When Lomborg writes about the costs and benefits of
climate change, the arguments are centered about certain figures which
are crucial for the argumentation. He
writes for instance: "Stabilizing the temperature increase to 2.5°
C does more good - it reduces temperature by 0.48° C - but at a
rather high cost of $15.8 trillion. Actually, the models also give us a
cost of the total damage from global warming (i.e. how much better off
we would be if global warming wasn´t happening), which is about
$14.5 trillion. Thus, from stabilizing at 2.5° C we actually end up
paying more for a partial solution than the cost of the entire problem.
That is a bad deal." (British version p. 41-42, American version p. 36).
What Lomborg argues here, is that stabilizing at 2.5°
C does not pay, because the costs (15.8 trillion) are larger than the
benefits (less than 14.5 trillion). So the whole conclusion rests on
the point that 15.8 trillion is more than 14.5 trillion. But are the
two figures really significantly different? How large is the
uncertainty on each figure? And is it really possible to know the
average global temperature as precisely as indicated by the figure
0.48° C? It is hard enough to measure temperature at one site with
an exactness of 0.1°. Imagine how hard it would be to estimate the
global temperature, with measuring points on land and at sea spread out
with uneaqual distances, with a certainty not of one, but of two
decimal points.
By writing 15.8 trillion instead of 16 trillion
Lomborg postulates that the figure is known with that degree of
precision which is indicated by using three significant digits. If he
writes 15.8, then he thereby implies that the figure is larger than
15.7 and smaller than 15.9. That
is, he postulates that the uncertainty on the figures is less than 1
percent.
But how, actually, do you calculate for instance the total
damage from
global warming with a precision of 1 percent? You need to know, for
instance, how much will agricultural output be increased or decreased
in every region of the world. So you must know exactly how
precipitation will change. You must know exactly how much sea levels
will rise, in order to estimate the damages on coastal cities and
mangrove swamps. You must know exactly how many
people extra will die because of climate change, because one of the
largest items in the accounts is the value of human lives lost. So you
must of course be able to determine with a precision better than 1 %
how much is the value of each human live. This value is set differently
in countries with different economic welfare, so you must know exactly
how much GDP will grow in each country, and you must be sure that
everybody agrees on the values you choose for each life. Maybe all this
sounds impossible to some, but not to Lomborg.
Next, you must be able to calculate the total cost of
worldwide mitigation of climate change, again with a precision of less
than 1 percent. This means not only that you have to know how high will
the sea dikes everywhere in the world have to be. It means also that
you must know the price of substituting fossil fuels with renewable
energy sources. So you must know the future price development for solar
energy and other renewables, and you must know the future price of
fossil fuels in order to know the price difference between the two and
hence the price of shifting to renewables. So you will have to know how
the oil price develops in future. Up to now, Lomborg has not been very
successful at that. In The Skeptical Environmentalist from
2001, he wrote on page 122: "Thus, it is also expected that
the oil price will once again decline from $27 to the low $20s until
2020." As soon as the printing ink had dried, oil prices started
soaring towards a maximum of more than $100. But still, that mistake
does not affect Lomborg. He still postulates that such things may
be predicted within a precision of 1 percent.
Furthermore, future costs and benefits are not
presented as the directly calculated values, but are modified by
discounting. The higher the rate of discount, the smaller are amounts
in the far future (see on discount
rates here). So you have to decide on a discount rate. There are
widely different views as to which rates should be used, but that does
not disturb Lomborg. He chooses a rate which, in his opinion, is the
correct one, and calculates the discounted value of amounts far into
the future. For instance, in his book from 2001 (Figure 166), he
estimates the global worth of income over the century 2000-2100 to be
$895 trillion. To reach that result, he used a discount rate of 7 %. In
"Cool it" from 2007 (Figure 51), he estimates the total worth of income
over the century 200-2100 at $3,005 trillion, based on "dynamic
discounting", which probably means a discount rate falling gradually
over the years from 6% to 3%. So the amount may either be $ 895
trillion or $ 3,005 trillion, but this difference does not disturb him.
He still thinks that he can calculate such amounts to a precision of
less than 1 %.
What do other people do? Do they feel able to
predict these things?
For comparison, we may see how IPCC handles these
issues in their fourth assessment report from 2007. As to the abatement
costs, they present various estimates in their Figure 3.25 in the
report of working group 3. For instance, they state that the total
abatement costs up to the year 2100 for a certain level of ambition
(stabilizing CO2 levels at about 650 ppm) are estimated
to be within the range from minus 1.6% of global GDP to plus 5 % of
global GDP. This corresponds to an amount ranging from a net benefit up
to a cost of more than $5 trillion. And as to global damages due to
climate change, the report says (p. 173) that the results depend on a
large number of normative and empirical assumptions that are not known
with any certainty, and the existing estimates in the literature of the
"social cost of carbon" vary by three orders of magnitude. Which of
course means that IPCC chooses not present any cost-benefit analysis,
considering that the costs and benefits are so uncertain.
Lomborg, on the other hand, feels no restraints in
such matters. He obviously says what politicians and decision makers
want to hear, rather than what is known with any certainty. Politicians
are used to handle
state budgets with figures with many significant digits, and to demand
that such budgets are balanced. They cannot handle uncertainties of the
type that next years´ total tax revenue may vary by a factor of
two, depending on how everything goes. They cannot handle figures with
uncertainties attached to them. They want cost-benefit analyses. They
put the simple question: Does it, or does it not, pay to mitigate
climate change - yes or no? Lomborg gives a clear answer. IPCC does
not. So they may prefer to listen to Lomborg.
And as to lay people, they may admire how much
insight Lomborg has. They listen to specialists discussing whether the
total cost of adaptation will be $1 trillion or $10 trillions.
Obviously, such specialists cannot be very clever, since they are so
uncertain. Lomborg, on the other hand, knows the correct answer: The
result is $ 15.8 trillion. So he must obviously be much more clever
than the specialists. And Lomborg utilises this effect. For instance,
when George Monbiot in his book "Heat" says that keeping the CO2
level below 450 ppm will cost the world somewhere between $2.5 trillion
and $18 trillion, then Lomborg has the following to say about Monbiot:
"He is vague on the total costs". When Monbiot maintains that we cannot
put a price on the suffering of the people harmed by hurricane Katrina,
cannot capture the value of those drowned, or indeed the value of lost
ecosystems, then Lomborg says: "this is a weak argument" (British
version p. 192, American version p. 133).
So, who will you trust most? A person who is vague
and has weak arguments, or Lomborg who knows the right answer with
three significant digits?
BIASED
SELECTION OF FIGURES
Lomborg presents figures for global costs and benefits in the endeavour
against climate change. These figures are not taken from the published
literature, and they do not span the range of values that various
scientists have arrived at. Instead, the figures are based on just one
source, the RICE model, which is an integrated
assessment model developed by the climate economist W. Nordhaus.
Lomborg does not explain if he had access to computer runs performed by
Nordhaus, or if he made model runs himself. So the only guarantee we
have that
the model runs have been made in a fair way is the guarantee that
Lomborg can give us - which is hardly trustworthy.
When Lomborg alone was responsible for providing
these figures, we
might have a suspicion that they could be biased. Is there any
indication that the costs of mitigation have been inflated, and the
benefits of mitigation have shrunk?
Indeed, there are such indications concerning the
mitigation costs. The figures cannot
be compared
directly with figures produced by others, because different people do
not assess the issue in precisely the same way. But we may make
informed guesses as to what the figures should approximately be if they
were to represent mainstream assertions. Let us look first at the
alleged mitigation cost of $15.8 trillion in the example above. This is
for a reduction of global temperature by about 0.5° C by 2100. The
IPCC report (4th assessment report, workgroup 3, Figure 3.25) is
probably the best source available to get an overview of estimates of
mitigation costs. From that figure, it may be interfered (see this page in
Lomborg-errors)
that a reduction from 3.0°C in 2100 to 2.5°C corresponds to a
mitigation effort which costs between
0 and 2 trillion dollars (the net present value of cumulative abatement
costs). None of the model runs presented by IPCC give values higher
than 2 trillion dollars. But Lomborg presents us for a cost of 15.8
trillion. That is much higher than other estimates. We cannot know if
this is due to an inherent property of the RICE model, or if it is due
to the particular way that Lomborg utilises the model. In any case, we
see as expected that Lomborg tends to inflate the costs of mitigation.
What about the benefits of avoiding global warming?
Here, we may utilise that Nordhaus has presented estimates of global
climate damages as a function of temperature increases. The curves
describing the relationship between temperature and damage are
presented by IPCC (4th assessment report, WG 2, chapter 20). Here, we
may read the damages at
temperature increases of 2.5° C and 3° C respectively, and we
find that the difference between them corresponds to a reduction of the
damages by about one fourth. From this, we may calculate a rough
estimate of the spared damages summed over the century and arrive at a
figure of $ 7 trillion (see this page in
Lomborg-errors). Lomborg´s own estimate amounts
to about $5
trillion. So it seems that Lomborg has not or nearly not reduced the
benefits of
mitigation relative to this rough estimate.
Anyway, Lomborg tips the balance. In his
presentation, when we keep the temperature increase by 2100 at no more
than 2.5° , the costs of doing so are $15.8 trillion, and the
benefits around $5 trillion. Obviously no favourable deal. But if we
try to repeat his calculations, with data presented from IPCC,
including data from Nordhaus, we arrive at costs of 0 to 2 trillion
dollars, and benefits of about 7 trillion dollars. Obviously a fair
deal.
HIDING
THE INFLUENCE OF DISCOUNT RATES
The figures just presented for costs and benefits of
climate mitigation are certainly not objective and value-free. This is
because they are affected by the rate
of discount, and this rate is no objective measure, but due to a
subjective choice.
For instance, we may infer that keeping the global
temperature rise by 2100 at no more than 2.5° C saves 0.5 % of the
global economic output in that year. Lomborg expects this output to be
$529 trillion, so the saving is thus about $2.6 trillion. But this
figure is not used directly. It is discounted in order to arrive at a
"present value". The higher the rate of discount, and the longer the
duration over which we discount, the smaller is the present value.
According to Lomborg, the total value of all damages spared over the
whole century is just above $5 trillion. Obviously, this fits very
badly with the estimate that what is spared in just a single year is
$2.6 trillion. Summing up what is spared in each year during a century
should yield a much higher sum. But because the sum is discounted back
in time to the present, it becomes much smaller. So the figures for the
amount saved that are presented to us by Lomborg depend on the choice
of discount rate. They are not objective figures. Choosing a slightly
different discount rate could easily reduce the sum of spared damages
to $1 trillion, or increase it to $ 50 trillion. In the light of this,
it is absurd to indicate such discounted sums with three significant
digits.
When different experts arrive at different
estimates, the main reason may often be that they use different
discount rates. For instance, the difference between the estimates in
the Stern Review and the estimates arrived at by W. Nordhaus, are
mainly explained by differences in discount rate. Lomborg ought to have
explained that. Instead, he writes about the Stern Review that "the
damages from climate change . . are vastly inflated" and ". . . the
Review has decided to change a key parameter in all cost-benefit
analyses to a value that gives huge damage." This allows Lomborg to
discard the review as "a radical report". He completely omits any
explanation as to what this `key parameter´ is - pretending maybe
that this is a technical detail that interests no one. Actually, the
key parameter is the discount rate, and within reasonable limits, there
is no `wrong´ discount rate. So the Stern Review is not
`wrong´ or a radical outlier. It is just as correct as any other
report, it just chooses to weigh the future differently from what
Lomborg chooses.
USE OF
THE REVENUE FROM CARBON TAXES
In The Skeptical Environmentalist, published in 2001, Lomborg
wrote at the end of chapter 24 on global
warming (p. 324):
"Yet, one could be tempted to suggest that we are actually
so rich that we can afford both to pay a partial insurance
premium against global warming (at 2-4 percent of GDP), and to
help the developing world (a further 2 percent ), because doing
so would only offset growth by about 2-3 years. And that is true.. . . it is correct that we are actually wealthy enough to do
so."
Now, only 6 years later, he says approximately the opposite,
namely that we are not wealthy enough to do so. He says that the
money that we use in our attempts to fight climate change could
have been used for some better purpose instead, for instance
fighting hiv/AIDS and malaria. So who is right, Lomborg anno 2001
or Lomborg anno 2007? It will be argued here that Lomborg anno 2001 is
right.
If the rich countries should use money to fight diseases in poor
countries, then the money would have to be public money provided
by some kind of tax.
If we want to fight climate change, we will also have to involve
some kind of tax. In "Cool it!", Lomborg supports the
idea of a sensible, moderate taxation on carbon dioxide
emission. The purpose of such a tax is to reduce
unnecessary consumption of fossil fuels.
The point that Lomborg dismisses is that the the two needs can be
combined. The carbon tax provides public money, and this money
will then be available to be spent on sanitation and disease
prevention in poor countries. So the two good purposes do not
compete for one lump of money. On the contrary, they can very
well be combined.
Once a carbon tax has been
introduced, every consumer and every
producer will have to evaluate the marginal benefit of reducing
or increasing his fuel consumption. There may be some part of the fuel
consumption which is not very necessary and which could be cut away
without any large loss of benefit. It will pay off to decrease
this part of the fuel consumption as long as the sum saved by omitting
some of the
carbon tax is larger than the value of the lost benefit. When an
economic equilibrium has been
reached, the two marginal benefits just cancel out, and the tax
revenue obtained by the state will be equal to the benefit that
people forgo. The net effect will be that society loses no value;
all that happens is that the value is shifted from private
property to public property. The state income is then made
available to be used for good purposes in poor countries.
So, a carbon tax at the right level of taxation will be just the
means needed to carry out Lomborg´s idea of giving high priority
to better sanitation and the fighting of AIDS and malaria.
This idea to use revenue from carbon
taxes in rich countries to pay for improvements in poor countries is
close to the concept of "revenue recycling", i.e. the recycling
of carbon tax revenue to reduce
other taxes such as payroll taxes. This
is a controversial issue; some economists claim that such a system will
not help the economy, whereas others claim that it will. The
controversy is explained well in the third assessment report of the
IPCC working group III (2001). Here one reads for instance in
section 8.2.2.1.2: "While studies conclude that the swap between carbon
and payroll taxes . . . does not avoid net welfare losses in the USA .
. .
, a strong double dividend often occurs in Europe. As suggested by
theoretical analyses . . these differences can be explained by
the
differences both in the taxation systems and in the rigidites of the
labour markets. However, the idea presented here is slightly different:
instead of using the carbon tax revenue to reduce payroll taxes, it
could be used for investments in Third World countries.
It should be added that considerable amounts of money are used for
so-called perverse subsidies, for instance subsidies to support the
coal industry and gas firms (see N. Myers & J.Kent (2001): Perverse
subsidies). Here at least is some money that could very well be
redicted to better purposes.
Yet another possibility is to utilise
the system of carbon allowances described by George Monbiot (in his
book from 2006: Heat). The global maximally tolerable CO2
emissions are divided equally among all people on earth, whereby the
allocation per person will be 0.33 t of Carbon in 2030. This will
be each person´s carbon ration. If people in poor countries use
less than their ration (this will mainly be in Africa), they may sell
the surplus to rich countries for money. This will mean a cash flow
from rich to poor countries, which could be directed at projects of the
type that Lomborg favours, e.g. combating HIV.