Tuesday, November 19, 2019

There is no such thing as a business as usual scenario

The discussions about how much it will cost to mitigate climate change is a smokescreen. What constitutes a cost is not an objective fact, but laden with assumptions and subjective values.
How much does it cost to stop climate change, to keep within the target of the Paris agreement?

The answer depends on who asks and what is meant by costs. In the normal case we would say that something costs when we have to pay for something that we buy or possibly that we make ourselves, counting our work as a cost. In the mainstream discussion of climate change mitigation, cost can also mean loss of income or a lower GDP compared to a business as usual scenario. There are very small costs for the Brazilian government in protecting the Amazon. But the contribution of a protected Amazon forest to the Brazilian economy is small compared to the timber that could be sold, the hydroelectricity and minerals that could be extracted, the soy or beef that could be produced.

There are many pits to fall into when discussing the cost of climate change mitigation.

First, to compare mitigation measures with business as usual scenarios that omit the increasing cost of climate change is simply misleading. The costs of inaction are certainly bigger than the costs of action.

Second, the business as usual scenario is based on that existing goods and services are desirable and that not doing certain things incur a loss of sorts. But there is no such relationship. If the US cuts spending on its military in half it would be just fine. If I skip a trip to Bangkok nobody will suffer. The most efficient way to reduce the use of fossil fuels is not to replace them with renewable energy, but to reduce the consumption of those goods and services which are dependent on them. Which, to a varying degree, means all goods and services. By earning less money and consuming less (to some extent, I walk the talk) I can probably make my biggest contribution to climate change mitigation. Of course, what one person does has mostly a symbolic value but if many people do it, it can make a real difference. It will decrease the GDP considerably, and therefore it is considered a cost in the daily talk of “climate economists” (if such a profession exists).

Third, the calculations are based on social discount rates and assumptions of technological progress, assumptions which more or less determines the results. But they are highly uncertain and are based on values such as how do we value our comfort compared to the opportunities of future generations.

Fourth, the assumption that one can replace fossil fuels with various renewable energy sources at no additional costs than the cost of producing that energy are unrealistic. Many people falsely believe that solar energy is now on par, or even cheaper than, coal. And in a very limited sense that might be the case. But already when you add a battery pack to those solar panels the cost is increasing a lot. The world without fossil fuels will simply look quite different than the world with fossil fuels. In turn, this also means that the economic logic will shift, global trade will shrink, new resources will become more valuable and some assets will be stranded. 

One of the firm rules of systems is that you can’t change just one thing. Why do we keep on discussing options compared to a business as usual scenario? There will be no business as usual scenario when climate change hits and there will be no business as usual scenario if human society takes appropriate action. There is no such thing as a business as usual scenario.


  1. But business as usual will last longer if we do nothing about climate change rather than take dramatic action to mitigate climate change. That is why nothing of significance will be done. People would rather have business as usual continue and let future generations deal with a changed climate.

  2. That is probably a correct observation, Joe.

    1. It's a generalization. And I would argue that it is an over-generalization -- meaning it stretches the generalization too far. It also has the potential of demonstrating itself an accurate prediction by influencing influencers to adopt its fatalistic point of view -- a self-fulfilling prophesy (because it can lead to inaction).

    2. There is always the danger of influencing people with a fatalistic point of view. But looking around I believe there is plenty of evidence that most people are not motivated to take action on the scale needed. And certainly, the political and industrial leaders of the world aren't.