It's possible to get too excited about this $100 billion that the rich nations are supposed to be sending to poorer ones over climate change. This newspaper thinks it's important, for example, but me, well, I'm not so sure. For, as ever, we've got to ask Thomas Sowell's pertinent question: “Compared to what?”
Yes, I grasp that it's the rich countries that have pumped out all the CO2 so far, climate change is from CO2, so there's equity, fairness in the richer nations paying for damages to the poorer ones. There's also that equity in richer paying anyway, they're richer. However, there's also the point of, well, is this actually important?
Sure, $100 billion is real money even when we're talking about governments. But let's break that down a bit. Global GDP is around $100 trillion (this is using the Worstall Calculator, back of envelope, 1, pencil, 1) and developing countries are about half of that. The US is $20 trillion, EU $20 trillion, other rich nations $10 trillion, that's about right. Something depends upon which side of the line we put China, but this is good enough for our purposes here.
The GDP of Bangladesh is closing in on $500 billion a year. So, Bangladesh is $500 billion of $50 trillion, about 1% of the developing country GDP. We'll not go far thinking that Bangladesh will get about 1% of those climate damages or development money -- 1% of $100 billion is $1 billion a year. So that's the amount we're talking about, $1 billion a year.
Yes, that's real money. And yet, well, it's also about 0.2% of what Bangladesh already produces each year -- 0.2% isn't, in fact, a huge amount. We take off more than that when we circumcize someone.
Okay, so we can say that this is investment money, not just production or consumption. Well, okay, we can go further and say this is foreign money coming in to invest in Bangladesh. The Bangladesh Investment Development Authority says it received proposals for $3.2 billion in investment in just three months. So $1 billion a year is only 8% of what foreigners are already trying to invest. Or another report on foreign investment, direct FDI was $3.4 billion in the year.
Different definitions of investment there, so different numbers.
But what is this all in comparison to? Depending upon which definition we want to use, that climate change money is between some trivial amount and a nice-to-have but not exactly world-changing amount. Yes, we can play around and move these numbers a bit here and there but it should be obvious that, within any realistic bounds, that $100 billion amounts to something not very important for Bangladesh.
We can also think a little more broadly about what “a transfer from rich to poor” is. A new technology that works is a transfer. Say, solar panels -- 20 years ago those were grossly expensive, now, to hear some speak at least, they're cheaper than even building a coal plant. Especially for tropical or sub-tropical geography.
That price reduction came at least in part from the massive subsidies given to solar deployment and development over those past two decades. So, the existence of cheap solar power is a transfer from richer to poorer -- plus a transfer through time, from the wallets of those in the past to those of the future. This is also true of all the other climate change-beating technologies under development: Windmills, batteries, cheap rare earths to build them with, and so on.
But leaving that slightly more controversial point aside; if that climate change compensation isn't important in size -- which, for a nation getting rapidly richer like Bangladesh, it isn't -- then it's not something we should allow to influence our decision making.
Sure, if the cheque arrives then that's nice. But we should get on with everything we should be doing anyway, whether it arrives or not. Precisely because it's not a significantly large amount it doesn't limit our choices.
So, if we should be using natural gas not coal then we should be using natural gas not coal. Or if solar is the cheapest form of daytime electricity generation (it is, it's what to do at night which is the problem) then we should be rolling out solar cells. If using direct reduction rather than a blast furnace to make steel is better than we should be doing that anyway -- whether foreigners pay for it through a government transfer or capitalists building the plant.
This calculation would be different if climate compensation were some large multiple of the resources we've already got. But it isn't -- not for Bangladesh it isn't. It is, at best, a nice little add-on if it does arrive. So we shouldn't change our plans whether it does or doesn't arrive, and we shouldn't worry too much about whether it does either. Because, given how rich we already are after the hard work of the last few decades, the amount of money on offer just isn't that important to us.
Yes, I know. $1 billion a year is real money, but we've already got 500 of those each and every year through our own efforts. That possible extra compensation from foreigners just doesn't make much difference.
Tim Worstall is a senior fellow at the Adam Smith Institute in London
