Tuesday, May 20, 2008

The Ethics of Climate Change

John Broome, Professor of Moral Philosophy at the University of Oxford and previously a professor of economics at the University of Bristol, has a very interesting analysis of the ethics of climate change in the Scientific American. the ethical issue he focuses on this this: future generations will benefit the most from the current generation's efforts to stop climate change, but the evidence is that future generations will be richer. As any economist will tell you, in doing a cost-benefit analysis, a critical factor is the selection of the discount rate.

As I previously noted, the Stern Report did an economic analysis that set the discount rate very low. Broome explains why this makes sense from a moral point of view. It is a long article. Here are some excerpts:

Climate change raises a number of ethical questions. How should we—all of us living today—evaluate the well-being of future generations, given that they are likely to have more material goods than we do? Many people, some living, others yet to be born, will die from the effects of climate change. Is each death equally bad? How bad are those deaths collectively? Many people will die before they bear children, so climate change will prevent the existence of children who would otherwise have been born. Is their nonexistence a bad thing? By emitting greenhouse gases, are the rich perpetrating an injustice on the world’s poor? How should we respond to the small but real chance that climate change could lead to worldwide catastrophe?

. . .

But even if weighing costs against benefits does not entirely answer the question of what should be done about climate change, it is an essential part of the answer. The costs of mitigating climate change are the sacrifices the present generation will have to make to reduce greenhouse gases. We will have to travel less and better insulate our homes. We will have to eat less meat. We will have to live less lavishly. The benefits are the better lives that future people will lead: they will not suffer so much from the spread of deserts, from the loss of their homes to the rising sea, or from floods, famines and the general impoverishment of nature.

Weighing benefits to some people against costs to others is an ethical matter. But many of the costs and benefits of mitigating climate change present themselves in economic terms, and economics has useful methods of weighing benefits against costs in complex cases. So here economics can work in the service of ethics.

The ethical basis of cost-benefit economics was recognized recently in a major report, the Stern Review on the Economics of Climate Change, by Nicholas Stern and his colleagues at the U.K. Treasury. The Stern Review concentrates mainly on comparing costs and benefits, and it concludes that the benefit that would be gained by reducing emissions of greenhouse gases would be far greater than the cost of reducing them. Stern’s work has provoked a strong reaction from economists for two reasons. First, some economists think economic conclusions should not be based on ethical premises. Second, the review favors strong and immediate action to control emissions, whereas other economic studies, such as one by William Nordhaus of Yale University, have concluded that the need to act is not so urgent.

Those two issues are connected. Stern’s conclusion differs from Nordhaus’s principally because, on ethical grounds, Stern uses a lower “discount rate.” Economists generally value future goods less than present ones: they discount future goods. Furthermore, the more distant the future in which goods become available, the more the goods are discounted. The discount rate measures how fast the value of goods diminishes with time. Nord?haus discounts at roughly 6 percent a year; Stern discounts at 1.4 percent. The effect is that Stern gives a present value of $247 billion for having, say, a trillion dollars’ worth of goods a century from now. Nordhaus values having those same goods in 2108 at just $2.5 billion today. Thus, Stern attaches nearly 100 times as much value as Nordhaus does to having any given level of costs and benefits 100 years from now.

. . .

What should the discount rate be? What determines how fast the value of having goods in the future diminishes as the future time in question becomes more remote? That depends, first, on some nonethical factors. Among them is the economy’s rate of growth, which measures how much better off, on average, people will be in the future than they are today. Consequently, it determines how much less benefit future people will derive from additional material goods than people would derive now from those same goods. A fast growth rate makes for a high discount rate.

The discount rate also depends on an ethical factor. How should benefits to those future, richer people be valued in comparison to our own? If prioritarianism is right, the value attached to future people’s benefits should be less than the value of our benefits, because future people will be better off than we are. If utilitarianism is right, future people’s benefits should be valued equally with ours. Prioritarianism therefore makes for a relatively high discount rate; utilitarianism makes for a lower one.

. . .

Another ethical consideration also affects the discount rate. Some philosophers think we should care more about people who live close to us in time than about those who live in the more distant future, just because of their temporal distance from us. If those philosophers are right, future well-being should be discounted just because it comes in the future. This position is called pure discounting. It implies we should give less importance to the death of a 10-year-old 100 years in the future than to the death of a 10-year-old now. An opposing view is that we should be temporally impartial, insisting that the mere date on which a harm occurs makes no difference to its value. Pure discounting makes for a relatively high discount rate; temporal impartiality makes for a lower one.

To determine the right discount rate, therefore, the economist must answer at least two ethical questions. Which should we accept: prioritarianism or utilitarianism? And should we adopt pure discounting or be temporally impartial?

These questions are not matters of elementary morality; they raise difficult issues in moral philosophy. Moral philosophers approach such questions by combining tight analytical argument with sensitivity to ethical intuitions. Arguments in moral philosophy are rarely conclusive, partly because we each have mutually inconsistent intuitions. All I can do as a philosopher is judge the truth as well as I can and present my best arguments in support of my judgments. Space prevents me from setting forth my arguments here, but I have concluded that prioritarianism is mistaken and that we should be temporally impartial.

Stern reaches those same ethical conclusions. Since both tend toward low discounting, they—together with Stern’s economic modeling—lead him to his 1.4 percent rate. His practical conclusion follows: the world urgently needs to take strong measures to control climate change.

Economists who oppose Stern do not deny that his practical conclusion follows from his ethical stance. They object to his ethical stance. Yet most of them decline to take any ethical position of their own, even though they favor an interest rate higher than Stern’s. As I have explained, the correct discount rate depends on ethical considerations. So how can economists justify a discount rate without taking an ethical position?

They do so by taking their higher discount rate from the money market, where people exchange future money for present money, and vice versa. They adopt the money-market interest rate as their interest rate. How can that be justified?

First, some values are determined by people’s tastes, which markets do reveal. The relative value of apples and oranges is determined by the tastes revealed in the fruit market. But the value that should be attached to the well-being of future generations is not determined by tastes. It is a matter of ethical judgment.

So does the money market reveal people’s ethical judgments about the value of future well-being? I doubt it. The evidence shows that, when people borrow and lend, they often give less weight to their own future well-being than to their present well-being. Most of us are probably not so foolish as to judge that our own well-being is somehow less valuable in old age than in youth. Instead our behavior simply reflects our impatience to enjoy a present benefit, overwhelming whatever judgment we might make about the value of our own future. Inevitably, impatience will also overwhelm whatever high-minded arguments we might make in favor of the well-being of future generations.

. . .

Ethical considerations cannot be avoided in determining the discount rate. Climate change raises many other ethical issues, too; they will require serious work in ethics to decide what sacrifices we should make to moderate climate change. Like the science of climate change, the ethics of climate change is hard. So far it leaves much to be resolved. We face ethical as well as scientific problems, and we must work to solve them.

read it all here.

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