Don’t bank on ‘adverse impact’ from Hatoyama’s carbon cuts

by Takamitsu Sawa

I would like to commend Prime Minister Yukio Hatoyama wholeheartedly for his determination to work toward a 25 percent reduction in greenhouse-gas emissions from 1990 levels by 2020. It is utterly absurd to question the feasibility of attaining this goal. Rather, the entire nation must recognize the unequivocal need to achieve it.

Should global warming be allowed to continue, the whole world will face an irreversible catastrophe by the middle of the century. Avoiding such consequences requires a 50 percent reduction in the world’s greenhouse-gas emissions by 2050, which in turn makes it essential to reduce emissions 25 percent by 2020.

Despite this evidence, unfounded criticisms of Hatoyama have permeated the mass media. Critics assert that the projected 25 percent cut in carbon dioxide emissions will have an adverse impact on the economy, slow down growth in gross domestic product, hollow out Japan’s manufacturing industry, raise the unemployment rate and further burden the household budget.

As an econometrician, I dispute these assertions because, during the next decade, Japan will experience an endless chain of political, economic and technological uncertainties. I dare say that only a rank amateur in statistics or econometrics would claim that the projected 25 percent cut in emissions will cause Japan’s GDP to contract by 3.2 percent in 2020 (compared with annual growth of 1.3 percent expected otherwise), raise the jobless rate by 1.3 percentage points, and curtail annual household disposable income by ¥220,000.

These amateurs make such false predictions because they deny the commonly held notion that the future is uncertain, and see themselves as “Laplace’s demons,” capable of making pinpoint predictions of events 10 years ahead by bundling all natural and social movements in a system of differential equations. It is utterly nonsensical to try to make an accurate prediction over a 10-year period when there is no more than 90 percent accuracy in just a one-year forecast (and that 90 percent is still subject to a margin of error of plus or minus certain percentage points). This is why I am convinced that only a Laplace’s demon would have the nerve to attempt to pinpoint forecasts regarding the consequences of reducing CO2 emissions by 25 percent.

I am tempted to say, jokingly, that the likes of such demons are found in abundance at places like the Japan Center for Economic Research, the Institute of Energy Economics and the National Institute for Environmental Studies. Officials at these three institutions must be feeling guilty about predicting the aforementioned statistical figures in order to comply with a government request.

If they are serious about their figures, they are admitting to being nothing more than number-crunchers. The unsubstantiated results of their calculations are used by newspaper reporters — who know little or nothing about probability or statistics — to warn the nation in articles that skew public opinion.

In one recent survey, for example, many of those polled viewed the projected 25 percent cut in greenhouse-gas emissions as “outrageous.”

Although Hatoyama’s decision to set the reduction target is worthy of praise, I am not sure he has done enough to follow up on it. His meeting with top leaders of China and South Korea did not go any further than confirm tripartite cooperation at the 15th Conference of Parties to the U.N. Framework Convention on Climate Change (COP 15) scheduled for December in Copenhagen. Nor have I heard of any initiative taken by him on specific measures to promote eco-friendly products in Japan or to lower the prices of such products.

I believe it is incumbent upon the government to work out concrete steps toward attaining the prime minister’s target, establish an order of priorities and prepare relevant legislative bills expeditiously. Those elected lawmakers of the ruling coalition who are well-versed on the issue of climate change must not lose any time exercising their leadership to initiate these actions.

On the diplomatic front, the Japanese government must persuade developing nations, including China and India, to accept some obligation to reduce CO2 emissions. Japan should drive home the point that it is in the best interest of developed as well as developing countries to increase opportunities for industrialized nations to invest in emissions reduction projects in developing countries through the Joint Implementation scheme under the Kyoto Protocol, rather than through the Clean Development Mechanism whose transaction costs are high.

China, the world’s largest emitter of greenhouse gases, and India, which ranks fourth, should be able to find plenty of opportunities for reducing greenhouse- gas emissions in which the marginal costs of reduction are low.

I hope the same reduction target that Hatoyama proposed will be imposed on industrialized countries in general and that developed countries will increase their investments in emissions reduction projects in developing countries that have accepted the obligation to curb emissions under the Joint Implementation scheme. This would enable developed countries to meet their unfulfilled reduction targets at lower costs.

Takamitsu Sawa is a professor of Ritsumeikan University’s Graduate School of Policy Science and an appointed professor at Kyoto University’s Institute of Economic Research.