But wait a minute: Why did the experts focus so much on the economic impact? The answer is simple. Economics is second to none in measuring the social importance of such adversities. Monetary values such as costs of living, potential profits and wages, or capital assets tell us much about the well-being of society. Even health loss can be appraised by looking at costs of insurance and treatment. To some extent even forest damage or wildlife mortality translates into money through gain-and-loss analyses in the wood, agriculture, or livestock industries. Without economics, we would have to rely on subjective qualitative assessments that lack a common denominator. Instead, we can use prices or such indicators as GDP or CPI to make intersubjective evaluations that aggregate multiple individual preferences.
A bit of economics
American economist Robert P. Murphy points out that the climate change impact calculated by using IPCC models is not as terrible as the picture painted in the media or even in summaries of the very same models. For example, according to the IPCC report, despite climate change in fifty years after 2000 the total number and percentage of malnourished children in developing countries will fall by 9.4 million. According to WHO, by 2030 the health effects of diseases are expected to decrease by 30% as compared to 2004. Even if some of the worst IPCC scenarios will come true, within a century from now our descendants will be ‘only’ 8.5 times richer than us as compared to 9.5 times if no harmful climate change would occur. Our children will still be healthier than us, and the technological development along with the accumulation of wealth will make it easier for them to cope with climate change.
According to Murphy’s calculations, in the IPCC’s worst-case scenario of temperature increasing by 2.5 degrees Celsius by 2050 the expected cost in terms of impact on GDP (and that includes health effects and mortality rate) would reach at most 2.5%. At the same time, according to the IPCC report, the cost of programs that aim at limiting temperature increase due to greenhouse gas emissions up to 2 degrees Celsius during this period is about 3.4% of GDP.
In short, this means that if politicians would choose not to act at all, allowing temperature to rise by 2.5 degrees Celsius by 2050, the cost would be smaller (equal to at most 2.5% of GDP) than the cost of programs aiming at limiting temperature increase to 2 degrees alone (equal to at least 3.4% of GDP).
The perspective up to the year 2100 is similar: In the IPCC’s worst-case scenario a rise in temperature by 4.9 degrees Celsius causes damage of around 4.6% of GDP. Meanwhile, the cost of restricting emissions is about 4.8% of GDP in 2100. So, even ignoring all other costs or effects of climate change, the implementation of these programs would still cause a net loss both in 2050 and in 2100.
As an exercise, try to think whether a complete elimination of emissions means zero temperature increase or a return to pre-nineteenth century levels.
Some critics argue that the IPCC models either do not take into account the risk of unforeseen catastrophic effects of climate change, or that they overestimate costs while underestimating possibilities of reducing emissions. Let us consider both arguments.
The late mathematician, physicist, and economist Martin Weitzman was an unyielding advocate of the first claim. In short, he argued that current cost-benefit models do not take into account unlike shocks that lead to the most violent of disasters. Let us assume that in the case of one in a million, the next gram of CO2 emitted by humans will destroy humanity. According to Weitzman, we should recognize that the destruction of humanity constitutes an infinite cost. Thus, the expected value of such a situation despite its negligible probability equals… yes, you have guessed it: It is equal to infinite loss, because when you multiply a low probability of 0.000001 by infinite cost it still equals infinite cost! Thus, the math compels us: any action that prevents this small possibility is profitable as long as it has less than infinite cost. Even if such action entails an immediate return of humanity to caves and the destruction of the entire CO2-producing economy.
Although this reasoning may seem interesting as a morbid mathematical exercise, we should approach such far-fetched propositions with caution. Economics is not an experimental science. Weitzman’s thought experiment seems artificial and dubious because it models a closed world instead of an open one — it allows only two pre-existent alternatives, and it assumes that no innovative ways of overcoming the problem exist.
Moreover, any economist should investigate how Weitzman calculated the expected value. Did Weitzman consider time preference and subjectivity of human valuations? Maybe the fact that we usually do not care about highly improbable threats is not a proof of human irrationality, but precisely of human common sense? Or perhaps our internal cost and benefit calculations disregard such threats off-hand, because we know that otherwise all our actions would be hopeless? Instead we push on to solve our daily problems in hope that there is a tomorrow.
Another question: which one of many possible threats should we focus on? Should we forget about climate change and develop space technologies as soon as possible to avoid a catastrophe caused by a possible asteroid impact? Or maybe we should switch the entire economy to the construction of some orbital shield protecting us from potentially catastrophic solar storms? And what about improbable though possible invasions from the outer space? Or maybe we should turn against Weitzman’s programs, as there is also a small probability that they could destroy humanity? Is it worthwhile to consider every possible, though clearly absurd scenario? We encourage you to rethink these questions in the context.
And what about the problem of overstating costs and understating possibilities of emissions reductions by the existing models? The problem was described in Nature by Alexander Barron, who dealt with it at the American Congress and later under the umbrella of the Environmental Protection Agency (EPA). It is particularly noteworthy because it suggests a new line of inquiry: On the one hand, the scientific consensus models usually ignore potential for technological innovations and market adaptation to climate change (Barron provides an example of the coal market). On the other, these models disregard existing opportunities for low-cost emission reductions.