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The GDP from the clouds

Mathematical model analyzes the impacts of the climate changes on economic growth

eduardo cesarSix years ago, physicist Luis Aímola set about studying climatology, economic theories and principles of international negotiations. His purpose was to bring together these three universes in just one mathematical model, going beyond academic studies of this kind, which deal with only two of these three areas, and to facilitate the taking of decisions that prevent the impacts of the climate changes. Finally, he proposed a common language between the natural sciences and the social sciences, something very rare, that deals with the uncertainties of the climate change scenarios in an approach that is typical of economists. In practical terms, his mathematical model shows the moment at which economic growth should stagnate and begin to fall, according to friendlier or crueler scenarios about the climate of the future, and when to act to prevent this fall, taking into account the uncertainties about the behavior of the climate.

The winds are not always favorable. “If the climate changes very quickly”, says Aímola, “there may not be time to take measures to prevent the fall in activity and unemployment”. This is the situation in five of the nine simulations that he did with Proclin, short for Prototype for Simulating Scenarios of Uncertainties in the Climate Negotiations, taking as a horizon the next hundred years and only two blocs of countries – one from the North, very industrialized, and the other from the South, developing.

If the temperature increases very quickly, the economic growth of the two blocs of countries may become stationary and begin to fall in 2015, 2022, 2037, 2043 and 2051, unless measures are taken to reduce the emission of CO2, the main culprit for global warming. According to Aímola, even though the uncertainties about the behavior of the future climate are quickly diminished, the preventive actions would contribute very little to postponing the fall in the Gross Domestic Product (GDP), the sum of all the riches produced by the country.

In the opposite scenario, if global warming is slower, according to the other four scenarios now carried out, economic growth could stagnate and fall only as from 2068, 2070, 2083 or even only in the 22nd century without any palliative measure: the adoption of measures against the rise of the temperature would postpone this fall by 20 or 30 years. “One of the assumptions of this model is that climate damage is the only problem that can hold back the growth of the GDP”, says Aímola, “by means of the destruction of ports, of the reduction of agricultural production and of the increase in the mortality of the population”.

eduardo cesar“The modeling helps to understand the negotiation process and the taking of decisions”, comments Pedro Leite da Silva Dias, a professor from the University of São Paulo (USP), who supervised Aímola’s doctorate, which resulted in the Proclin. “The analysis is more restricted to the use of fossil fuels and their impacts on the change of the climate”, observes economist Eliezer Martins Diniz, a professor at USP. “An analysis of the forests, which account for an impact of about 75% of the emissions of CO2 in the case of Brazil, would call for a distinct focus and would produce another paper as ambitious as this one.” According to Diniz, this model, with the due adaptations, can be used in other kinds of environmental negotiation in which Brazil may take part in the future.

Costs and benefits
Proclin helps to dissolve the impasses of the negotiators. The decisions of each country on postponing or putting into practice preventive measures depend on a purely economic line of thought: if the estimated costs are lower than the forecast damages, the countries are going to act; otherwise, they will not. Last October, the British Prime Minister, Tony Blair, proposed in Parliament the approval of measures to reduce the emission of CO2 as a way to hold back the effects of global warming. Opposing political groups impeded the progress of the proposal, alleging that industrial activity would also be reduced and there would be no clear immediate gains.

The United Kingdom is a country that shows relatively low costs for reducing the impacts of climate changes and, at the same time, highly vulnerable. So it should continue to be a protagonist or promoter, according to a classification of attitudes of the countries in international negotiations initially applied to analyze the measures adopted in the 1970 against the emission of pollutants that cause acid rain and in the 1980’s for the Montreal Protocol for gases that rarify the ozone layer. Formulated by two sociologists, a German, Detlef Sprinz, and a Finn, Tapani Vaahtoranta, this classification of the countries into promoters, procrastinators, intermediaries or spectators is one of the 12 models coming from economics, climatology, the theory of games and political science that constitute the Proclin. The procrastinators – countries with high costs and low impacts, like the United States – tend to postpone action, since the benefits would be few. The intermediaries – with high costs and vulnerability, like Brazil and Australia – are uncertain: they may act as promoters, as procrastinators, or even cover themselves up with ambiguity.
Proclin manages three sets of variables – the climate, the uncertainties and the economy. The end result is an indication of when the GDP may stagnate and begin to decrease continuously by virtue of global warming. This date can change in accordance with the rounds of negotiations, in which the countries, because of the costs and benefits foreseen, decide whether it is better to act or to count on good luck. The international negotiations on climate changes, transformed into mathematical language, take on the form of a non-cooperative game: the representatives of each country know that they have to cooperate, otherwise all will come out losing, but they will act merely on the basis of self-interest, taking into account their own costs, damages and benefits generated by the reduction in the emission CO2, without any altruist vision. “The gains of each country are not transferred to the others, as in a cooperative game”, Aímola says.

“The results of the simulations suggest that the decisions to prevent recession must be based more on the principle of precaution than on the certainty about the behavior of the climate”, Aímola comments. Proclin values precaution because it presupposes aversion to risk – this time, the contribution came from the financial equations that try to foresee the behavior of those who are always winning or losing on the stock exchanges because of their liking for risk. “If a country takes an aversion to risk, it is going to take precautionary measures, such as the reduction of CO2, even though the uncertainties about the behavior of the climate slowly fall.” Aversion to risk, he reminds us, may oscillate according to the circumstances and to internal or external pressures. “Even though the climate may change little”, says Aímola, “hurricanes and droughts may be interpreted by the population as signs of climate changes, nourish fear, increase aversion to risk, and speed up the taking of decisions”.