Business Case

Climate policy is often framed as a cost-benefit calculation: Do the benefits of mitigating climate change outweigh the costs of any actions we might take? The question is a sensible one, although with several caveats:
  • Costs to whom and benefits to whom? We therefore look at the costs and benefits to different segments of society, and to different nations globally.
  • Is there really a cost? Money spent on climate projects is not simply burned. It instead goes into different parts of the economy.  The effect of climate projects may then turn out to be a boost to the overall economy rather than a 'cost'.
  • How do the costs and benefits of action compare to those of inaction?  Inaction carries its own costs and benefits because of the potential damage to the economy, to health, to well-being and to a nation's infrastructure if climate change is unchecked. 
Most analyses of the economic impacts of climate projects use a Computable General Equilibrium (CGE) model, which views the economy as a free market, albeit constrained by government policies. Such analyses almost always show that once the market has 're-equilibrated' after a climate investment such as mitigation, there are macroeconomic losses from climate policies. The question for society is then whether those costs are outweighed by the benefits.

By contrast, the book above uses dynamic models of the economy pioneered by Dr Terry Barker, based not on the assumption of a rational market but rather on past history of economic activity and the effects of mitigation. The result is then quite different to most of the CGE models. One finds that with careful coordination of energy, climate and economic policies, societies can find a pathway in which the energy system is decarbonised while also growing GDP. The narrative of trading off economic growth to achieve climate action is replaced by a more positive narrative of how we coordinate our energy, climate and economic policies so the economy is even stronger as climate risks are reduced. Instead, one can achieve GDP growth while decarbonising the economy through investment in innovation and better use of the labor force.

The business voice

Global businesses are not buying the narrative that climate policy costs outweigh the benefits, and have stepped forward to support ambitious action on climate change. An example is the Prince of Wales's Corporate Leaders Group developed and managed through the University of Cambridge Institute for Sustainability Leadership. They are leaders of some of the largest and most influential global businesses, who have come together to advocate for climate policy and action. 

Similarly, in the US more than 300 business leaders sent an open letter to Donald Trump upon his election, urging him not to abandon the Paris climate agreements (he did anyway). The voice of the business community is clear: climate change is real, the risks are significant to the businesses, and action is needed now.
The second cost-benefit basis for all CCR projects is the idea of co-benefits of climate projects. This is also explored in the book above (see Chapter 9). As an example, consider the fact that decarbonisation projects can simultaneously reduce emissions of particulate matter (PM). The reduction in PM emissions improves the health of a nation's population. Policy makers need not refer only to benefits of climate policy in 2080, and in countries half way around the world, but rather to health benefits in their own constituencies, today. This is a much easier argument to make for ambitious climate policy.

Results of the analysis indicate that a strategy of rapid decarbonisation will reduce the global toll of deaths from PM by approximately 200,000 to 400,000 per year, with a reduction in non-fatal effects of 30 million to 50 million cases per year. The savings in health care costs and lost wages are 100 billion to 200 billion US dollars per year. These cost savings are an appreciable fraction of the cost of the decarbonisation. All of these numbers are reduced by between 10% and 15% if one takes into account the economic development of the poorer nations, but even this reduction leaves a large health and economic co-benefit. 

Several points are crucial here:
  • The savings in health care costs when PM emissions are reduced while reducing greenhouse gas emissions are considerable. They can off-set almost a third of the costs of decarbonisation
  • The reduction in risks from PM-related disease (primarily cardiopulmonary and respiratory) are as large as the risks routinely targeted in other areas of environmental policy
  • The greatest health benefits are in the developing economies of the world, and so the poorest populations see the strongest benefits (see the page on Development and Sustainability)
All CCR projects therefore seek to produce health co-benefits of climate policy, making a stronger economic, public health and political case for climate action.

Can businesses hedge their investments against the risks of climate change? See our Unhedgeable Risk: How Climate Change Sentiment Impacts Investment report, prepared in collaboration with colleagues at the University of Cambridge through the Cambridge Institute for Sustainability Leadership.