ECONOMICS : The Mysterious Case of the Flying Kiwifruit

The Stern Review on climate change and the economic costs of continued inaction painted grim picture: rising sea levels, floods, droughts, up to 200 million migrants being displaced, and an economic cost globally of £3.6 trillion if the problem is not tackled. More optimistically it said there is still time to avoid the worst impacts of climate change if firm action is taken now.
The report prompted Stephen King, managing director of economics at HSBC, to describe climate change as classic economic externality. Those who pollute (either through emissions or cutting down trees) cause others – now and in the future – to suffer. Those who pollute, though, do not have to pay for others’ suffering.
Within countries, it’s sometimes possible to control the externality. Dr King cited London Mayor Ken Livingstone’s congestion charge as an example: it places more of the costs of traffic congestion on those directly responsible for causing it. “Climate change is, though, much bigger challenge because of its cross-border nature,” he acknowledged. “The depressing feature of international externalities is our seeming inability to come up with structures that protect the ‘common good’.”
Alas, he was not hopeful of globally acceptable outcome. If the European Union could not deal with minor externalities – the disappearance of cod from the waters around Europe is classic externality which public policy-makers have singularly failed to resolve – King suspected the chances of success at the global level were “rather low”.
Noted economist Joseph Stiglitz, however, said the Stern report made clear that the question was not whether we can afford to act, but whether we can afford not to act. He conceded there were uncertainties but insisted the downside uncertainties – aggravated by the complex dynamics of long delays, complex interactions and strong non-linearities – made compelling case for action.
The report’s 600-plus pages weren’t compelling enough to bring all economists on side. In this country the doubters included Business Roundtable executive director Roger Kerr, who pointed out that Sir Nicholas Stern’s review was part of an exercise that had been going on for some time, and there had been strong criticism earlier in the process. Kerr, moreover, said the report had been prepared for the British government, and should be read in the context of that government being big supporter of the Kyoto Protocol.
But galaxy of big-name economists endorsed the report. They included Robert M Solow, Nobel Prize economist 1987; James Mirrlees, Nobel Prize economist 1996; Amartya Sen, Nobel Prize economist 1998; and Joseph Stiglitz, Nobel Prize economist 2001.
Reaction to the Stern report in New Zealand was influenced heavily by our dependence on commodity exports and the need to safeguard this trade. New Zealand must do more to control greenhouse gas emissions and protect its reputation as an efficient food producer, or risk tarnishing its clean, green image, Prime Minister Helen Clark warned. We could end up being branded “unclean … unsustainable and having our trade targeted”, by competitors unless we worked toward fully sustainable production, she said.
She – and our food producers – have cause for concern. former British minister, Stephen Byers, reckons flying one kilogram of kiwifruit from New Zealand to Europe caused five kilograms of carbon to be discharged into the atmosphere. Never mind it goes by ship. He favours tax on food miles (a concept discussed in last month’s column).
His thinking has caught on with green campaigners in Britain. They were quoted in The Guardian newspaper as insisting the planet can ill afford the thousands of food miles travelled by exotic produce. The newspaper included kiwifruit from New Zealand as an example.
Kiwifruit industry and New Zealand government leaders responded by referring to the Lincoln University report, published in July, which showed products such as onions, dairy products, lamb and apples were more efficiently produced in this country, even after transport was taken into account.
More fascinating, the Green Party drew attention to the Lincoln University study in an appeal to British Green parties and other British organisations not to support campaign against our dairy and lamb on the basis of greenhouse emissions.
“The Greens support locally grown food for multitude of reasons including freshness and benefits to local communities and economies, and it is entirely reasonable for British Greens to support buy local campaigns for those reasons,” co-leader Russel Norman said. “However, we base our climate change policies on evidence, and the evidence in the case of New Zealand dairy and lamb shipped to Britain is compelling.”
Clark nevertheless warned that Britain’s concerns about food miles can’t be ignored. “So we really do have to take these issues extremely seriously and be mindful of our reputation as an economy,” she urged.

Bob Edlin is regular contributor to Management.

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