Tol is Professor of Economics at the University of Sussex, UK and Professor of Climate Economics at VU University Amsterdam, The Netherlands. He is also an author of the Intergovernmental Panel on Climate Change (IPCC). He argues that the European Commission has failed to make a cost-benefit analysis of its greenhouse gas reduction targets, making the affordability of European climate plans opaque.
Low-hanging fruit
Tol casts doubt on the overly optimistic expectations for the possibility of emission reductions. Until now, emissions could be reduced relatively quickly thanks to the use of renewable electricity sources. However, that is low-hanging fruit. Sectors such as transport, heating, industry and agriculture are much more difficult to decarbonise and, moreover, climate plans are changing faster than the energy sector and industry. For example, many of the buildings, power plants, steelworks and chemical factories that we use today will still be there in 2050. Demolishing them will result in an enormous destruction of capital. Their emissions will have to be offset, for example, by large-scale planting of fast-growing trees abroad, or by negative carbon energy (electricity generated from biomass, with carbon capture or storage).
Negative carbon energy will only be viable with huge subsidies. According to recent estimates, by the end of the century these would amount to 4% or even 17% of world income, to be paid for by taxpayers. However, public support for trillion-dollar subsidies to agro-energy multinationals may be weak.
In addition, forestation takes up a lot of space and time. Planting only fast-growing trees is undesirable because of biodiversity issues. And cheap biofuel requires large, heavily mechanised mono-plantations. This requires acreage outside the EU. But if the whole world has a net zero target, there is little to offset.
Tol expects that climate policy will also be extra expensive because the legislation and regulations are suboptimal. The promise of new jobs in the green economy would also be too optimistic. Only a small part of the population works in the energy sector. And the creation of jobs in the green economy is partly offset by the destruction of jobs in the brown economy.
Imbalance
On the other side there are the costs of climate change. By 2050, the ‘no policy’ scenario shows a negative impact on climate change, while the ‘current commitments’ scenario shows a positive impact. The difference amounts to 0.3% of world income or about €220 billion. However, the total cost of reducing greenhouse gas emissions is 3% or more of GDP, or €2,200 billion: a ratio of 1 to 10. The ratio of marginal costs to benefits is also skewed. The marginal cost of GHG emission reduction would reach €500/tCO2 by 2050, while the marginal benefit would be less than €150/tCO2; a cost-benefit ratio of 3 to 10.
It is often claimed that the effects of climate change are underestimated. However, Tol considers it unlikely that the effects are off by a factor of 10 or even 3. He does emphasise that these are world averages. A rich region like Europe would be less vulnerable. If policies outside the EU were more lenient, this could even improve the cost-benefit ratio, but it is unlikely to make a factor of 3, let alone 10 difference.
The conclusion is therefore that the benefits of the European Union’s climate policy do not outweigh the costs. Tol expects that this will lead to resistance, especially in the longer term when a growing number of people realise what this means for them. If the EU climate policy is successful and the climate changes and the predicted weather disasters do not materialise, public and political support for the EU’s climate policy is likely to crumble, possibly resulting in a tax revolution.
Read the full article in the scientific journal Intereconomics.
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