23 April 2009
Blog Home : April 2009 : Permalink
[... A]n entirely optimistic forecast of future economic growth. In years to come the best-remembered feature of this Budget may be its reliance on implausibly hopeful assumptions about future tax revenues. When these assumptions are revised, as they will surely have to be, they will reveal the need for far more strenuous efforts to curb public spending.
However what may have been missed is that this is not the first time this month that the government has spun the figures in the way that it wants. The other, possibly even more serious time, occured when it released a Cost Benefit Analysis (PDF) on the UK Climate Change bill. Roger Pielke, Jr pointed out the holes in the CBA in a recent blog post:The cost-benefit analysis is a spectacularly good example of how CBA can be twisted to say just about anything (not a surprise to many, I’m sure). Taking the analysis at face value says that the benefits of the Climate Change Act to the UK taxpayer are about 0.06 Pounds ($0.08) for every Pound ($1.40) in cost. And this assumes that the entire world acts in concert with the UK. Otherwise, the benefits are even closer to zero.
[...]There are several important flaws in this reasoning. The report assumes that the costs of the Act are assumed to be borne by the UK, but the benefits are global, and then further assumes that the benefits should be calculated assuming that the world is on a 450 ppm emissions trajectory by 2050. But even assuming that the world is on a 450 ppm trajectory, the UK share of global benefits would be only 2.3% of the world total (assuming UK GDP growth to 2050 of 2.0% per year and global GDP growth of 3.0%, with benefits received proportional to GDP), or 22.7 billion Pounds ($31.8 billion).
Comparing UK benefits to UK costs gives a benefit-cost ratio for the UK taxpayer of 0.06, taking the reports cost estimates at face value. If the world is not on a 450 ppm trajectory the benefit-cost ratio is even lower, and easily could be zero, meaning no benefit to the UK or the world.
The report is amazing for the convoluted effort that it goes to in order to try to show a positive value to the Climate Change Act. However, a close look shows that even under the very dubious assumptions on both the cost and benefit sides of the analysis, the UK taxpayer receives almost no benefit for a remarkably large investment. The UK government must assume that no one will notice or care.
The only MP to have actually paid any attention appears to be Peter Lilley. He has written a letter to Ed Milliband (also here) where he points out just how shoddy this CBA has been. It starts out in good form:Dear Secretary of State
You recently slipped out, without notifying Parliament, a massive revision of the estimated costs and benefits of the Climate Change Act.
I hope that on consideration, you will agree that changes amounting to nearly £1 trillion require both discussion in, and explanation to, Parliament. This is particularly important given the extraordinary way the government treated its own original estimates of the costs and benefits of the Climate Change Bill during the Bill’s passage through Parliament.
You will recall that your original estimates of costs and benefits of the Climate Change Bill showed that its potential costs at some £205 billion were almost twice the maximum benefits of £110 billion. This was embarrassing for you because the reason governments are required to publish an Impact Assessment giving estimates of costs and benefits of any Bill is to enable Parliament to “determine whether the benefits justify the costs” .
He goes in style to make many good points including this bit:One might hope that other MPs will join him in requesting a bit of clarity in these figures. After all some of them have been complaining recently about how little they have to do.As recently as your last departmental question time on 5th March your Minister of State, Joan Ruddock, suggested to me that the original estimate of potential costs of up to £205 billion might be too high. She said “We are likely to find that the costs, which covered a very large range, were exaggerated…” Yet despite correcting for any previous downward bias the revised figures you have now published are not lower but substantially higher. The bottom of the new range for costs is in fact £324 billion – nearly 60% higher than the highest figure I have been quoting. And the top of the range is now £404 billion.
In other words the government now estimates that the Climate Change Act will cost every household in the country between £16,000 and £20,000 each.
When it comes to your revised estimates of the benefits, however, we enter Alice in Wonderland territory. Even though costs have broadly doubled, the embarrassment of them exceeding your own estimate of the maximum benefits has been eliminated. The benefits have been dramatically increased tenfold from £105 billion to over £1 trillion. I congratulate on finding nearly £1 trillion of benefits which had previously escaped your notice.
[...] I support sensible measures to reduce CO2 emissions, economise on hydrocarbon use and help the poorest countries adapt to adverse climate change whatever it cause – as long as the measures we adopt are sensible and cost effective. But we cannot judge what is sensible and cost effective if we do not have reliable figures, and subject them to proper parliamentary scrutiny.
When the Department slips out figures which it appears to be unable to explain, unwilling to debate and which are so flaky they vary by a factor of ten - it can only provoke scepticism.
