By Gerard Wynn - Analysis
BONN, Germany (Reuters) - Climate change presents a tough choice for governments determined both to fight global warming and tackle the rising cost of living.
Climate measures inflate energy costs by putting a price on burning fossil fuels and also stoke food bills by using farmland and crops to produce renewable fuels.
Now near-record oil and food prices coupled with a global economic slowdown have triggered unrest in several countries and demands to ease taxes on fuels and free up farmland for food.
“This important part of the global economy, food and energy, has been grossly distorted due to under-pricing of water and (carbon-free) air,” Nobel Laureate economist Joseph Stiglitz told Reuters.
The fight against climate change made higher food prices inevitable, he said. “People will have to adjust.”
Officials from more than 170 countries this week tried to forge a new climate pact in U.N. talks in Germany that included steps such as emissions trading and taxes to brake emissions of planet-warming carbon dioxide, which will increase energy costs.
A summit in Rome tried on Thursday to unlock aid for the world’s starving and many there blamed record food prices on climate policies which supported using vast quantities of the world’s crops for biofuels.
Cutting U.S. and European farm and biofuel subsidies would reduce food bills, but there was no alternative to taxes on fossil fuels like oil to cut greenhouse gases, Stiglitz says.
A record oil price is already triggering street protests in Europe and unease in America and India. This threatens support for a climate fight that this week includes the first U.S. Senate debate of a climate change bill.
“The state of the U.S. economy, it’s obviously slowed, makes discussion much more difficult,” said chief U.S. climate negotiator Harlan Watson on Tuesday, a day after the White House said it would veto the bill.
The slowdown and the prospect of “earth-shaking” gasoline prices were making Americans nervous, especially given the uncertainty of future benefits from reducing warming, he said.
Climate policies aim to curb emissions of greenhouse gases such as carbon dioxide from burning fossil fuels. But utilities pass on to consumers the extra costs of carbon taxes, emissions permits and supplying expensive solar power.
UBS analyst Per Lekander estimated the European Union’s emissions trading scheme accounted for 15-20 percent of European power prices. Renewable energy policies contributed about 2 percent but were set to rise rapidly under ambitious EU goals.
“Clearly there’s an inflationary aspect,” he said.
U.N. scientists and renowned economists like Nick Stern say the climate fight will cost fractions of a percent in annual growth, but that is averaged over the long-term with much more impact in the near term than later.
The costs of major food commodities are climbing, with prices of rice, corn and wheat at or near record highs. This has provoked protests and riots in some developing countries where people may spend more than half their income on food.
Climate change affects food in two ways, directly through events such as exceptional droughts, and via a policy response which has diverted food crops into making biofuels like ethanol, meant to be less carbon-emitting than gasoline.
The price link is debated — Agriculture Secretary Ed Schafer estimated that U.S. biofuels’ consumption of corn was responsible for just 3 percent of global food price rises.
Aggressive U.S. biofuels targets will raise conventional ethanol production to more than double current levels, a U.S. state department official told Reuters on Wednesday.
“Say you double that to 6 percent (food price impact), it’s still by no means the driving force, which is oil, the weather and emerging market demand,” the official told Reuters.
Climate change can also add to household bills through water. Global “very dry areas” have more than doubled since the 1970s, according to a Citi report published in January.
The result is businesses spending more money to increase supply, through desalination plants, new pipes or lower demand via water meters — costs which they may pass to consumers.
“In Las Vegas, where they have very little water, consumers are likely to pay,” said Dan McCarthy, president of the water business of U.S.-based Black & Veatch, referring to a continuing drought in the Colorado River basin.