World is Green

Writing about the Tangled Web, Atanu Dey (his new series 1, 2, 3, 4, 5 and more to come) points to the work of Thomas Schelling.

Thomas Schelling is the 2005 Nobel Prize winning Economist for “having enhanced our understanding of conflict and cooperation through game-theory analysis.”

Atanu points to a quote in an article by Tim Harford: “. . . his work treats human frailties as something to be analysed and worked with, rather than denounced or denied.”

Atanu concludes, “That lies at the crux of a multitude of failures. People don’t fully appreciate the fact that what we have is frail human nature and if we refuse to confront reality, we are likely to make public policies that are wrong-headed and disastrous because they are built upon fairy-tale visions of human nature.”

Discussing and reading about the environmental issues I have come across many of the well meaning environmentalists failing to come to the same conclusion. A lot of people working in Environmental Management or other areas which require changing people’s behaviour look for perfection. I have made the same mistake many times but then when I think about myself and my frailties I decided that it may be too much to ask from others.

We need to work with human frailties to achieve change. That is the first lesson.

I got intrigued by the article because it contained a discussion on climate change. Schelling being original in his thinking had a different view of the entire issue. I wanted to understand his thinking and a Google search provided articles written by Schelling on this issue. He makes some compelling arguments on the need to address climate change and the way to go about doing it.

Using his latest article in the Economist’s Voice as a guide, the entire argument can be divided into four parts.

One, The Uncertainties

How much concentration is enough? Is it 450 ppm or 600 ppm. What are the effects of positive feedback loops? What are the effects of climate change on the different parts of the world? Can we predict what the world looks like in 75-80 years?

Even if we had confident estimates of climate change for different regions of the world, there would be uncertainties about the kind of world we will have fifty or a hundred years from now. Suppose the kind of climate change expected between now and, say, 2080 had already taken place, since 1900. Ask a seventy-five-year-old farm couple living on the same farm where they were born: would the change in the climate be among the most dramatic changes in either their farming or their lifestyle? The answer most likely would be no. Changes from horses to tractors and from kerosene to electricity would be much more important.

Second, the certainties.

The warming effect is real and that we need to adapt as well as create technologies to decrease CO2 concentrations. What is more certain though is that developing countries will be far more effected by this than the developed countries.

There is no likelihood that China, India, Indonesia, Brazil, or Nigeria will fully participate in any greenhouse-gas regime for the next few decades. They have done their best to make that point clear, and it serves no purpose to disbelieve them. Although their spokespersons regularly allege that rich countries are the most worried about climate change, developing nations have the most to lose from climate change. They are much more dependent on agriculture and will therefore suffer much more from global warming. Constrained by poverty and technological backwardness, their ability to adapt to climate change is limited. The best way for developing countries to mitigate global warming, therefore, is through economic growth.

Third, the action implications.

He explains the need for developed countries to act even though they are the least effected.

One argument for doing something is that the developing countries are vulnerable, and we care about their well-being. But if the developed countries were prepared to invest, say, $200 billion a year in greenhouse gas abatement, explicitly for the benefit of developing countries fifty years or more from now, the developing countries would probably clamor, understandably, to receive the resources immediately in support of their continued development.

A second argument is that our natural environment may be severely damaged. This is the crux of the political debate over the greenhouse effect, but it is an issue that no one really understands. It is difficult to know how to value what is at risk, and difficult even to know just what is at risk. The benefits of slowing climate change by some particular amount are even more uncertain.

A third argument is that the conclusion I reported earlier—that climates will change slowly and not much—may be wrong. The models do not produce surprises. The possibility has to be considered that some atmospheric or oceanic circulatory systems may flip to alternative equilibria, producing regional changes that are sudden and extreme. A currently discussed possibility is in the way oceans behave. If the gulf stream flipped into a new pattern, the climatic consequences might be sudden and severe. (Paradoxically, global warming might severely cool western Europe.)

The solutions commonly suggested are carbon taxes or carbon trading and the way to implement this is through the Kyoto protocol. Schelling suggests otherwise.

Fourth, The Kyoto Protocol

First, why Kyoto in its current form may not be the best way.

One important aspect he talks about is the importance of actions rather than outcomes. He suggests that good governments can provide good policies and hopefully; expect then to translate into acceptable outcomes.

One striking contrast between NATO and the Kyoto Protocol deserves emphasis: the difference between “inputs” and “outputs,” or actions and results. NATO nations argued about what they should do, and commitments were made to actions. What countries actually did — raise and train troops; procure equipment, ammunition, and supplies; and deploy these assets geographically — could be observed, estimated, and compared. But results — such as how much each NATO nation’s actions contributed to deterring the Warsaw Pact — could not be remotely approximated.

With the Kyoto Protocol, commitments were made not to actions but to results that were to be measured after a decade or more. This approach has disadvantages. An obvious one is that no one can tell, until close to the target date, which nations are on course to meet their goals. More important, nations undertaking result-based commitments are unlikely to have any reliable way of knowing what actions will be required — that is, what quantitative results will occur on what timetable for various policies. The Kyoto approach implied without evident justification that governments actually knew how to reach 10- or 15-year emissions goals.

Singapore or Bangaldesh

Next, the need to tackle the climate change issues effecting the well being of people in developing countries 3 to 4 generations down the line compared to dealing with issues which are effecting people now.

Currently, malaria kills at least a million people a year, most of them children, Schelling said. “We have to think about the way that the world is going to look when climate change be-comes very serious, likely in the second half of this century.”

According to Schelling, a telling example of the interconnections between climate change and public health are the differences between Singapore and Malaysia, two countries separated by one kilometer of seawater. When Singapore separated from Malaysia about 40 years ago, they were identical in their development, and Singapore was essentially a mosquito swamp.

Singapore has now developed to where it probably has the highest standard of living in the world, not in terms of gross national product (GNP), but in the absence of poverty, the extent of home ownership, and the availability of health care, Schelling said. Malaria is essentially an imported disease in Singapore, brought back by travelers and quickly dealt with. But the disease is widespread in Malaysia. If Malaysia can catch up to Singapore economically over the next decades, however, malaria can be brought substantially under control. A better health care infrastructure will mean that people can receive treatment and further transmission can be halted. Probably the best way for them to defend against the adverse effects of climate change is to develop as rapidly as they can, he said. The sooner Malaysia can become like Singapore, the sooner it can worry less about the impact of climate change on health, comfort, and productivity.

Considering the uncertainties with climate change; adaptation is better. As Schelling suggests; adaptation means investing in current infrastructure, public health, education and economic growth of developing countries. Or as he puts it below, “Bangladesh or Singapore”; whom do you want to help?

Comparing the alternatives - opportunity cost

He adds:

There are two issues here. One is whether, in benefits three or four generations hence, the return for investing directly in public health, education, water resources, infrastructure, industry, agricultural productivity, and family planning is as great as that for investing in reduced climate change. The second is whether the benefits accrue earlier, to people who more desperately need the help. Is there something escapist about discussing two percent of gnp to be invested in the welfare of future generations when nothing is done for their contemporary ancestors, a third of whom are so undernourished that a case of measles can kill?

If there were aid to divide between Bangladesh and Singapore, would anybody propose giving any of it to Singapore? In 50 or 75 years, when climate change may be a significant reality, Bangladesh probably will have progressed to the level of Singapore today. Should anyone propose investing heavily in the welfare of those future Bangladeshis when the alternative is to help Bangladesh today?

For the more economically oriented readers, Schelling explains the issue of discount rates here without ever talking about it. One main contention of Stern’s climate change report was the use of low discount rates.

Uncertainty and the precautionary principle

How do we deal with this uncertainty? What is the basis of action when dealing with this issue? And what about the ‘precautionary principle’?

Now the critical question: What does uncertainty have to do with the question, proceed with costly efforts to reduce CO2 abatement in a hurry, or wait until we know more?

In some public discourse, and in sentiments emanating from the Bush Administration, it appears to be accepted that uncertainty regarding global warming is a legitimate basis for postponement of any action until more is known. The action to be postponed is usually identified as “costly”. (Little attention is paid to actions that have been identified as of little or no serious cost.) It is interesting that this idea that costly actions are unwarranted if the dangers are uncertain is almost unique to climate. In other areas of policy, such as terrorism, nuclear proliferation, inflation, or vaccination, some “insurance” principle seems to prevail; if there is a sufficient likelihood of sufficient damage we take some measured anticipatory action.

At the opposite extreme is the notion, often called the “precautionary principle” now popular in the European Union, that until something is guaranteed safe it much be indefinitely postponed despite substantial expected benefits. Genetically modified foods and feedstuffs are current targets. (On critic has expressed it as, “never do anything for the first time.”) In this country the principle says that until a drug has proven absolutely safe it must be deferred indefinitely.

Neither of these two extreme principles—do nothing until we are absolutely sure it’s safe; do nothing until we are absolutely sure the alternative is dangerous—makes economic sense, or any other kind. Weigh the costs, the benefits, and the probabilities as best as all three are known, and don’t be obsessed with either extreme tail of the distribution.

Sources:

I have used text from his various articles for this post and hence, correct attribution at the right places has been tough. However, below you can find all the articles that I have referred to while writing this post.

• Tim Harford, “Lunch with the FT: The Game of Life”. (Link)
• Thomas C. Schelling, “Greenhouse Effect”, Econlib (Link)
• Thomas C. Schelling (1997), “The Cost of Combating Climate Change”, Foreign Affairs (Link)
• Thomas C. Schelling (2002), “What Makes Greenhouse Sense?”, Foreign Affairs (Link)
• Thomas C. Schelling (2007), “Climate Change: The Uncertainties, the Certainties and What They Imply About Action”, Economist’s Voice (Link)
• Thomas C. Schelling (2007), “Goings On”, RFF (Link)