Home' Technology Review : July August 2011 Contents Q&A
technology review July/August 2011
You called climate change the greatest
market failure in history.
It’s a market failure because the price
we pay for products and services that
involve emissions of greenhouse gases
does not reflect the costs they cause
through damage to the climate. Econo-
mists like me think market systems have a
tremendous amount to offer if you correct
the failure by putting a price on carbon.
But in the U.S ., at least, schemes for
carbon pricing have failed.
I think you have to take the long view. I
think it will get there in the end, but regu-
lations are okay too. You probably need a
combination of these things. We didn’t go
from leaded to unleaded petrol by putting
a price on lead. We did it mostly through
Has technology changed in the five years
since the Review was published?
Technology has moved faster than I
had anticipated. We’ve seen tremendous
progress with car technologies. Five years
ago, you wouldn’t have thought Gen-
eral Motors would be making electric
cars now; you wouldn’t have thought the
argument now would be “How fast can
you bring down the costs of electric cars
to be competitive?” Wherever you look
now, you have quite remarkable prog-
ress—from the most imaginative kind,
like algae [biofuels] and [new types of ]
batteries, to engineering, just making a
diesel engine much more efficient, much
better. So the technology has changed
faster than I had expected. I find it quite
But carbon pricing would surely help
speed up the commercialization of these
It takes a combination of things. If you
ask about market failure, then carbon
pricing is the big one. It will be hard to do
it without that. But I would also empha-
size the importance of regulations as well.
Let’s not have a simplistic approach by
thinking, “Set a price on carbon and the
wonderful entrepreneurship processes
will do the whole lot for you.”
Support for R&D falls into the category of
Yes. And support for deployment also.
The Review expresses a sense of
urgency about the next five to 10 years.
That’s one place where I think our
arguments have not been successful
enough: to get people to realize just how
important the next five and 10 years are.
If we wait until people really start to see
the full horror of severe climate change, it
will be very difficult to pull out. And that
is where the great challenge in communi-
Is there a point where if things haven’t
ramped up, you would become discour-
aged? Is there a deadline for action?
I think action has to accelerate now.
China is accelerating its effort. It’s quite
remarkable. They have seven key indus-
tries which [its leaders] are marking to
grow from 3 percent of the economy to
15 percent in the next 10 years. And the
economy itself will likely double, from
$6 trillion to $12 trillion. The invest-
ment they will need to do that is probably
a half a trillion a year for each industry.
Three of these industries are renewables,
energy efficiency, and clean technologies.
Why? Because [the leaders] see China as
extremely vulnerable to climate change,
they see China as big enough to affect its
own future on the climate side, and they
see these industries as growth stories in
the future. A remarkable change, and it is
not just in China. But I still worry that it
is not fast enough. We have to accelerate.
How has the science changed since the
publication of the Review?
The science looks more worrying.
There are some very nasty feedbacks
[that are increasing the pace of climate
change] that we left out five years ago
because they are very difficult to model.
A lot of the drivers seem to be bigger and
faster, and the feedback loops even more
Given that, how would you change the
findings of the original report?
I suspect that I underdid the costs of
the impact of unabated climate change. I
suspect, looking back, you would want
to argue that the risks are a good deal
greater. And because of the rapid techni-
cal progress, the costs of action may be a
bit lower. But I don’t want to suggest that
it is an easy no-brainer decision. You have
to make big investments now to manage
the risks in the future and lay the founda-
tion for low-carbon growth.
The Review estimates that it would take 1
percent of GDP annually to mitigate
percent now, because I think we have to
act more strongly than I suggested in the
Review, because the risks are bigger. But I
would emphasize that for that 1 to 2 per-
cent of GDP, we get not just risk reduc-
tion but tremendous innovation, creativity,
learning, and discovery.
What does 1 to 2 percent of GDP mean?
Will people feel the pain?
The investment is significant, but it’s
not that difficult to see why it is needed—
particularly when you recognize that
growth is likely to accelerate over 10 to 15
years as these learning processes kick in.
And, of course, it is a very important point
that the time to do your long-term invest-
ments is at a time of slack in the economy.
There is less pressure on resources, and
interest rates are low. Now is the time to
start investing in some of these grid struc-
tures and other infrastructure.
But can we afford it?
It is an investment. You have got to
recognize it as an investment, which it
is. And now is the moment to make those
investments. You can’t afford not to make
those investments: the risks are too great,
and the rewards are high if you do.
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