The Treatment of Economic Issues by the Intergovernmental Panel on Climate Change
Issues relating to climate change, and to the choice of
policies for dealing with it, are now highly topical. In Britain,
both the Prime Minister and the Leader of the Opposition have
recently emphasised the urgent need for measures to limit greenhouse
gas emissions, and Mr Blair has stated his intention to place
this issue high on the agenda of the coming G8 summit meeting.
In this context, readers may be interested to hear of some recent
exchanges relating to economic aspects of these issues. Aside
from their intrinsic interest, the exchanges raise wider questions
as to the role of economics and economists in the policy process.
David Henderson, formerly (among other things) Head of the Economics
and Statistics Department of the OECD, and now Visiting Professor
at the Westminster Business School, has been one of the participants
in the current debate. This is his personal report.
The Intergovernmental Panel on Climate Change (IPCC) is a joint
subsidiary of two international agencies, the World Meteorological
Organisation (WMO) and the United Nations Environment Programme
(UNEP). It was created by the member governments of these two
agencies in 1988. Since then it has produced three full-scale
Assessment Reports, issued respectively in 1990, 1995 and 2001.
Work is now in progress on the Fourth Assessment Report (AR4),
which is due in 2007.
The Panel operates through three Working Groups. WGI is concerned
with scientific aspects of climate change, WGII with the prospective
impacts of such change and ways of adapting to it, and WGIII with
mitigation of the impacts. Each of the Groups produced its own
report as part of the Third Assessment Report. Alongside them
was the Special Report on Emissions Scenarios (SRES), prepared
for WGIII, which provided in particular a range of projections
of greenhouse gas emissions, covering the period from 1990 to
2100. Between them these four reports make up some 3,300 pages
of text. Their preparation involved a small army of participants---authors,
contributors, reviewers, and commentators---with delegates from
member governments closely involved in the final stages of revision.
Collectively, these participants make up what may be termed the
An economic dimension
In an official document headed 'Principles governing IPCC work',
which can be viewed on its website, the role of the Panel is specified
... to assess on a comprehensive, objective, open and transparent
basis the scientific, technical and socio-economic
information relevant to understanding the scientific basis
of risk of human-induced climate change, its potential impact
and options for adaptation and mitigation. (Italics added).
Thus the responsibilities of the IPCC include that of advising
and informing its member governments on the economic factors that
may bear on 'human-induced climate change'.
The economic aspects are sometimes viewed as incidental or
peripheral. For example, in a recent exchange in the House of
Lords (15 July 2004) Lord Whitty, replying for the government
to a question put by the former Chancellor of the Exchequer, Nigel
Lawson (now Lord Lawson of Blaby), said that
... the scientific basis for, and the physical effects of,
climate change are virtually unchallenged by any serious scientists.
The economic calculations are subject to some degree of dispute.
I am happy to urge people to engage in discussing these questions,
but they do not undermine or threaten the basic conclusion that,
unless we do something, this world will get dangerously warmer.
This is a misleading statement. For one thing, economic considerations,
and criteria, are relevant to deciding what form the 'something'
that 'we do' should take. For another, projections of global warming
are based on projected atmospheric concentrations of CO2,
which in turn are based on the projections of CO2
and related emissions which emerge from the SRES; and the emissions
figures themselves are linked to SRES projections of world output,
world energy use, and the carbon-intensity of energy sources.
In these latter projections economic factors are central. True,
they act in conjunction with demographic and technical factors,
but these are themselves subject to economic influences. If and
in so far as the treatment of these latter influences is open
to question, the basis for IPCC projections of global average
temperature changes cannot be taken as assured.
Given its unavoidably close involvement with economic issues,
it is worth inquiring how and through what mechanisms the IPCC
has chosen to deal with them. What is the role of economics and
economists in the production of IPCC reports? Is there scope for
improvement here? For me, recent personal experience has thrown
some light on these questions.
A critique and
Over the past two and a half years or so, I and a co-author---Ian
Castles, formerly Head of the Australian Bureau of Statistics---have
put forward a joint critique of economic aspects of the work of
the IPCC. While our main single target has been the SRES, our
concerns extend to the IPCC process and milieu as a whole,
including the Panel's sponsoring departments and agencies.
Moreover, we have gone beyond criticism, by putting forward proposals
The main heads of our critique of the SRES can be summarised
- For the base year of 1990 it compares real GDP across countries
on the basis of market exchange rates (MERs), rather than purchasing
power parity (PPP) converters. These comparisons greatly overstate
the differences in GDP per head between developing regions and
OECD member countries.
- It gives a misleading account of the factors that bear on
the choice between MERs and PPPs, and of the implications of
such a choice.
- It builds in, for reasons that are open to question, rapid
convergence in GDP per head between developing regions and OECD
member countries. By thus assuming the substantial closure of
a greatly overstated initial gap, it arrives at projections of
output and GDP per head for developing regions which are higher
than they would have been if the 1990 starting point had been
correct, and high by comparison with other projections
- As a result, total projected world GDP is pushed up; and
this in turn is reflected in higher projected emissions. Hence
even the scenarios which show the lowest cumulative emissions
over the present century do not in fact represent lower limits.
The SRES projections do not, as is claimed for them, adequately
encompass the full range of uncertainties about the future.
Our critique thus covers not only the results of the
exercise, in the form of specific projections of emissions, but
also the approach, the analytical basis of parts of the
Our arguments have been strongly
contested by authors who were involved with the SRES. Interested
readers are referred to a series of articles that has appeared
in recent issues of the journal Energy and Environment:
the first four of these---two on each side---comprise the exchanges
between us and the SRES authors, and three further articles have since appeared.
[FN 1] Those who would prefer to
invest considerably less time can be recommended, first, to two
articles from the Economics Focus page of The Economist (15
February and 8 November, 2003), which weigh in on our side, and
second, to an official press release issued by the IPCC in December
2003 and now posted, in a somewhat less impolite form than the
original version, on the Panel's website. This latter document
is concerned to expose our critique as baseless. Among other things,
it states that 'In recent months some disinformation has been
spread questioning the scenarios used by the IPCC'; and it refers
to Castles and me as 'so called "two independent commentators"'.
Along with our critique, our suggestions for change have been
rejected by the Panel. The main proposals that we
have made are three:
- That the SRES, because it is open to serious criticisms,
should not be taken as the basis and starting point of AR4: an
alternative and firmer basis should be sought, through less elaborate
and more short-cut procedures than those of the SRES.
- That in assessing possible future developments in the world
economy, and ways of projecting them, the involvement of economic
historians and historically-minded economists should now be ensured---for
the first time.
- That more generally, and going well beyond scenario-building,
the IPCC process should be broadened, in particular through the
active involvement, first, of national statistical offices in
member countries, and second, of ministries of finance and economics.
As to the first of the above suggestions, the IPCC has determined
that 'the SRES scenarios provide a credible and sound set of projections,
appropriate for use in the AR4'. As to the other two, the Panel
and its member governments appear as fully content with the present
established procedures and arrangements for participation. The
opening paragraph of the press release referred to above says
of the IPCC that
It mobilises the best experts from all over the world, who
work diligently on bringing out the various reports,,, The Third
Assessment Review of the IPCC was released in 2001 through the
collective efforts of around 2000 experts from a diverse range
of countries and disciplines. All of IPCC's reports go through
a careful two stage review process by governments and experts
and acceptance by the member governments composing the Panel.
In relation to economic aspects,
there is good reason to question the claims to authority and representative
status that the IPCC makes on its behalf. [FN
2] Those of us who are sceptics do not question the numbers
of those involved, their diligence, or the existence and observance
of formal review processes. But we think that when it comes to
the treatment of leading economic issues, the milieu is neither
fully competent nor adequately representative. We also hold that
building in peer review is no safeguard against dubious assumptions,
arguments and conclusions if the peers are all drawn from the
same restricted professional milieu. [FN
A leading illustration of our case (it is not the only one)
is the issue of MERs versus PPPs. Here the internationally agreed
System of National Accounts (SNA), which dates from 1993, gives
unambiguous guidance. In its opening chapter, it specifies (paragraph
When the objective is to compare the volumes of goods or services
produced or consumed per head, data in national currencies must
be converted into a common currency by means of purchasing power
parities and not exchange rates ... Exchange rate converted data
must not ,,, be interpreted as measures of the relative volumes
of goods and services concerned.
Despite this ruling, misleading MER-based international comparisons
have been uncritically made, not only by the SRES, but also in
the reports of both WGII and WGIII; more recently, in a report
issued by UNEP; and more recently still, in a document prepared
for an IPCC-sponsored conference by one of the three current Vice-Chairs
of the Panel. It seems probable that not one of the many participants
in these various proceedings had heard of the SNA, and it is not
referred to in either the text of the SRES or its 17 or so pages
In the context of national accounts, there is a specific error
in the SRES which, though only incidental, shows that mere numbers
are no guarantee of representative status. On p. 115 of the Report
the concept of GNP---now more usually referred to as GNI---is
wrongly defined. This basic error was not picked up by any of
the 53 authors, 4 review editors and 89 expert reviewers who are
listed as participants in the preparation of the SRES.
In the IPCC press release referred
to above, the statement is made that 'the economy does not change
by using a different metrics (PPP or MEX), in the same way that
the temperature does not change if you switch from degrees Celsius
to Fahrenheit'. This assertion could be interpreted in different
ways, but on any interpretation the analogy appears as false.
Admittedly, not all economists would accept without qualification
the case for using PPP-based converters, rather than some exchange-rate-based
alternative; but even the sceptics do not argue that the choice
is immaterial. [FN 4]
In the British case, it might be supposed that one or two members
of the Government Economic Service, now said to be 800 strong,
not to mention a person from the National Statistics Office, would
have been drawn into the economic work of the IPCC and made it
less unrepresentative. There is no sign of any such involvement.
Speaking in the House of Lords last April on behalf of the responsible
department, the Department of the Environment, Food and Rural
Affairs, Baroness Farrington said that 'the views of Mr Castles
and Mr Henderson were considered extremely carefully,,, by the
Government,,,' If such consideration has indeed been given, its
results have not been communicated to me.
A way forward
The economic content of AR4 can be strengthened only if new
participants are brought into the process, and this can be achieved
only if and in so far as member governments act accordingly: the
IPCC milieu appears impervious to unofficial criticism. In this
context, it is the central economic departments of state---treasuries,
ministries of finance or economics, and organisations such as
the US Council of Economic Advisers---that have a potentially
key role. Up to now, and despite the large amounts that are at
stake, they have been content to leave the handling of economic
issues within the IPCC process to the departments and agencies
directly concerned. The questionable treatment of these issues
by the IPCC and its sponsoring organisations, which Castles and
I have drawn attention to as independent outsiders, has apparently
not been noticed by a single official in a single finance or economics
ministry in a single country. It is high time for this situation
to change, and for these latter departments to become involved.
Fortunately, a straightforward route to their participation
exists for the taking. For the economic departments and agencies
in OECD member countries, an instrument is to hand for their prompt
collective involvement: it is the OECD itself. They should act
now to ensure that IPCC-related economic issues are placed on
the agenda of the OECD's Economic Policy Committee. This could
be the start of a process by which economics and economists become
more adequately represented in proceedings and decisions where
much is at stake.
31 December 2004
* This article is scheduled to appear as a feature article in the
January 2005 issue of the Royal Economic Society's Newsletter.
The four articles are to be found in Vol 14, Nos 2 and 3; Vol
14, No 4; and Vol 15, No 1. Three further articles have appeared
in Vol 15, No 3 - one by Warwick McKibbin and two colleagues from
the Australian National University, writing as model-builders,
one by Jacob Ryten, formerly of Statistics Canada, on the MER
versus PPP issue, and the third by Ian Castles on the role of
Doubts on this score, as also about the current policy presumptions
of both government and opposition in Britain, were recently voiced
in a joint letter from seven economists to The Times (24
September 2004). The signatories were Wilfred Beckerman, Ian Byatt,
Nigel Lawson, Julian Morris, Alan Peacock, Colin Robinson and
It is not only in relation to economic aspects that such queries
have been raised about the IPCC process and its results, by critics
writing about other subject areas.
An interesting by-product of our critique has been some high-level
rapid-fire professional exchanges on the uses and limitations
of PPP-based comparative data. Meghnad (Lord) Desai (House of
Lords proceedings, 21 April 2004)) and Richard Cooper (in a letter
to The Economist, 18 June 2004) have emerged as sceptics.
A contrary view is taken by The Economist itself, in an
editorial dated 29 May 2004; by Angus Maddison in a letter (10
July 2004) replying to that of Cooper; and (more fully) by Jacob
Ryten in the article referred to in note 1 above.
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