The IPCC's coy relationship with economics

There has been very significant coverage of the latest report by the Intergovernmental Panel on Climate Change (IPCC).

The coverage has included dramatic headlines of impending catastrophe and clear messages about the urgency of taking action. Not all of the headlines can be traced back to the content of the report but it is remarkable in five particular ways:

  1. It is worth emphasising – even if not headline grabbing – that this represents the consensus view of governments, their representatives and scientists from the whole world. In a time when there is increasing focus on conflict and regional rivalries, it is a remarkable testament to what thousands of years of living on this planet have taught us: only by all coming together can we ensure our future.
  2. That global consensus resulted in a big leap forward: the global view is that it is now a fact that human activity causes climate change. All the previous reports have couched that conclusion in terms of probabilities (likely or very likely) or degrees of certainty (medium confidence or high confidence). Like understanding gravity or evolution, we know what is causing climate change. That places the solutions firmly in our hands, just like going to the moon or developing new drugs – we will determine the world we live in.
  3. The impacts of climate change are being felt now and will be felt in the future regardless of what action we take – some changes are irreversible over any relevant timeframe. That underscores the need to adapt. Equally, there is much to play for: the extent of future change is in our hands. Mitigation measures will determine how dramatic the changes to future climate.
  4. There are many pathways to reducing emissions. This and subsequent, related, reports are based on socio-economic narratives: possible future scenarios. This report focuses on five different “paths” (sustainability, middle-of-the-road, regional rivalry, inequality, fossil-fuelled developed). Much lower emissions are possible in each of the paths, but are harder to achieve in some … which brings me to the fifth point…
  5. …economic thinking has played a remarkably small role in the IPCC evidence and analysis to-date.

It is worth focussing briefly on that final point. The central approach to understanding how modern human society’s function is almost invisible in the IPCC thinking. It is true that the latest IPCC report is specifically focused on the science. Were economic analysis and thinking to appear it would be most likely from the report that is due out later from Working Group III. 

WG III focuses on what is required in terms of mitigation activities: assessing methods for reducing (and removing) greenhouse gas emissions. Covid has delayed their report. Excellent reports have been produced by WG III in the past but they tend to focus overwhelmingly on the engineering and technical challenges, the aggregate macroeconomic costs and benefits and the timelines for innovation and action. 

As WG III wrestle with the Herculean task of pulling together a global consensus of possible pathways for action, it is useful to ask how their report would look different were they to incorporate more of what we have learned about the microeconomics of human and firm behaviour. The report would almost certainly focus more on: how to develop global carbon markets effectively, what is an appropriate role for the use of standards to create a level playing for competition, what incentives to place around the huge amounts of public and private research and development funding focused on low-carbon transition, behavioural obstacles and solutions, and interaction between government policy and efficient markets. Some of this was hinted at in their 2011 report but was not the focus. WG III cannot prescribe economic policy but it can ensure that the finer details that determine economic outcomes (markets and their rules, tax, regulation, subsidy) are woven into its thinking to a greater extent than has been evident to-date.

My colleagues and I will be covering climate related news closely in the run up and following COP26, so keep an eye on our website for more insights.