Sunday, October 24, 2004

Yet More Hot Air

Last week Friends of the Earth have launched, a new branch in Ireland, calling the country the dirty man of Europe. What contribution can we expect them to make in highlighting environmental problems and suggesting solutions to the public in Ireland?

In an article in Saturday's Guardian, Tom Burke, a long-time campaigner with the group, gives us an example. when he writes on the Danish political scientist Bjorn Lomborg, labelling his work "neither scepticism nor science - just nonsense".

Lomborg was visiting London to launch his new book, Global Crises, Global Solutions and spoke at the Adam Smith Institute last week, but this almost certainly isn't as lucrative as Burke's consultancy arrangement with the multinational mining conglomerate Rio Tinto Zinc.

The book reproduces the proceedins of the Copenhagen Consensus, a panel of a number of world-class economists assembled by Lomborg to discuss and prioritise solutions among key global problems in allocating development aid. The eight included three Nobel-winners - economic historians Robert Fogel and Douglass North, along with Vernon Smith, a pioneer of experimental economics. Two experts long thought deserving of the prize, Thomas Schelling, author of the classic work on game theory, The Strategy of Conflict and Indian trade economist Jagdish Bhagwati also took part.

Over time, foreign aid donors and international financial institutions have come to accept that in many instances their past practices have done little or no good in assisting the people of poor countries, being frittered away through corruption and state mismanagement. The UN Millennium Development Goals were introduced in an effort to set objectives for aid and monitor progress towards them on the part of governments in the third world. As the Economist commented in arch tones in September:
On the other hand, the weakness of the whole MDG concept is that it wills the ends without willing the means—something which the UN, perforce, has come to specialise in. A plan to spend an additional allocation of aid on specific interventions designed to reduce poverty, or combat AIDS, or whatever, could be judged for cost-effectiveness and ranked alongside alternative ways of expending resources on development. A statement of good intentions is unfortunately just that.
The Copenhagen Consenus was aimed to produce just such a plan for action, given fifty billion dollars in extra aid to poor countries.

In his previous book The Skeptical Environmentalist (a draft of the chapter was published in the Guardian), Lomborg criticised the conventional wisdom on global warming. The projections used by the Intergovernmental Panel on Climate Change (the UN body which gathers and the scientific evidence and seeks to facilitate policy-making among governments), were incorrect he argued, saying that they were taking an unduly pessimistic view in ignoring scientific factors that would limit the warming and the human ingenuity in adapting to it. In presenting this case, as reviewers such as environmental economist Matt Cole writing in the Economic Journal pointed out, he gave a distorted picture in some instances, giving more prominence to the risks on the downside, including in the case of climate change the potential for disruption of the ocean currents such as those in the North Atlantic that give Western Europe its comparatively mild climate.

Analysing the policies proposed, capping greenhouse gas emissions and trading allocations among nations globally, Lomborg was more dismissive. Using the comprehensive estimates for the costs and benefits of cutting emissions, taken from the IPCC and its contributing authors, he contended that the enormous costs of cutting emissions proposed under the Kyoto Protocol were greater than the losses avoided, even under what he considered to be the overpessimistic projections of the IPCC.

Burke focuses on the second of Lomborg's arguments, dismissing the usefulness of cost-benefit analysis
The reality is that applying cost-benefit analysis to questions such as these is junk economics. Junk economics done by Nobel laureates is simply distinguished junk economics. Applying the logic of the Copenhagen Consensus to the Iraq war illustrates this nicely.
Actually, by no small coincidence, quite a few economists have done exactly this analysis, including academics and government officials. The most detailed I've come across is one with a cautionary tone by William Nordhaus of Yale. Nordhaus is a leading expert on Integrated Climate Economy (ICE) models that have been reviewed and presented as part of the scientific consensus by the IPCC. Burke seems to either entirely ignorant both areas of research.

The IPCC, as its second assessment report from 1996 contains an extensive discussion by economists, including more Nobelists, Kenneth Arrow of Stanford and Joe Stiglitz of Columbia carrying out just this type of analysis. None of these authors are are known for being the glove puppets of the Bush administration.

Burke's views are in contrast to those of the US and Canadian governments. Scott Barrett of Johns Hopkins University has highlighted the role that cost-benefit policy analysis of this type played in getting both to commit to international agreements limiting ozone-depleting chemicals in his brilliant and powerful book Environment and Statecraft. Their careful and exhaustive estimates showed that the gains from avoiding skin cancers and cataracts far outweighed the costs of the switch to safe substitutes.

Burke "has been a professional environmentalist for more than 25 years", but what are his credentials that mean we must take him seriously when he evaluates the work of scientists and economists? His profile, alone among those teaching on the environmental law course at University College London, makes no mention of any degrees or professional qualifications or publications in the academic literature.

Absent the tools for rational policy-making given to us by law, science and economics, there would be no form of debate on the huge impacts and the trade-offs necessary in making environmental policy than the spectacle of sloppy reasoning, poor research and ad hominem hostility that Burke displays here.

Unlike his previous work, with the Copenhagen Consensus project Lomborg seems to have recognised the limits of his own knowledge with humility and realism. Rather than giving the Copenhagen Consensus panel his own work, three reports by experts in the field of climate change policy were presented.

Dr William Cline of the Institute for International Economics, a contributor to the IPCC and author of an early book on the economics of climate change, used projections from the Nordhaus models used by the IPCC (full documentation and the code for these models is available online) to argue in his paper that the damage expected from global warming will cost much more than measures we might take to reduce emissions, making Kyoto and other measures to tax greenhouse gas emissions economically justified.

Challenging this conclusion, Robert Mendelsohn of Yale University, who has contributed extensively to the studies estimating of damages from global warming, countered that damage estimates are low and becoming lower over time as researchers come understand the problem better:
A series of studies on the impacts of climate change have systematically shown that the older literature overestimated climate damages by failing to allow for adaptation and for climate benefits...Summing these regional impacts across the globe implies that warming benefits and damages will likely offset each other until warming passes 2.5C and even then it will be far smaller on net than originally thought.
Furthermore, Mendelsohn highlights the problem of valuing gains and losses that happen far in the future. Given that carbon dioxide emitted by the burning of fossil fuels could take up to three centuries to dissolve into the deep oceans, the impacts of global warming could be with us for a very long time . However, the costs of implementing a system like Kyoto, resulting in higher energy prices, increased regulation and hence foregone economic growth will be incurred now and in the near future.

Businesspeople and policy analysts are accustomed to using discounting, weighting receipts and payments in the future according to how far away they occur using an estimate of cost of capital to get an idea of how costs compare with benefits. Whereas Cline uses very low interest rates, down to 1.5% or even 0%, Mendelsohn argues that this is unrealistic. Discounting using the actual interest rates available to governments and the private sector, the benefits coming in the future add up to much less than the costs we take on.

Stanford's Alan Manne, working with another of the leading climate-economy models also took issue with Cline's low discount rates in his paper to the panel.

The messy world we live in is one in which an unstable climate will guarantee poverty for untold millions. But it is equally one in which, if we fail to solve the problem of poverty much more quickly and cleverly than we are doing at present, we will continue to destabilise the climate. The Lomborg argument that we can delay one until we have solved the other is a cruelly false prospect.

Given the urgency of the other problems that the panel addressed, such as AIDS, malaria, malnutrition and unfair trade restrictions on developing countries, it's hardly surprising that they chose, with almost complete unanimity, to place climate change policies towards the bottom of the list of priorities for funding. At the same time, a youth forum made up of postgraduate students from around the world (including four from Ireland representing the EU) agreed on an almost identical ranking.

In identifying climate change as a priority over economic growth and institutional reform in the third world, Burke is drawing a false dichotomy. It's precisely prosperity, good government, free markets and an active civil society that will allow the developed countries to manage climate change. The poorest countries, hobbled by poverty and runaway epidemics lack these institutions. An active policy of supporting civil society, encouraging economic growth and targeting our aid donations on building the capacity of governments in the developing world should be our priority.

The lesson to be drawn from this reporting of the Copenhagen Consensus is that the debate on environmental policy is too important to be left to campaign groups such as Friends of the Earth and their publicity stunts. To this end, as a proud contributer what Burke labels a "right-wing website", I'd offer some suggestions on improving the debate on environmental policy in Ireland.

Robert F Kennedy, one of a famous Irish-American clan, works as a lawyer and commentator on environmental issues. In a recent interview with the environmental magazine Grist, he was asked about the causes of environmental damage:

So is the culprit free-market capitalism?

No! The best thing that could happen to the environment is free-market capitalism. In a true free-market economy, you can't make yourself rich without making your neighbors rich and without enriching your community. In a true free-market economy, you get efficiencies and efficiency means the elimination of waste. Waste is pollution. So in true free-market capitalism, you eliminate pollution and you properly value our natural resources so you won't cut them down. What polluters do is escape the discipline of the free market. You show me a polluter, I'll show you a subsidy -- a fat cat who's using political clout to escape the discipline of the free market.
So you consider yourself a crusader for the free market first and an environmentalist second?

I don't even consider myself an environmentalist anymore. I'm a free-marketeer. I go out into the marketplace and I catch the polluters who are cheating the free market and I say, "We are going to force you to internalize your costs the same way you are internalizing your profit." That's what the federal environmental laws allow us to do: restore real property rights in America. You cannot get sustained environmental protection under any system but a democracy. There's a direct correlation around the planet between the level of tyranny in various countries and the level of environmental degradation.

He explains that problems come about when ownership rights are not established over certain assets, so that anyone might exploit them without having the incentive to maintain them, a tragedy of the commons.

So you're saying free-market economies have to be controlled by regulations and strong central government?

Laissez-faire capitalism does not work, particularly in the commons. Individuals pursuing their own self-interest will devour the commons very quickly. That's the economic law -- the tragedy of the commons. You have to force companies to internalize costs. All of the federal environmental laws are designed to restore free-market capitalism in America in this regard.
Meanwhile, the hybrid petrol/electric cars such as the Toyota Prius that dramatically reduce greenhouse gasses are, as Constantin Gurdgiev of the Open Republic Institute points out in an article in this week's Business and Finance magazine, an array of regulatory barriers hinder introduction of this and other cost-saving and environmentally-friendly technologies into the Irish market.

A Valuable Contribution to the Debate

In discussing environmental problems in Ireland, perhaps we might prefer to see the clowns exit the stage and give the experts their due. Peter Clinch of UCD, who reported in a recent study that Ireland is third after Japan and Singapore in delivering economic growth without overexploitation of natural resources or the environment is an excellent example of a rigorous and data-driven approach to highlighting the real problems.