Terence Corcoran: The world’s economic watchdog is pushing a plan that will kill global growth faster than Trump’s trade war
Slowing growth around the world, trade wars, Middle East turmoil, U.S. impeachment threat, monetary policy uncertainty, Brexit, fiscal follies everywhere, rising global debt — but hey, we gotta get on with tackling the real problem, the “existential crisis” of our time: climate change.
That, at least, is the view of the International Monetary Fund which, with the World Bank, is holding its annual meeting in Washington this week. According to the sensational language in the IMF’s World Economic Outlook released Tuesday, the global economy remains precarious, risks are significant, central banks have limited ammunition, manufacturing is turning down, and trade barriers are rising. The result will be a “significant drop” in global growth this year to 3.0 per cent from 3.6 per cent last year.
While concerned about slowdown, IMF pushes risky carbon plans
The IMF’s warnings of a world economy precariously poised on the brink were somewhat offset by predictions that the global growth rate could be back up to 3.6 per cent within a year or so, and continue marching forward at that rate through to 2024. So whether the world faces a significant growth crisis remains debatable, despite the IMF alarmism. In other words, it might be bad but it might not be all that bad.
While the IMF is appropriately uncertain about its medium-term economic outlook, the agency pulls no punches when it comes to long-range climate change risks. “The risks from climate change are playing out now and will dramatically escalate in the future, if not urgently addressed,” said Tuesday’s outlook. “Curbing greenhouse gas emissions and containing the associated consequences of rising global temperatures and devastating climate events are urgent global imperatives.” In its Fiscal Monitor last week, the same IMF had no hesitation in declaring the “climate crisis is urgent and existential.” Policy makers “need to act urgently to … reduce the damaging and deadly effects.” First priority, it said, was a global carbon tax of US$75 a tonne, or about $100 Canadian.
The IMF describes carbon taxes as the single most powerful tool to reduce national carbon emissions, although the discussion in the Fiscal Monitor around the effectiveness of carbon taxes is far from convincing. Among other things, a US$75 carbon tax would raise consumer costs for electricity, transportation, gasoline and other products, creating even more global turmoil than Trump’s trade war.
The global price of coal would rise 200 per cent, forcing electricity prices in coal-dependent Australia to rise between 70 and 90 per cent compared with 30 per cent in Canada. The price of natural gas would rise 70 per cent. Gasoline prices would increase between five and 15 per cent, which is “well within the bounds of price fluctuations experienced during the past few decades.” In that case, the impact on consumer consumption of gasoline would likely be nil.
The IMF, so obsessed with current global growth crises, seems little inclined to fret about any growth problems created by carbon taxes and other major state interventions. And there will be lots of intervention.
The first problem is that “Even with robust carbon pricing, investments in low-carbon technologies — essential for the transition to the cleaner energy systems necessary for lower emissions — may be insufficient.” The IMF warns of “various technology related market failures and impediments” to a carbon-reducing economy, all of which will require more government intervention in the economy, including feebates, regulations and other measures that would have to be implemented “more aggressively” and “more efficiently.” But aren’t carbon prices supposed to be the most efficient and effective means to lower carbon emissions?
The cost to the global economy of embarking on massive economic reforms to rid the world of carbon emissions is not clearly outlined by the IMF. The best it could do is claim that the cost of achieving emissions reductions “would be lower than the costs to people and the planet from climate change.”
Further complicating the climate catastrophe claims is the fact that the worst economic projections are set in sand
But claims that the drastic economic interventions today can save the world from larger climate-induced economic crises tomorrow are under increasing challenge. Steve Ambler, professor of economics at Université du Québec à Montréal, recently summarized the doubtful claims of climate economy alarmists. The most extreme version of the climate “catastrophe,” Ambler wrote in a recent Financial Post commentary, “would be a world in which those alive in 2100 would have incomes that were on average only double ours instead of 2.2 times higher.”
Further complicating the climate catastrophe claims is the fact that the worst economic projections are set in sand. University of Colorado professor Roger Pielke Jr. recently outlined reasons for doubting the foundation for the United Nations’ baseline “business as usual” predictions that the world is heading for environmental crises if carbon emissions continue to rise.
These baseline projections, referenced by the IMF in its new climate paper, suggest environmental disaster looms. But Pielke says such assessments are a form of “climate porn,” since the most alarming predictions are nothing more than extreme scenarios that should not be used to form policy. Pielke quotes one of the creators of the scenarios, known as representative concentration pathways (RCPs): “The RCPs should not be interpreted as forecasts or absolute bounds … no likelihood or preference is attached to any of the individual scenarios in the set.”
How much monetary or fiscal policy advice would the IMF offer any nation or group of nations if they were looking at forecasts from their economists who said there was no likelihood that any one of their forecasts might be accurate?