Smart Solutions to Climate Change: Comparing Costs and Benefits

  • Bjørn Lomborg
Cambridge University Press: 2010. 432 pp. $29.99 9780521763424 | ISBN: 978-0-5217-6342-4

Bjørn Lomborg has been a lightning rod for controversy since he published The Skeptical Environmentalist in 2001. Yet in the time between his first book and this third edited volume, there has been a sea change in his attitude to climate change. Lomborg, director of the Copenhagen Consensus Center think tank, now characterizes the fundamental question as “not if we should do something about global warming, but rather how best to go about it”.

Smart Solutions to Climate Change presents economic analyses of eight proposed solutions to climate-related problems: climate engineering; mitigation of carbon dioxide, methane and black carbon; carbon sequestration by forests; market and policy-driven adaptation to climate change; technology-led climate policy; and technology transfer. Each proposal is set out, critiqued from two alternative perspectives and summarized by an expert panel of five economists. It is a constructive book that focuses seriously on finding effective ways to combat global warming, and the differences of opinions it expresses are stimulating and enlightening. But the book falls short in its treatment of risk.

Rare but catastrophic climate events, such as drought, can have unfathomable costs. Credit: V. DITHAJOHN/EPA/CORBIS

To help prioritize the proposals, each analysis calculates a cost/benefit ratio. However, the estimates used are of uneven quality. Some solutions, such as technology-led policy, are too vague for a meaningful value to be assigned. And cost alone is not the best way to choose between options — geoengineering, for example, is expensive in terms of risk but may be necessary if we are faced with a disaster scenario such as runaway temperatures. It makes more sense to think of the solutions as making up a portfolio of options, including others such as nuclear power, guided by risk analysis.

All of the cost/benefit estimates in Smart Solutions are based on deterministic models — uncertainty doesn't figure much in this book. The assessments rely on joint computer modelling of economic growth and climate change to examine the trade-offs: whether or not we incur the costs of mitigation now to benefit from less-severe climate change in the future. Key parameters are approximated by firm values, such as the median or mean, rather than a probability distribution. The modelling thus becomes a knob-twiddling exercise in optimizing outcomes, where it is easy to flirt with high carbon dioxide concentrations.

Such modelling breeds complacency — temperature targets can be hit exactly, economic and ecological damages from high temperatures are low to begin with, and the pain of action now is greater than the pain of damages in a century or two when discounted at current interest rates. But in reality, there is no such thing as hitting a target of 2 °C, 4 °C or any other temperature change. Everything is probabilistic.

The economics of climate change is mainly about decision-making under extreme uncertainty. Climate-change analysis is hampered by many unknowns in the science combined with an inability to evaluate meaningfully the welfare losses from increased global temperatures. The values of key future parameters — global and regional average temperatures, damages to the world's economy and ecology, welfare, costs of unproven technologies and so forth — cannot be known now. Instead, they must be treated as random variables, yet to be drawn from some probability distribution that itself is uncertain.

A striking feature of the economics of climate change is that rare but catastrophic events may have unfathomable costs. Deep uncertainty about the unknown unknowns of what might go wrong is therefore coupled with essentially unlimited liability. The resulting battle between declining probabilities and increasing damages is difficult to resolve. Alas, this uncertainty can figure prominently in evaluations of climate-change policies. Its absence in a book dealing with economic comparisons of smart solutions is a serious omission.

When confronted with the possibility of extreme damages at low probabilities, most people do not look to averages. Instead they think about how much insurance they need, and can afford to buy, to survive those events. Climate policy is better viewed as buying insurance for the planet against extreme outcomes than as the solution to a multivariate problem over which we have control. To analyse policies in terms of deterministic cost/benefit ratios is to marginalize the very possibilities that make climate change so grave.

Lomborg concludes that, if we value our planet's future, we must “start seriously focusing, right now, on the most effective ways to fix global warming”. Despite its limitations, Smart Solutions marks symbolically the end of one stage of thinking about climate change and the beginning of another.