Essay by Eric Worrall

Professor Dennis Wesselbaum thinks we should act on climate change – but economic harm is not a good justification for doing so.

Calculating the economic cost of climate change is tricky, even futile – it’s also a distraction

Published: February 25, 2025 1.25pm AEDT
Dennis Wesselbaum
Associate Professor, Department of Economics, University of Otago

Climate change is no longer a distant threat. It’s here, it’s real and it increasingly affects us all. 

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The panel’s latest assessment report avoids quantifying the economic costs of climate change. So, to understand the economic costs of climate change, we can use the best estimate based on the previous report and the insights from meta studies. These analyses posit a temperature rise of 3.7°C will reduce global gross domestic product (GDP) by about 2.6% (ranging from 0.5 to 8.2%) by 2100.

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However, this comparison is extremely misleading. The value of 2.6% today will differ substantially from 2.6% in 75 years.

The New Zealand economy grew at a compound annual rate of 1.4% between 1960 and 2000. Using this same average growth rate, New Zealanders will have a 184% higher standard of living in 2100. If nothing is done to address climate change, and given the best cost estimate, our standard of living would still be 176% higher than it is now.

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Even if we accept our best estimates, economic costs are not the issue, but saving the environment is. 

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Read more: https://theconversation.com/calculating-the-economic-cost-of-climate-change-is-tricky-even-futile-its-also-a-distraction-248862

The professor also admits elsewhere in the article that evidence for more severe weather is inconclusive.

I found this article quite refreshing. Significant global warming would cause changes if it occurs, though the extent and significance of those changes is open to debate.

I do disagree with some of what Professor Wesselbaum wrote, I suspect the professor has the view nature is fragile. You lose that view very quickly if you spend any time living in the tropics.

I spend most of my “nature” time wondering what to do with all those blessed palm fronds which keep piling up and are difficult to burn. And where did that giant succulent which is crowding my lime tree come from? I’m pretty sure it wasn’t there last time I looked.

If I had a flame thrower I could take down some of those fast growing tropical weeds which are infesting my driveway.

In the tropics (or near tropics in my case) the problem isn’t preserving nature, the problem is smacking nature hard enough to keep it from invading your house.

The professor also kind of overlooks other issues, such as the fact that some climate action such as carbon pricing functions as a potent regressive tax which slams poor people. So there are more considerations when deciding what climate action if any to take, than whether the local beach suffers increased erosion.

Today BBC Verify asks “If the UK has more renewable energy, why aren’t bills coming down?” and purports to supply an answer (in fact, several answers). They make a passable job of explaining how electricity pricing operates in the UK, but I would suggest that they have missed some glaring truths about the way in which the net zero agenda is behind the UK’s staggeringly high electricity prices.

They start by observing that the energy price cap is to go up again from 1^st April, despite this:

But Labour pledged in its manifesto: “We will save families hundreds of pounds on their bills, not just in the short term, but for good.” It also promised bills would come down by “up to £300 by 2030”.

This isn’t the first time that I’ve seen the claim that the Labour Party’s promise of reducing bills would be achieved only by 2030. The problem is, I can’t find that qualification expressly set out in the Labour Party’s pre-election manifesto, as claimed by BBC Verify. The manifesto does talk of cutting bills for good, of the importance of lower bills, of British families under the last Conservative government having “amongst the highest energy bills in Europe”, the desperate need to end the era of high energy bills, of a clean energy mission that will drive down bills, and so on. The manifesto did say explicitly:

We will save families hundreds of pounds on their bills, not just in the short term, but for good.

I would suggest that the clear implication of that statement is that we wouldn’t have to wait until the end of the current Parliament to see energy bills coming down (though admittedly, it doesn’t promise an immediate reduction either).

It did include this as one of its five “missions”:

Make Britain a clean energy superpower to cut bills, create jobs and deliver security with cheaper, zero-carbon electricity by 2030, accelerating to net zero.

At best that statement is ambiguous. I would suggest that the 2030 date is meant to apply to the “zero-carbon” electricity target (although I note that this too has been ditched, since they now acknowledge that 5% will still be supplied by gas even in the unlikely situation where they achieve their 2030 ambition). It’s quite a stretch to suggest that the 2030 date also applied to the claim that energy bills would be reduced. But that’s what BBC Verify seems to have accepted without question, and without pointing out the (at best) ambiguous nature of the wording of the “mission”.

I have searched the manifesto in vain for words that justify the statement by BBC Verify that the manifesto promised that bills would come down by up to £300 by 2030. It’s certainly true that Miliband, Starmer and other Labour politicians bandied around the £300 claim an awful lot ahead of the election (with or without the weasel words “up to”), but the £300 figure doesn’t seem to appear in the manifesto either. The manifesto simply refers to “hundreds of pounds”.

If I am wrong, please feel free to point out the manifesto reference, and I will gladly issue a correction. For now, it seems to me that the BBC Verify analysis falls at the first hurdle.

The analysis offered by the BBC is correct when it says this:

The UK’s electricity is expensive.

Compared with countries in the European Union, UK domestic electricity prices ranked fourth highest in the first half of 2024 – the most recent government data.

This is for consumers with medium usage, including taxes and subsidies.

For industrial electricity, the UK had the highest prices – for medium users – over the same period.

At this point, it could have gone on to point out in addition (as Jit did here at Cliscep a little under two years ago) that “[t]he more of your electricity you obtain by harvesting wind, the more expensive it gets.” That is an undeniable fact, and it’s worth pointing it out, but the BBC chooses not to. There might be lots of reasons for that fact, of course, and while not acknowledging the fact, the BBC does go into the reasons why the UK’s electricity is so expensive. The main reason, they say, is due to changes in wholesale costs, and that this is linked to international gas prices. This is problematic as an analysis, since it doesn’t explain why countries which are more heavily reliant on gas to generate electricity than is the UK, somehow achieve lower electricity prices.

They seek to blame gas prices by explaining – correctly – that gas sets the price in the UK’s electricity system because:

The wholesale cost is set by the last unit of electricity needed to meet demand from consumers. This means that even if gas only generates 1% of power at a given time, gas will still set the wholesale price.

They then quote an unnamed Climate Change Committee spokesperson in order to back up the claim that it’s nasty expensive gas which is to blame. The problem is, that’s where they leave it. They don’t go on to ask why gas in the UK seems to be so expensive compared to gas elsewhere in the world (despite our being told endlessly that there’s no point in the UK exploiting its own gas reserves because there’s a global gas market and a global price for it – apparently). There are in fact two reasons (at least) why gas in the UK used for electricity generation is expensive. The first is because gas is relegated to a secondary (or tertiary) role in the system, with renewables being prioritised. Thus, if the sun is shining and the wind is blowing, then gas is expected to ramp down; whereas during a mid-winter dunkelflaute (such as we have seen several times in the late autumn just gone and winter just ending) gas is expected to come riding to the rescue by ramping up, often at relatively short notice. This is a highly inefficient way to operate gas generation, and it inevitably adds to the costs of the system. Not surprisingly, the operators of gas-fired power stations will also seek to maximise their revenue when the opportunity arises – such as during a dunkelflaute, when the system operators are straining to keep the lights on – by increasing their charges. In short, the more unreliable renewables you put into the system, the higher your gas prices will be. Had we simply chosen to rely on gas for the bulk of our electricity generation, with renewables playing nothing more than a bit part, then gas prices would be much lower.

There’s a second reason why gas prices are high in the UK, and it’s an entirely artificially one, driven by the net zero agenda. It’s the Carbon Cost loaded on to gas prices by the government in an attempt to make renewables look relatively cheap compared to fossil fuels. I touched on this in Voila! As I mentioned there, not only is this thumb on the scale applied more heavily as time passes (i.e. the cost of carbon applied to fossil fuels is being increased over time) those higher costs have recently been increased:

…in 2020, for CCGT H class projects commissioned in 2025, “carbon” costs were said to be £32 per MWh; by 2030 they were to rise to £45, by 2035 they were said to be £59 and by 2040 were deemed to be £70. By 2023 they have risen (albeit expressed in 2021, rather than in 2018, prices) to £60 (2025); £83 (2030); £108 (2035); and £123 (2040).

We thus have the absurd situation – comical wouldn’t be too strong a word, were it not so serious – whereby the government loads artificial costs onto gas to make renewables appear more competitive than they are, but because gas still sets the price on the UK grid, this has the effect of making our electricity substantially more expensive than it otherwise would be. Funnily enough, BBC Verify didn’t think to mention that.

The article then asks how cheap is renewable energy? It talks about the Contracts for Difference (CfD) regime, without actually using the title (it says, coyly, that the government provides developers with certainty “by agreeing a fixed price – or strike price – that they will be paid for each unit of electricity they generate for 15 years into the future.”). We are then told that the system works thus:

If the wholesale price is below this fixed price, the renewable generator gets paid a top up by a government-owned company; if the wholesale price is above the strike price, the generator pays the difference back.

Any costs or savings are then passed onto consumers via bills.

That’s true – in theory. The only problem (and BBC Verify didn’t think to mention this either) is that in practice it’s almost entirely substantial costs being passed on to consumers, and in only one year have consumers seen (much smaller) savings being passed on to them. David Turver has an excellent article which includes a graph that makes this all too clear. Only in the exceptional year of 2022 did CfDs see the operators paying a very modest amount of money back. In every other year between 2017 and 2024 we, the consumers have paid more money – often much more money – to the operators. Last year under the CfD regime was a bumper year for the operators and a particularly bad one for UK energy consumers.

What about extra costs, BBC Verify asks? Yes, what indeed? This is what they tell us:

The UK has an ageing electricity grid, which needs upgrading, partly to accommodate new renewable power sources. There are times when wind power is actually paid not to generate, because the grid cannot handle all the electricity that it could produce.

This adds to the network costs in a bill.

Intermittent renewable sources also require backup for when it’s not windy or sunny. In the short term, this role will be largely filled by gas…

I regard that as a shamefully brief analysis. No numbers are mentioned. The suggestion that extra (unspecified) grid costs arrive from its ageing nature, with an add-on comment that it also needs upgrading to accommodate renewables, is rather misleading. They might have mentioned that National Grid ESO has estimated the cost of reaching net zero as being £3 trillion. They might have mentioned that this amounts to well over £100,000 for every household in the country. They might have mentioned that the planned grid upgrade is anticipated to cost £100 billion (close to £4,000 per household). But they didn’t. I wonder why not?

They refer briefly to times when renewables are paid not to generate electricity, but they don’t tell us how much these constraints payments are costing us all. These have to date cost us more than £1 billion.

In short, as so often with BBC Verify, what purports to be a fair investigation into an issue of concern turns out to be a hit job against fossil fuels and in favour of renewables, with the story being spun to achieve the desired result, and with inconvenient facts being skated over lightly or ignored altogether. It’s difficult to reconcile the facts with the conclusion:

But a rapid roll-out of renewables would also reduce the UK’s dependence on gas – the main cause of the price spike of the past few years – and so there could be benefits sooner if gas prices remain high.

Once again – BBC Very Wrong.