Sir Brian Hoskins: Integrative Assessment Modelling – The Economics issue and the Green Deal

The new ‘Green Deal’ logo

My thanks to Ian Laidlaw for drawing my attention to a short ten minute segment on BBC radio 4 which discusses ‘Integrated Assessment Models’. These bring together climate models with social science models such as economic models in order to assist policy makers in decision making. They are designed to enable the effects of decisions to be fed into the model, which then calculate what the feedback to the climate system will be as a result. The model can then provide an outcome which can be compared with the effect of taking a different policy option.

Involved in the discussion, notably, was Sir Brian Hoskins, a very eminent Phd Mathematician with long experience in the field of meteorology and climate modelling. Head of the Grantham Institute at Imperial College London for a number of years, he also holds an honorary doctor of science degree from Bristol University. His original PhD thesis was centred around a mathematical description of the formation of warm and cold fronts.

The host of the ‘Material World’ programme didn’t attempt to engage Sir Brian on climate change theory or the physical science, but did point out that  if you put two economists together in a room you’ll get three different economic theories out of it. Sir Brian agreed that this was an important issue and that so far as he is aware, economists don’t test their models against reality in the same way climate scientists do.

What then is the purpose of Integrated Assessment Models? And why would politicians use our money to pay for their development?

Personally, I think one element in their thinking is that it provides them a convenient place to shift blame for failure to a tier of boffins who won’t be held publicly accountable if/when the policy direction fails to take the country in a beneficial direction. However, the current exigencies concerning the matter of dealing with the fairly immediate future of our energy generation system have caused a rift to open up between the government’s newly reshuffled energy ministry and the government’s Climate Change Committee, of which sir Brian is a member.

The newly announced enthusiasm for a dash for shale gas, and the lowered price of carbon credits making coal fired generation look profitable again is in head on conflict with the previous administration’s passing of the climate change act, which put in place legally binding targets for the reduction of CO2 emissions. How to square the vicious circle?

One response to the dilemma the govt now faces is to announce a new ‘Green Deal’, whereby householders will be able to apply to have solar panels fitted, insulation installed, inefficient gas boilers replaced and windows upgraded, at no cost to themselves. The way it will work is that the government will pay the providers, and the cost will be added as a charge on the property at the land registry office, to be paid back directly through smart meters as the household saves money on its energy costs.

In effect then, the proposal is to re-mortgage the country’s housing stock against the future benefit of reducing energy consumption, the financial element being taken care of by carbon taxes to cover the ‘feed in tariffs’ earned by the householders to cover the costs of installation.

“But how will the government find the money to pay the suppliers immediately?” I hear you asking.

Simple; They will print lots of new money.

“But”, I hear you cry, ” that will cause hyper-inflation won’t it?”

Not necessarily. The money will be tied up in the housing stock, so although the suppliers will be awash with cash, and this will have a ‘trickle down effect’ into the economy, the main effect will be to create employment as the suppliers gear up to meet demand. This should, if the economists have done their sums right, save a lot of money currently being paid in unemployment benefit, housing benefit and etc, and thus reflate the economy from its current depression to a stable level. Win win.

Or so goes the theory. The history of major interventions in the economic system is littered with unintended consequences. The big questions here will revolve around how much of the hardware is imported and how well the country fares on the international stage in terms of big market player reaction to this strategy.  One consequence if energy demand is reduced through the efficiency savings will be to put the European carbon market under pressure, because if less energy is needed, less carbon creds are needed. Selling carbon creds while propping up their price with taxpayers money has been a nice hidden carbon tax earner for the European governments, but how long can it continue now the word is out and the European public are starting mass protests against austerity measures?

How well can the governments balance on the tightrope?  Considering the legislative green straightjacket the UK government has tied itself into, you have to wonder how deftly they will be able to manipulate the balancing pole of free enterprise. The tightrope is stretched between the rock of economic depression on one side, and the hard place of civil unrest over inflation on the other.

I wonder if the integrative modelers have been assessing the consequences of landing on one of these unattractive surfaces, or whether we are currently heading into a ‘shut your eyes, keep calm and carry on’ phase of economic and social instability. Given the uncertainties of the physical science based climate models, adding a layer of economic guesswork is unlikely to provide the crystal ball gazers with anything that will help them. The problem is only exacerbated if they believe it does.

Which brings me back to Sir Brian Hoskins. Going by his comment on radio 4, he doesn’t have a lot of confidence in economic modelling. I wonder how well his confidence level in climate models is faring these days. He is allegedly an expert weather forecaster in his own right. I think I might try to find out what he thinks the weather is going to do this winter, since the MET Office don’t give the public seasonal forecasts based on the models Sir Brian helped develop any more.

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No ‘it’s’ were used in the production of this post.