SD-106 SD-106 Dirksen Senate Office Building

Lord Nigel Lawson

House of Lords, United Kingdom,

I am grateful for your invitation to testify before you today. I am aware that you have been provided with the Report of the House of Lords Select Committee on Economic Affairs on The Economics of Climate Change in advance of these proceedings, so I intend simply to summarise our key findings and to provide some commentary of my own.

By way of background, the Economic Affairs Committee is one of the four permanent investigative committees of the House of Lords, and fulfils one of the major roles of our second chamber as a forum of independent expertise and review of all UK government activity. It is composed of members of all three main political parties. Its climate change report, which was agreed unanimously, was published on 6 July 2005, just ahead of the G8 summit at Gleneagles in Scotland.

In summary, the Committee concluded that:

· The Government should give the UK Treasury a more extensive role, both in examining the costs and benefits of climate change policy and presenting them to the public, and also in the work of the Intergovernmental Panel on Climate Change (IPCC);

· There are concerns about the objectivity of the IPCC process, and the influence of political considerations in its findings;

· There are significant doubts about the IPCC’s scenarios, in particular the high emissions scenarios, and the Government should press it to change its approach;

· Positive aspects of global warming have been played down in the IPCC reports: the IPCC needs to reflect in a more balanced way the costs and benefits of climate change;

· The Government should press the IPCC for better estimates of the monetary costs of global warming damage and for explicit monetary comparisons between the costs of measures to control warming and their benefits;

· A more balanced approach to the relative merits of adaptation and mitigation is needed, with far more attention paid to adaptation measures;

· UK energy and climate change policy appears to be based on dubious assumptions about the roles of renewable energy and energy efficiency, and the costs to the UK of achieving its objectives have been poorly documented, and the Government, with much stronger Treasury involvement, should review and substantiate the cost estimates involved and convey them in transparent form to the public;

· Current UK nuclear power capacity should be retained;

· International negotiations on climate change reduction will prove ineffective because of the preoccupation with setting emissions targets. The Kyoto Protocol makes little difference to rates of warming, and has a naïve compliance mechanism which can only deter countries from signing up to subsequent tighter emissions targets. Any future Protocols might be more fruitfully based on agreements on technology and its diffusion.

I cannot of course speak for the Committee as a whole, but my own understanding of the issue is clear:

· The IPCC’s consistent refusal to entertain any dissent, however well researched, which challenges its assumptions, is profoundly unscientific;

· Although its now famous “hockey stick” chart of temperatures over the last millennium, which inter alia featured prominently in the UK Government’s 2003 Energy White Paper, is almost certainly a myth, the IPCC refuses to entertain any challenge to it;

· The IPCC’s scenarios exercise, which incidentally incorporates a a demonstrably fallacious method of inter-country economic comparisons, manifests a persistent upward bias in the likely amount of carbon dioxide emissions over the next hundred years. For example, a combination of steadily increasing energy efficiency and the growth of the less energy-intensive service economy has led to a steadily declining rate of growth of carbon dioxide emissions over the past 40 years: all the IPCC’s scenarios unaccountably assume an abrupt reversal of this established trend.

So why is the IPCC so adamant that it will not revisit its conclusions?

It may be that they are so profoundly concerned about the perils of global warming that the darkest possible picture is painted in order to secure urgent action.

There may also be the inevitable institutional characteristic of making the problem more serious than it is in order to command greater attention. This too may be a consequence of the way research funding is administered – it is a cold, isolated world for the climate change contrarian in the modern scientific community.

Whichever reason – and I suspect it may be both – the IPCC’s absolutist position is unhelpful. The world faces a number of other, and arguably more imminent, challenges and competing claims on resources: the threats from nuclear proliferation and international terrorism, and the need for humanitarian aid for the world’s poorest, are obvious examples. Choices always have to be made, and they need to be based on rational assessment.

So far as climate change is concerned, I am not qualified to pronounce on the science. While it seems clear to me, as a layman, that – other things being equal – increasing carbon dioxide emissions will, in time, warm the planet, I note that the science of climate change is uncertain and that reputable scientists hold greatly differing views about the rate at which such warming is likely to occur – which in any case is not simply a matter of the science: it depends just as much on the likely rate of future economic growth and the pattern and nature of that growth.

The key question, which is not a matter for scientists at all, is what should be done about such global warming as may occur.

· There are two possible approaches, which are not of course mutually exclusive: mitigation, that is, seeking to stabilize and if possible reduce the amount of carbon dioxide in the atmosphere, and adaptation, that is to accept that the climate may well be warming, and to take action to counter any harmful consequences that may flow from this.

· The IPCC and its acolytes make only the most perfunctory acknowledgment of adaptation. Their estimates of the damage from global warming are based on the assumption that very little adaptation occurs, and focus almost exclusively on the need for mitigation. In my view, however, the most important conclusion of the House of Lords report is that adaptation needs to take centre stage. . · Numerous studies have shown that adaptation is the more cost-effective option, which is hardly surprising. Not only is that the way in which we normally come to terms with climatic vagaries, but there are benefits as well as costs from global warming. There are, of course, regional variations: in northern Europe, for example, including Britain, for the rest of this century the benefits are likely to exceed the costs, whereas for the tropics the reverse is the case. But adaptation, which implies pocketing the benefits while acting to diminish the costs, has obvious attractions.

· The four principal costs potentially involved in global warming are damage to agriculture and food production, water shortage, coastal flooding (as sea levels rise), and – allegedly – malaria:

o In the case of agriculture, adaptation, much of which will occur autonomously, that is, without the need for government action, would consist of cultivating areas which have hitherto been too cold to be economic and, in other cases, switching to crops better suited to warmer climates.

o In the case of water shortage, there is massive wastage of water at the present time, and ample scope for water conservation measures – which incidentally would also help on the farming front.

o The most serious likely cost is that caused by coastal flooding of low-lying areas, where government action is clearly required, in the form of the construction of effective sea defences – as the Dutch, incidentally, put in place more than 500 years ago. With modern technology this becomes an admittedly expensive but nonetheless highly cost-effective option.

o Finally, as to malaria – which leading malaria experts, whom the IPCC was careful to exclude from its deliberations, argue is in any event unrelated to temperature, noting that the disease was endemic in Europe until the 17th century – the means of combating if not eradicating this scourge are well established.

· By contrast, the Kyoto and emissions caps and targets approach seems a most unattractive option:

o Even if the existing Kyoto targets were attained they would make little if any difference to the predicted rate of global warming. Kyoto’s importance is presented as a first step to other, stiffer future agreements. But this is pie in the sky.

o The developing countries, including major contributors to future carbon dioxide emissions such as China and India are – and are determined to remain – outside the process.

o Since the only sanction against non-compliance with Kyoto (which is likely to be widespread) is even stricter targets in any successor agreement, the realism of this approach is even harder to detect.

o In addition, even if targets were achievable, the cost of reaching them would be horrendous. Essentially, it would work by raising the cost of carbon-based energy to the point where carbon-free energy sources, and other carbon saving measures, become economic. For Kyoto-style mitigation to be seriously effective, it would involve a substantially greater rise in energy prices than anything we have yet seen despite recent spikes.

o The real cost of this approach is not so much dearer energy as the reduced rate of world economic growth which this would imply. It is far from self evident, not least for the developing countries, that over the next hundred years a poorer but cooler world is to be preferred to a richer but warmer one. Nor should it be overlooked that the Kyoto strategy requires the present and next generation to sacrifice their living standards in order to benefit more distant generations who are projected in any event to be considerably better off.

· Mitigation can however, be a desirable complement to adaptation. Far better than the Kyoto approach is additional support for research into reduced carbon technologies of all kinds, thus bringing forward the time when at least some of these technologies may become economic. A nation which performs relatively well in terms of cutting back emissions is bound to lose out competitively whereas a nation which achieves a technological breakthrough is likely to benefit competitively.

In conclusion, I believe that the IPCC process is so flawed, and the institution, it has to be said, so closed to reason, that it would be far better to thank it for the work it has done, close it down, and transfer all future international collaboration on the issue of climate change, where the economic dimension is clearly of the first importance, to the established Bretton Woods institutions.

It is profoundly important that all governments, most importantly their Treasury departments, make their own independent and rigorous economic analysis of the issue. At the time the Lords committee was taking evidence this, for whatever reason, had not happened in the UK. I very much hope that, following our report, it will.

We appear to have entered a new age of unreason, which threatens to be as economically harmful as it is profoundly disquieting. It must not be allowed to prevail.