An Interview with Bernd MeyerThe Poor Will Not Accept This
Your profession is to build models of the economy in computers. Are there limits to modelling?
First I would say it’s not only the economy. It’s also the environment that is depicted in the models. One important limitation is: are there data? Without data our way of modelling can’t be used. All our models are empirically validated. It doesn’t help to have good ideas only – you need data to produce and feed in to the equations. And that’s the way we do it.
Could you give us an example of missing data?
What we need is data for all countries we are describing. Our horizon is the global economy. It may be the case that you don’t have data for this or that country. One example is to look at different types of private households and their consumer patterns. For one country you have all these different data sets. For others you don’t. Therefore you may be restricted in having different types of households in the entire model.
It’s hard to understand that your models cover such long periods of time. Your time horizon is 2050. How does it work?
Well it works because the relations we find, the behaviour of consumers, producers and investors are based on long time observations. What are they doing? How do they react? It’s about the determinants for their behaviour, which have been observed and tested over a long time period. We therefore have relatively stable and clear interactions between such actors in the model based on evidence, and you can expect that they don’t behave in a totally different way in the future. There are not only data from one observation point, we need time series data. That means that you have statistical information about the stability of the relations. This gives us hope that we are able to tell something about the behaviour of the people in the future .
Hard thinking alone doesn’t help, you need such tools as computer models.
The mission of POLFREE is to examine policies with a focus on resource efficiency. How do your computer models contribute to this?
Firstly, I would say it is impossible to design a policy set for the future without the help of such models. Things are highly complex. And we are talking about global targets that we have to reach. That’s what the natural sciences tell us. But it’s very clear that if you want to understand the global developments of the economy and the pressures that it produces on the environment you must go into the details. It all happens in specific sectors, product groups, pollutants, resources and specific countries. And they interact via international trade, changes in technologies and preferences of consumers. And if you miss such a very differentiated picture of the economy and the environment and the global frameworks for it you never get answers to your questions. Only with computer models you can depict such a world. Our brains are incapable of doing this. Hard thinking alone doesn’t help, you need such tools as computer models.
In which way?
We run simulations with the model. The first step is to build a reference case study. In the business as usual situation the actual policy mix is assumed How would the future look if no policy change would happen? The model calculates year by year the development of the economy and its pressures on the environment.. If the outcome is not acceptable the question is: What can I do to change this? Of course I have some ideas to do it and I install some policy instruments in my computer, maybe taxes or other instruments, to go in the right direction of change. Then the computer will calculate the results, which we must then interpret. That’s very important. Just running a computer model is not enough. The results need to be understandable. If not, there might be a problem with the model. So it’s very important to have the last step and to really understand what is coming out of the computer. And you can do these simulations for a variety of instruments and you can see how economy and nature will react. In the end you come up with an idea about a policy mix in order to meet targets given by the environmental discussions concerning, for example, CO2 emissions or resource extractions.
We are talking about several tools, taxes for instance – what else?
In a broader way we have economic instruments. Taxes, subsidies for producers or consumers. There are information instruments as well to help people understand how the economy works and in order to change their behaviour. Then you have regulations: The government forces consumers, producers or investors to behave in a certain way or to omit a certain action. In the end we talk about these three categories of instruments. All this is policy driven, and in addition there might be the question: Could it be that producers and consumers change their behaviour without any impulse from the government but by intrinsic motivation? They understood that the entire system is in danger. So the people don’t wait untill the government takes action, they take action on their own. Of course, it depends on civil society for instance, and also this can be modelled.
Global CO2 emissions will rise by 50 % till 2050, which means that global warming will be about 4 – 6 degrees. Such a development has negative economic feedbacks. Much more important is to see that we have had a period in the past were such a warming induced melting of methane ice in the bottom of the seas that raised the warming up to 10 degrees with the result that 90 % of all species died. This should make us thoughtful. We come further to the result, if policy will not intervene we will get the following problem on a global scale. Land for agricultural use is somehow restricted. You can’t expand it to infinity. There are environmental and other constraints. Secondly, global population will rise until 2050 up to 30 percent. That’s a lot. And thirdly, we will have economic growth until 2050, therefore it is very clear, we will see a rising demand for food and land use is restricted for agricultural purposes, the outcome is: prices for agricultural products will go up dramatically. This means we also get a very important distributional problem, not only in the developing countries but in the industrialized countries as well. The relative poor people might get severe problems. Rising food prices could mean that their budget will be increasingly accounted for by expenditures for food.
That means poverty, that means hunger?
Whether it means hunger, we have to further analyse in detail. But it is no question the share of a household budget that is needed for food will rise. In richer countries we have experienced in the past that it became smaller. In the future this will not be the case; on the contrary this share will rise. And this will have another economic implication. The share the consumers spend for other purposes, let me say for computers and cars or whatever you have in mind, will be reduced. And those are sectors of the economy where you have a bigger value added than in the agricultural sector. The result will be that growth will come under pressure.
So GDP is going to decline?
Not GDP but growth rates are going to decline. GDP will rise at least until 2050. There will be still growth but less than in some other baselines. And there will be another cause. If you look at the ratio between public debt and GDP you need a forecast in which this ratio does not exceed certain numbers. Otherwise you can’t exclude the possibility of a financial crisis, which would question the consistency of the forecast. On the one hand income taxes for instance have to be raised to avoid such situations and on the other hand public expenditures might be reduced – in order to balance the budget of the government. As a result our Business-as-Usual Scenario concerning GPD growth is weaker than other expectations, which do not consider the risk of a financial crisis.
The gap between rich and poor people that we already observe will be widened. This might become a problem, indeed. But the model we have at hand can’t forecast a riot or wars. That is a question of interpretation.
The world as it occurs in your Business-as-Usual Scenario, could it work in political terms? In other words, there might be a bigger crisis ahead that will change the way things develop?
You can interpret the results we have in such a direction. The gap between rich and poor people that we already observe will be widened. This might become a problem, indeed. But the model we have at hand can’t forecast a riot or wars. That is a question of interpretation. Of course we are obliged to ask questions like: What does this mean for a society? For the everyday lives of people and so forth. This is additional work that has to be done – the interpretation of the results.
In other words you don’t have advice for the American or the Russian military how to react in a certain region?
No, we can’t do that. In which way a society would react in detail is very uncertain. But what we can say: We have a problem. And we should avoid getting into trouble. The result of our Business-as-Usual Scenario is, that this is not a desired future. I don’t want a future like this.
So far we were talking about the results of the Business-as-Usual Scenario. But you have worked on the other three scenarios as well. What can you tell us – as a finding of your computer model, about scenario 1 – Global Cooperation?
I think there is a current tendency that policy is reacting. For example, at the G7 event in Bavaria, Germany in June 2015, there was an initiative on global resource efficiency. I suppose there will be a discussion at the climate summit in Paris and in the next years to come to a global cooperation, maybe not of all countries but of important countries to reach certain targets and to examine policies that might help to reach them. I think it would be better to discuss several instruments that can be introduced in certain countries.
Could you give us an example, please?
Let’s think about an upstream carbon tax. Oil, gas and coal will be taxed; as a result the users of these fossil fuels have to pay more than in the Business-as-Usual Scenario. It will change their behaviour. And this will happen over all stages of production in the economy. Mineral oil will have a higher price, car drivers will think about it, but also in industries the use of fossil fuels will be more expensive and they will change behaviour. In the meantime this is an old instrument, it’s an instrument we discussed for many years.
It’s important to see all these interdependencies between material-use, land-use and energy and climate questions. That’s one of the most important points in the POLFREE project and of course in our modelling.
You mentioned old instruments. What is unique in the POLFREE project? Is it just an aggregation of old ideas or has it something completely new in it?
In addition we need rising quotas for renewables in electricity production and a couple of economic and regulation instruments favouring e-mobility, further subsidies have to be paid for investments in the energy efficiency of buildings.
We implement taxes on the use of materials, regulations for recycling of ores and non-metallic minerals and improve the material efficiency of production via information instruments. Further instruments raise the productivity of land and reduce the consumption of meat and diminish waste of food in production and consumption. In total up to 30 different instruments are implemented simultaneously. Very important in this project is to see the interdependencies of what we call climate policy on the on hand and the policy of resource efficiency on the other hand. In the past climate issues used to be discussed without mentioning resource efficiency. But the extraction, transport and processing of materials needs much energy. Another case is land-use. Is it possible to use biomass in order to produce fuel for cars. What will be the implications? Higher food prices will be one of these.
It’s important to see all these interdependencies between material-use, land-use and energy and climate questions. That’s one of the most important points in the POLFREE project and of course in our modelling. We link our economic model GINFORS with the natural science model LPJmL, which calculates water availability and the productivity of agricultural land use resulting from climate gas emission paths. The linked system depicts the interdependences between economic behaviour, pressures on the environment and the feedback on the economy.
What is the most important outcome from your personal perspective?
Well, to see that we have global targets and to see that most of them can be achieved by policy mixes that we implement. In the case of the Global Cooperation scenario, the 2 degree climate target and sustainability concerning abiotic resource use, biomass and agricultural land use can be reached by 2050. This development will be accompanied by gains in GDP and employment. Even if the EU goes alone realizing an ambitious environmental policy the global targets will of course not be reached, but the EU will realize high gains in GDP and employment, which will force the other countries to follow.
I’ve been working in this field for a long time. My experience was that during the last years insights have grown dramatically. It makes you happy to see that the power of the intellectual instruments rises in such a way. And that you can help society more and more, to give better information to change structures. It has to do with more powerful computers and better data for instance. You can see that you are able to examine relations that were impossible ten years ago. And that’s fascinating. I’m sure, if we don’t follow these insights we are running into severe problems. It’s not only global warming but the tensions in societies as well. The poor people will not accept this, not only in the developing countries but in the rich countries as well. Or look at the discrepancy between the industrialized and developing countries – it will get sharper. I am an old man now. My grandchildren, Elias and Marlene will live in 2100. I want to avoid that they ask: Why do we have to live in such a nasty world? What did our parents and grandparents do? This is my motivation.
You have still hope?
Yes I do. The modelling shows us: It is still possible. We have some years to act. Not so many. There will be a point of no return. At that point the entire system goes into a new equilibrium – for us as human beings a horror world.