Opportunity cost is one of economics' most important ideas. It refers to the cost of the lost opportunities that are involved in pursuing one course, rather than another. If, for example, I have twenty pounds and choose to use it buying two DVDs the opportunity cost is the food I can no longer buy or the cinema tickets I can no longer afford.
The idea of opportunity cost is at the heart of the Copenhagen Consensus. The CC team of economists examined some of the world's greatest challenges and decided which most merited today's resources. It concluded that combating HIV/AIDS was much more deserving of scarce economic resources than Kyoto-type action on global warming (recently adopted by David Cameron). The Consensus proposes that more lives could be saved by providing micro nutrients, liberalising trade and controlling malaria than acting against climate change. The Consensus concluded that expensive action against climate change should be one of the international community's lowest priorities. Better to wait until technologies provide both cheaper and more effective remedies. The Economist magazine sponsored and welcomed the CC's findings.
This whole analysis was taken up yesterday by Dr Roy Spencer on TechCentralStation.com. He begins by noting a University of Wisconsin-Madison paper that global warming is killing 150,000 people every year because of warming-related increases in flooding, diarrhea and drought, for example. Many Kyoto fundamentalists will use these findings to deplore the Kyoto sceptics but the world is blighted by other - bigger - killers. More people are being killed by the protectionism of western nations. In both protectionism and Kyoto environmentalism the same 'selfish garden instincts' are at work. We have our prosperity and happy lifestyle - the poor third world mustn't ruin our party.
Spencer's key belief is that "wealthier is happier":
"There is a reason poor countries are much more concerned with achieving a decent standard of living than whether there might be some environmental consequences. Haven't you ever wondered why environmental concerns are almost exclusively restricted to people with a good standard of living? Those that have access to abundant refrigerated food, clean water, and health care? They can afford to spend some of their wealth to reduce pollution. Much of the world can not. As it is, many areas of poor countries have been mostly deforested as people forage for wood to cook and heat with. Is this what environmentalists want? Also, the poorest countries have the greatest rates of population growth. Is this what environmentalists want?
...Two billion of the Earth's inhabitants still do not have access to electricity, leading to massive death tolls from problems such as food-borne illnesses (due to a lack of refrigeration) and pneumonia brought on by breathing air contaminated by the burning of dung or wood for heat and cooking."
None of this means that climate change isn't a real concern but it will only be tackled by a blue environmentalism of technological advance. The poor southern nations and newly industrialising countries are not going to sign up to a growth-cooling Kyoto-type treaty.
While your points are obviously good, the danger of exponential rises in deaths as a result of global warming will increase if temperatures continue to rise as they have done in recent years. The doomsday obviously is millions dying as a result of major catastrophes. Whilst all of the other current malaises of the world need attention too none affect the future of humanity in quite the same way. The question then is do we wait, or do we try and do something now. My view is that it is surely better to try now because the very risk of doomsday is terrifying enough. It is the very essence of being human that makes us want to ensure the continuity of our race. To not do so, is to be reckless with the future of our descendents.
Posted by: Tom | November 19, 2005 at 15:34
I accept that catastrophic climate change represents a special case, Tom, but Kyoto will not avert it.
Kyoto - if it was on track (which it isn't) - would reduce developed world emissions to 1990 levels (ie a time when global warming was already well underway according to the herd of green scientists). Even if this was achieved world emissions would still be up because China, India and other developing/industrialising countries will be emitting most greenhouses gases by 2020.
Developed world compliance with Kyoto is often only happening by exporting industrial capacity to the developing world.
The developing world won't sign up to Kyoto.
Technological innovation is our only hope and that needs to be incentivised.
Curbing the economic growth of developing countries is politically unacceptable to those countries and for reasons given by Dr Spencer, it's unwise anyway. Growth - the extension of property rights and electricity etc - is good for humanity. Poverty is bad for the environment.
Posted by: Editor | November 19, 2005 at 15:58
See this article for more on the costs of Kyoto:
http://www.techcentralstation.com/111605A.html
Posted by: Editor | November 19, 2005 at 16:01
Roy Spencer is right in his deductions. While there is clear evidence that greenhouse gases have increased, and continue to do so; what is not clear is the rate of temperature increase that this will produce. We also do not know how this will affect our weather, or sea-level rises etc. Often not mentioned is the fact that there are beneficial effects of small increases in temperature. These points lead me to the conclusion that it would be foolish to put our economic prosperity at risk in order to prevent an unknown danger that may or may not turn out to exist.
Even if the evidence of a serious problem was stronger, it would be extremely difficult, if not impossible, to get all the industrialised nations of the world to agree to the sort of restrictions needed to be effective in halting the increases in greenhouse gases. No single nation, or group of nations acting unilaterally would achieve anything other than to damage their own economies, while the rest of the world carries on regardless.
Eventually technology will lead to a decrease in greenhouse gas emissions,though I suspect that by then we will know whether today's doom merchants are right or not. I fear that Tom is in for disappointment if he thinks that the political leaders of the world's nations are as altruistic as he is.
Posted by: Derek | November 19, 2005 at 16:46
I wouldn't mind if they were altruistic, Derek. My concern is that the world's leaders are too interested in gesture politics. Kyoto is gesture politics and expensive gesture politics at that.
Posted by: Editor | November 19, 2005 at 16:56
Depends what viewpoint you take. I am not saying Kyoto is anything like what is needed. And yes I agree it is gesture politics, but what I am saying is that if the science is to be believed massive steps need to be taken now otherwise we are being reckless with the future of our planet. Bjorn Lomborg has opened up the debate and yes a debate needs to be had, but it needs to go in the right direction (nuclear etc) ASAP. A complacent attitude that just a few more years of trade (consumption)will mean we will all be richer and more able to afford to make the steps absolutely goes against the grain of human nature. Poverty will not be eradicated any time soon. Economists need to take into account a lot more than simple capitalist indicators in working out the cost/benefit of everything (see Norman Myers excellent work). Many scientists believe we have gone beyond the point of no return. It is responsible as a human race to ensure that we do everything to stop it getting worse as soon as possible, and yes incentives are probably just part of the plan but what it really needs is much more political will from both Developed and developing countries to rein back polltion.
Posted by: Tom | November 19, 2005 at 17:44
We're getting closer, Tom.
Replacing Kyoto with a technology-led approach is the first step towards environmental protection, however.
Environmental responsibility is not helped by Kyoto - the pursuit of Kyoto has produced ten wasted years.
Posted by: Editor | November 19, 2005 at 18:23
Mr Editor, your arguments do not accord with the reality. Kyoto does not require signatories to curb their growth, but their carbon emissions. Though progress is not sufficient, it is significant -- and it is incentivising technology-based solutions.
One also notes that the corporations that have invested in clean energy tech (e.g. BP, Shell, Toyota) favour a targets-based successor to the Kyoto Treaty, while those companies that have not made significant investments are against targets.
Why is that, do you think?
Posted by: Ian Sider | November 19, 2005 at 18:42
I notice you deal with next to none of the points mentioned above Ian and take us down a typical business-bashing blind alley.
You say that progress is significant, not sufficient. Are you a civil servant? These words are meaningless. How does our rate of reduction compare to the growth in developing nations? Carbon emissions are growing throughout the world. Kyoto is a finger in a bursting dike. Worse - it's distracting us from a real solution.
I would say that the corporations you mention are in competition with one another. That would easily explain their different policy positions. A more valid comparison would be between countries. If, as you say, Kyoto is about tech development which nations are spending more on tech-based solutions to environmental problems: "Dirty" America or the "Clean" Old European nations?
To the extent that Old European nations are meeting their Kyoto targets how much is this due to industrial capacity being exported to the developing world?
When do you think developing nations will sign up to a Kyoto-type treaty?
Do you support investment in nuclear power on a scale seen in France?
Posted by: Editor | November 19, 2005 at 19:17
Far from bashing business, I highlighted the fact that some very big businesses indeed were investing in the technology-based solutions that you quite rightly believe to be the answer to climate change.
It is likely that such businesses will provide the greater part of the investment necessary, and therefore we must listen to what they want from government.
I'm not sure how competition between corporations explains the differences between them on climate change policy. After all, Exxon competes against Texaco and they seem to have the same viewpoint (broadly speaking, yours), and Shell competes against BP and they seem to have the same viewpoint (broadly speaking, mine).
I'm not of course a civil servant, and the meaning of the words 'sufficient' and 'significant' if not immediately familiar to you can be looked up in dictionary. But here’s a hint: Kyoto signatories have saved millions of tonnes of carbon as a direct result of policies adopted in response to their Kyoto obligations – I don’t believe this to be insignificant. It isn’t enough to achieve the long-term reductions that are necessary, but it is a big step in the right direction which is helping to develop the technologies that will enable us to make bigger savings in the future.
Well so much for Kyoto. Perhaps you could outline the achievements of the Asia Pacific Partnership on Clean Development and Climate?
As for who is doing better -- dirty America or clean Europe? Well, it's clean Europe -- where carbon intensity has been improving at a faster rate from a lower base. There are many good things happening in America -- but as a result of target-based policies at state level, such as those in California that resulted in the development of the Toyota Prius.
The point you make about exporting manufacturing capacity to the developing world is an important one, but the industrial sector is only responsible for a minority of carbon emissions. The domestic, service and transport sectors are not affected by the export issue, but Europe is still doing better than America in these sectors too. By the way, America has exported a lot of manufacturing capacity to the developing world too.
The developing nations (China, India etc) would need to sign up in time for the expiry of the Kyoto treaty in 2013. Do I think this will happen? Yes, if America shows global leadership. That said, Russia still signed up to Kyoto even without America and the likes of China are in a stronger position to deal with carbon reduction targets than Russia (they also have more to lose from global warming given their relative latitudes).
Everyone knows that we won't have a targets-based successor to Kyoto if the industrialising giants don't sign up -- certainly not one with America in it. So why is the American anti-targets lobby so active? If the prospect of a targets-based deal is so unlikely they'd be devoted their resources to something else -- like lobbying for the right to make radioactive teddy bears (joke).
Speaking of radioactivity, let's look at nuclear. It is somewhat mystifying that after everything you said about Old Europe, free markets, and economic growth, that you should round off by commending the dirigiste dinosaur that is the French nuclear industry. The last thing we need is for our own Government to seize control of the energy market and ram nuclear down our throats. What we do need is a Government that only intervenes in the market to price in the cost of pollution. If the cost of dealing with CO2 and radioactive waste are both reflected in the cost of energy, and the nuclear industry can still attract private sector investment without special favours from the state, then bring it on.
Posted by: Ian Sider | November 20, 2005 at 09:39
I'm glad to see you now believe that technology is the lead answer, Mr Sider. Can I assume that you reject output caps as a way of achieving environmental gains? Most Kyoto supporters believe that the world needs to live more simply (and by the world they probably mean other, poorer people). The reality, of course, is that developing world governments will have to provide their people with more energy and a better standard of living (or they will be removed from office). Technological advance is the only way of reconciling this legitimate and irresistable demand for higher growth with environmental security.
The bottom line is this, Ian Sider... Economically costly progress on Kyoto has done nothing to reduce world emission levels. Most western nations are struggling to meet their targets - even after having exported industrial capacity to the developing world. My guess is that UK voters support Kyoto because they think it is making a difference. If they knew it wasn't making a difference that support would quickly dissipate. Kyoto isn't making progress because it doesn't include the developing world.
You offer no sure hope for believing that developing nations will sign up to a Kyoto-style accord in the near future. The fact that the world's fastest growing carbon emitters - India and China - have signed up to the US/Australian technology partnership suggests that that is the only (inadequate) show in town for getting the developing world to embrace environmentally-respectful growth.
I really am interested in an answer to my question on who is spending most on green technologies - Old Europe or USA/ Australia. My guess is that the USA is spending more per capita and if technology is the answer to environmental problems it puts a new perspective on who is the greenest of them all.
I admit the technology partnership is inadequate because there is no incentivisation of technological adoption but the partnership is at least honest and is taking the world in the right direction.
On nuclear power I'd be interested in seeing comparisons with the cost of wind energy etc. Cost is not the only consideration here, of course. Energy diversity is one important policy tool for energy security, of course. It would be foolish to put all of our energy policy into one basket. Even if oil was very cheap there are national security reasons for being concerned about excessive dependence on the Middle East.
Posted by: Editor | November 20, 2005 at 17:42
"I'm glad to see you now believe that technology is the lead answer, Mr Sider."
I have always believed this, Mr Ed. The question is by what mechanism we incentivise the uptake of the technology.
"Can I assume that you reject output caps as a way of achieving environmental gains?"
If by output caps you mean economic output caps, then I have always rejected them. If you mean pollution output then no I doubt reject them.
"Most Kyoto supporters believe that the world needs to live more simply (and by the world they probably mean other, poorer people)."
That is "simply" not true. Unless you have evidence to the contrary, you not repeat what is propaganda.
"The reality, of course, is that developing world governments will have to provide their people with more energy and a better standard of living (or they will be removed from office). Technological advance is the only way of reconciling this legitimate and irresistable demand for higher growth with environmental security."
Yes, indeed. But we come back the question of how to incentivise that technological advance.
"The bottom line is this, Ian Sider... Economically costly progress on Kyoto has done nothing to reduce world emission levels. Most western nations are struggling to meet their targets - even after having exported industrial capacity to the developing world. My guess is that UK voters support Kyoto because they think it is making a difference. If they knew it wasn't making a difference that support would quickly dissipate."
Making some but not enough progress, is very different from making no progress. Kyoto is making a difference. That difference can be measured in millions of tonnes of carbon.
"Kyoto isn't making progress because it doesn't include the developing world."
Well, as I say, it is making progress. And the push for a successor treaty (after 2012) does include the developing world. It was entirely fair that the developed world should lead the way given its historical carbon legacy. But the need to include the industrialising nations is widely accepted.
"You offer no sure hope for believing that developing nations will sign up to a Kyoto-style accord in the near future."
Nothing is sure in this world. Its not sure that we will make enough progress towards free trade at the Hong Kong talks -- does that mean we shouldn't try? The example of Russia, shows that it is worth attempting to win over the big emitters.
"The fact that the world's fastest growing carbon emitters - India and China - have signed up to the US/Australian technology partnership suggests that that is the only (inadequate) show in town for getting the developing world to embrace environmentally-respectful growth."
Just wrong Mr Ed. All these nations are members of the UN Framework Convention on Climate Change -- which is base treaty for Kyoto and any successor to it. The UNFCCC signatories are meeting in Montreal for highlevel discussions in December, meanwhile the ACPCDC has cancelled its first meeting and looks like going nowhere fast.
"I really am interested in an answer to my question on who is spending most on green technologies - Old Europe or USA/ Australia. My guess is that the USA is spending more per capita and if technology is the answer to environmental problems it puts a new perspective on who is the greenest of them all."
It's difficult to measure this. However the fact that carbon intensity (i.e. amount of carbon emitted per unit of GDP) is lower and falling faster in Europe is the best evidence we have of who is invested most heavily in low carbon technology. So I guess your guess is wrong.
"I admit the technology partnership is inadequate because there is no incentivisation of technological adoption but the partnership is at least honest and is taking the world in the right direction."
Both Kyoto and the APPCDC advocate technological solutions. However, Kyoto provides a mechanism of incentives while the APPCDC provides literally nothing. I think its quite obvious which approach is the more honest.
"On nuclear power I'd be interested in seeing comparisons with the cost of wind energy etc."
All depends what you choose to include in the cost and who you choose to believe. As a good Burkean I'm inclined to go with the little platoons of the localised energy lobby, rather than the statist behemoth that is nuclear. I'm content to let the market sort this one out as long as the full cost of pollution is allocated to the polluter.
"Cost is not the only consideration here, of course. Energy diversity is one important policy tool for energy security, of course. It would be foolish to put all of our energy policy into one basket. Even if oil was very cheap there are national security reasons for being concerned about excessive dependence on the Middle East."
Totally agree with you on security. I note that those terrorists arrested in Australia the other week were plotting to attack a nuclear power plant. I also note that if the west piles back into nuclear, we won't really have the right to tell the developing world not to do likewise. I really worry about the proliferation of enrichment technologies etc.
Posted by: Ian Sider | November 21, 2005 at 09:55