Climate change and liberal democracy

Bjorn Lomborg writes powerfully in The New Economy about the policy choices we face with climate change.

Misusing the inaction argument

"One commonly repeated argument for doing something about climate change sounds compelling, but turns out to be almost fraudulent. It is based on comparing the cost of action with the cost of inaction, and almost every major politician in the world uses it.

The president of the European Commission, José Manuel Barroso, used the inaction argument when he presented the European Union’s proposal to tackle climate change earlier this year. The EU promised to cut its CO2 emissions by 20 percent by 2020, at a cost that the Commission’s own estimates put at about 0.5 percent of GDP, or roughly €60bn per year. This is obviously a hefty price tag – at least a 50 percent increase in the total cost of the EU – and it will likely be much higher (the Commission has previously estimated the cost to be double its current estimate).

But Barroso’s punchline was that “the cost is low compared to the high price of inaction.” In fact, he forecasted that the price of doing nothing “could even approach 20 percent of GDP.” (Never mind that this cost estimate is probably wildly overestimated – most models show about three percent damages.)

So there you have it. Of course, politicians should be willing to spend 0.5 percent of GDP to avoid a 20 percent cost of GDP. This sounds eminently sensible – until you realise that Barroso is comparing two entirely different issues.

The 0.5 percent-of-GDP expense will reduce emissions ever so slightly (if everyone in the EU actually fulfills their requirements for the rest of the century, global emissions will fall by about four percent). This would reduce the temperature increase expected by the end of the century by just five-hundredths of a degree Celsius (nine-hundredths Fahrenheit). Thus, the EU’s immensely ambitious programme will not stop or even significantly impact global warming.

In other words, if Barroso fears costs of 20 percent of GDP in the year 2100, the 0.5 percent payment every year of this century will do virtually nothing to change that cost. We would still have to pay by the end of the century, only now we would also have made ourselves poorer in the 90 years preceding it.

The sleight of hand works because we assume that the action will cancel all the effects of inaction, whereas of course, nothing like that is true. This becomes much clearer if we substitute much smaller action than Barroso envisions.

For example, say that the EU decides to put up a diamond-studded wind turbine at the Berlaymont headquarters, which will save one ton of CO2 each year. The cost will be $1bn, but the EU says that this is incredibly cheap when compared to the cost of inaction on climate change, which will run into the trillions. It should be obvious that the $1bn windmill doesn’t negate the trillions of dollars of damage from climate change that we still have to pay by the end of the century.

The EU’s argument is similar to advising a man with a gangrenous leg that paying $50,000 for an aspirin is a good deal because the cost compares favourably to the cost of inaction, which is losing the leg. Of course, the aspirin doesn’t prevent that outcome. The inaction argument is really terribly negligent, because it causes us to recommend aspirin and lose sight of smarter actions that might actually save the leg.

Likewise, it is negligent to focus on inefficiently cutting CO2 now because of costs in the distant future that in reality will not be avoided. It stops us from focusing on long-term strategies like investment in energy R&D that would actually solve climate change and at a much lower cost."

The larger question for me on global warming is how we square ourselves with the policy failures of efforts like the Kyoto protocol and engage more effective efforts through more genuine public-private partnership.

I am not encouraged that we will see that kind of genuine partnership anytime soon, given the left-wing celebration of strong-arming public policy questions, these days.

The most promising climate change measures are coming from the market, at this point, I'm convinced. It is not for the failure of good intentions among environmentalists leveraging for regulation. It is because of the general failure of regulatory approaches like Kyoto to deliver when more genuine collaboration is needed to tackle problems like global warming.

It will take some years of failure with this more regulatory approach for liberal demoracies to adopt policies that support more genuine, collaborative private-public partnerships, which are the only efforts that have much change of success.

And thank goodness for a liberal democracy where our policies can be honestly debated and discussed so that our efforts can be focused on solving problems rather than defending our failures.

That broader marketplace of ideas, and not power or even the rule of law, is the brilliance of liberal democracies. And thank goodness we are able to take that fact of liberal democratic life for granted.