What approach shall we choose in examining the economic impacts of global warming?
Today I found a highly interesting answer to this question – namely, a 2007 report by Frank Ackermann, in which he analyzed the debate that arose after the publishing of the so called Stern Review on the Economics of Climate Change. Many economists, among them such names as William Nordhaus, Partha Dasgupta or Martin Weitzman (to call just these three), criticized different features of the approach chosen by Sir Nicholas Stern in building up his model that estimates the costs and benefits of fighting climate change. The issues discussed were partly rather philosophical (discounting rates, treating of uncertainty), partly economic. But the review of the debate is not the reason I mention the report. Who is interested in it – I can only recommend reading Ackermann’s text.
But the issue I would like to mention here is another one. It is the rather fundamental question of how we should begin with assessing the needs of a fight against global warming. Ackermann rightly alludes to the fact that even the (controversially high) economic costs of global warming estimated by Stern are not that high when one consider the assumed growth in global per capita consumption (to put it in other words – in 2200, e.g., we would be “only” 8 times as rich as today, instead of 12 times). But there are other costs that hardly can be monetarized – Ackermann calls them the costs of “lives and ways of live”:
Monetary losses do not measure the full human and ecological impact […], and cannot meaningfully be extended to put a price tag on the whole of the tragedy. […] The profundity of human and ecological loss implied in the portaits of climate change, especially at higher temperatures, is only cheapened and diminished by pretending that all of it has a price.
What should we do then? The approach proposed by Ackermann differs strongly from the mainstream economic analyses of global warming, even from that conducted in the Stern Review. He calls for a kind of simplification: we shall “only” answer two questions. The first is “[W]hat is the maximum atmospheric concentration of CO2 at which unacceptable climate outcomes can be ruled out with a high degree of confidence?” This would save us the philosophical discussions on discounting rates, uncertainty treatment etc. Actually, answering this first question should rather be the job for climate scientists with only limited help by economists. Economists would concentrate on the second question: “[W]hat is the least-cost strategy for stabilizing at that concentration?” While this is not easy to answer as well, it certainly can be answered by using economic and technological tools only. And that would be a great improvement.
The Sceptical Economist 