Brian Fallow: 'Maybe' is not the answer

Professor David Henderson makes an excellent counsel for the defence.

A more reasonable musterer of reasonable doubt you could not wish for.

The former OECD chief economist is one of the authors of a dual - scientific and economic - critique published in the journal World Economics late last year of the Stern review. That was the report on the economics of climate change commissioned by British Chancellor of the Exchequer Gordon Brown and often cited as making a decisive case on cost-benefit grounds for urgent action to curtail greenhouse gas emissions.

"Stern paints a dark and dramatic picture of what happens if emissions are not brought under control in the near future and then substantially reduced," Henderson said in a public lecture at the Treasury on Tuesday.

But it was a heavily biased exercise in speculative alarmism , he said.

The Stern review had greatly overstated the costs of climate change and underestimated the likely cost of the drastic mitigation effort it called for.

It took too little account of the uncertainties involved, not only in the science but in the economics.

Economic uncertainties bedevil both scenarios for how much emissions would grow over the next hundred years without policy action, and what global warming would do to the world economy and bits thereof.

And there is a lot of argument about what discount rate to use when comparing the short-term costs of reducing emissions with the long-term benefits - in other words how many birds in the bush a bird in the hand is worth.

Henderson also criticises the Stern review for taking the work of the United Nations' intergovernmental panel on climate change as beyond reproach and improvement.

"My only policy recommendation is this: rather than pursuing ambitious targets to reduce emissions, governments should ensure they are more accurately informed and advised."

In response to this, the first point to be made is that the critics of the intergovernmental panel do not include the national academies of science. The guardians of the scientific method have reviewed its processes and it conclusions, and endorsed them even to the extent of adding their voices to the call for action. Are we to conclude that they, too, are merely the captives of some politically correct group-think?

Secondly it is tempting, but wrong, to regard the sceptics as defence lawyers arguing that the prosecutor Sir Nicholas Stern and the intergovernmental panel as a parade of Crown expert witnesses have not made their case beyond reasonable doubt.

The problem with that is that it implicitly invokes a presumption of innocence in favour of the status quo and business as usual.

It begs the question of where the burden of proof should lie. Should the status quo get the benefit of the doubt or should the precautionary principle apply?

These are moral questions.

Economists' techniques, like the grand costs-benefit analysis Stern attempts, can illuminate them but they cannot decide them. Economists can help us appraise the risks, but the question of what risks we are entitled to run is an ethical choice.

In any case as BP's chief economist, Peter Davies, wryly observed in another context this week, economists have two standard answers to any question: "It depends" and "It's too soon to tell."

That is never going to change. So we cannot afford to defer hard decisions while economists engage in arcane arguments about monetising impacts and selecting an appropriate discount rate, any more than we can wait for climate scientists to reach some unattainable goal called certainty.

The reason we cannot afford to wait, in a word, is lags.

Apparently there are long delays between cause and effect in some of the physical systems affected by emissions and global warming.

It may take a lot to get these boulders rolling but it would then be impossible to stop them.

It follows that the consequences, whatever they may be, of the avoidable emissions we make while deciding what to do and then doing it will be around for generations.

And it is not only physical lags we have to worry about, but economic ones.

It probably won't take too long to replace our incandescent light bulbs with more energy-efficient ones.

But designing more climate-friendly cars, retooling plants and then turning over the world vehicle fleet would take much longer.

And the coal-burning power stations being commissioned every few days somewhere in the world have a design life of about 50 years.

So some of investment decisions we take today will have environmental repercussions well into the future.

And upstream of that there are lags in the policy making process.

Ten years after Kyoto, New Zealand still does not have anything that be called without blushing a climate change policy.

Instead, we have lofty aspirational rhetoric and discussion documents.

The rest of the world is not much better.

Warning against precipitate action by governments, therefore, looks like a bit of straw man.

In short the same long lags which mean that the choice of a discount rate makes a big difference to the bottom line of a cost benefit analysis, also argue for action sooner rather than later.

For both sides of the argument the key question is the same: What if you are wrong?

"It's a serious possibility," Henderson concedes.

"The best answer I can give is that it is is far from clear either to what extent the climate is changing or how much can be seen to be down to human activity."

Well, if that is the best answer - I don't think I am wrong - it is not good enough.

Not when the risks - arguably, potentially - relate to such fundamental things as water and food supplies in the face of a growing world population.

He was on stronger ground when he continued: "We don't have to choose between doing nothing and doing the things Stern suggests. There is a lot in between."

The what-if-you're-wrong question applies to the advocates of urgent action too. There are costs, running into many billions of dollars globally, in the policy responses under consideration.

It is hard to quarrel with Henderson's plea for governments to demand the most rigorous and objective analysis possible, and to be wary of giving a monopoly in that regard to the intergovernmental panel on climate change or any other body.

That is fine, so long as it does not become a mandate for paralysis by analysis.

Because time is not on our side.

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