Wednesday, July 12, 2006

A Convenient Falsehood?

Global warming is in the news a lot lately, not least because of "An Inconvenient Truth," a documentary about Al Gore's position on the subject. Ten years ago, the discussion about global warming centered on whether it exists; a broad scientific consensus now seems to have concluded that it does. Therefore, the question now under discussion is: What should we do about it?

Bjorn Lomborg's answer is: not much. Lomborg, an associate professor of statistics at the University of Aarhus in Denmark and the author of "The Skeptical Environmentalist," organized a conference called the "Copenhagen Consensus." In 2004 he invited a number of notable economists, including four Nobel laureates, to discuss the greatest challenges facing humanity--and to evaluate the relative costs of meeting them. A few weeks ago, he followed this up with a group of U.N. ambassadors. To each group he posed the classic economists' question: in a world of scarcity, what is the best use of resources? A more prosaic way of posing the same question: given a certain amount of money to "do good" with--say, $50 billion--what is the most effective use of that money?

Both the economists and the U.N. ambassadors ranked combating climate change at the bottom of the list. Their logic was that the other potential uses of resources--providing sanitation to combat malaria, giving relief to post-conflict regions to help reduce the risk of repeat conflict, etc.--had a much higher benefit than directing resources to combat climate change. For example, according to Lomborg, the panels found that:
Forty dollars of good would be achieved for every dollar spent on HIV/Aids prevention. In other words, a dollar's worth of condoms in the right place would bring benefits an Aids-affected community would value at $40…Spending the world's limited resources combating climate change would achieve good, but would cost more than it would achieve. That money could be better spent elsewhere.
Lomborg is, of course, right that resources are scarce, and that the costs and benefits of any action should be carefully considered. He may even be right that in monetary terms, other, more immediate projects have a bigger bang for the buck. But there is a valid counterargument.

On the Environmental Protection Agency's web site on global warming, there's a section designed for kids. It poses the problem of climate change as follows:
Lomborg's argument, in short, comes down to this: on any given day, there are better things to do than go to the dentist. The appropriate counterargument is: yes, but if you never go to the dentist, your teeth rot.

1. Apart from global warming, what do you think is the single most important issue facing the nation and the world? If you had $50 billion to spend on that and on measures to combat global warming, how would you allocate those resources?

2. One of the necessary conditions of examining climate change is developing some way of comparing current costs and future benefits. Economists usually do this by discounting--that is, multiplying future benefits by a factor less than one to calculate the "present value" of those benefits today. How would a change in this discount factor affect the relative merits of different programs? If the discount factor were higher (closer to 1), would combating global warming have had a higher ranking by the Copenhagen Consensus? How would you compare the costs of combating global warming with the benefits?

3. One of the greatest challenges to the U.S. economy is the skyrocketing cost of health care. As with global warming, part of the health care challenge is that we have bad habits--like eating burgers and fries--that, added up over the course of a lifetime, result in serious conditions like heart disease. However, the immediate taste benefit of eating any particular burger may be much greater than the incremental health cost of eating that burger. Similarly, for you, the benefits of driving to work on any given day outweigh the costs to the environment--but when taken in total, the costs of everyone driving to work every day for decades on end mount up to serious problems. What methods do people use to develop healthier lifestyles? Could those methods be applied to the problem of global warming?



  • At 11:12 AM, July 14, 2006, Blogger Henry said…

    I think you don't do credit to Lomborg's argument. That, or you don't quite know how to frame the counterargument.

    Both of these things are issues about the future value of some present effort. In the case of AIDs spending, a single, one time use of money to get condoms to the right place results in a $40 return over some given time frame, all else being equal. Brushing your teeth in one instance does not provide that same return; nor does the environmental website make the claim that it does. The only appropriate way to compare the two would be for you to say "Would spending a dollar a day on accurate (no loss, no spoilage, no misdirection) condom distribution (which I think is Lomborg's straw man) EVERY DAY FROM NOW ON provide less of a return than brushing your teeth EVERY DAY FROM NOW ON?"

    That is, I believe Lomborg and company are thinking clearly about this and trying to say that EACH DOLLAR SPENT (not each dollar spent each day) has a higher return in certain areas, measured over a given time fram, than in combating global warming. Read another way, the global warming problem is so expensive and uncertain to buy down now that there are higher returns (possibly largely due to the lower uncertainty of benefits over the relevent time frame) to be found in fighting malaria, helping areas in conflict, etc.

    Of course, you also skip over what's implied by the converse. Namely, the cost to NOT doing what Lomborg and company talk about is, as implied by their calculation, higher than not spending on global warming. however it was done, the subject measurement implies that the cost in, say, human life for ignoring malaria or AIDs is higher (with more certainty, at any rate) than for ignoring global warming.

    This seems to me to be simple marginal analysis. The benefit of spending that marginal unit of money is higher for AIDs prevention and other things than it is for combating global warming. By contrast, the "counterargument" is not a marginal one. The marginal value of cleaning your teeth ONCE more is not the same as the value of continually cleaning your teeth.

  • At 11:31 AM, July 14, 2006, Blogger Chris Makler said…


    I think you hit the nail on the head: within the framework of static marginal analysis, Lomborg's argument is internally consistent. The question in my mind is: is static marginal analysis the appropriate tool to analyze this problem?

    Static marginal analysis does a great job of analyzing some questions: for example, we can compare the marginal benefits and costs of producing guns or butter. But when placed in a dynamic setting, as you point out, the implications are different. In a static setting, for example, tax cuts reduce government revenue; but in a dynamic setting, those same cuts may in fact stimulate growth that leads to higher government revenue in the future.

    It seems clear to me that the problem of global warming, like the problem of economic growth, is only addressable in a dynamic setting. Therefore the question of where to spend resources today seems a false one. The question should be: what policies should we adopt over the next hundred years to combat the gradual warming of the planet?

    Note that it becomes less clear what it means to "spend a dollar" in such a context. For example, does investment in mass transit infrastructure, or alternative energy sources, count as "spending a dollar to reduce global warming," even though such investments have additional benefits? Would a revenue-neutral gas tax that discouraged driving count as "spending a dollar," or would it count as "free" because it's revenue neutral?

    In short, the main thrust of the post was meant to be this: since the question you ask (or the model you use) implies the answer, is Lomborg's question the right one when it comes to global warming?

  • At 3:05 PM, July 14, 2006, Blogger William Chiu said…

    The solution to global warming is a public good. If one country takes on all the costs to find a solution to global warming (i.e. reduce C02 emissions), then every country in the world benefits from it. The benefits to the solution would be non-rival and non-excludable.

    Therein lies the problem, a rational agent (in this case, a government) would not want to pay for any of the costs to solve global warming. Governments become free-riders waiting for a wealthy nation such as the United States to curb their C02 emissions and repair past damages.

    I am certainly not surprised that the intelligent people at Lomborg's conferences rank a solution to global warming as a non-worthy priority. The solution to malaria in a country is more desirable to a solution to global warming because the benefits to the former are concentrated within the country and not shared by the world community.

    I end not with a conclusion, but a question: When markets fail, the government intervenes. But what happens when governments fail, who or what is to intervene?

  • At 6:50 AM, July 30, 2006, Blogger aram harrow said…

    I think the politics/mechanics of taxing are more important than the static vs. dynamic question. Tradable CO2 credits could be done globally in a way that's (relatively) fair, transparent and uncontroversial. Transfers from rich countries to build up neglected health systems in poor countries is much harder to organize politically on a massive scale, despite its higher marginal effectiveness. This effectiveness is why it makes so much more sense for private charity.

    Also, these goals aren't exclusive. Money for HIV/AIDS could come from general revenue, while revenue-neutral carbon taxes would pass on most of the short-term efficiency losses to consumers and industry. When thinking about world priorities, it doesn't make sense to think of the available resources as some small fixed amount, like $50 billion.


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