Peter Franklin: Why Nigel Lawson is wrong on climate change

Last week ConservativeHome welcomed the anti-Stern analysis of Lord Lawson and Bjorn Lomborg.  Peter Franklin responds to Lord Lawson's critique below.

Given Nigel Lawson’s record on economic stability, I’m pretty disinclined to accept his judgement on climate stability. Nevertheless, the former Chancellor has emerged as Britain’s leading climate change sceptic, so it’s worth tackling his case head on. Essentially, it’s an argument of two parts, as set out by the man himself:

“...there is no escaping the two key truths. First, there is no way the growth in atmospheric carbon dioxide can be arrested without a very substantial rise in the cost of carbon, presumably via the imposition of a swingeing carbon tax, which would require, at least in the short to medium term, a radical change of lifestyle in the developed world.”

This is just wrong. The bulk of the carbon savings that we need to make will come from greater energy efficiency, not from changes in the way we generate energy. By saving energy we will also save money. And with energy prices on the rise there is more money to be saved than ever.

Energy efficiency and economic progress go hand in hand. The more primitive a society the more energy inefficient it is. Just think about the sheer wastefulness of an open fire, where most of the heat escapes uselessly into the atmosphere. To take a more contemporary example, Chinese homes and factories waste a lot more energy than their western counterparts.

And yet even in the most advanced economies opportunities to save energy go unclaimed. For instance, Britain has millions of homes where proper loft insulation would pay for itself in a couple of years and go on saving substantial amounts of energy, money and carbon year after year. So why do so many people fail to insulate their homes properly? It’s because, contrary to simplistic economic theories, people don’t always act in an economically rational way. Sometimes they need a prod in the right direction.

That’s why I’m opposed to most forms of environmental taxation, which tends to be a blunt instrument that rarely achieves its ostensibly environmental purpose. What we need are sophisticated policy tools designed for a particular purpose and used for no other (such as the raising of tax revenues). For instance we could have a system of energy efficiency credits, which enterprises could earn by implementing various energy efficiency solutions such as insulating a given number of homes or selling a given number of energy efficiency light bulbs. Polluters such as power stations would have to buy a given number of certificates. A market would then operate, generating profits for those supplying the most attractive energy efficiency solutions at the lowest cost. The polluters would have to pay the cost of kick starting the market, but, in aggregate, money would be saved and put to a better use than wasting energy.

Would this amount to a radical change of lifestyle? I don’t think so. But on to part two of the Lawson case:

“…the second key truth is that, even if we were prepared to do this, it would still be useless unless the major developing nations – notably China, India and Brazil – were prepared to do the same, which they are manifestly and understandably not.”

Ah yes, the old 2% argument i.e. Britain is only responsible for 2% of humanity’s carbon emissions so what difference can we make?

The first thing to understand is that the purveyors of this argument are either deliberately or ignorantly blurring the distinction between the stock and flow of carbon emissions. Atmospheric concentrations of CO2 are already at a level unprecedented in human history thanks to an industrial history that goes back a lot further in the developed world than the developing world. Thus Britain has contributed 6% not 2% of the accumulated problem to date, with other developed nations contributing almost all of the rest.

So while China and the other developing giants are making a growing contribution to the future problem, there is strong moral case for the West to get the ball rolling in terms of a solution. There’s a strong practical case too – because there’s an awful lot of money to be made here.

For one thing, the developing giants are desperate to escape their dependency on fossil fuel imports, which is why Brazil is already leading the world in ethanol fuelled cars. The giants also have an appalling problem with the local pollution caused by fossil fuel use – just asks the organisers of the Beijing Olympics. As mentioned above, the developing world has even more to gain from energy efficiency than we have; and the micro-generation of energy could allow whole regions to leapfrog the expensive requirement for centralised energy networks in the same way that mobile phones are enabling them to dispense with fixed line telephony.

We in the West have the expertise, the intellectual freedom and the capital to develop these solutions, but the developing giants have got the deepest need and the fastest growing markets. If you want proof, look to the investment community which is well ahead of the politicians. The hard-headed money men are convinced by the climate change science and they can see the business opportunities. As one of them said to me the other day, “we know this is going to be a massive area for capital formation because it bloody well has to be.”

So the question facing western governments is whether to give their economies a prod in this direction or whether to subsidise the dinosaur industries of the past by allowing them to pollute without paying.

Twenty years ago Nigel Lawson decided that the best thing for Britain would be to shadow the Deutschmark. Twenty years later he is urging us to shadow the Chinese rate of carbon emissions. He is as wrong now as he was then.