A climate change accounting trick could save the planet

As more politicians become aware of the need to do something about climate change before we’re all swallowed by the oceans we came from, discussions are focusing on how to measure what countries are doing about it and what steps to take to contain it.

An accounting trick that could save the planet should perhaps be given more attention: adjusting each country’s gross domestic product data by the effect that particular country has on climate change.

To put it very simply (although it is by no means simple), this could be done by arriving at some sort of “climate change coefficient” for each country, and multiplying that country’s GDP by it.

To be in an area where it can be said that their GDP is growing, countries should aim to have a climate change coefficient above 1.0.

Such a solution could be easier to apply than the current trend of measuring the various human activity-driven causes of climate change (use of fossil fuels, deforestation, energy efficiency, transportation, etc.) separately.

Arriving at a single, climate change-adjusted GDP for each country would serve at least two major purposes: first, it would diminish the gap between the poor and rich countries; second, it would change the way capital is allocated to automatically reward those who are doing the most.

Regarding the first purpose, many emerging markets are likely to suffer disproportionately because of climate change, both because of their location and because of their limited financial resources to deal with it.

They are also more likely to host the world’s last remaining virgin ecosystems – one just has to think of Brazil’s Amazonian Forest, for example.

Besides, emerging markets have historically benefited the least from the past industrialisation which, according to many scientists, has been a major driver of climate change.

As I have argued before, some form of subsidy needs to be put in place to help developing countries fight climate change.

There is no use telling Brazilian farmers to protect the forest that is on their land, if instead of being rewarded for doing that, they are made to pay tax on the land.

Allocating capital to fight climate change

This is tied with the second purpose of introducing a climate change-adjusted GDP — allocating capital more efficiently to the fight against climate change.

The reasoning is that when a country’s GDP is increasing, investors are encouraged to put their money in that country. Countries with good climate change coefficients would thus automatically benefit.

Image source: Pixabay

But arriving at a climate change coefficient is far from easy. There are tens, maybe hundreds of factors that must be taken into account, and they must be tailored for each country’s specifics.

Experts from various fields must come together to create a coherent and credible methodology, which should be suitable to apply on a global level.

And that’s just the technical part. A lot of political games will probably be played, and plenty of negotiations will have to take place to ensure the coefficient is an accurate representation of each country’s role in climate change.

It sounds complicated and indeed it is. But it is urgent to arrive at a global consensus on how to deal with climate change, so this has to start somewhere.

A statistical forum by the International Monetary Fund would not normally be an exciting event to watch. But this year’s statistical forum, which will be held in November, has as its main theme “Measuring Climate Change: The Economic and Financial Dimensions”.

Perhaps this event will turn out to be the ideal place to discuss how a climate change coefficient can be used to save the planet.