A Scientist’s Lectern. Climate risks of economic growth

Based on the materials of the «Climate risks of economic growth» seminar held by the International Union of Economists (IUE) and the VEO of Russia with support from the UNEP, the UN Information Center in Moscow. Moderator: Academician Alexander Dynkin.

Boris Porfiryev

Director of the Institute for Economic Forecasting of the Russian Academy of Sciences; Academician of the Russian Academy of Sciences; Member of the Presidium of the VEO of Russia

We’ve come a long way over the last 25 years, from the Framework Convention to the Kyoto Protocol to the Paris Agreement which is currently in force. We’ve seen various results and consequences: a significant concern has been expressed both at the international level and by the heads of states; even actual protests have taken place, for instance, in France in connection with the measures that are being implemented to solve the climate problem.

Despite the fact that the process is really controversial and carries with it certain positive changes, I would like in this connection to consider one of its aspects which is linked to climate risks and economic development challenges. Those risks can be divided into two categories. The first category encompasses those environmental and climate-related threats to the life and health of the population and the sustainable functioning of economic systems that are well known and widely discussed in literature, including, first and foremost, the IPCC reports. Then, there’s a second category, which is often downplayed or hushed up. I call it “Climate-related risks” meaning poor decision-making in relation to climate change and its consequences.

I would like to draw your attention to a line contained in the preamble of the Paris Agreement. If I am not mistaken, it’s in the sixth paragraph which usually goes unnoticed. It reads as follows: “…Parties may be affected not only by climate change, but also by the impacts of the measures taken in response to it.” The way I see it, those risks are the most significant, because making wrong decisions, refraining from making a decision or making a poor decision, which is no less dangerous, can lead to much more dire consequences than what we experience today due to climate change, which I will attempt to show later on. In fact, those second-category risks include actions related to both domestic policies pursued by governments with regard to climate change and its consequences for the economy and external factors related to climate policies of foreign countries (the ones considered as centers for decision-making).

I will not be pondering the question Herzen once asked: “Who is to blame?” Our esteemed climatologists, geographers, and climate experts have a pretty good answer. I’d like to examine the question posed by Chernyshevsky: “What is to be done?”

For that matter, what is to be done with the consequences of climate change and, most importantly, the actions of other states and the international community? Obviously, such an approach means, firstly, the need for comprehensive solutions that would call attention to the role of climate risks against the backdrop of many other global challenges. You might recall the UN has formulated 17 sustainable development goals, which, in essence, define the very basic risks and challenges. Whether or not they are formulated correctly is another matter, but they have been formulated, and climate plays a role there.

UN Sustainable Development Goals

No poverty.

Zero hunger.

Good health and well-being.

Quality education.

Gender equality.

Clean water and sanitation.

Affordable and clean energy.

Decent work and economic growth.

Industry, innovation and infrastructure.

Reduced inequalities.

Sustainable cities and communities.

Responsible consumption and production.

Climate action.

Life below water.

Life on land.

Peace, justice and strong institutions.

Partnership for the Goals.

Secondly, we must take the time factor into consideration. There are different planning horizons for economic activities. We understand that decisions can only be planned more or less effectively for 10, 15, or 20 years in advance. In contrast, climate risks may persist for multiple decades, and taking such a long view, even by means of computer simulation, is very complicated, it’s a very serious challenge.

There is one more thing that needs to be considered — real financial, scientific, technological, and employment opportunities. That means we need to compare the cost of the climate problem with other problems and keep in mind how much it will set us back.

Today we have what I may tentatively call the climate mainstream position. It’s a set of views outlined in the IPCC reports and in a lot of publications. What I mean is the so-called low-carbon development paradigm, or, in other words, the new climate economy doctrine. What does it mean?

The starting point is that the problem of climate change has indisputable priority over all other problems, practically no comparisons are possible, and the purely anthropogenic nature of climate change should be assumed.

A strategic solution to the problem has been found in declaring “a war on climate change” (a literal expression directly quoted from an international document). The main goal is stabilizing climate and keeping the global temperature rise below 1.5 degrees (previously 2 degrees) until the year 2100 compared with the pre-industrial era. Implementation method: transition to a new climate economy, to a low-carbon development path. Implementation criterion: transition rate; key indicator: maximum reduction of technogenic emissions of carbon dioxide and other greenhouse gases, a reduction in their absolute volumes. Proposed economic mechanism: the introduction of carbon fees for the abovementioned carbon emissions, primarily in the form of the so-called carbon tax. It’s a general arrangement; in fact, it’s not as strict as it sounds, but I wanted to highlight the main points.

The question is: will such a methodology, such an action strategy, solve two main problems? First, will the trajectory of low-carbon development itself provide a solution to the problem of stabilizing climate until the end of the 21st century? (Stabilization means keeping the global temperature rise below the 1.5 degrees). And second, will it solve the problem of reducing, mitigating risks for man, for economy? Because the main risk associated with climate is certainly not whether or not the global temperature will change, or whether or not the humidity will increase, etc. It’s a matter of living standards and economic conditions. First and foremost, it’s the safety of people.

The Intergovernmental Panel on Climate Change (IPCC) is an organization established to assess the risks of impact of anthropogenic factors on climate change.

The first question has an answer, it is given by the Intergovernmental Panel on Climate Change. There are corresponding calculations, the meaning of which is that a reduction of emissions will not solve the entire problem. It is also necessary to absorb greenhouse gases at a rate of approximately 10 billion tons per year, and also, as long as there are residual risks, adaptation is necessary, which I will discuss separately.

As for the safety problem, considering the main implications of climate risks, the damage associated with hydro-meteorological and climatic disasters, if compared against pollution of air with harmful and hazardous substances, results in fewer deaths than from air pollution by approximately two orders of magnitude, and the economic damage by an order of magnitude. (That’s priorities for you). I do not say climatic or hydrometeorological disasters do not matter or should not be dealt with. Humanity has always been dealing with them, we just need to understand the true magnitude of the problem.

There are other data. Recently, WHO (World Health Organization) published a list of 10 major risks to human health. Air pollution comes first. By 2018, 7 million people were dying prematurely each year from air pollution. According to other sources, while the average annual damage from climatic impacts is estimated at about 0.2% to 2% of the global gross domestic product, the cumulative average annual damage from flu pandemics which occurred multiple times in recent years (and I emphasize, cumulative damage, not only caused by morbidity, but also by mortality, loss of working hours, and so on) is nearly 4% of the global gross domestic product according to the World Bank data.

In this regard, when you look at the latest forecast, an assessment of global risks in terms proposed by the World Economic Forum (the likelihood and severity of the consequences), you notice that the top positions are occupied by extreme weather conditions and dangerous natural phenomena with natural disasters positioned just below. Pollution and related disasters are positioned much lower. As we see, the order of priorities is different, and we still need to arrange them according to the existing criteria. And when they say that climatic disasters are the most dangerous, I cannot agree with that. As a matter of fact, it’s extremely detrimental to solving the climate problem, because in the event of its incorrect evaluation we will also be solving it incorrectly. This is not about underestimating the climate problem, it’s about correctly assessing it. That’s the point I would like to draw your attention to. The effectiveness of the one-track model, which puts all emphasis on low-carbon development, is highly questionable, to put it mildly.

Besides, I would like to draw your attention to the following question: what will happen if we follow that model based on the latest IPCC report presented in 2018, where it relates to keeping below the 1.5 degree threshold?

The calculations which we carried out at the institute by considering the application of the model’s hard and soft variants (the hard variant implies 70% of renewable sources, which include only small hydro, solar and wind sources, while the soft variant includes nuclear power plants) show that by 2045 the economic growth rate will be declining by four tenths of a percentage point per year, the cumulative loss will be 8% of GDP for the hard variant, and 5% of GDP for the soft variant. Given the situation with economic growth in Russia, it’s not the way to go.

What is being proposed? What are we talking about here? Again, when we refer to the effective management of climate risks, what we really mean is that we should consider those risks side by side with all other challenges and risks. Then we would be able to really understand how best to address those problems and how to effectively manage them. There should be a comprehensive solution, a holistic climate policy not limited to greenhouse gas emissions (whereas the low-carbon strategy puts all emphasis on the reduction of emissions).

Still, I urge you to consider the Paris Agreement which puts on an equal footing the problem of reducing emissions, the problem of adaptation, and the issue of greenhouse gases absorption. It seems to me it’s absolutely correct, and it’s extremely important, especially for Russia, given the role of forests which absorb the most carbon, and given the adaptation problem, a problem which will be of paramount importance for Russia in the foreseeable future, no matter what we do to reduce emissions, the more so as we have already spent a lot of money on it.

An important point is the integration of solutions to climate problems into the socio-economic development policy. Such an approach has been used in the climate mainstream, experts are well aware of it, and it would seem it has been properly formulated. But it’s really the other way around: it’s not that the climate problem is being integrated into the socio-economic policy, it’s rather that socio-economic problems are being tweaked in order to solve the climate problem. They say, “You know, if we do this, it will be very good for the climate. And if we do that, it will also be very good, it will help us solve the climate problems.”

Climate mainstream policy is a long-term strategy for the country’s development, which incorporates the goal of fighting climate change.

The pyramid should be turned upside down, the horse should be put in front of the cart. Still, basically, the war on climate change should be a part of solving the problems of economic development — only then will we really have a good solution. It doesn’t mean postponing or denying the climate problem, it means finding effective mechanisms for solving that problem. It is possible only as part of a strategy of sustainable socio-economic development and, first and foremost, economic growth. If there is no economic growth, there are no revenues, no money to solve the climate problem or any other problems, not to mention the exacerbation of social problems.

Before moving on to the conclusion, which directly concerns Russia, I would like to mention China which I consider a good example of what we’ve been dealing with in recent years. China sets an example, and rightly so, as a global leader in addressing climate problems, reducing greenhouse gas emissions, increasing power generation and constructing new renewable energy facilities. It is true, no one questions it. The thing is, it is not the climate problem that China is solving. China says it’s solving the environmental problems that are really important. With 900,000 people dying prematurely from air pollution every year, with 40 million males being infertile, the country is bound to start seriously looking into the problem. There is no doubt China has been brilliantly using its climate policy and climate map. But if we take a closer look, we’ll see that in fact priority has been mostly given to the environmental and economic policies, because China has not been building only renewable energy power plants, it has also been actively constructing nuclear power plants. In terms of nuclear energy, China is currently ahead of all the other countries. Both of the new designs of nuclear reactors are Chinese, and it’s understandable because China has been concerned with issues of strategic importance, which are no less important for Russia, to put it mildly.

So, this is not about some kind of denial but about the correct understanding of the role of the climate problem and the proper approaches to its solution because the challenge is really very, very serious.

The solution seems to be lying in two interrelated areas. First: stimulating economic growth through modernization using the best available resource-efficient technologies which, let me emphasize it, provide better performance, better use of resources in terms of cost reduction and which, therefore, are also more viable economically. According to the Ministry of Industry and Trade estimates, the demand for such technologies is over one trillion rubles a year.

On a separate note, I would like to touch upon nuclear energy development. It’s not only a matter of climate and ecology. We are well aware that it’s an inseparable part of the military-industrial sector. Besides, the nuclear-industrial complex is the source of leading-edge technologies that are essential for addressing the strategic issues of our scientific and technological development.

Now for the institutional measures. Today, when the question of energy efficiency has rightly come to the fore, I would like to emphasize that, first of all, it’s all about reducing energy consumption. I believe the real sector should prioritize the problem of energy productiveness, i.e. the pyramid must be turned upside down again. The most urgent task is one of increasing production per unit volume of fuel used or per unit of emission volume expressed in terms of what may be called carbon efficiency. In itself, emission reduction does very little as Russia’s experience of the 1990s has shown.

As for carbon efficiency, i.e. production of GDP per kilogram of emissions, in Russia it fell from $1.31 in 1990 to $1.18 in 1998. It would seem the reduction was due to the crisis, but in fact the result was insignificant because all the economic indicators sharply deteriorated. And in this sense, of course, carbon efficiency should be used as the basis of our commitments.

Let me remind you that China and India have made commitments under the Paris Agreement to reduce emissions per estimated unit growth of GDP. By 65 and 35%, respectively. But Russia has made its commitments in absolute terms without tying them in with our economic growth. Yes, all the models predict we will fulfill those commitments in a timely fashion, no doubt, but the fact is that if the rate of economic growth will be going up fast, we may face certain problems after 2025-2030. We have not established a strong connection between our commitments and economic growth, but I believe we must establish such a connection.

The second area is drafting an active environmental policy to prioritize reduction of air pollution. I believe the emphasis should be placed on environmental protection. Along with environmental protection, along with reducing pollution of air with hazardous and harmful substances, it is also necessary, as a positive externality, to ensure reduction of those emissions that affect the climate. According to calculations, such substances, which, by the way, are substantially carbon-related (of course first of all we are talking about the likes of suspended particles or methane, which is considered a pollutant), account for nearly 30% of the greenhouse effect. It means that by imposing strict limitations on them we will make a strong contribution to the solution of the climate problem.

And, of course, we need to focus on best available technologies, as I have already mentioned. Of the 4 trillion rubles that are allocated to the national project «Ecology», 60% will be allocated to best available technologies. Today they encompass 29 production and agriculture sectors, so focusing on them is extremely important. A number of calculations have been performed, particularly by the International Energy Agency, which show that up to 40% reduction in CO2emissions can be achieved through such energy efficiency technologies.

And, of course, institutional measures must be taken: strict limits and emission standards should be introduced.

In conclusion, I would like to emphasize once again that, in my opinion, solving the important climate problem, which really is one of the global challenges, requires properly positioning both the cart and the horse: priority should be given to economic growth subject to stringent environmental limitations, and it will provide adequate resources for solving climate problems. Based on experience, such programs can yield a serious multiplicative effect.


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