It is clear: We are living beyond our planet’s limits. Unless we change something, the consequences will be dire. Should that something be our focus on economic growth?
Climate change represents the most salient risk we face, and we are already getting a glimpse of the costs. “We” includes Americans. The US, where a major political party is dominated by climate-change deniers, is the highest per capita emitter of greenhouse gases and the only country refusing to adhere to the 2015 Paris Agreement.
So there is a certain irony that the US has also become one of the countries with the highest levels of property damage associated with extreme weather events such as floods, fires, hurricanes, droughts and bitter cold.
At one time, some Americans even hoped that climate change might benefit them. Maine’s coastal waters, for example, would become swimmable. Even today, a few economists still believe that there is not much to worry about, so long as we limit the increase in average global temperature to between 3°C and 4°C, compared with the 2°C limit set by the Paris Agreement.
This is a foolish gamble. Greenhouse gas concentrations are projected to be at their highest level in millions of years, and we have nowhere else to go if we lose.
Studies suggesting that we could tolerate higher temperatures are deeply flawed. For example, because appropriate risk analyses are systematically omitted, their models do not give sufficient weight to the probability of “bad outcomes.”
The greater the weight we assign to the risk of bad outcomes, and the worse those outcomes are, the more precautions we should take. By assigning little weight — far too little weight — to very adverse outcomes, these studies systematically bias the analysis against doing anything.
POINT OF NO RETURN
Moreover, these studies underestimate the nonlinearities in the damage functions. In other words, our economic and ecological systems might be resilient to small changes in temperature, with damage increasing only proportionally to temperature, but once climate change reaches a certain threshold, the increase in damages accelerates relative to the rise in temperature.
For example, crop loss becomes serious as a result of frosts and droughts. Whereas a below-threshold level of climate change might not affect the risk of frost or drought, a higher level increases disproportionately the risk of these extreme events.
It is precisely when the consequences of climate change are large that we are least able to absorb the costs. There is no insurance fund to draw upon if we need investments to respond to large increases in sea levels, unforeseen health risks and migration on a massive scale as a result of climate change. In these circumstances, our world will be poorer and less able to absorb these losses.
Finally, those who argue for a wait-and-see approach to climate change — that it is a waste of money to take large actions today for an uncertain risk far in the future — typically discount these future losses at a high rate.
That is, taking an action that has a future cost or benefit requires assessing the present value of these future costs or benefits. If a dollar 50 years from now is worth the same as a dollar today, there might be motivation to take strong action to prevent a loss; but if a dollar 50 years from now is worth US$0.03, there would not be.
MORALLY WRONG
The discount rate (how we value future costs and benefits relative to today) thus becomes critical. US President Donald Trump’s administration has said that it would not want to spend more than roughly US$0.03 today to prevent a dollar loss in 50 years. Future generations just do not count much. This is morally wrong.
However, the do-nothing advocates, ignoring all the advances in public economics over the past half-century that have explained otherwise, argue that economic efficiency requires it. They are wrong.
We must take strong action now to avoid the climate disaster toward which the world is heading. It is a welcome development that so many European leaders are spearheading efforts to ensure that the world is carbon-neutral by 2050.
The report of the High-Level Commission on Carbon Prices, which I cochaired with Nicholas Stern, argued that we could achieve the Paris Agreement’s goal of limiting global warming to 2°C in a way that enhanced living standards: The transition to a green economy could spur innovation and prosperity.
That view sets us apart from those who suggest that the Paris Agreement’s goals could be achieved only by stopping economic expansion. I believe that is wrong.
However misguided the obsession with ever-increasing GDP may be, without economic growth, billions of people would remain without adequate food, housing, clothing, education and medical care. Still, there is ample room to change the quality of growth, to reduce its environmental impact significantly. For example, even without major technological advances, we could achieve carbon neutrality by 2050.
It will not happen on its own, and it will not happen if we just leave it to the market. It will happen only if we combine high levels of public investment with strong regulation and appropriate environmental pricing.
It cannot, or will not, happen if we put the burden of adjustment on the poor: Environmental sustainability can be achieved only in tandem with efforts to achieve greater social justice.
Joseph Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University and chief economist at the New York-based Roosevelt Institute think tank.
Copyright: Project Syndicate
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