Global climate treaty easier to negotiate if guided by Human Development Index

A study by ICTA-UAB concludes that an effective climate change agreement would be more attractive to rich countries if it were negotiated using the Human Development Index instead of GDP.

22/02/2018

Most economic studies of climate change describe economic damages and climate policy costs in terms of gross domestic product (GDP). The fear that climate policies might result in a reduction in GPD growth could lead political leaders to dismiss their application, being concerned that climate treaty might be very costly for their countries and curb economic growth.

A new study conducted by Prof. Jeroen van den Bergh from the Institute of Environmental Science and Technology of the Universitat Autònoma de Barcelona (ICTA-UAB) and published recently in Climate Policy proposes the use of an alternative indicator to GDP to assess the impacts of climate policies aimed at limiting global warming to 2 degrees in terms of human welfare.

Van den Bergh highlights that GPD is an inappropriate measure of social welfare, notably for rich countries. Empirical studies show that an increase in GPD per capita barely contributes to higher welfare or happiness. “This means that if climate change damages are measured as GDP loss, one may seriously overestimate the real costs of climate policy”, he states.

To arrive at a fairer climate policy assessment, the new study proposes to replace GDP with the Human Development Index (HDI). The HDI is widely seen as a much better representation of social welfare in both poor and rich countries, because it captures three factors that directly and indirectly contribute to welfare achievement: life expectancy, education and standard of living. As a result, the HDI has become the customary measure for judging (inter)national policies aimed at development and poverty reduction.
When observing empirical information on current HDI levels of countries, one finds that rich countries have stabilized in a narrow range of HDI values around 0.9 (on a scale from 0 to 1), whereas the lowest-ranked countries in Sub-Saharan Africa concentrate around a HDI value of 0.5.

The new study quantifies how much HDI welfare growth is possible under distinct greenhouse gas emission pathways for countries that jointly limit the global average temperature rise to 2°C. This is compared to a policy that maximizes world GDP. The results show that when measuring the impacts in terms of social welfare instead of GDP growth, the HDI of poor countries and their emissions are allowed to increase under a business-as-usual development path until they reach a high level of HDI=0.8. However, countries with a high HDI (over 0.8) must reduce emissions, which are found to be without severe consequences for their HDI. “The findings suggest that a fair climate agreement in this sense would be more attractive for rich countries under the HDI than the GDP frame”, says Jeroen van den Bergh. Moreover, it would allow poor countries to reach higher development levels while staying within the 2 degrees carbon budget.

This is the first study that shifts the narrative of climate policy evaluation from one of GDP growth to a message of improving social welfare, as captured by the HDI. This could make it easier for political leaders and climate negotiators to publicly commit themselves to ambitious carbon emission reduction goals that go beyond the Paris Agreement, needed to safeguard our planet against dangerous climate change.