To much fanfare, the UN’s latest gathering to discuss climate change, the 26th such summit, is taking place in Glasgow, attracting world leaders and activists to give talks of dire scenarios of what will happen if we don’t stop burning fossil fuels and make lofty promises of action to prevent catastrophe – though the actual follow-through on the promises made is mostly lacking, and the willingness of global warming-conscious populations to make real-life sacrifices is in equally short supply (as we discuss here).
Regardless, the world is warming, and there is some agreement that the problem is – at least in part – man made (we caution scepticism, as you can read here). But there is wild misunderstanding of the actual impact: disaster scenarios, conjured into existence by alarmist populism (think Al Gore), is not what the science predicts.
And of course, it is not just interesting what may happen to the climate, but also how that may affect us as citizens of Planet Earth. This is the field of climate economics. One of its main protagonists, William Nordhaus of Yale University, was given the Nobel Prize in 2018, and his prediction is not that gloomy: by the end of the century, global warming will have cost each person on earth around two to four percent of their income – a problem, sure, but one that must be seen in relation to the prediction that by that time we will all be 400-500 percent wealthier than we are today.
The next obvious thing to remember is that climate change is not the only problem facing the world. This is what occupies a group of economists known as the Copenhagen Consensus (“CC”). They aim to advice policy-makers on how to establish priorities for spending on what they call “the world’s biggest problems”: hunger, disease, poverty, climate change etc., and they do so by applying an economic method called cost-benefit analysis (a quantitative tool for determining value of intangibles) to the 169 targets which are set out by the UN in their “2030 Sustainable Development” agenda.
The project was conceived by Danish political scientist Bjørn Lomborg, who made waves in 2001 with his book The Sceptical Environmentalist, in which he argued that the measures adopted by policy makers to battle global warming are likely to yield minimal results but come a great cost. And, indeed, the establishment’s focus on climate change, which is the beneficiary of enormous allocation of resources from governments across the world, turns out to be very wrongheaded when looked at through the lens of the CC cost-benefit calculations.
In recent years, international climate negotiations have focussed on a target of reducing global warming by an average of 2 degrees (recently revised to 1.5 degrees) – but the CC research shows the return of that target to be less than one dollar for every dollar invested. Simply put, battling climate change is a waste of money, because it is extremely difficult to make an impact and extremely expensive to attempt to do so. Contrast this with other problems where large returns can be had on investment: things like expanded immunisation ($60 benefit for each dollar invested), reducing child malnutrition ($45) or making access to contraception widely available ($120).
The really big benefits, though, are reserved for free trade: reducing trade restrictions – which CC defines as implementing the full recommendation of the WTO’s Doha Round – would yield a return of a whopping $2,011 per dollar invested! Free trade is, by far, the most effective way of helping the world progress. This is because free trade aids economic and technical development, and it is that development which will ultimately solve those big problems of ours – climate change included.
Apart from our natural scepticism of the climate change consensus, two notes of caution should be added:
First, as followers of the Austrian School of economics, we are naturally sceptical when economists quantify the economy in their predictions, but while the CC are, to their credit, open about the fact that the absolute results are subject to uncertainty, they insist that the relative ranking is robust.
Second, the CC calculations focus on quantifying the policy benefits in economic terms, but of course, there are non-economic benefits which we may take into account also. So, even if the UN’s 2 degrees target is a loss-making investment based on pure economics, if the general population is desperately worried about climate change, pursuing this economically meaningless goal may still yield the benefit of making millions feel much better. In that way, policy to battle climate change is a bit like a rain dance: it inspires the idea that we are in control of our environment, but it is in fact futile.
In the end, however, whether you are a climate change sceptic or not, there is much to be gained from the CC analysis. It forms a sound basis for understanding how we, as a society, may focus our resources best to help ourselves – and those of our fellow earthlings who need it the most. And of course, for a libertarian, it doesn’t hurt that it is the free market which is the undisputed star of the show.