon emissions, but by how much?  How much of the economic benefit that people enjoy today should be sacrificed to prevent harm in the future?

What Dennig and coauthors realized is that the leading models of climate policy treat everybody living in a place the same way, and therefore don't incorporate the likelihood that climate change could hurt poor people most.  If it is true that climate change will hurt the poor the most, they show, then governments today should be doing even a lot more to prevent climate change than we thought.

The second is a piece of mine published today in Business Standard: Preventing climate change is pro-poor.  I review a recent book published by the World Bank -- Shock Waves: Managing the Impact of Climate Change on Policy  by Stephane Hallegatte and coauthors (that's a link to a PDF of the whole book) -- with special attention to policy in India.

I'll post my review below, but first I wanted to ask readers a question about this article in today's New York Times: Beijing, With Red Alert for Smog in Full Force, Closes Schools and Limits Traffic.  Evidently Beijing is essentially shut down with an air quality index of 308.  That number is awful, and a serious response is appropriate.  But since we at r.i.c.e. got our own air quality monitors and started measuring, we have found worse air quality here in Delhi routinely and in our house. Although our meter is elsewhere, on an air quality measurement yatra, I don't doubt that is true today, too. My question is: why are powerful people in Delhi, whose families cannot be protected from this harm, not responding in democratic India with the same outrage now seen in China?

***

Preventing climate change is an economic priority for India's poor

In some circles in India, the World Bank has a bad reputation for acting in the name of the poor, but in the service of the global business elite.  Anyone who believes that this is always the case should read the important new book Shock Waves, by Stephane Hallegatte and coauthors, published by the World Bank and freely available online.  Shock Waves establishes an urgent thesis: preventing destructive climate change is a policy priority for the world's poor.  The world's progress against poverty would be seriously set back by climate change -- which is likely to hurt the poor most.  Reducing the chances of a climate disaster is both feasible and pro-poor, and can be done without sacrificing human development.

In a world where opposition to preventing climate change is closely tied to business interests, some readers may be surprised to read a prominent book by international economists arguing that "the key finding of the report is that climate change represents a significant obstacle to the sustained eradication of poverty, but future impacts on poverty are determined by policy choices." But this should be no surprise, because the economics is clear.  Shock Waves is valuable for its careful compilation of this evidence, especially on two points.

First, climate change will hurt the world's poor people and the world's fight against poverty.  "Ending poverty will not be possible if climate change and its effects on poor people are not accounted for and managed in development and poverty-reduction policies."  Poor people are vulnerable to natural disasters and to the heat.  Climate change will hurt the health and economic productivity of the poor much more than it will hurt a computer worker in an air conditioned office.

Second, there is no essential trade-off between preventing climate change and alleviating poverty: "Many recent studies support the idea that providing those who are currently extremely poor with access to basic services would not jeopardize climate mitigation." Part of this is because achieving human development outcomes are not first and foremost about spending money -- as is demonstrated in the terrible gap between India's economic growth and its infant health.

Some people worry that India cannot afford to contribute to avoiding climate change, and it is certainly right to be concerned about achieving human development in India.  India lags behind its regional neighbors and other poorer countries on many important measures of human development: neonatal mortality, open defecation, maternal nutrition, child stunting.  But GDP growth through building more coal plants is not the way to solve these problems, as demonstrated by the simple fact that so many poorer countries do so much better than India on these measures.  To be sure, long run economic growth in India requires energy, and preventing climate change will raise the money price of that energy.  However, economists have taken this into consideration when they conclude that, all things considered, carbon-intensive fuels are more expensive when all costs are counted for all Indians, especially future Indians and today's poor.

Fueling growth through burning coal or other carbon-intensive strategies does not make economic sense.  Of course, coal costs less money than other energy options to the people who buy it, but this ignores costs imposed on other people.  The first lesson on the first day of the introductory economics class that I teach policy students is that public "costs" do not just mean money -- they means everything that society sacrifices.

Any economics textbook would agree: not all costs are money.  If India is going to avoid climate change that is going to hurt all future Indians -- especially the poor -- then its policy makers must consider the full social costs of burning coal -- not just the money costs paid by businesses and some people.  As Shock Waves shows, doing so is feasible, is pro-poor, and makes economic sense.

Switching away from coal would eventually cost Indians less suffering overall, but it would cost more money in the short run.  Shock Waves is clear on this point, too: it is entirely appropriate that such money costs should be borne by richer people rather than poorer people within developing countries, and mainly by people in richer countries.  But there is no international government that can force such cost-sharing, and unfortunately the average person in India will be hurt much more than the average person in North America if such an international deal does not occur.

So, successfully negotiating such a deal takes us out of the clarity of the economics of climate change and into politics.  If India were to be a leader in a serious international coalition involving the rest of the world, perhaps politicians and business interests in the U.S. could be compelled to cooperate.  For example, it is possible that an international trade regime, with India among its leaders, that uses tariffs to punish polluting countries outside of the coalition could be successful.  But assembling this coalition may require demonstrating a willingness to make reasonable and appropriate domestic emissions cuts.

Shock Waves does not consider the politics of such an agreement.  It sticks to the unambiguous conclusions of public economics: climate change would be a disaster for India's poor.  These are real social and economic costs, which no policy maker pursuing the public interest can ignore, or attempt to conflate with the money costs to some private individuals or business.

Perhaps as much as any in other large country, it is in the people of India's interest that climate change be averted.  This can be done without derailing human development priorities, and should and could be relatively easily funded by the world's rich, some of whom are also India's rich.  This would require a smart and ethical global deal, if politicians can reach it.  India's leaders have the power to hurt the whole world by obstructing such a deal -- but doing so may well hurt future poor people in India most of all.