Transcript Deciding our future in Copenhagen: will the world rise

Ethics, Economics and climate change
Nicholas Stern
IG Patel Professor of Economics & Government,
Chair of the Grantham Research Institute on Climate Change and the
Environment,
London School of Economics and Political Science
21 October 2010
Three Part Structure
• Part 1: The problem
• Part 2: Relationships between current and future
generations
• Part 3: Relationships between countries and
between groups
2
Understanding the potential magnitude of change (I)
•
Thinking about relevant ethics and assessing policies towards climate change
should begin by thinking about the potential magnitude of risks.
Probability of temperature rises associated with different GHG concentration levels.
Stabilisation level (in
ppm CO2e)
2˚C
3˚C
4˚C
5˚C
6˚C
7˚C
450
78
18
3
1
0
0
500
96
44
11
3
1
0
550
99
69
24
7
2
1
650
100
94
58
24
9
4
750
100
99
82
47
22
9
Source: Meinshausen 2006; extrapolations from Murphy et al. 2004; calculations.
The calculations have excluded the role of aerosols which are likely to diminish strongly over time. For more
recent and detailed discussion see Bowen and Ranger (2009).
•
Currently at 435 ppm CO2e, and adding at a rate of 2.5 ppm per year; that rate is
rising. BAU likely to take us to 750 ppm this century.
•
Would imply around 50-50 chance of 5°C some time early next century. And this
modelling excludes crucial feedback effects.
3
Understanding the potential magnitude of change (II)
•
The planet last experienced temperatures 5°C above pre-industrial levels over
30 million years ago.
•
Those who argue, e.g., for stabilisation levels of 650 ppm CO2e and above, are
accepting very big risks of a transformation of the planet.
Source: This graph is a compilation from various sources
listed at http://en.wikipedia.org/wiki/File:All_palaeotemps.png
4
Choices for our generation
•
This is the first generation which through its negligence and inaction
could destroy the prospects for human activity on the planet.
•
The voice of future generations can be heard only through
ourselves.
•
What are our responsibilities?
5
A double inequity
•
Rich countries are responsible for the bulk of past emissions. They
have badly damaged the global commons.
•
Poor countries and poor people generally are hit earliest and
hardest.
•
Rich countries became rich through high-carbon growth and we
must now all find a different way.
•
Rich countries, with their technology and human capital, may have
an advantage in the ‘new way’.
•
On current plans 2/3 of emissions will be from developing countries
in 2020. They are 6 billion out of 7 billion now and likely to be 8
billion out of 9 billion in 2050.
•
What are the ethics here?
6
The challenges of the century and of the decade
•
The two defining challenges of the 21st century are the battle
against poverty and the management of climate change. If we
fail on one, we will fail on the other.
•
The next decade is especially important. Must handle great risks and
uncertainties, and launch a new energy and industrial revolution.
•
Need to manage this new energy and industrial revolution, and intensify
the fight against poverty, during a decade of great challenge, e.g.,
deficit reductions, great international macro imbalances, sustaining a
fragile recovery, continuing recasting of the international division of
labour, etc. Will do better on each if we understand them together.
•
Collective action is at the heart of the story. It must be build on (i) an
understanding of the economics and the science; (ii) some basic ethical
principles.
7
Three Part Structure
• Part 1: The problem
• Part 2: Relationships between current and future
generations
• Part 3: Relationships between countries and
between groups
8
Overview of Part 2
•
We examine four different (although related) ethical
approaches to climate change.
•
We examine two applications.
(i)
How to evaluate future catastrophes;
(ii)
Discounting.
9
Ethical approaches to climate change across generations
•
Many ethical approaches are relevant.
•
Rightness, virtues, rights, duties: including providing key rights to
development.
•
Sustainability - leaving overall list of capital stocks with “value” at least
equivalent to our own inheritance.
•
Stewardship - leaving whole list of what we had, or more.
•
Welfarism or, more generally, utilitarianism - the standard but very narrow
economic approach based on individual utilities.
•
In the case of climate change most of these approaches point in similar policy
directions.
10
What ethical approaches can guide us? Rights/duties
•
Deontological ethical systems focus on ethical qualities, the ‘rightness’ or
‘wrongness’ of actions in themselves, often setting out various duties and
obligations. Can link rights/duties to consequences but the approaches are not
identical.
•
Rights/duties: the predicted impacts of climate change raise questions of rights
and corresponding duties.
– Do future generations have the right to enjoy a world whose climate has not been
transformed to compromise basic physical security or result in other dangers?
– Rights to participation in a society, be a member of society.
– Rights to development including food, shelter, education, health…
– Do we have duties to respect those rights? How are they influenced by our
understanding of the consequences of our actions?
•
Within communities our own rights may be related to duties to respect those of
others: there is a ‘symmetry’. But does that apply across generations?
11
What ethical approaches can guide us? Virtues
•
Virtue ethics: emphasises virtuous character as a guide to moral
behaviour, rather than focusing on consequences or rules. In the tradition
of Aristotle and Plato. We can recognise a ‘good’ person as we can
recognise a ‘good’ violinist. Does not include, e.g., taking pleasure in
dog-fighting.
•
Many argue virtue ethics offers a more plausible explanation of how
individuals actually think about ethics (Anscombe 1958; Wiggins 2006).
•
Some argue our existing values are not up to the challenge of climate
change and a change in values – virtues – is the only promising ethical
approach (Jamieson 1992).
•
Our values or notions of virtue may have evolved through experience of
how communities functioned well: this evolutionary basis may be
inadequate for a global, “one-off”, very long-term and possibly irreversible
set of issues.
12
What ethical approaches can guide us? Sustainability
•
Sustainable development: some argue that future generations should
have a standard of living - or opportunities to attain a standard of living
- no lower than the current one.
•
Economists have suggested this means maintaining a constant overall
or aggregated stock of all forms of capital (physical, social, cultural,
institutional). But how to or should we aggregate the different
dimensions?
•
It is probably impossible for the global and ecological system to be
sustained in its entirety.
•
This has lead to special rules for the preservation of specific critical
environmental assets, e.g., Article 2 of the UNFCCC: “Stabilisation of
greenhouse gas concentrations in the atmosphere at a level that would
prevent dangerous anthropogenic interference with the climate
system”.
13
What ethical approaches can guide us?
Welfarism/utilitarianism
•
Economics generally adopts the particular, narrow approach of
standard welfare economics.
•
Some form of Social Welfare Function, often expectation of
discounted sum of individual utilities.
•
Looks only at the consequences of actions and assesses those
consequences in a narrow way, i.e., the welfare or ‘utility’ of
individuals in a community, where utility is derived from
consumption of goods and services.
•
Described by Sen as ‘Welfarism’.
•
This approach is based in ‘consequentialism’: does not directly
take into account the nature of actions by which the
consequences are caused.
14
Making all generations better off: so strong ethical
assumptions may not be necessary?
•
Greenhouse gas (GHG) emissions are externalities: they represent the
biggest market failure the world has seen.
•
Basic welfare economics tells us that correcting a market failure can make
all involved better off (a ‘Pareto improvement’).
•
In some models this can be achieved by bargaining; but future generations
are not directly ‘at the table’.
•
In this case our generation can shift resources from one type of inheritance
(e.g., roads or bridges) to another kind of inheritance, a better environment,
whilst consuming the same ourselves. The next generation can then be
better off. Or if I cut down one less tree and save less to just compensate
myself (say p, the market price of the tree), the next generation has p less,
but has the tree plus less concentrations of greenhouse gases. If the next
generation has similar preferences they are better off.
•
Note too that irreversibilities are relevant here.
•
But can we/will we?
15
Endogenous values / behavioural economics
•
Public discussion of what is responsible behaviour is an important element
of policy (see also J.S. Mill). Are values endogenous?
•
The more that people take on board damages to others, through
discussion and information, and worry about them directly, the less is the
need for other public policy actions.
•
We learned that mixing alcohol and driving is dangerous and in a number
of countries laws were introduced in the 1960s. Many criticised these laws
as infringing freedom. Today most of us desist as, over and above
concerns with sanctions, we see it as wrong and irresponsible.
•
Economics has paid too little attention to the role of public discussion of
responsibility in the making of policy.
•
Some interesting analogies with behavioural economics where an
individual, who lives for (say) two periods, follows actions in period one
which damage him/her in period two; the individual might welcome
constraint or restraint in period one (smoking/pensions…). Could give
“Pareto improvement”, relative to the self in period 1 and the self in period
2 (see Stern 2010).
16
How to approach valuations of possible
future “catastrophes”
•
Dimensions of change are unlike anything in human experience. All dimensions
of life affected on a major scale: income/wealth; heath; education;
environment…
•
Likely radical disruption of economies, societies, habitats, political systems…
•
Should any of the likely losses from large increases in temperature be
evaluated at negative infinity? Does this mean we should pay an infinite
amount to avoid them?
•
Issues clearly include possibility of direct and intense human suffering from
disaster and conflict. But must also think about how or whether to attach value
to the existence or otherwise of future human beings.
•
What is the value of a human life? According to John Broome, “there is a real
possibility of extinction or a population collapse, and there is a real possibility
that this event would be appallingly bad – so bad as to dominate all calculations
of expected utility. So we are not able to judge properly what to do about
climate change till we have found an answer” (Broome 2009). He examines the
possible meaning of notions like “appallingly bad”.
17
Discounting and relative incomes
•
The discount factor for good i at time t is the value of an extra unit
of good i at time t relative to now. The discount rate for good (i,t) is
the rate of fall of the discount factor.
•
Relative incomes. If it is assumed that future generations will be
wealthier than today, and for this reason we attach less value to an
extra dollar to them, there would be a justification for discounting
future increments in wealth or income.
•
However, damage due to climate change may actually reduce the
income of future generations implying a negative discount rate
from this perspective along this type of path.
18
Pure time discounting
•
With pure time discounting a person with a later birth date is valued less
than a person born earlier but who is identical in all other respects.
•
Often appears via δ in an integral or sum over time of “utility”, u(ch)-δt,
for individual h at time t. Often have models with just one individual (or
representative).
•
Should we discount benefits to future generations simply because they
are in the future?
•
Essentially discrimination by date of birth. Weak ethical basis.
•
Might be explained by interpreting e-δt as the probability of existence of
the world.
•
Hume discussed discounting based on “distance” (see Dietz, et al.
2008; Robinson 1990), for example “kin” might be seen as less distant.
19
Inverse optimum problem
•
Can actual behaviour of policy makers or individuals singly or
collectively reveal implicit social values? For example, government
action on pensions or income transfers.
•
“Deriving” values in such a way generally requires assuming a single
rational decision maker with clearly defined objectives.
•
And it requires assumptions on how she/he perceives the relevant
constraints, e.g., on information, resources, incentives, markets, taxes
and behaviour.
•
These attempts, however, can produce incoherent or contradictory
results, see for example, Atkinson and Brandolini, 2010 (refer also
Stern 1976).
•
Results seem to vary enormously.
20
Reading discount rates from markets:
a common but misguided approach for climate change
•
Discounting is a marginal approach where the evaluation of marginal
changes depends on the path over time (e.g., consumption) under
consideration.
•
Some argue that relevant discount rates can be ‘read-off’ from market
interest rates or rates of return.
•
Mistake 1: as climate change potential involves looking at radically
different future growth paths, i.e., the magnitude of change is great, it
is a mistake to use a marginal method around a single given path.
•
Mistake 2: there is no market on which one can ‘read off’ anything
similar to a revealed collective preference or appropriate rate for 100
years or more.
21
Reading discount rates from markets:
a common but misguided approach for climate change
•
Mistake 3: such short-term markets that exist are full of imperfections of
information, of taxation, and of ability to bear risk, so that rates of interest
and return would, in any case, be unreliable guides.
•
Recall CBA discussions of 1960s/1970s with social and private rates of
return and social and private discount rates all different for different types
of income.
•
Mistake 4: relative valuations of environmental and ‘standard goods’ are
central. If environmental flow of services is falling then discount rate w.r.t.
these goods might be negative. Cannot treat this as a one-good model
with consumption of standard goods as the single relevant determinant of
utility.
•
As it happens, long-run, real (i.e., inflation-adjusted), low-risk rates of
interest on consumption or other loans are around 1.5%, not the 6% that
analysts have often used (Nordhaus 2008; Weitzman 2007).
22
But not only about damages and how to discount
•
The alternative path of low-carbon growth is full of dynamism and opportunity. And
when achieved low-carbon growth will be more energy-efficient, more energy
secure, more equitable, safer, quieter, cleaner and more bio-diverse. For example,
halting deforestation protects water supplies, controls flooding and protects biodiversity. Far more attractive growth story than what has gone before.
•
The transition to low-carbon growth is likely to foster the most dynamic, creative
and innovative period in economic history. Likely to be even stronger than past
technological revolutions, e.g., railways, electricity, motor car or information
technology (See Perez, 2002 and 2010).
•
Already great breadth to the new low-carbon industrial revolution. This is not sci-fi,
this is the start of a real period of innovation and there will be (already are) exciting
developments and “breakthroughs” along the way. These range from the
speculative (e.g., synthetic life, nanobatteries, CCS in cement) to known
technologies being implemented now (e.g., solar, wind).
•
Endogenous technical progress, direct investment in RD&D, significant job creation
potential and investment opportunities will characterise this period of
transformation and change.
23
Conclusions Part 2
•
We must describe the broad range of possible consequences as best
we can given the inherent risk and uncertainty.
•
As the risk of radical disruption in the future is large it is important to
see this as a risk management problem concerning rights and welfare
of future generations.
•
Ethics must embrace both intergenerational welfare and risk.
•
We should frame the issue around bringing down the probability of
severe dislocation and catastrophe to small levels by taking strong
action to cut emissions and encourage the transition to low-carbon
growth.
24
Conclusions Part 2
•
Scale and nature of potential changes imply that narrow formalism
of maximising the expectation of the integral of welfare across
generations is unlikely to give much helpful guidance.
•
We have to examine ethics directly. Market will not give the answer.
“If informed scrutiny by the public is central to any such social
evaluation (as I believe is the case), the implicit values have to be
made more explicit, rather than being shielded from scrutiny on the
spurious ground that they are part of an “already available” metric
that society can immediately use without further ado.”
A. K. Sen (1999, p. 80) Development as Freedom.
25
Three Part Structure
• Part 1: The problem
• Part 2: Relationships between current and future
generations
• Part 3: Relationships between countries and
between groups
26
Emissions – origins of flows: countries
Emissions in CO2e or carbon dioxide equivalent.
27
Emissions – origins of flows: per capita
•
Majority of concentrations in atmosphere now come from past emissions flows of
rich countries (1bn out of 6.9bn people). Still much higher per capita.
•
Majority of future flows likely to come from developing countries: magnitude of
population and growth in incomes.
28
Land-Use Change &
Forestry
12%
Waste
3% International Bunkers
2%
Electricity & Heat
28%
Agriculture
14%
Industrial Processes
4%
Manufacturing &
Construction
12%
Energy (67%)
Non-Energy (33%)
Emissions - sources
Fugitive Em issions
4%
Other Fuel Com bustion
9%
Transportation
12%
Based on 2005 global emissions (CO2e).
Source: Climate Analysis Indicators Tool (CAIT) Version 7.0. (Washington, DC: World Resources Institute, 2010).
•
Emissions cuts on scale will require progress in: energy efficiency, new lowcarbon technologies, halting deforestation. And action necessary in all sectors.
29
Emissions - 2°C target
48GtCO2e
44GtCO2e
40GtCO2e
•
Holding below 500ppm CO2e, and reducing from there, is necessary to give a
reasonable (say 50-50) chance of staying below 2 degrees. This requires bringing
emissions down from 47Gt CO2e today to below 20Gt CO2e (approx. 50% of 1990
levels) by 2050.
•
A plausible emissions path is around 47Gt CO2e in 2010 (reduced by economic
slowdown – might have been 50), 44Gt in 2020, under 35Gt in 2030 and under 20Gt
in 2050. Likely to have to go ‘well under’. Clearly necessary to ‘peak’ before 2020.
*These results are based on the Hadley Centre climate model MAGICC
Thanks to Jason Lowe and Laila Gohar for running these trajectories
through the model.
30
Implications for global action
•
Will have to act in all countries and sectors.
•
Force of numbers and growth potential place developing world at
centre stage for action in next few decades.
•
Copenhagen Accord intentions if delivered would imply developing
countries will constitute 2/3 of emissions in 2020.
•
Population of around 8bn in 2030 and 9bn in 2050 imply that average
global emissions per capita must be around 4 tonnes CO2e in 2030
and 2 tonnes in 2050.
•
Since there will not be many below 2 tonnes per capita there cannot
be many above.
31
Who should do what, when and who should pay (I)
•
We have some indication of required global emissions paths.
•
But how should reductions be divided across countries? How much
should be expected of which countries?
•
The brutal arithmetic dictates much of the answer. All countries will
have to be close to 2 tonne per capita in 2050 and not far from 4 in
2030. On current plans China and the US might be around 13 and 17
tonnes per capita in 2030, respectively.
•
The IEA estimates the total incremental investment required in lowcarbon technologies and energy efficiency, to meet a 450 ppm
greenhouse gas concentration goal, is US $2.4 trillion over the period
2010-2020, and US $8.1 trillion 2021-2030 (IEA 2009).
•
But there will be many co-benefits (energy security, cleaner air,
biodiversity) and a dynamic learning process in a new industrial
revolution.
32
Who should do what, when and who should pay (II)
•
What are the key dimensions for equity? Action on emissions
reductions? Technology? Financing? Transfers?
•
Role of UN Secretary General’s Advisory Group on Climate Finance.
•
Should a country do all its “win-win”?
•
How to identify win-win when many co-benefits/learning/externalities?
33
Potential role of permits for emissions
•
Permits not “rights”. There could be a right to develop or to energy
but surely there is no right to damage the environment of the
commons.
•
There is a clear distinction between the distribution of action and the
distribution of emissions permits (e.g., in trading schemes) across
countries.
•
Global emissions need to be around 2 tonnes per capita in 2050:
but this does not imply that the permit allowance in a trading
scheme for each country should be 2 tonnes per capita.
•
How should permits be allocated? These could be associated with a
trading scheme whereby a holder of a permit for Y tonnes can sell
permitted emissions if he/she emits below that and must buy if
he/she emits above. Thus permits are financial assets which can be
allocated, bought and sold.
34
Role of history
•
We might think of the difference between concentrations of 285 ppm
CO2e in the mid-nineteenth century and the 500 ppm CO2e maximum
(falling eventually to 450) associated with 2oC as a total carbon space or
a reservoir which covers the period 1850-2050.
•
At 435 ppm CO2e currently,150 ppm of this has already been taken and
only 15 remains to 450, or 65 to 500. Alternatively we can think of there
being only a certain amount of total cumulative emissions ‘remaining’.
•
From one perspective those who have consumed more of the ‘carbon
space’ have less right to consume later.
•
To give equal permits in 2050 would be to say everyone has the same
sized glass at the end of a 200 year party (‘starting’ at onset of rapid
industrialisation), not withstanding previous drinking.
35
Role of history
•
Should we ‘start the clock’ when we began to understand the
consequences of our actions? When was this? Or are we responsible
anyway (e.g., as with asbestos) whether or not we understood the
consequences?
•
We could ‘start the clock’ 20 years ago (IPCC was founded in 1988
and UNFCCC in 1992) and related arguments would still apply. UN
Stockholm conference on the environment was 1972.
•
But surely if a permit is a financial asset we should broaden the
notion of what matters for equity. We do not usually think of equity in
terms of the allocation of a single good (e.g., apples).
36
Should there be equal permits per capita p.a.
•
Unconvincing as a piece of ethics or logic.
–
Weak science/environment – stocks are the problem.
–
Weak economics – distributional judgements about income or wealth as a
whole, not one asset.
–
Weak ethics – no right to damage the commons.
•
But could suggest that equal per capita is only minimally equitable
for the above reasons and should think of more equitable
allocations, e.g., zero for rich countries.
•
Negotiate on all aspects of climate change action: the equity or
otherwise lies in the package.
37
The role of formulae
•
One can imagine various approaches to calculating how much total
“compensation” from rich to poor countries might be appropriate and how it
could be allocated.
•
Could fix “starting date” To for “knowledge of problem” and total compensation
X (this can also be a choice variable).
•
Could fix “remaining pot” of emissions Y (although in some modelling
approaches this might also be a choice variable) constraining the sum of yit,
emissions of country i at time t.
•
Then set up criteria for evaluating how yit and xit, compensation to country i at
time t, should be determined as a function of X, To, Y.
•
In most simple models with concave welfare functions, could not avoid
conclusion that allocation of “compensation” pot should be largely to poorest
(e.g., up to point of equal marginal utility of income).
38
Problems in such modelling
•
How do you deal with incentive structures, dislocation costs, etc?
•
How do you deal with the absence of a single maximiser? There are many
countries with different attitudes to welfare.
•
How do you deal with “asserted” rights?
•
How do you deal with co-benefits (energy security, clean air, bio-diversity) of
going green?
•
How, and this is likely to be of great importance, do you deal with the dynamics
of learning in the new industrial revolution, the recasting of patterns of
consumption and production? These, and the preceding issue, make any notion
of “incremental cost” very hard to identify and thus it is hard to make the sharing
of such costs operational.
•
Conclusions:
(i) the formulaic approach is a dead-end;
(ii) That does not mean that responsibility, co-operation, mutual benefit, income
and wealth inequality, technology-sharing are empty or irrelevant. But do not
expect a formulaic answer to be convincing.
39
Conclusions Part 3 (a)
•
Climate change is inequitable in its causes and in its impacts.
•
But all must be involved in the response if the necessary scale of
action is to be achieved.
•
The transition to low-carbon growth will be dynamic and creative.
But major investments necessary.
•
And low-carbon growth is more energy secure, cleaner, safer and
more biodiverse. High-carbon growth will kill itself on the very
hostile physical environment it will create.
40
Conclusion Part 3 (b)
•
Must see the response to the challenge of climate change as
positive sum, where all can gain, but in which the wealthier and
those with past responsibilities should lead with finance and
technology.
•
No single ethical point should dominate and no single formula can
drive a notion of equity.
•
If clear on science, technology, economics and ethics can craft a
response to the two defining challenges of our century which is very
attractive for all.
•
This requires clarity in analysis and a co-operative approach to
shared problems.
41
Conclusion Part 3 (c) : A package
•
Clarity on the climate science requires recognition of the implications
for emissions of the 2°C target (interpreted as 50-50), i.e., for the world
less than 35bn tonnes or 4 tonnes per capita (CO2e) in 2030 and less
than 20bn tonnes or 2 tonnes per capita in 2050. Thus rich countries to
limit actual emissions by at least 80% (1990-2050), since will be few
big blocks below 2t/cap and average is the average.
•
This embodies at its heart intergenerational ethics (but not necessarily
intragenerational ethics since actual emissions and permit allocations
not the same).
•
Clarity that this requires: (i) embarking strongly on a new energy/
industrial revolution now; (ii) the transition will involve major
investment; (iii) the transition can drive growth; (iv) low-carbon growth
likely to be very attractive.
42
Conclusion Part 3 (c) : A package (continued)
•
Recognise that this will move much more quickly with: (i) the scale
that comes from all participation; (ii) the use of markets and
competition; (iii) the direct promotion and sharing of technology;
(iv) rich countries leading in pace of emissions reduction.
•
Financial support from rich countries of at least $100bn p.a. by
2020, mitigation and adaptation. Needs for investment funding
may be double this (although there are co-benefits).
•
Recognise the ethical centrality of overcoming poverty and of
advancing development, thus the industrial revolution can and
must centrally involve poor people, including access to energy.
43
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