From The Economist print edition
Was Sir Nicholas's big report on climate change egalitarian, inegalitarian—or both?
TO SHOW that you are up to speed on global warming, you need to know your Rio summit from your Kyoto protocol; your Greenland pump from your carbon sink; and your Harald Sverdrup (a Norwegian oceanographer, who measured sea currents) from your Bjorn Lomborg (a Danish controversialist, who annoys greens). And as if all that were not enough, Sir Nicholas Stern's big report on climate change, published by the British government in October, has forced greenhouse gasbags to master another bit of esoterica: the Greek alphabet.
Actually, just two letters will do: delta and eta. The characters are Sir Nicholas's shorthand for two concepts. Delta determines the weight he places on the welfare of future generations that are not yet here to stick up for their own interests. Eta governs his answer to a different question: how much weight should be given to the consumption of the rich relative to that of the poor?
Just to recap, Sir Nicholas's report concludes that if greenhouse-gas emissions continue on their current path, the cost over the next couple of hundred years in terms of lost output could be colossal. The shorter-term costs of switching away from carbon need not be, however.
His judgments have been controversial, and none more so than his use of Greek, which has been questioned by two eminent economists and a flotilla of economic bloggers. The weight he gives to future generations is too high for the taste of William Nordhaus of Yale University. By contrast, the figure he picks for eta is too low for the comfort of Sir Partha Dasgupta of Cambridge University, who would give the consumption of the poor rather more emphasis than Sir Nicholas does in his treatise.
Sir Nicholas thinks a person born in 2106 should count for as much as one born in 2006. In his defence he cites some big thinkers, including Roy Harrod, a British economist best known as a growth theorist and a biographer of John Maynard Keynes, who thought discounting future generations was just a “polite expression for rapacity”. He admits there is a slim chance these prospective generations will not in fact exist: the earth might be wiped out by a meteorite, for example. For that reason, and that reason only, he discounts their welfare by just 0.1% for every year that passes before they appear.
Sir Nicholas's ethics may be appealing, but according to Mr Nordhaus the economics that follow from them are absurd. Barring any celestial collisions, there will be countless future generations, each with a claim on our consideration equal to our own. Suppose, he argues, that all these generations to come will suffer some minor inconvenience (a few extra mosquitoes, say) that we today could prevent at great cost to ourselves. By Sir Nicholas's moral calculus, even small harms amount to big losses when added up over enough cohorts. Thus we should take even crippling action to avert trivial hardships that may befall our long, long line of descendants.
The present deserves a break for another reason, Mr Nordhaus says. Future generations will not only be born later than us, they will also be richer—much richer. He points out that if consumption per person grows by 1.3% a year, it will rise from $7,600 today to $94,000 by 2200. And yet Sir Nicholas asks the present generation to make an economic sacrifice to help its richer successors.
Redistribution from poorer to richer seems a bit perverse. Most people accept that a dollar is worth more to a pauper than to a plutocrat. But how much more? Sir Nicholas picks a value for eta of one, which means a dollar is worth ten times more to someone with one-tenth of the income. This may sound like a big difference. But it means a 10% gain in the consumption of the poor—an extra ten cents for someone on a dollar a day—is worth no more in his moral calculus than a 10% bonus for the rich—an extra $100 for someone with a daily budget of $1,000.
Sir Partha thinks this gives the poor short shrift. He argues that an eta of between two and four yields “more ethically satisfactory consequences”. If eta were equal to two, a dollar would be worth one hundred times more to someone ten times poorer.
These shots at the Stern report whistle in from different directions, but Mr Nordhaus and Sir Partha both agree on one point: Sir Nicholas's choices are inconsistent with each other. If Sir Nicholas is such a staunch egalitarian between the future and the past, Sir Partha complains, he should be more egalitarian between the rich and the poor.
For his part, Mr Nordhaus argues that if Sir Nicholas insists on a relatively low value of eta, he must pick a higher value of delta: something like 3% not 0.1%. Otherwise, he argues, the present will always be held hostage to the future, forgoing its own consumption to further enrich all the generations to come.
Opponents of action on global warming have seized upon Sir Partha's sally against Sir Nicholas. But Sir Partha himself supports such efforts. “I have believed for some time that climate change is the most all-embracing problem humanity faces today,” he has written, “and would be happy to vote [to spend] 1.8% of the GDP of rich countries to confront the problem.”
His argument is not as self-contradictory as it sounds. The costs of fighting climate change would fall mainly on today's more affluent nations. Conversely, the benefits that will emerge in the distant future will be felt mostly in poorer countries. Bangladeshis or Somalis should be much better off in 50 years' time than they are now, but they will still be much less prosperous than the average American or western European is today. The high value of eta that Sir Partha advocates may not match that chosen by the Stern review. But it would still justify hefty sacrifices on the part of the rich to shore up the consumption of the poor, even if they have not yet been born.
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